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Securities and Exchange Board of India
CIRCULAR
CIR/MRD/DSA/10/2010 April 6, 2010
To
The Managing Director/Executive Director
of all Stock Exchanges.
Dear Sir / Madam,
Sub: Master Circular on Allotment of codes to Stock Exchanges,
Subsidiary management by Stock Exchanges, Governance of
recognised Stock Exchanges and Arbitration in recognised Stock
Exchanges
1. The Securities and Exchange Board of India has, from time to time, issued
various circulars/directions on the captioned subject. In order to enable the
users to have an access to all the applicable circulars at one place, this Master
Circular has been prepared.
2. This Master Circular consolidates the circulars/directions issued by SEBI in this
regard up to March 31, 2010 as listed in the Schedule and shall come into
force from the date of its issue.
Yours faithfully,
Rajesh Kumar D
Deputy General Manager
Tel. No. 2644 9242
Email: rajeshkd@sebi.gov.in
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Securities and Exchange Board of India
TABLE OF CONTENTS
Page No.
I. Allotment of Codes to Stock Exchanges…………………………….. 3
II. Subsidiary Management by Stock Exchange……………….……... 4
2.1 Conditions for floating/promoting a subsidiary company by small
stock exchanges
2.2 Eligibility criteria to become trading member and /or clearing
member of the derivatives segment of BSE and NSE
2.3 Subsidiary Management
2.3.1 Governing Board
2.3.2 Chief Executive Officer
2.3.3 Staff of the Subsidiary
2.4 Responsibilities of Parent Exchange towards Subsidiary
2.5 Access to unauthorized persons by the members of subsidiaries
III. Governance of recognised Stock Exchanges …............................. 8
3.1 Composition of the Governing Board
3.2 General Requirements
3.2 Eligibility for election of trading members on the Governing Board
3.4 Chief Executive
3.5 Statutory Committees
3.6 Code of Conduct for the Directors of Governing Board
3.6.1 Meetings & minutes
3.6.2 Strategic Planning
3.6.3 Regulatory Compliances
3.6.4 General Responsibility
IV. Arbitration in recognised Stock Exchanges…………………......... 14
4.1 Conformity of the Exchange Bye-Laws with the Arbitration and
Conciliation Act, 1996
4.2 Expeditious disposal of arbitration cases
4.3 Debiting the award amount from the deposits of the trading
member
4.4 Preservation of arbitration records
4.5 Guidelines for selection of Arbitrators
4.6 Guidelines for Fair Practices / Code of Conduct for arbitrators
4.6 Limitation period for filing of Arbitration reference
Schedule
List of circulars/directions pertaining to Chapter I
List of circulars/directions pertaining to Chapter II
List of circulars/directions pertaining to Chapter III
List of circulars/directions pertaining to Chapter IV
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Securities and Exchange Board of India
I. ALLOTMENT OF CODES TO STOCK EXCHANGES
1. 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.
2. In this regard, the codes allotted to the recognised Stock Exchanges are as
under –
CODE EXCHANGE NAME
01 Bombay Stock Exchange Limited
02 Ahmedabad Stock Exchange Limited
03 The Calcutta Stock Exchange Limited
04 Madras Stock Exchange Limited
05 Delhi Stock Exchange Limited
06 Hyderabad Stock Exchange Limited*
07 Madhya Pradesh Stock Exchange Limited
08 Bangalore Stock Exchange Limited
09 Cochin Stock Exchange Limited
The Uttar Pradesh Stock Exchange Association
10
Limited
11 Pune Stock Exchange Limited
12 Ludhiana Stock Exchange Limited
13 The Gauhati Stock Exchange Limited
14 Mangalore Stock Exchange*
15 Magadh Stock Exchange Limited*
16 Jaipur Stock Exchange Limited
17 Bhubaneswar Stock Exchange Limited
18 Saurashtra Kutch Stock Exchange Limited*
19 Vadodara Stock Exchange Limited
20 OTC Exchange of India
21 Coimbatore Stock Exchange Limited
23 National Stock Exchange of India Limited
24 Inter-connected Stock Exchange of India Limited
26 MCX Stock Exchange Limited
* derecognized Stock Exchanges
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Securities and Exchange Board of India
II. SUBSIDIARY MANAGEMENT BY STOCK EXCHANGE
2.1 Small stock exchanges may promote / float a subsidiary company to acquire
trading membership rights of other stock exchanges subject to the following
conditions :
a) 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.
