Recognised Stock Exchanges
Section 3. Application for recognition of stock exchanges.
3(1).
Any stock exchange may apply for recognition under this Act.
The application is made only if the stock exchange desires recognition.
The application must be made in the prescribed manner.
The application is required to be submitted to the Central Government.
3(2).
Every application under 3(1) must contain the prescribed particulars.
The application must be accompanied by a copy of the bye-laws of the stock exchange.
These bye-laws must relate to the regulation and control of contracts.
The application must also include a copy of the rules of the stock exchange.
These rules must relate generally to the constitution of the stock exchange.
The rules must also relate specifically to certain matters concerning its structure and functioning which are:
(a).
The rules must specify the governing body of the stock exchange.
The rules must state the constitution of such governing body.
The rules must define the powers of management of the governing body.
The rules must lay down the manner in which the business of the stock exchange is to be transacted.
(b).
The powers and duties of the office bearers of the stock exchange.
(c).
The rules must:
Provide for the admission of various classes of members into the stock exchange.
Specify the qualifications required for membership.
Lay down the conditions for exclusion of members from the stock exchange.
Suspension of members.
Expulsion of members.
Re-admission of members into the stock exchange.
(d).
Under circumstances the rules permit partnership membership then:
The rules must prescribe the procedure for registration of partnerships as members of the stock exchange.
The rules must provide for the nomination of authorised representatives & appointment of authorised representatives and clerks.
Section 4. Grant of recognition to stock exchanges
4(1).
In order to grant recognition, the Central Government must be satisfied.
It may conduct such inquiry as it considers necessary for this purpose.
It may require and obtain further information, if needed.
This satisfaction must be reached after completing the inquiry and considering all information.
(a).
The Central Government must be satisfied that:
The rules and bye-laws of the stock exchange comply with the prescribed conditions.
These conditions are aimed at ensuring fair dealing in the stock exchange.
These conditions are also intended to protect investors.
(b).
The stock exchange must be willing to comply with any additional conditions imposed by the Central Government.
These conditions may include requirements relating to the number of members.
The Central Government imposes such conditions after consulting the governing body of the stock exchange.
While imposing conditions, the Central Government considers the area served by the stock exchange.
It also considers the standing and reputation of the stock exchange.
It further considers the nature of the securities dealt with by the stock exchange.
These conditions are imposed to carry out the objectives of the Act.
(c).
The Central Government must be satisfied that granting recognition is in the interest of trade.
The Central Government must also be satisfied that granting recognition is in the public interest.
The Central Government may grant recognition to the stock exchange.
Such recognition is subject to the conditions imposed earlier.
The recognition must be granted in the prescribed form.
4(2).
The Central Government may prescribe conditions for granting recognition to stock exchanges.
These conditions are prescribed under clause (a) of 4(1).
The conditions may cover various matters.
Such matters may include conditions relating to different aspects of the functioning of stock exchanges which are:
(i).
The qualifications for membership of stock exchanges.
(ii).
The rules must explain:
How members make contracts with each other.
How these contracts are carried out and enforced between members.
(iii).
The Central Government can place its representatives on a stock exchange.
It can nominate up to three people for this purpose.
These representatives act on behalf of the Central Government.
(iv).
Members must keep proper financial accounts/records.
These accounts should clearly show their transactions and financial position.
If the Central Government requires, these accounts must be audited.
The audit must be done by a qualified Chartered Accountant (CA).
4(3).
When a stock exchange gets official recognition, it must be publicly announced.
This announcement is made in:
The Gazette of India.
The State’s Official Gazette where the stock exchange’s main office is located.
The recognition becomes valid (effective) from the date it is published in the Gazette of India.
4(4).
The application for recognition cannot be rejected directly.
The stock exchange must first be given a chance to present its side (be heard).
If the application is still refused:
The reasons must be clearly stated.
These reasons must be given in writing to the stock exchange.
4(5).
A recognised stock exchange has certain rules on important matters (listed in Section 3(2)).
These rules cannot be changed freely.
Any amendment to such rules requires prior approval of the Central Government.
Section 4A. Corporatisation and demutualisation of stock exchanges
From the appointed date:
All recognised stock exchanges must be:
Corporatised (converted into a company structure).
