Home >home-page >Sebi spells out compliance norms for investors of listed exchanges

Mumbai: The Securities and Exchange Board of India, or Sebi, on Friday, clarified how investors can ensure they are “fit and proper", as per Sebi’s Stock Exchanges and Clearing Corporations (SECC) norms, to be eligible shareholders of a listed stock exchange.

Sebi said in a circular that after an exchange lists its own stock on another exchange, the text of the applicable regulation with regard to “fit and proper" will be made a part of the contract note, which is typically generated by the depository and displayed to the investor when a trade is executed.

The market regulator said the listed stock exchange will need to ensure investors are aware of the requirement of fit and proper criteria for being its shareholders.

While trading in shares of an exchange post listing, the investor will need to declare that he is aware of the required criteria to be a shareholder of the exchange.

Also, the listed stock exchange and the stock exchange where the shares are listed will need to notify on their websites that the shares of the listed stock exchange will only be dealt by fit and proper persons as per Sebi’s SECC norms, Sebi said.

In case of acquisition of shares by the person who is found not fit and proper, the voting rights and all corporate benefits with respect to such shareholding will be frozen by the depositories until the same is divested, said the Sebi circular.

Though the market regulator allowed exchanges that are more than three years old to float initial public offerings (IPOs) in June 2012, many clauses in the SECC regulations were ambiguous and made it unviable for the bourses to get listed.

Currently, Multi Commodity Exchange of India Ltd (MCX) is the only listed exchange.

The country’s two main stock exchanges, BSE Ltd and National Stock Exchange of India Ltd (NSE), want to sell shares to the public, primarily to provide their older stockholders an opportunity to sell their investments.

BSE had filed share sale documents with Sebi for an IPO in 2013 and is awaiting the regulator’s approval.

To ensure additional safeguards, Sebi on Friday said the listed stock exchange will have to submit to Sebi on a quarterly basis an exceptional report regarding shareholders who are not fit and proper and the action taken thereof.

For buying more than 2% shares in a listed exchange, Sebi said shareholders will need to seek Sebi’s approval within 15 days of acquisition, and those opting to acquire beyond 5% will have to seek prior Sebi approval, the circular read.

Additionally, Sebi said the depositories will need to ensure that no shareholder of a listed stock exchange gets credit of shares beyond 5% or 15% and they will need to generate an alert when such holding exceeds 2% and intimate Sebi.

Sebi directed depositories and stock exchanges, both listed and where the securities are listed, to ensure that all the necessary mechanisms are put in place by 31 March.

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