b) The name of the subsidiary company shall not contain the words "Stock
Exchange".
c) The trading members of the stock exchange shall register themselves as
sub-brokers of the subsidiary company to enable them to trade through the
subsidiary company.
d) The subsidiary company shall not undertake any dealing in securities on its
own account.
e) 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. All the stock exchanges which have set up
subsidiaries have to make the necessary provisions in their rules,
regulations and the byelaws to provide for the above requirement.
f) The sub-brokers of the subsidiary company shall maintain separate deposit
with the subsidiary company. The Base Minimum Capital deposited by the
sub-broker with the promoting stock exchange shall not be transferred to
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 FDRs
would be discharged in favour of the subsidiary/company and the
subsidiary/company would be given a complete unencumbered and
unconditional lien on the FDRs.
g) 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.
h) The subsidiary company shall collect margins from the sub-brokers for the
payment of margins to the respective stock exchanges of which the
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Securities and Exchange Board of India
subsidiary company is a trading member. The margin imposed by the
subsidiary company on its sub-brokers shall not be less than the margin
payable to the stock exchanges of which the subsidiary company is the
trading member.
i) The stock exchange shall incorporate the above mentioned conditions in
the Memorandum of Association / Articles of Association of the subsidiary
company.
Eligibility criteria to become trading member and / or clearing member of
the derivatives segment of BSE and NSE:
2.2 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.
Subsidiary Management
2.3. 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 stock exchanges shall, therefore, ensure the
following –
2.3.1 Governing Board
a) The Governing Board of the subsidiary company shall have the following
composition:
i. 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.
ii. 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.
iii. The Public Representatives shall be nominated by the parent exchange
(subject to prior approval of SEBI).
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Securities and Exchange Board of India
iv. Public Representatives to be nominated as directors of subsidiary
company shall be from amongst the persons of integrity having
necessary professional competence and experience in the areas related
to securities market.
v. For the purpose of nomination as Public Representatives, Governing
Board of the parent exchange may forward names of persons to SEBI
for its approval. SEBI shall, however have right to nominate persons,
whose names have not been forwarded by the Governing Board of the
stock exchange.
vi. The Public Representatives to be appointed as directors shall hold the
office for a period of one year from the date of assumption of the office or
till the Annual General Meeting of the subsidiary company whichever is
earlier. However the Public Representative on the Boards of Subsidiary
Companies will continue till the time new Public Representatives are
appointed in their place.
vii. The trading member directors on the Governing Board of the subsidiary
company shall have a gap of at least one year after a consecutive
period of two years before re-nomination on the Governing Board. As
regards the other directors, there should be a gap of at least one year
after a consecutive period of three years before re-nomination.
viii. A person, who has completed two consecutive terms as a director of the
parent exchange, shall not be eligible for election as a director of the
subsidiary company, or for nomination as a member of any Committee
of such subsidiary.
ix. The parent exchange may appoint a maximum of two directors who are
officers of the parent exchange. Such directors shall be in addition to
50% non-trading member directors (public representatives) mentioned
above.
2.3.2 Chief Executive Officer
b) The subsidiary company shall appoint a Chief Executive Officer (CEO) who
shall not hold any position concurrently in the stock exchange (parent
exchange). The CEO of the subsidiary company shall be appointed by the
Board of the subsidiary company through open advertisement. The
educational qualification and experience shall be similar to that of the Chief
Executive of the stock exchange and the stock exchange or subsidiary shall
fix the remuneration of the CEO. The appointment, renewal of appointment
and the termination of service of the CEO shall be subject to prior approval
of SEBI.