Demutualised (ownership and trading rights separated).
This applies only if they have not already done so before the appointed date.
The process must follow the rules given in Section 4B.
Securities and Exchange Board of India (SEBI) has the power to give extra time.
If a recognised stock exchange could not convert (corporatise & demutualise) on time due to a valid reason / sufficient cause , SEBI can:
Fix a new “appointed date” for that exchange.'
Until this new date: The stock exchange is allowed to continue in its old form.
Explanation:
The “appointed date” is the date fixed by Securities and Exchange Board of India (SEBI).
SEBI fixes this date by issuing a notification in the Official Gazette.
SEBI can choose different appointed dates for different stock exchanges.
Section 4B. Procedure for corporatisation and demutualisation
4B(1).
All recognised stock exchanges mentioned in Section 4A must prepare a scheme (plan) for:
Corporatisation, and Demutualisation.
This scheme must be submitted to Securities and Exchange Board of India (SEBI).
It must be submitted within the time limit set by SEBI.
The purpose is to get SEBI’s approval for the scheme.
Securities and Exchange Board of India (SEBI) can issue a notification in the Official Gazette.
In that notification, SEBI can name stock exchanges that have:
Already been corporatised, and already been demutualised.
Such stock exchanges do not need to submit a scheme again under this section.
4B(2).
When Securities and Exchange Board of India (SEBI) receives the scheme:
SEBI may Examine (enquire into) the scheme and ask for additional information, if needed.
After reviewing, SEBI must be satisfied that:
It is in the interest of trade.
It is in the public interest.
If satisfied, SEBI can approve the scheme as it is, or approve it with changes (modifications).
4B(3).
Securities and Exchange Board of India (SEBI) will NOT approve a scheme if it includes certain proposals.
The scheme must NOT propose:
Issuing shares using the stock exchange’s reserves/assets,
Giving trading rights in exchange for old membership cards using those reserves/assets,
Paying dividends to members out of those reserves/assets.
4B(4).
When a scheme is approved, it must be made public immediately.
(a).
SEBI must publish the scheme in the Official Gazette.
(b).
The recognised stock exchange must publish the scheme in two daily newspapers in India.
These newspapers are chosen/specifically approved by SEBI.
Once the scheme is published, it becomes legally effective immediately.
It will (Publication Rule) apply even if anything else says otherwise, including:
This Act, Any other law.
Any agreement, Any court judgment, decree, or award.
The scheme becomes binding on everyone, including:
Members of the stock exchange.
Creditors and depositors.
Employees.
Any other person connected with the stock exchange.
The scheme will cover Contracts, rights, powers, obligations, and liabilities related to the stock exchange or its members.
4B(5).
Securities and Exchange Board of India (SEBI) reviews the scheme before approval.
If SEBI believes that the scheme is not good for the trade (market), and the public interest, then:
SEBI can reject the scheme by passing an official order.
After rejecting , SEBI must publish the rejection order in the Official Gazette.
Before rejecting the scheme, Securities and Exchange Board of India (SEBI) must follow fair procedure.
SEBI must give A reasonable opportunity to be heard (i.e., a chance to explain or defend).
This opportunity must be given to The recognised stock exchange, and all other concerned persons.
4B(6).
While approving the scheme, Securities and Exchange Board of India (SEBI) can impose restrictions through a written order.
(a). Voting rights
SEBI can restrict the voting rights of shareholders who are also stock brokers.
This means broker-shareholders may not have full voting power.
(b). Appointment of board representatives
SEBI can restrict the right of shareholders or stock brokers to appoint members to the governing board.
This means they cannot freely control board appointments.
(c). Limit on broker representation
SEBI can fix the maximum number of stock broker representatives on the governing board.
This number cannot exceed one-fourth (25%) of the total board strength.
4B(7).
The order passed under 4B(6) must be published in the Official Gazette.
Once it is published , the order becomes fully effective (legally binding).
It will apply even if anything else says otherwise, including:
The Companies Act, 1956.
Any other law currently in force.
4B(8).
For every recognised stock exchange whose scheme is approved , it should ensure the following:
The stock exchange must ensure that at least 51% of its equity shares are held by the public.
