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SECURITIES CONTRACTS (REGULATION) RULES, 1957

SECURITIES CONTRACTS (REGULATION) RULES, 1957

576

In exercise of the powers conferred by section 30 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Central Government hereby makes the following rules, tile same having been previously published as required by sub-section (3) of the said section, namely:-

RULE 01: SHORT TITLE

These rules may be called the Securities Contracts (Regulation) Rules, 1957.

RULE 02: DEFINITIONS

In these rules, unless the context otherwise requires,-

(a) "form" means a form appended to these rules;

(b) "the Act" means the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(c) "Government company" means a company in which not less than fifty-one percent of the share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments.

RULE 03: APPLICATION FOR RECOGNITION

An application under Section 3-of the Act for recognition of a stock exchange shall be made to the1[Securities and Exchange Board of India] in Form A.

RULE 04: FEES FOR APPLICATION

(1) There shall be paid in respect of every application under rule 3-a fee of rupees five hundred.

(2) The amount of the fee shall be deposited in the nearest Government treasury or the nearest branch of the State Bank of India.

Provided that at Bombay, Calcutta, Madras, Delhi and Kalipur, the amount shall be deposited in the Reserve Bank of India.

(3) The amount of the fee so deposited shall be credited to the receipt head "XLVI- Miscellaneous-Other fees, fine & forfeitures".

RULE 05: DOCUMENTS TO BE FILED ALONG WITH THE APPLICATION AND PARTICULARS IT SHOULD CONTAIN

Every application shall be accompanied by four copies of the rules (including the memorandum and articles of association where the applicant stock exchange is an incorporated body) and bye-laws of the stock exchange applying for recognition as specified in section 3-of the Act and the receipt granted by the Government treasury, or as the case may be, the State Bank of India or the Reserve Bank of India, in respect of the amount of the fee deposited and shall contain clear particulars as to the matters specified in the Annexure to Form A.

RULE 5A: POWER TO MAKE INQUIRIES AND CALL FOR INFORMATION

Before granting recognition to a stock exchange under section 4-of the Act, the3[Securities and Exchange Board of India] may make such inquiries and require such further information to be furnished, as it deems necessary, relating to the information furnished by the stock exchange in the Annexure to its application in Form A.]

RULE 06: FORM OF RECOGNITION

The recognition granted to a stock exchange shall be in Form B and be subject to the following conditions, namely :-

(a) that the recognition unless granted on a permanent basis, shall be for such period not less than one year as may be specified in the recognition;

(b) that the stock exchange shall comply with such conditions as are or may be prescribed or imposed under the provisions of the Act and these rules from time to time.

RULE 07: RENEWAL OF RECOGNITION

(1) Three months before the expiry of the period of recognition, a recognised stock exchange desirous of renewal of such recognition may make an application to the3[Securities and Exchange Board of India] in Form A.

(2) The provisions of rule 3-,rule 4-,rule 5-,4[rule 5A-] and rule 6-shall apply in relation to renewal of recognition as they apply in relation to grant of recognition except that the fee payable in respect of an application for renewal of recognition shall be rupee two hundred.

RULE 08: QUALIFICATIONS FOR MEMBERSHIP OF A RECOGNISED STOCK EXCHANGE

The rules relating to admission of members of a stock exchange seeking recognition shall inter alia provide that : (1) No person shall be eligible to be elected as a member if-

(a) he is less than twenty-one years of age;

( b) he is not a citizen of India; provided that the governing body may in suitable cases relax this condition with the prior approval of the5[Securities and Exchange Board of India];

(c) he has been adjudged bankrupt or a receiving order in bankruptcy has been made against him or he has been proved to be insolvent even though he has obtained his final discharge;

(d) he has been compounded with his creditors unless he has paid sixteen annas in the rupee;

(e) he has been convicted of an offence involving fraud or dishonesty;

(f) he is engaged as principal or employee in any business other than that of securities except as a broker or agent not involving any personal financial liability unless he undertakes on admission to sever his connection with such business: Provided that the5[Securities and Exchange Board of India] may, for reasons sufficient in the opinion of the said6 [Board], permit a recognised stock exchange to suspend the enforcement of this clause for a specified period on condition that the applicant is not associated with or is a member of or subscriber to or shareholder or debenture holder in or connected through a partner or employee with any other organisation, institution, association, company, or corporation in India where forward business of any kind whether in goods or commodities or otherwise is carried on or is not engaged as a principal or employee in any such business;

(g)7[***]

(h) he has been at any time expelled or declared a defaulter by any other stock exchange;

(i)he has been previously refused admission to membership unless a period of one year has elapsed since the date of such rejection.