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Securities and Exchange Board of India
2.3.3 Staff of the Subsidiary
c) The subsidiary company shall have its own staff none of whom shall be
concurrently working for or holding any position of office in the parent
exchange. The staff of the stock exchange may serve on deputation or loan
basis etc. in the subsidiary company. However, such staff shall not be
concurrently working for or holding any position of office in the stock
exchange and the subsidiary company simultaneously. The stock exchange
shall maintain necessary records to ensure that the staff is not working
concurrently.
Responsibilities of Parent Exchange towards Subsidiary
2.4 The parent exchange shall be responsible for all risk management of the
subsidiary company and shall set up appropriate mechanism for the
supervision of the trading activity of subsidiary company. Such mechanism
shall include:
i. Verification of compliance of margin payments and other risk
management measures applicable to the subsidiary company as a
trading member of another stock exchange.
ii. Reporting requirements between the subsidiary and the parent
exchange, such as placing quarterly reports on the financials and
accounts of the subsidiary and on review of operations of the subsidiary
before the Governing Board of the stock exchange at its meetings.
iii. Conducting half-yearly inspections of the subsidiary and 20% of its sub-
brokers and placing such reports before the Governing Board of the
stock exchange.
iv. Handling of investor complaints of sub-brokers of the subsidiary
company.
Access to unauthorized persons by the members of subsidiaries
2.5 Appropriate penal action including fine, suspension of trading rights of the
subsidiaries/sub-brokers, etc., shall be initiated, in case, any of the members of
the exchange who are sub-brokers of the subsidiary is found to be indulging in
activities viz. providing unauthorized access to persons for illegal trading
and/or providing their own terminal for illegal trading. The exchanges shall
exercise vigilance and surveillance on their subsidiaries/its members to ensure
that the members do not indulge in these types of activities.
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Securities and Exchange Board of India
III. GOVERNANCE OF RECOGNIZED STOCK EXCHANGES
Composition of the Governing Board
3.1 The composition of the Governing Board of all recognized stock exchanges
shall be as under -
a) Trading Member Directors shall constitute a maximum of one-fourth of the
total strength of the Governing Board.
b) Public Interest Directors shall constitute one-fourth of the total strength of
the Governing Board.
c) Shareholder Directors shall constitute the balance of the Governing Board.
General Requirements
3.2 The other incidental and consequential matters relating to governance of stock
exchanges shall be as under -
a) The Directors, except the Public Interest Directors and the Chief Executive
such as CEO, ED, MD etc. shall be elected by the Shareholders.
b) No Director shall hold office for more than two consecutive terms.
c) ‘Trading Member Directors’ shall be elected from amongst the Trading
Members of the concerned stock exchange.
d) ‘Shareholder Directors’ shall be elected from amongst the persons, who are
not Trading Members or Associates of Trading Members.
‘Associate’ in relation to a Trading Member, individual, body corporate
or firm, shall include a person:
(i) who, directly or indirectly, by himself, or in combination with other
persons, exercises control over the Trading Member, whether
individual, body corporate or firm or holds substantial share of not
less than 15% in the capital of such entities, or
(ii) in respect of whom the Trading Member, individual or body
corporate or firm, directly or indirectly, by itself or in combination
with other persons, exercises control, or
(iii) whose director or partner is also a director or partner of the
Trading Member, body corporate or the firm, as the case may be.
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Securities and Exchange Board of India
The expression ‘control’ shall have the same meaning as defined
under clause (c) of Regulation 2 of the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997.
e) ‘Public Interest Directors’ shall be selected by the Governing Board from
amongst the persons in the SEBI constituted panel.
f) A person shall not act as ‘Public Interest Director’ on more than one Stock
Exchange simultaneously.
g) The Chairman shall be elected by the Governing Board from amongst the
non-executive non-trading member directors. If, for some reason, it is not
possible for the Governing Board to elect a permanent Chairman, the
Governing Board may elect a Chairman for every meeting of the Board from
amongst the non-executive non-trading member directors of the Governing
Board.
h) The manner of election, appointment, tenure, resignation, vacation, etc. of
Directors (except the Chief Executive) shall be governed by the Companies
Act, 1956 save as otherwise specifically provided under or in accordance
with the Securities Contracts (Regulation) Act, 1956.
i) The Chief Executive shall be an ex-officio Director on the Governing Board.
j) No approval of SEBI shall be required for appointment of any Director,
except for the Chief Executive.
k) SEBI may nominate Directors on the Governing Board as and when
deemed fit.