This must be done within 12 months from the date the order is published (under sub-section (7)).
This can be done:
By issuing fresh equity shares to the public.
By any other method specified by Securities and Exchange Board of India (SEBI).
Important condition: The “public” here excludes shareholders who have trading rights (i.e., stock brokers).
Securities and Exchange Board of India (SEBI) has the power to extend the time limit.
This extension is allowed only if Sufficient reason (cause) is shown, and it is in the public interest.
The extension can be up to another 12 months (in addition to the original 12 months).
Section 5. Withdrawal of recognition.
5(1).
If the Central Government believes that recognition of a stock exchange should be withdrawn based on interest of trade or public interest then:
It must first send a written notice to the governing body of the stock exchange.
The notice must include that withdrawal is being considered, and the reasons for it.
The stock exchange must be given a reasonable opportunity to be heard.
After hearing them, the Central Government may decide to withdraw recognition.
The withdrawal must be done by notification in the Official Gazette
Once notified, the stock exchange’s recognition is officially withdrawn
Withdrawal of recognition does not affect past contracts:
Any contract made before the notification date remains valid.
The Central Government can take further steps after withdrawal.
It must first consult the stock exchange.
Thereafter it may make necessary provisions either in the same notification, o in a later notification.
5(2).
Under circumstances where a recognised stock exchange:
Has not been corporatised or demutualised, or
Fails to submit the scheme within the specified time, or
Its scheme is rejected by Securities and Exchange Board of India under section 4B.
In any of these cases the recognition of the stock exchange is automatically withdrawn.
This happens notwithstanding anything contrary in the Act. (This applies even if anything in the act says otherwise).
After this the Central Government must publish the withdrawal.
The publication is done by notification in the Official Gazette.
Withdrawal of recognition does not affect past contracts : Any contract made before the notification date remains valid.
Securities and Exchange Board of India (SEBI) has the power to take further steps.
SEBI must first consult the stock exchange before taking further steps.
After consultation, SEBI can make necessary provisions.
These provisions can be included in the order rejecting the scheme
The order must be published in the Official Gazette
Section 6. Power of Central Government to call for periodical returns or direct inquiries to be made
6(1).
Every recognised stock exchange must submit periodical returns.
These returns must be given to Securities and Exchange Board of India (SEBI).
The returns should relate to the affairs/activities of the stock exchange.
The format, details, and frequency of these returns are prescribed by rules/regulations.
6(2).
Every recognised stock exchange and all its members are:
Required to maintain and preserve proper books of account and other relevant documents.
The time period for which these records must be kept is decided by the Central Government, but it cannot exceed five years.
Before deciding this period and the type of records, the Central Government must consult the concerned stock exchange.
This requirement is imposed in the interest of trade or in the public interest.
All such books of account and documents must be available for inspection at all reasonable times.
The inspection is carried out by Securities and Exchange Board of India (SEBI).
6(3).
The powers given here are in addition to, and do not affect, the earlier provisions 6(1) & 6(2):
Securities and Exchange Board of India (SEBI) is given independent power under this section.
SEBI can use this power only if it is satisfied that it is in the interest of trade, or it is in the public interest
If these conditions are met, SEBI can pass an order in writing.
These powers are as follows:
(a).
Securities and Exchange Board of India (SEBI) has the power to ask for information or explanations.
It can require this from a recognised stock exchange, or any member of the stock exchange.
The information or explanation must be given in writing.
It must relate to the affairs of the stock exchange, or the activities of the member in relation to the stock exchange
The stock exchange or member must provide whatever information SEBI asks for.
(b).
Securities and Exchange Board of India (SEBI) has the power to order an inquiry (investigation).
SEBI can appoint one or more persons to conduct this inquiry.
The inquiry must be conducted in the prescribed manner (as per rules).
The inquiry can relate to:
The affairs of the governing body of a stock exchange.
The affairs of any member of the stock exchange in relation to the stock exchange.
The person(s) conducting the inquiry must: submit a report to SEBI, and do so within the time specified in the order.
Alternatively, in case of inquiry into a member: SEBI may direct the governing body of the stock exchange to conduct the inquiry instead.