(2) No person eligible for admission as a member under sub-rule (1) shall be admitted as a member unless :-

(a) he has worked for not less than two years as a partner with, or an authorised assistant or authorised clerk or remisier or apprentice to, a member; or

(b) he agrees to work for a minimum period of two years as a partner or representative member with another member and to enter into bargains on the floor of the stock exchange and not in his own name but in the name of such other member; or

(c) he succeeds to the established business of a deceased or retiring member who is his father, uncle, brother or any other person who is, in the opinion of the governing body, a close relative :

Provided that the rules of the stock exchange may authorise the governing body to waive compliance with any of the foregoing conditions if the person seeking admission is in respect of means, position, integrity, knowledge and experience of business in securities, considered by the governing body to be otherwise qualified for membership.

(3) No person who is a member at the time of application for recognition or subsequently admitted as a member shall continue as such if-

(a) he ceases to be a citizen of India:

Provided that nothing herein shall affect those who are not citizens of India but who were members at the time of such application or were admitted subsequently under the provisions of clause (b) of sub-rule (1) of this rule, subject to their complying with all other requirements of this rule;

(b) he is adjudged bankrupt or a receiving order in bankruptcy is made against him or he is proved to be insolvent ;

(d)8[***]

(e)8[***]

(f) he engages either as principal or employee in any business other than that of securities except as a broker or agent not involving any personal financial liability, provided that-

(i) the governing body may, for reasons, to be recorded in writing, permit a member to engage himself as principal or employee in any such business, if the

member in question ceases to carry on business on the stock exchange either as an individual or as a partner in a firm,

(ii) in the case of those members who were under the rule in force at the time of such application permitted to engage in any such business and were actually so engaged on the date of such application, a period of three years from the date of the grant of recognition shall be allowed for severing their connection with any such business,

(iii) nothing herein shall affect members of a recognised stock exchange, permitted under the proviso to clause (f) of sub-rule (1) to suspend the enforcement of the aforesaid clause, for so long as such suspension is effective, except that no member of such exchange shall engage in forward business of any kind whether in goods or commodities or otherwise and, if actually so engaged on the date of such application, he shall sever his connection with any such business within a period of three years from the date of the grant of recognition.

9[(4) A Company as defined in the Companies Act, 1956-(1 of 1956), shall be eligible to be elected as a member of a stock exchange if-

(i) such company is formed in compliance with the provisions of section 322-of the said Act;

(ii) a majority of the directors of such company are shareholders of such company and also members of that stock exchange; and

(iii) the directors of such company, who are members of that stock exchange, have ultimate liability in such company: Provided that where the10[Securities and Exchange Board of India] makes a recommendation in this regard, the governing body of a stock exchange shall, in relaxation of the requirements of this clause, admit as member the following corporations, companies or institutions, namely :-

(a) the Industrial Finance Corporation, established under the Industrial Finance Corporation Act, 1948(15 of 1948);

(b) the Industrial Development Bank of India, established under theIndustrial Development Bank Act, 1964(18 of 1964);

(d) the General Insurance Corporation of India constituted under the General Insurance Corporation (Nationalisation), Act, 1972(57 of 1972);

(e) the Unit Trust of India, established under the Unit Trust of India Act, 1963(52 of 1963);

(f) the Industrial Credit and Investment Corporation of India, a company registered under the Companies Act, 1956-(1 of 1956);

(g) the subsidiaries of any of the corporations or companies specified in (a) to (f) and any subsidiary of the State Bank of India or any nationalised bank set up for providing merchant banking services, buying and selling securities and other similar activities.]