Eligibility For Election of Trading Members on the Governing Board
3.3 For the Trading Members to be elected to the Governing Board of a stock
exchange, the following eligibility criteria shall be incorporated in the Rules of the
Exchange –
a) In case of INDIVIDUAL trading members:
No trading member shall be eligible to be elected as member of the
Governing Board if -
i) he is not a citizen of India;
ii) he has been a trading member for less than three years standing
on the last day for submission of proposals by candidates for
election.
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Securities and Exchange Board of India
iii) he has at any time been declared a defaulter or failed to meet his
liabilities in ordinary course or compounded with his creditors.
b) In case of a CORPORATE trading member, one of its whole-time directors
subject to the fulfillment of the following conditions in addition to the above
mentioned conditions for individual trading members would be eligible to be
elected as a trading member of the Governing Board:
i) In case the director resign/retires from the board of the company, or
is removed from the board of the company and one post on the
Governing Board falls vacant, the vacancy will be filled as per the
Rules of the exchanges and corporate trading members will not
have right to replace the trading member.
ii) In case of conversion of individual trading member/partnership firm
into a corporate trading member, and the individual/partner(s) are
whole time director(s) of the corporate then the previous
experience of such trading member(s) would be considered for
meeting eligibility norms to become member of the Governing
Board.
c) Further, in the event of suspension of trading, suspension of the registration
as trading member because of any disciplinary action taken against it by the
stock exchange / SEBI, the trading member shall not be eligible to continue
on the Governing Board and shall also not be eligible to be elected to the
Governing Board for two years from the date of expiry of such suspension
of trading or suspension of registration.
d) A trading member whose registration has been cancelled shall not be
allowed to continue on the Governing Board or be eligible to be elected to
the Governing Board.
e) The persons falling in the category of Notified Persons as per the Special
Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992,
would not continue on the Governing Board and would not be eligible to be
elected to the Governing Board for two years from the date such person is
notified under the said Act.
f) A trading member of the stock exchange who was on the Governing Board
of the stock exchange at the time of its supersession would not be eligible
for re-election to the Governing Board of the stock exchange for a period of
2 years from the date of expiry of the order of supersession passed by
SEBI.
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Securities and Exchange Board of India
Chief Executive
3.4 The provisions regarding the Chief Executive of the stock exchange, by
whatever name called, shall be as under -
a) The appointment, renewal of appointment and the termination of service of
the Chief Executive shall be subject to prior approval of SEBI. The
Exchange shall, however, determine the manner of selection, terms and
conditions of appointment and other procedural formalities associated with
the selection / appointment of the Chief Executive.
b) Further, to bring about uniformity and professionalism in the recruitment
process of the Chief Executives, the stock exchanges shall constitute a
Committee for the selection of Chief Executives. The Committee shall
generally consist of four persons, one representative from the exchange,
two outside experts and one Public Interest Director. However, constitution
of the said Committee shall not require SEBI approval.
c) While recommending the names to SEBI, the exchange shall submit an
undertaking that the necessary due diligence has been carried out by them
with respect to the verification of antecedents, credentials and experience
of the proposed persons.
d) The exchanges should ensure that adequate financial powers like
sanctioning the normal revenue expenditure and issue of cheques are given
to the Chief Executive for smooth functioning of the exchange. Further, one
more officer shall be the co-signatory on the cheques to ensure that at least
two persons sign the cheque. However no broker member of the stock
exchanges shall be an office bearer of an exchange i.e. holds the position
of President, Vice President, Treasurer etc. and shall not be authorized to
sign any cheques or operate any bank accounts on behalf of the stock
exchange
e) In order to ensure smooth functioning of the stock exchanges and to give
administrative freedom to the Chief Executive, the elected directors shall
not interfere in the day to day management of the exchange, particularly
relating to the surveillance and risk management functions.
f) The Rules or Articles shall provide that besides the Governing Board, it
shall be the duty of the Chief Executive to give effect to the directives,
guidelines and other orders issued by SEBI in order to implement the
applicable provisions of law, rules, regulations as also the Rules or the
Articles of Association, Regulations and Bye-laws of the stock exchange.