In such a case, the governing body must carry out the inquiry, and submit the report to SEBI.
6(4).
When an inquiry has already been started , the inquiry must be under 6(3).
It can relate to:
The affairs of a recognised stock exchange.
The affairs of its members in relation to the stock exchange.
The inquiry is conducted as per the powers of Securities and Exchange Board of India (SEBI)
The person concerned is legally required to cooperate with the inquiry authority.
He must produce all books of account and other documents before the authority
This includes documents in his possession or control, and that are related to or relevant to the inquiry
The documents must be submitted to the authority conducting the inquiry.
He must also provide any statements or information required.
Such information must be given within the time specified by the authority.
Section 7. Annual reports to be furnished to Central Government by stock exchanges
Every recognised stock exchange must prepare an annual report
It must send (furnish) a copy of this report to the Central Government
The annual report must include particulars/details as prescribed & as specified under rules/regulations.
Section 7A. Power of recognised stock exchange to make rules restricting voting rights, etc
7A(1).
A recognised stock exchange can make new rules or amend existing rules
These rules can deal with the following matters:
(a)
The stock exchange can restrict voting rights only to its members.
So, only members can vote on matters in meetings.
(b)
The stock exchange can regulate voting so that each member gets only one vote.
This applies regardless of how much share capital they hold.
So , no extra voting power based on ownership.
(c)
The stock exchange can restrict a member from appointing a proxy.
So , a member may not be allowed to send someone else to attend and vote on their behalf.
(d)
The stock exchange can make additional supporting rules
These rules must be:
Incidental (connected).
Consequential (resulting).
Supplementary (supporting).
The idea is to properly implement (a), (b), and (c).
7A(2).
The rules made or amended under clauses (a) to (d) of 7A(1) will not be valid or effective immediately.
They must first be approved by the Central Government, and published in the Official Gazette.
While approving, the Central Government has the power to modify (change) the rules as it thinks fit.
Once published, the rules become legally valid and enforceable
These rules will be valid even if they conflict with the Companies Act, 1956 or any contrary provision.
Section 8. Power of Central Government to direct rules to be made or to make rules.
8(1).
In order to direct or make rules:
The Central Government must first consult:
The governing bodies of stock exchanges generally.
A specific stock exchange.
After consultation, if the Central Government believes that it is necessary or expedient then:
It can issue a written order, and provide reasons for the order.
The order may direct all recognised stock exchanges, or a specific recognised stock exchange.
The direction can be to make new rules, or amend existing rules.
These rules must relate to matters specified in Section 3(2).
The stock exchange must comply with the rule within 2 months from the date of the order.
8(2).
If a recognised stock exchange does not comply with the order given under 8(1) within the specified time then:
In such a situation, the Central Government gets the power to step in directly.
The failure can be either refusal, or neglect (delay or inaction) in following the order.
The Central Government can then:
Make the required rules itself.
Amend the existing rules of the stock exchange.
While doing so, the Government may:
Adopt the same version of rules as originally proposed in its order.
It may also make the rules with modifications.
These modifications can be mutually agreed upon between the stock exchange and the Central Government
This means the stock exchange loses control over rule-making in this situation, and the Government ensures compliance directly.
8(3).
Under circumstances where rules are made or amended under this section:
Such rules must be published in the Gazette of India, and in the Official Gazette(s) of the State(s) where the stock exchange’s main office is located.
Once the rules are published in the Gazette of India they become legally effective.
These rules will apply even if they conflict with the Companies Act, 1956 or any other law.
The rules will be treated as if they were made or amended by the stock exchange itself.
Section 8A. Clearing corporation
8A(1).
A recognised stock exchange has the option to transfer certain functions.
These functions relate to the clearing house
Clearing House is the system that handles settlement and clearing of trades.
The transfer can only be done with prior approval of Securities and Exchange Board of India (SEBI)
The functions are transferred to a clearing corporation
This clearing corporation must be a company incorporated under the Companies Act, 1956.
These functions are as follows :
(a). The periodical settlement of contracts and differences thereunder.
(b). The delivery of, and payment for, securities.
(c). Any other matter incidental to, or connected with, such transfer.
8A(2).