11[(4A) A company as defined in the Companies Act, 1956-(1 of 1956), shall also be eligible to be elected as a member of a stock exchange if-

(i) such company is formed in compliance with the provisions of section 12-of the said Act;

(ii) such company undertakes to comply with such financial requirements and norms as may be specified by the Securities and Exchange Board of India for the registration of such company under sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992(15 of 1992);

(iii)12[***]

(iv) the directors of the company are not disqualified from being members of a stock exchange under13[clause (1) [except sub clause (b) and sub-clause (f) thereof] or clause (3) [except sub-clause (a) and sub-clause (f) thereof]] and the Directors of the company had not held the offices of the Directors in any company which had been a member of the stock exchange and had been declared defaulter or expelled by the stock exchange; and

(v) not less than two directors of the company are persons who possess a minimum two years' experience:

(a) in dealing in securities; or

(b) as portfolio managers; or

(5) Where any member of a stock exchange is a firm, the provisions of sub-rules (1), (3) and (4) shall, so far as they can, apply to the admission or continuation of any partner in such firm.

RULE 09: CONTRACTS BETWEEN MEMBERS OF RECOGNISED STOCK EXCHANGE

All contracts between the members of a recognised stock exchange shall be confirmed in writing and shall be enforced in accordance with the rules and bye- laws of the stock exchange of which they are members.

RULE 10: NOMINEES OF THE SECURITIES AND EXCHANGE BOARD OF INDIA] ON THE GOVERNING BODIES OF RECOGNISED STOCK EXCHANGES.

The15[Securities and Exchange Board of India] may nominate one or more persons not exceeding three in number, as member or members of the governing body of every recognised stock exchange. Such member or members shall enjoy the same status and powers as other members of the governing body.

RULE 11: OBLIGATIONS OF THE GOVERNING BODY TO TAKE DISCIPLINARY ACTION AGAINST A MEMBER IF SO DIRECTED BY THE

16[Securities and Exchange Board of India] After receiving the report of the result of an enquiry made under clause (b) of sub-section (3) of section 6-of the Act, the16[Securities and Exchange Board of India] may take such action as they deem proper and, in particular, may direct the governing body of the stock exchange to take such disciplinary action against the offending member, including fine, expulsion, suspension or any other penalty of a like nature not involving the payment of money, as may be specified by the16[Securities and Exchange Board of India]; notwithstanding anything to the contrary contained in the rules or bye-laws of the stock exchange concerned, the governing body shall give effect to the directions of the16[Securities and Exchange Board of India] in this behalf and shall not in any manner commute, revoke or modify the action taken in pursuance of such directions, without the prior approval of the16[Securities and Exchange Board of India]. The16[Securities and Exchange Board of India] may, however, either of its own motion or on the representation of the member concerned, modify or withdraw its direction to the governing body.

RULE 12: AUDIT OF ACCOUNTS OF MEMBERS

Every member shall get his accounts audited by a chartered accountant whenever such audit is required by the16[Securities and Exchange Board of India.]

RULE 13: WITHDRAWAL OF RECOGNITION

The written notice referred to in section 5-of the Act shall be in Form C.

RULE 14: BOOKS OF ACCOUNT AND OTHER DOCUMENTS TO BE MAINTAINED AND PRESERVED BY EVERY RECOGNISED STOCK EXCHANGE

Every recognised stock exchange shall maintain and preserve the following books of account and documents for a period of five years :

(1) Minute books of the meetings of-

(a) members;

(b) governing body;

(2) Register of members showing their full names and addresses. Where any member of the stock exchange is a firm, full names and addresses of all partners shall be shown.

(3) Register of authorised clerks.

(4) Register of remisiers of authorised assistants.

(5) Record of security deposits.

(6) Margin deposits book.

(7) Ledgers.

(8) Journals.

(9) Cash books.

(10) Bank pass-book.

RULE 15: BOOKS OF ACCOUNT AND OTHER DOCUMENTS TO BE MAINTAINED AND PRESERVED BY EVERY MEMBER OF A RECOGNISED STOCK EXCHANGE

(1) Every member of a recognised stock exchange shall maintain and preserve the following books of account and documents for a period of five years :

(a) Register of transactions (Sauda book).

(b) Clients' ledger.

(d) Journals.

(e) Cash book.

(f) Bank pass-book.

(g) Documents register showing full particulars of shares and securities received and delivered.

(2) Every member of a recognised stock exchange shall maintain and preserve the following documents for a period of two years :

(a) Members' contract books showing details of all contracts entered into by him with other members of the same exchange or counterfoils or duplicates of memos of confirmation issued to such other members.