Any failure in this regard will make him liable for removal or termination of
services by the exchange with the prior approval of SEBI, subject to the
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Securities and Exchange Board of India
concerned Chief Executive being given an opportunity of being heard
against such termination.
Statutory Committees
3.5 The provisions regarding statutory committees of stock exchanges shall be as
under –
a) The Rules or byelaws, as the case may be, of the exchange shall provide
that not more than twenty percent of the members of the Arbitration
Committee, Disciplinary Committee, Defaults Committee and Investor
Services Committee shall be trading members.
b) However, the Arbitration Committee in case of disputes between a trading
member and a non-trading member shall not have representation of the
trading members.
c) The appointment of trading members on these committees shall not require
SEBI approval.
Code of Conduct for the Directors on the Governing Board
3.6 The exchange shall frame and apply a set of criteria as near thereto the SEBI
(Intermediaries) Regulations, 2008 to the Directors on the Governing Board of
the Exchange. All the Directors of the stock exchange shall:
3.6.1 Meetings & minutes
a. not participate in the discussion on any subject matter in which any
conflict of interest exists or arises, whether pecuniary or otherwise, and
in such cases the same shall be disclosed and recorded in the minutes
of the meeting.
b. not encourage the circulation of agenda papers during the meeting,
unless circumstances so require.
c. offer their comments on the draft minutes and ensure that the same are
incorporated in the final minutes.
d. insist on the minutes of the previous meeting being placed for approval
in subsequent meeting.
e. endeavour to have the date of next meeting fixed at each Board Meeting
in consultation with other members of the Governing Board.
f. endeavour that in case all the items of the agenda of a meeting were not
covered for want of time, the next meeting is held within 15 days for
considering the remaining items.
3.6.2 Strategic Planning
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Securities and Exchange Board of India
a. participate in the formulation and execution of strategies in the best
interest of the exchange and contribute towards pro-active decision
making at the Board level.
b. give benefit of their experience and expertise to the exchange and
provide assistance in strategic planning and execution of decisions.
3.6.3 Regulatory Compliances
a. endeavour to ensure that the Exchange abides by all the provisions of
the SEBI Act, 1992, Securities Contracts (Regulation) Act, 1956, Rules
Regulations framed thereunder and the circulars, directions issued by
the Government/SEBI from time to time.
b. endeavour compliance at all levels so that the regulatory system does
not suffer any breaches.
c. endeavour to ensure that the exchange takes commensurate steps to
honour the time limit prescribed by SEBI for corrective action.
d. not support any decision in the meeting of the Governing Board which
may adversely affect the interest of investors and shall report forthwith
any such decision to SEBI.
3.6.4 General Responsibility
a. place priority for redressing Investor Grievances and encourage fair
trade practice so that the exchange becomes an engine for the growth
of the securities market.
b. endeavour to analyse and administer the exchange issues with
professional competence, fairness, impartiality, efficiency and
effectiveness.
c. submit the necessary disclosures/statement of holdings/dealings in
securities as required by the exchange from time to time as per their
Rules or Articles of Association.
d. unless otherwise required by law, maintain confidentiality and shall not
divulge/disclose any information obtained in the discharge of their duty.
Further, no such information shall be used for personal gains.
e. maintain the highest standards of personal integrity, truthfulness,
honesty and fortitude in discharge of their duties in order to inspire
public confidence and shall not engage in acts discreditable to their
responsibilities.
f. perform their duties in an independent and objective manner and avoid
activities that may impair, or may appear to impair, their independence
or objectivity or official duties.
g. perform their duties with a positive attitude and constructively support
open communication, creativity, dedication, and compassion.
h. not engage in any act involving moral turpitude, dishonesty, fraud,
deceit, or misrepresentation or any other act prejudicial to the
administration of the exchange.