Every clearing corporation taking over clearing house functions must ensure the following:
The clearing corporation must make bye-laws (rules for its functioning).
These bye-laws are specifically for handling the transfer of duties and functions from the clearing house.
After preparing the bye-laws, it must submit them to Securities and Exchange Board of India (SEBI).
The bye-laws will only be valid after approval by SEBI.
8A(3).
Securities and Exchange Board of India (SEBI) examines the proposal before approving it
SEBI must be satisfied that the transfer is in the interest of trade, and in the public interest
If SEBI is satisfied, it can approve the bye-laws submitted by the clearing corporation
SEBI can also approve the transfer of duties and functions from the clearing house to the clearing corporation mentioned in 8A(1).
8A(4).
The provisions of Sections 4, 5, 6, 7, 8, 9, 10, 11 and 12 shall also apply to a clearing corporation referred to in 8A(1).
It apples in the exact same way and to the extent as it applies in relation to a recognised stock exchange.
Section 9. Power of recognised stock exchanges to make bye-laws.
9(1).
A recognised stock exchange has the power to make bye-laws (internal rules)
These bye-laws are for regulation and control of contracts (i.e., how trading contracts are handled).
However, this power is not absolute.
The stock exchange must first obtain prior approval from Securities and Exchange Board of India (SEBI).
Only after such approval: the bye-laws can be validly made and enforced.
9(2).
There are specific matters that bye-laws can cover.
These specific matters are as follows:
It does not limit the general power, but gives examples of what can be included:
(a)
The bye-laws can provide for the opening and closing of the market.
They can also regulate the trading hours.
So , the stock exchange can decide:
When trading starts,
When it ends, and
The timing of trading sessions.
(b).
The bye-laws can provide for setting up a clearing house.
This clearing house will handle:
Periodical settlement of contracts (regular settlement of trades).
Settlement of differences (profit/loss adjustments where no delivery happens).
It will also manage delivery of securities, and payment for those securities.
It can regulate the transfer of delivery orders (i.e., passing ownership instructions).
It also covers the regulation and maintenance of the clearing house itself.
(c).
The bye-laws can require the clearing house to submit information to Securities and Exchange Board of India (SEBI).
This information must be submitted as soon as possible after each settlement period.
SEBI can specify what details are required, and this can change from time to time.
The details may include:
(i)
The total number of each type of security carried forward to the next settlement period.
These are essentially positions that are not settled and are rolled over to the next day.
(ii)
The total number of each type of security where contracts are squared up.
These are esentially trades that are closed without actual delivery.
(iii)
The total number of each type of security actually delivered.
These are trades where actual transfer of securities has taken place.
(d).
The bye-laws can require the clearing house to publish the information.
This information is the same as the details already submitted to Securities and Exchange Board of India (SEBI) under clause (c)
The clearing house may publish all or some of these particulars.
However, this publication is .subject to SEBI’s directions.
SEBI can decide what should or should not be published.
(e).
The bye-laws can regulate or prohibit blank transfers
A blank transfer means transfer of securities without filling in the transferee’s name.
The stock exchange can control how such transfers are done, or completely ban them.
(f).
The bye-laws can specify the number and types (classes) of contracts.
These contracts will be those:
for which settlement will be done through the clearing house, or
where only differences (profit/loss) will be paid through the clearing house.
So, the stock exchange can decide:
which contracts require actual settlement/delivery, and
which contracts will be settled by paying differences only.
(g).
The bye-laws can regulate or prohibit badla (carry-over) facilities
“Badla” means a system where traders carry forward their positions instead of settling them immediately.
The stock exchange can:
Control how such carry-forward works, or
Completely ban it.
(h).
The bye-laws can deal with settlement dates.
The stock exchange can:
Fix settlement days.
Change (alter) them.
Postpone them if needed.
(i).
The bye-laws can provide for how market rates are determined and declared.
This includes fixing and announcing:
The opening price of securities.
The closing price.
The highest price during the day.
The lowest price during the day.
The stock exchange can decide the method and process for calculating and publishing these rates.
(j).
The bye-laws can specify the terms and conditions of contracts.
This includes all rights, obligations, and features (incidents) of the contracts.