(b) Counterfoils or duplicates of contract notes issued to clients.

RULE 16: MANNER OF INQUIRY IN RELATION TO THE AFFAIRS OF THE GOVERNING BODY OF A RECOGNISED STOCK EXCHANGE OR THE AFFAIRS OF ANY MEMBER OF THE STOCK EXCHANGE IN RELATION TO THE STOCK EXCHANGE

(l)

(a) The person or persons appointed by the17[Securities and Exchange Board of India] to make an inquiry under clause (b) of sub-section (3) of section 6-of the Act shall hereafter in this rule be referred to as the inquiring authority;

(b) where the inquiring authority consists of two or more persons, one of them shall be appointed as the chairman or senior member thereof;

(c) the inquiring authority shall hand over a statement of issues to be inquired into to the governing body or the member concerned, as the case may be, who will be given a reasonable opportunity to state their or his side of the case;

(d) if any witness is called for examination, an opportunity shall be provided to the governing body or the member whose affairs are being inquired into, as the case may be, to cross-examine such witness;

(e) where the inquiring authority consists of more than one person, the views of the majority shall be deemed to represent the findings of such authority and, in the event of an equality of votes, the chairman or senior member shall have a casting vote;

(f) the inquiring authority shall submit its report in writing to the17[Securities and Exchange Board of India] within the period specified in the order of appointment;

(g) temporary absence from any hearing or hearings of any member of the inquiring authority shall not vitiate its proceedings.

(2) Where the17[Securities and Exchange Board of India] has directed the governing body of a stock exchange to make an inquiry under clause ( b) of sub-section (3) of section 6-of the Act, the governing body concerned shall appoint one or more members thereof to make inquiry and the provisions of sub-rule (1) shall apply mutatis mutandis to such inquiry.

RULE 17: SUBMISSION OF ANNUAL REPORT

(1) Every recognised stock exchange shall18[before the 31st day of January in each year or within such extended time as the17[Securities and Exchange Board of India] may, from time to time, allow, furnish the17[Securities and Exchange Board of India] annually with a report about its activities during the preceding calendar year, which shall inter alia contain detailed information about the following matters :

(a) changes in rules and bye-laws, if any;

(b) changes in the composition of the governing body;

(d) admissions, re-admissions, deaths or resignations of members;

(e) disciplinary action against members;

(f) arbitration of disputes (nature and number) between members and non- members:

(g) defaults;

(h) action taken to combat any emergency in trade;

(i) securities listed and de-listed; and

(j) securities brought on or removed from the forward list.

19[(2) Every recognised stock exchange shall within one month of the date of the holding of its annual general meeting, furnish the20[Securities and Exchange Board of India] with a copy of its audited balance-sheet and profit and loss account for its preceding financial year].

RULE 17A: SUBMISSION OF PERIODICAL RETURNS

Every recognised stock exchange shall furnish the20[Securities and Exchange Board of India] periodical returns relating to-

(i) the official rates for the securities enlisted thereon;

(ii) the number of shares delivered through the clearing house;

(iii) the making-up prices;

(iv) the clearing house programmes;

(v) the number of securities listed and de-listed during the previous three months;

(vi) the number of securities brought on or removed from the forward list during the previous three months; and

(vii) any other matter as may be specified by the20'[Securities and Exchange Board of India].]

RULE 18: MANNER OF PUBLICATION OF BYE BYE--LAWS FOR CRITICISM

The bye-laws to be made, amended or revised under the Act shall be published for criticism in accordance with the provisions of Section 23 of the General Clauses Act, 1897both in the Gazette of India and Official Gazette of the State in which the principal office of the recognised stock exchange is situate.

RULE 19: REQUIREMENTS WITH RESPECT TO THE LISTING OF SECURITIES ON A RECOGNISED STOCK EXCHANGE

(1)A public company as defined under the Companies Act, 1956-, desirous of getting its securities listed on a recognised stock exchange, shall apply for the purpose to the stock exchange and forward along with its application the following documents and particulars:

(a) Memorandum and articles of association and, in the case of a debenture issue, a copy of the trust deed.

(b) Copies of all prospectuses or statements in lieu of prospectuses issued by the company at any time.

(c) Copies of offers for sale and circulars or advertisements offering any securities for subscription or sale during the last five years.

(d) Copies of balance-sheets and au

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