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Securities and Exchange Board of India
IV. ARBITRATION IN RECOGNISED STOCK EXCHANGES
Conformity of the Exchange Bye-Laws with the Arbitration and
Conciliation Act, 1996
4.1 The Bye-laws of the stock exchanges relating to arbitration proceedings shall
be in accordance with the Arbitration and Conciliation Act, 1996.
Expeditious disposal of arbitration cases
4.2 To ensure expeditious disposal of arbitration proceedings at the exchanges,
the following clauses shall be incorporated in the bye-laws of the exchanges –
i. Adjournment - Adjournment, if any, shall be granted by the arbitrator only
in exceptional cases, for bonafide reasons to be recorded in writing.
ii. Time for completion of Arbitration - The arbitrator(s) shall pass the
arbitration award normally within 3 months from the date of entering upon
the reference.
iii. Request for extension - The time taken to pass the award may be
extended by the Chief Executive, not beyond 3 times, on an application by
either of the parties or by the arbitrator, as the case may be.
Notwithstanding the extensions granted in the above manner, the
arbitrator shall pass the arbitration award within a period of six months
from the date of entering into reference i.e. extension of time of award can
be for a maximum period of three months.
iv. Date of entering reference - For the purposes of these bye-laws, the
arbitrator shall be deemed to have entered upon a reference on the date
on which the arbitrator has held the first hearing.
Debiting the award amount from the deposits of the trading member
4.3 The Bye-laws, Rules and Regulations of the stock exchanges shall be
amended to provide that:-
a. The stock exchange shall on receipt of the arbitration award, debit the
amount of the award from the security deposit or any other monies of the
trading member (against whom an award has been passed) and keep the
amount in a separate account. Thereafter, a confirmation may be
obtained from the concerned trading member that he has not filed any
appeal within the stipulated time under section 34 of the Arbitration and
Conciliation Act, 1996 and only then the payment may be made to the
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Securities and Exchange Board of India
awardee. If an appeal is filed and the same is pending in a Court of law,
the amount so kept in the separate account shall be paid to the awardee
in accordance with the court orders.
b. At the time of debiting the amount, the stock exchange may if so desire
inform the trading member that the exchange will not be liable for loss of
interest, business etc., in case the award is modified by the Court. The
exchange may also indicate that if any amount of interest is still payable
to the awardee e.g. from the date of debiting the trading member’s
account till the date of payment of the award amount to the awardee, the
same shall be recoverable from the concerned trading member and the
stock exchange shall not be liable in this regard.
Preservation of arbitration records
4.4 The documents vis-à-vis the process of arbitration shall be preserved with the
stock exchanges for the purpose of record, as follows -
a) The original arbitration award with acknowledgements shall be
preserved permanently.
b) Other records pertaining to arbitration shall be preserved for 5 years
from the date of award, in case the appeal for setting aside the award is
not filed till such time.
c) In case, an appeal is filed, the records shall be preserved for five years
from the date of final disposal by the Court.
d) The destruction of records shall be subject to the previous order, in
writing of the Chief Executive of the exchange.
e) The exchange shall maintain a register wherein the brief particulars of
the records destroyed alongwith the certification regarding the date and
mode of destruction.
Guidelines for selection of Arbitrators
4.5 The guidelines for selection of arbitrators that may be adhered to by the stock
exchanges while selecting the arbitrators are as under –
a) Persons with background in law, finance, management, administration and
experience in the areas related to securities market may be preferred over
other candidates.
b) Both educational qualification and experience should be considered as
factors for selection.
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Securities and Exchange Board of India
c) A declaration should be obtained by the Stock Exchanges from the
Arbitrators along with bio-data regarding the following:
• Confirming that he/she was not involved in any act of fraud or
dishonesty or moral turpitude or found guilty of any economic offence.