They can also prescribe:
Margin requirements (amount to be deposited as security).
The conditions related to such margins.
The bye-laws can further provide for standard forms of written contracts.
(k).
The bye-laws can regulate the entire lifecycle of contracts.
This includes rules for:
Entering into and making contracts.
Performance (fulfilment) of contracts.
Rescission (cancellation).
Termination (ending).
These rules apply to contracts between:
Members and members.
Members and their clients (constituents).
Members and non-members.
The bye-laws can also deal with:
Default or insolvency of a seller, buyer, or intermediary.
Breach or failure to perform obligations.
They can specify the consequences of such situations
They can also define the responsibility of members even if they are not direct parties to the contract.
(l).
The bye-laws can regulate taravani business.
“Taravani business” generally refers to speculative or forward trading practices (carry-forward type transactions).
The stock exchange can:
Set rules for how such business is conducted.
Impose limits or restrictions on it
This is done to:
Control excessive speculation.
Maintain market stability.
(m).
The bye-laws can regulate the listing of securities on the stock exchange
They can decide which securities are allowed to be listed and traded
They can also provide for inclusion of securities for trading (allowing them to be dealt in on the exchange).
The stock exchange can suspend or remove (withdraw) securities from listing.
It can also suspend or completely prohibit trading in specific securities.
(n).
The bye-laws can lay down the method and procedure for resolving claims or disputes.
These disputes can arise between:
Members.
Members and clients.
Other related parties.
The bye-laws can provide for: settlement through arbitration (i.e., resolving disputes without going to court)
They can specify:
How disputes are filed.
How they are heard.
How they are decided.
(o).
The bye-laws can provide for charging and collecting fees, fines, and penalties
This means the stock exchange can:
Impose fees.
Levy fines for violations.
Recover penalties from members or others.
(p).
The bye-laws can regulate the conduct of business between parties to contracts.
This applies to parties acting in any role or capacity.
Meaning: it controls how parties deal with each other during transactions.
(q).
The bye-laws can fix a standard rate (scale) of brokerage and other charges.
This means the stock exchange can decide:
How much brokers can charge.
Other related transaction costs
(r).
The bye-laws can regulate the process of making and completing deals (bargains).
This includes:
Making the deal.
Comparing/confirming the terms.
Settling the transaction.
Closing the deal.
(s).
The bye-laws can deal with emergency situations in the market.
Such emergencies may arise due to:
Pool or syndicate operations (group manipulation).
Cornering of securities (controlling supply to influence price).
Any other abnormal market conditions.
The bye-laws can provide for how such emergencies are identified and handled.
The stock exchange can also be given powers to act during such situations
These powers may include:
Fixing maximum prices (price ceiling).
Fixing minimum prices (price floor) for securities.
(t).
The bye-laws can regulate trading by members for their own account.
So , The stock exchange can control how members trade personally (not for clients).
The idea is to prevent conflict of interest and misuse of position.
(u).
The bye-laws can require separation of roles between jobbers and brokers.
A jobber trades on their own account, while a broker acts on behalf of clients.
The exchange can ensure these roles are kept separate and not mixed.
(v).
The bye-laws can impose limits on the volume of trade by a member.
This applies in exceptional situations (e.g., market stress or abnormal activity).
The idea is to prevent excessive trading that may disturb market stability.
(w).
The bye-laws can impose a duty on members to provide information
Members may be required to:
Give explanation.
Submit documents related to their business
This requirement is based on what the governing body of the stock exchange asks for.
The information and documents must relate to the member’s business activities on the exchange.
9(3).
The bye-laws can further specify the following:
(a).
The bye-laws can identify which specific bye-laws are important
If those specified bye-laws are not followed , then any contract made in violation of them becomes void (invalid)
This is in accordance with Section 14(1).
The stock exchange can decide that breaking certain rules will make the contract itself legally ineffective
(b).
The bye-laws can provide penalties for members who violate them
If a member contravenes any bye-law, they can be made liable for punishment
The possible punishments include:
(i). Fine - The member may be required to pay a monetary penalty.
(ii). Expulsion from membership - The member may be permanently removed from the stock exchange.
(iii). Suspension from membership - The member may be temporarily barred from the exchange for a specified period.
