SEBI notifies procedures for recognition of SEs and clearing corporations.

The Securities and Exchange Board of India (SEBI) today notified the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (SECC Regulations) relating to the stages of application for seeking recognition as a stock exchange or clearing house.

An applicant seeking recognition as a stock exchange/ clearing corporation should substantiate its capability to fulfill all the requirements laid down under SCRA, SCRR and regulation 7 of the SECC Regulations at the time of making the application.

Further, for the purpose of grant of in-principle approval, the board may take into account the factors, which it may deem, fit in the interest of the securities market. For this purpose, the board may consider the information and documents, including but not limited to the following:-

• Business feasibility plan for the next five years,
• Net worth certificate/ financial books and bank account details,
• Detailed write-up on each of its functions,
• Details of authorised officials along with specimen signatures of the authorised signatories,Proposed organisational structure,
• Necessary undertakings,
• Manpower planning, and
• Background and necessary information to establish that its shareholders/promoters are fit and proper persons, information regarding its office set-up, appointment of managing director after following due process.

Before grant of final approval, in addition to the above, the applicant should satisfy the board with regard to compliance of the following:

1. Appointment of heads of key departments such as legal, listing, member registration, trading and surveillance in case of a stock exchange as also heads of key departments such as risk, legal, clearing and settlement, in case of a clearing corporation;
2. Satisfactory compliance with observations of SEBI during inquiry/ inspection by SEBI; and
3. Any other requirement as SEBI may deem necessary for disposal of the application.

Once recognition is granted, the stock exchange can commence trading operations with a minimum of 50 trading members and the clearing corporation can commence clearing and settlement operations with a minimum of 25 clearing members.

A clearing corporation should, in terms of applicable provisions of section 9 of the SCRA and regulation 4 of SECC Regulations, make by-laws, providing inter alia for the following:-

• Timings for pay-in and pay-out of funds and securities;
• Rules for clearing and settlement;
• Risk management mechanism;
• Process of netting, novation and guarantee for settlement of trades;
• Norms for contribution into and utilisation of the fund in terms of regulation 39 of SECC Regulations;
• Rights and obligations of the clearing members vis-a-vis the clearing corporation, other clearing members, the trading members and clients of such trading members;
• Criteria for admission and regulation of clearing members;
• Default handling mechanism; and
• Committees and any other matter as may be specified by SEBI.