• Disclosing the names of his dependents that are associated with the
securities market as Trading Member / sub-brokers or major investors.
d) While considering re-nomination of arbitrators, the past experience with the
arbitrator may be looked into, such as time taken for passing awards,
quality of awards passed, complaints received, if any, against the arbitrators
etc.
Guidelines for Fair Practices / Code of Conduct for arbitrators
4.6 In order to ensure that the arbitration matters at the stock exchanges are
conducted in a fair, uniform and effective manner, the arbitrators shall –
a) Act in a fair, unbiased and objective manner.
b) Maintain the highest standards of personal integrity, truthfulness, honesty
and fortitude in discharge of his duties in order to inspire public confidence
and shall not engage in acts discreditable to his responsibilities.
c) Avoid any interest or activity which is in conflict with the conduct of his
duties as an arbitrator.
d) Perform his duties in an independent and objective manner and avoid
activities that may impair, or may appear to impair, his independence or
objectivity.
e) Disclose his interest or conflict etc in a particular case i.e. whether any party
to the proceeding had any dealings with or is related to the arbitrator.
f) Ensure that all the provisions of the Arbitration and Conciliation Act, 1996,
SEBI Act, 1992, Securities Contracts (Regulation) Act, 1956 and the Rules,
Regulations and Bye-laws framed thereunder and the circulars, directions
issued by the Government / SEBI in respect of arbitration and dealing in
securities are followed.
g) Endeavour that the arbitral award is passed within the minimum period
stipulated by the Bye-laws, Rules, and Regulations of the Exchange.
h) Endeavour that adjournments, if any, are granted as an exception rather
than a rule and after recording the reasons thereof in writing.
i) Ensure that the awards are detailed and well reasoned.
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Securities and Exchange Board of India
j) Ensure that principles of natural justice are followed.
4.6 Limitation period for filing of Arbitration reference
1. The Secondary Market Advisory Committee (SMAC), reviewed the existing
provisions in the Exchange Byelaws, which specify a limitation period of six
months for reference of a complaint/claim/difference/dispute for arbitration.
2. While computing the said limitation period, the time taken in amicable
settlement of claims, complaints, differences, disputes through the Investors
Grievances Redressal Committee mechanism of the Exchange under its
Rules, Bye-laws & Regulations is excluded.
3. Based on the recommendations of the SMAC, it has been decided that the
limitation period of six months shall be computed from the end of the quarter
during which the disputed transaction(s) were executed. Along with the
exclusion mentioned under para (1) above and subject to sufficient
documentary proof, the period of one month from the date of receipt of
complaint/claim/difference/dispute by the trading member or the actual time
taken by the trading member from the date of receipt of
complaint/claim/difference/dispute by the trading member to the date of
receipt of the trading member’s last communication by the investor, to resolve
/ counter the complaint / claim/ difference/ dispute, whichever ends earlier,
shall also be excluded.
4. Apart from the above, in certain instances it was observed by SEBI that the
arbitration applications are being rejected on the grounds of having exceeded
the limitation period, without going into the circumstances leading to the
arbitration not being filed within the time period. In case the arbitration
application is not filed within the limitation period for reasons beyond the
control of the party, rejection of the same is not in the interest of investors.
Accordingly, it has been decided that:
(cid:190) The limitation period can be extended in certain cases for a further period of
three months by the stock exchange.
(cid:190) The stock exchange can decide on extending the limitation period for a
period of three months, only after obtaining sufficient documentary proof in
this regard and recording the reasons for the same in writing. In this
regard, the party shall provide to the stock exchange sufficient
documentary proof regarding the reasons for the delay in filing the
arbitration case and the stock exchange shall examine, if the reasons
/documentary proof submitted, for not filing the arbitration within the
limitation period were indeed beyond the control of the party.