(iv). Other similar penalties (non-monetary) - Any other punishment of a similar nature, but not involving payment of money.
9(4).
Any bye-laws made under this section must follow conditions of prior publication.
This means they may need to be published in advance as prescribed before final approval.
The bye-laws must be approved by Securities and Exchange Board of India (SEBI)
After approval, they must be published:
In the Gazette of India, and
In the Official Gazette of the State where the stock exchange’s main office is located.
The bye-laws become legally effective from the date they are published in the Gazette of India.
Securities and Exchange Board of India (SEBI) has the power to relax the requirement of prior publication.
This can be done only if SEBI is satisfied that:
Tt is in the interest of trade, or
It is in the public interest.
In such cases, SEBI can allow bye-laws to be made immediately.
SEBI must pass an order in writing, and state the reasons for doing so
If relaxed , then the usual requirement of publishing the bye-laws in advance can be skipped.
Section 10. Power of Securities and Exchange Board of India to make or amend bye-laws of recognised stock exchanges.
10(1).
Securities and Exchange Board of India (SEBI) has the power to make or amend bye-laws of a stock exchange
This power can be exercised by either of the following ways:
On a written request from the governing body of the stock exchange.
On SEBI’s own initiative (suo motu).
Before doing so, SEBI must consult the governing body of the stock exchange.
SEBI must also be satisfied that it is necessary or expedient to take such action.
SEBI is required to record its reasons in writing.
After this, SEBI can make new bye-laws, or amend existing bye-laws.
These bye-laws must relate to matters specified in Section 9.
10(2).
Under circumstances where bye-laws are made or amended under this section:
Such bye-laws must be published:
In the Gazette of India, and
In the Official Gazette of the State where the stock exchange’s main office is located.
Once they are published in the Gazette of India they become legally effective
After publication, these bye-laws will be treated as if they were made or amended by the recognised stock exchange itself.
10(3).
This provision applies even if other parts of the section say otherwise
Under circumstances where Securities and Exchange Board of India (SEBI) has made or amended bye-laws on its own (suo motu):
If the governing body of the stock exchange objects to such bye-laws it has the right to apply for revision.
The application must be made within 2 months from the date of publication in the Gazette of India.
After receiving the application, SEBI must give the stock exchange an opportunity to be heard.
After hearing, SEBI may revise (modify) the bye-laws.
If the bye-laws are revised they must be published again.
After publication the revised bye-laws become effective in the same way as earlier in accordance with Section 10(2).
10(4).
The making, amendment, or revision of bye-laws must generally follow prior publication.
So , bye-laws should be published in advance before being finalized
However, Securities and Exchange Board of India (SEBI) has an exception power
SEBI can skip (dispense with) prior publication if:
It is satisfied that it is in the interest of trade, or in the public interest
In such cases, SEBI must:
Pass an order in writing & state the reasons for doing so.
Section 11. Power of Central Government to supersede governing body of a recognised stock exchange.
11(1).
The Central Government can act under this provision in addition to its other powers under the Act.
If the Central Government forms an opinion that the governing body of a recognized stock exchange should be superseded, it can proceed.
This action can be taken notwithstanding anything in any other law currently in force.
The Central Government must serve a written notice to the governing body.
The notice must state that supersession is being considered and include reasons.
The governing body must be given a chance to present its case (principle of natural justice).
After hearing the governing body, the Central Government may decide to proceed.
The decision to supersede must be made through a notification in the Official Gazette.
The Central Government may appoint one or more persons to take over the powers and duties of the governing body.
If more than one person is appointed:
One may be appointed as Chairman.
Another may be appointed as Vice-Chairman.
11(2).
Once the notification is published in the Official Gazette under sub-section (1), certain consequences will follow.
These consequences take effect immediately upon such publication.
The consequences are specified and listed as follows:
(a).
When the notification of supersession is issued, it takes effect from that very date:
From that moment, all members of the governing body lose their positions.
They immediately stop functioning as members of the governing body.
(b).
After the governing body is superseded, new person or persons are appointed under 11(1).
From that point onward, these appointed individuals take charge of the functioning.
They can exercise all the powers that the previous governing body had.
