Master Circular on Administration of Stock Exchanges, Arbitration in recognised Stock Exchanges and Stock Exchanges / trading platform for Small & Medium Enterprises including guidelines for Market Makers
Summary
This section of the SEBI Master Circular consolidates regulations on stock exchange administration, subsidiary management, governance, arbitration, and SME platforms as of December 31, 2010. It establishes a system for allotting two-digit codes to recognized stock exchanges for inclusion in trading member registration numbers. The document outlines specific conditions for small stock exchanges to promote subsidiaries and details the governance structures required for recognized exchanges. Section 2.2 establishes eligibility criteria for trading and clearing members of derivatives segments, including adherence to risk containment measures and a prohibition on proprietary trade. Section 2.3 mandates specific governance structures for subsidiary companies, detailing the composition of the Governing Board, appointment of the CEO, and staffing requirements to ensure independence from the parent exchange. Sections 2.4 and 2.5 outline the parent exchange's responsibilities for risk management and supervision, while prescribing penal actions for unauthorized access or illegal trading activities by subsidiary members. This section mandates the composition of Governing Boards for recognized
Text
The Securities and Exchange Board of India has... prepared this Master Circular... to enable the users to have an access to all the applicable circulars at one place... consolidates the circulars/directions issued by SEBI in this regard up to December 31, 2010... and shall come into force from the date of its issue.
Each of the stock exchanges in the country has been given a two-digit code which is incorporated in the twelve digit registration number given to the trading members. The code number for the exchange is the first two digits after the letters "INB" in the registration number.
The stock exchange and its trading members shall together hold 100% in nominal value of the equity share capital of the subsidiary company, with the exchange holding not less than 51% in nominal value of the equity share capital of the subsidiary company.
The name of the subsidiary company shall not contain the words "Stock Exchange".
The subsidiary company shall not undertake any dealing in securities on its own account.
The subsidiary company shall register only the trading members of the stock exchange, which is promoting the subsidiary company as its sub-broker and no other client / sub-broker shall be entertained by the subsidiary company.
The sub-brokers of the subsidiary company shall maintain separate deposit with the subsidiary company... This deposit to be maintained with the subsidiary company could be 25% in the form of cash and the balance 75% in irrevocable bank guarantees or Fixed Deposit Receipts (FDRs).
The trading/exposure limit of the sub-brokers shall be based on the deposit received by the subsidiary company from the sub-brokers and these limits shall not exceed the limits as prescribed by the stock exchange of which the subsidiary company is a trading member.
For becoming a trading and or clearing members of the derivatives segment, the eligibility criteria laid down by the stock exchanges and prescribed under the SEBI (Stock Broker and Sub-Broker) Regulations, 1992 have to be fulfilled including the conditions as follows: a) All the risk containment measures laid down by SEBI shall be followed by these subsidiary companies and b) These subsidiaries shall not undertake proprietary trade.
The subsidiary company shall be required to comply with minimum requirements in order to ensure that the transactions therein are conducted in a manner which is not detrimental to the interest of the investors and also to enable the subsidiaries to provide a safe and transparent mechanism for transactions in securities.
The Chief Executive Officer (CEO) of the subsidiary company shall be a director on the Board of Subsidiary. The CEO shall not be a sub-broker of the subsidiary company or a trading member of the parent exchange.
At least 50% of Directors representing on the Governing Board of subsidiary company shall not be sub-brokers of the subsidiary company or trading members of the promoter / holding exchange (parent exchange). These directors (excluding CEO) shall be called the Public Representatives.
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Source: SecMarx — Master Circular on Administration of Stock Exchanges, Arbitration in recognised Stock Exchanges and Stock Exchanges / trading platform for Small & Medium Enterprises including guidelines for Market Makers. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.