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Securities and Exchange Board of India
SCHEDULE
Chapter I (Allotment of Codes to Stock Exchanges)
The earlier circulars / directions issued by SEBI relating to allotment of codes to
Stock Exchanges, which are compiled in this master circular, are as under -
1. Circular No. Ref.SMD-I/22532 dated October 19, 1993.
2. Circular No. SMD/POLICY/CIR (DBA-II)-37/98 dated December 04, 1998.
3. Circular No. MRD/DSA/SE/CIR- 28 /2008 dated October 17, 2008.
Chapter II (Subsidiary Management by Stock Exchanges)
The earlier circulars / directions issued by SEBI relating to Subsidiary
management by Stock Exchanges, which are compiled in this master circular, are
as under:
1. Circular No. SMD-II/POLICY/CIR-37/99 dated November 26, 1999.
2. Circular No. SMD-I/POLICY/CIR-40/99 dated December 16, 1999.
3. Circular No. SMD-II/ALLSE/CIR-02/2000 dated January 10, 2000
4. Circular No. SMDRPD/Policy/Cir-8/2001dated February 07, 2001
5. Circular No. SMDRP/Policy/Cir-41/2001 dated August 09, 2001
6. Circular No. SMD/POLICY/CIR-4/2003 dated February 11, 2003.
7. Letter No. SMD/SEAD/9971/03 dated May 21, 2003.
8. Circular No. SEBI/SMD/SE/Cir-20/2003/02/06 dated June 02, 2003
9. Circular No. SEBI/MRD/SE/15958/2003 dated August 22, 2003
10. Circular No. MRD/POLICY/CIR-33/2004 dated September 30, 2004.
11. Letter no. MRD/DSA/C&D/72675/06 dated July 27, 2006.
Chapter III (Governance of recognised Stock Exchanges)
The earlier circulars / directions issued by SEBI relating to Governance of
recognised Stock Exchanges, which are compiled in this master circular, are as
under -
1. Circular No. SMD-II/11615/92 dated November 20, 1992.
2. Circular No. SMD/SED/6919/93 dated April 20, 1993.
3. Circular No. SMD-II(N)/24456/93 dated December 7, 1993
4. Circular No. SMD/536/95 dated March 28, 1995
5. Circular No. Ref. SMD-II/52 dated January 10, 1996
6. Letter No. SMD/RCG/3737/96 dated August 13, 1996.
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Securities and Exchange Board of India
7. Circular No. SMD/POLICY/IECG/5694/96 dated December 20, 1996.
8. Circular No. SMD/POLICY/IECG/2-97 dated February 25, 1997.
9. Circular No. SMD/POLICY/CIRCULAR-27/97 dated November 05, 1997.
10. Circular No. SMD/POLICY/CIRCULAR-09/98 dated February 24, 1998.
11. Circular No. SMDRP/Policy/Cir-33/98 dated November 12, 1998.
12. Circular No. SMDRP/Policy/Cir - 25 /99 dated August 12, 1999
13. Circular No. SMD/POLICY/CIR-2/2002 dated January 10, 2002.
14. Letter dated September 02, 2002.
15. Circular No. SEBI/SMD/SE/Cir- 19/2003/02/06 dated June 02, 2003
16. Circular No. SMD/Policy/Cir-8/2003 dated March 4, 2003
17. Circular No. MRD/DOP/SE/Cir-5/2005 dated February 9, 2005
18. Letters dated August 31, 2005 / September 21, 2005.
19. Letter dated November 6, 2008.
20. Letters dated February 20, 2009
Chapter IV (Arbitration in recognised Stock Exchanges)
The earlier circulars / directions issued by SEBI relating to Arbitration in
recognised Stock Exchanges, which are compiled in this master circular, are as
under:
1. Circular No. SMD/POLICY/CIRCULAR/3-97, dated March 31, 1997
2. Circular No. SMDRP/POLICY/CIR - 22/99, dated July 9, 1999
3. Circular No. SMD/Policy/Cir-06/2002 dated March 27, 2002
4. Circular No. SMD/Policy/Cir-18/2002 dated August 28, 2002
5. Circular No. SMD/POLICY/Cir-26/2002 dated October 30, 2002.
6. Circular No. SEBI/SMD/SE/13 /2003/10/04 dated April 10, 2003.
7. Letter No. MRD/DSA/Arb/4623/2004 dated March 05, 2004.
8. Circular No. MRD/DSA/SE/CIR-18/2009 dated December 2, 2009.
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