They are also responsible for performing all the duties of the superseded governing body.
(c).
After the new person or persons are appointed, they identify the property needed to run the stock exchange.
They do this by issuing a written order specifying such property.
The property selected must be necessary for carrying on the business of the stock exchange.
Once specified, that property transfers to and vests in the appointed person or persons.
11(3).
Even if any other law, rules, or bye-laws say otherwise, this provision will prevail.
Once the governing body is superseded, the appointed person or persons take office.
They will hold office for the period specified in the notification issued under 11(1).
The Central Government has the power to change this period from time to time.
Any such change is made through a similar notification in the Official Gazette.
11(4).
Before the appointed person or persons complete their term, the Central Government may decide to act.
It can direct the recognised stock exchange to reconstitute its governing body according to its rules.
Once the governing body is reconstituted, the transition takes place.
All property of the stock exchange that was vested in or held by the appointed person or persons is returned.
Such property re-vests or vests in the newly reconstituted governing body.
Section 12. Power to suspend business of recognised stock exchanges.
If the Central Government believes that an emergency situation has arisen, then:
The Government must also believe that action is necessary to deal with the emergency.
In such a case, it can issue a notification in the Official Gazette and must state the reasons in that notification.
Through this notification, the Government can direct a recognised stock exchange to suspend its business (fully or partially).
The suspension will be for a period not exceeding 7 days initially and subject to conditions specified in the notification.
If needed, the Government can further extend the suspension if it believes it is required in the interest of trade or public interest.
Such extension is done through another notification, and can be extended from time to time.
This applies when the Central Government wants to extend the suspension period beyond the initial period.
The Government cannot directly extend the suspension.
Before issuing any extension notification the governing body of the recognised stock exchange must be given a chance to be heard.
The stock exchange must be allowed to present its views, objections, or explanation.
Only after giving this opportunity , the Government can issue a notification extending the suspension.
Provided that:
Until the governing body is reconstituted, there is no immediate change in control.
During this interim period, the appointed person or persons continue in charge.
They keep exercising all the powers of the governing body.
They also continue performing all the duties until the new governing body takes over.
Section 12A. Power to issue directions.
12A(1).
The Securities and Exchange Board of India first conducts an inquiry or gets one conducted.
After the inquiry, it examines the findings.
If it becomes satisfied based on those findings, it forms an opinion that action is necessary.
These actions would be neccessary for the following purposes:
(a).
In the interest of investors, or orderly development of securities market.
(b).
If the concern is about the affairs of a recognised stock exchange, clearing corporation, or any other agency/person providing trading, clearing, or settlement facilities.
The focus is on how these affairs are being conducted.
Action is considered if the conduct is detrimental.
Specifically, detriment is measured in terms of harm to the interests of investors or the securities market.
(c).
The idea is to ensure proper management.
This applies to any stock exchange, clearing corporation, or other agency/person mentioned earlier.
The focus is on maintaining orderly and effective functioning of these entities.
SEBI can issue such directions as may be appropriate in the interests of investors in securities and the securities market.
(i).
The scope to issue directions extends to any stock exchange, clearing corporation, or agency/person mentioned earlier (in clause b).
It also includes any person or group of persons associated with the securities market.
Essentially, both institutions and individuals connected to the securities market are covered.
(ii).
The focus is on companies with securities listed on a recognised stock exchange.
It also includes companies whose securities are proposed to be listed.
So, both currently listed and soon-to-be-listed companies are covered.
Explanation:
To remove any doubts, it is clarified that the power to issue directions includes :
The authority to act against wrongful gains or avoided losses.
Specifically, it can be used to direct any person who made a profit or averted a loss through transactions or activities that violate the Act or its regulations.
The person can be required to disgorge an amount equal to the wrongful gain or avoided loss resulting from such contravention.
12A(2).
This provision does not affect the powers under 12(1) and section 23-I.
The Securities and Exchange Board of India (SEBI) can issue an order to impose a penalty.
The order must include reasons recorded in writing.
Penalties can be levied under sections 23A, 23B, 23C, 23D, 23E, 23F, 23G, 23GA, and 23H.
Before imposing the penalty, SEBI must hold an inquiry in the prescribed manner.
