Timelines for Compliance with various provisions of Securities Laws by Commodity Derivatives Exchanges
Securities
and Exchange Board of India
SEBI CIRCULAR No.
CIR/CDMRD/DEA/03/2015
Dated-November 26, 2015
To,
The Managing Directors / Chief Executive Officers of all Commodity Derivatives Exchanges
Dear
Sir / Madam,
Sub: Timelines
for Compliance with various provisions of Securities Laws by Commodity Derivatives Exchanges
1.
Pursuant to Section 131 of the Finance Act, 2015 and Central Government
Notification O. 2362 (E) dated August 28, 2015, all recognized associations
(commodity derivatives exchanges) under the Forward Contracts (Regulation) Act,
1952 (‘FCRA) are deemed to be recognized stock exchanges under the Securities
Contracts (Regulation) Act, 1956 (‘SCRA’) with effect from September 28, 2015.
2.
Section 131 of the Finance Act, 2015 also stipulates that SEBI may provide such
deemed exchanges, adequate time to comply with the provisions of SCRA and any
regulations, rules, guidelines or like instruments made under SCRA.
Accordingly, commodity derivatives exchanges shall comply with the provisions
of SCRA, applicable provisions of Securities Contracts (Regulation) (Stock
Exchanges and Clearing Corporations) Regulations, 2012, (‘SECC Regulations’)
and SEBI circular CIR/MRD/DSA/33/2012 dated December 13, 2012, on procedural
norms on recognition, ownership and Governance for Stock Exchanges and Clearing
Corporation (‘SECC Circular’).
3.
The timelines provided in this circular shall be reckoned from the date of
recognized associations under FCRA having been deemed to be recognized stock
exchanges under SCRA, i.e. September 28, 2015.
Corporatization and Demutualization:
4.
Regional commodity derivatives exchanges shall corporatize and demutualize within a period of three years in accordance with the provisions
contained in section 4B of SCRA. In this regard, regional commodity derivatives
exchanges shall submit a scheme for corporatization and demutualization for
SEBI approval within a period
of two years, as per the
procedure laid down in section 4B of SCRA.
Clearing and Settlement:
5.
Commodity derivatives exchanges shall transfer the functions of clearing and
settlement of trade to a separate clearing corporation within three years. Till then, the exchanges may
continue with the existing arrangement for clearing and settlement of trades.
Validity of recognition of Commodity Derivative
Exchanges:
6.
Validity of recognition of commodity derivatives exchanges under SCRA shall be
taken to be the same as the validity of their recognition under FCRA. Further,
the renewal of recognition, if any, will be as per SCRA and SECC Regulations.
7.
The conditions required to be continuously complied with by recognized stock
exchanges as given in Regulation 7(3) of SECC Regulations shall be complied
with by national commodity derivative exchanges within one year and by regional
commodity derivatives exchanges within
three years.
However,
commodity derivatives exchanges shall immediately put in place adequate
surveillance system to monitor positions, prices and volumes etc. so as to ensure market integrity till
online real-time surveillance systems are set up and operationalized.
8.
Conditions required to be continuously complied with by recognized clearing
corporations given in Regulation 7(4) of SECC Regulations, to the extent
applicable, shall be complied with by national commodity derivatives exchanges
within one year and by regional commodity derivatives exchanges within three years.
Regulatory Fee:
9.
Commodity derivatives exchanges shall pay the regulatory fee in terms of
Securities and Exchange Board of India (Regulatory Fee on Stock Exchanges)
Regulations, 2006.
Networth Requirements:
10.
Commodity derivatives exchanges shall comply with Regulation 14(1) of SECC
Regulations as specified below:
a)
Any national commodity derivatives exchange having a networth of less than INR
100 crore, shall achieve a minimum networth of INR 100 crores by May 5, 2017. Further, it shall submit a plan
duly approved by its shareholders to SEBI for achieving the networth in terms
of Regulation 14 of SECC Regulations, within
six months.
b)
Any regional commodity derivatives exchange having networth of less than INR
100 crore, shall achieve a minimum networth of INR 100 crores within three years. Further, it shall submit a plan
duly approved by its shareholders to SEBI for achieving the networth in terms
of regulation 14 of SECC Regulations, within
six months.
11.
It may be stated that commodity derivative exchanges shall not distribute
profits in any manner to its shareholders until the requisite networth of INR
100 crores is achieved in terms of Regulation 14(4) of SECC Regulations.
12.
It may also be stated that commodity derivatives exchanges shall submit audited
networth certificate from the statutory auditor on an yearly basis by the
thirtieth day of September every year for the preceding financial year in terms
of Regulation 14(5) of SECC Regulations. The networth certificate for the
financial year ended on 31st March,
2015 shall be submitted by 31st December,
2015.
Ownership:
13.
National commodity derivatives exchanges shall comply with the shareholdings
limits specified under SECC Regulations, 2012 by May 5, 2019. As per clause 5 of SECC Circular,
they shall put in place a monitoring mechanism to ensure compliance with the
shareholding restrictions specified in SECC Regulations.
14.
Shareholdings of existing shareholders of national commodity derivatives
exchanges, whose shareholdings were approved by Forward Markets Commission
(FMC), shall not require fresh approval from SEBI. However, any fresh holdings
will be governed by the provisions of Regulation 19 of SECC Regulations and
SECC Circular
.
15.
Regulations 20 to 22 of SECC Regulations shall be applicable to national
commodity derivative exchange with
immediate effect. The format
for submitting shareholding pattern to SEBI is annexed to this circular.
16.
Regional Commodity Derivatives Exchanges shall comply with the provisions
specified in Chapter IV of SECC Regulations within
three years.
Governance:
17.
Provisions of Regulations 23 to 26 shall be applicable to national commodity
derivatives exchanges, subject to the following:
a)
Existing Independent Directors on the boards of national commodity derivatives
exchanges shall be deemed to be Public Interest Directors (PIDs) under SECC
Regulations,
b)
All existing directors on the governing boards of national commodity derivatives
exchanges who are not in compliance with SECC Regulations may be allowed to
continue for one year or till completion of their term, whichever is earlier,
c)
All new appointments on the governing boards of national commodity derivatives
exchanges shall be governed by the provisions of SECC Regulations and SECC
18.
National Commodity Derivatives Exchanges shall comply with the provisions of
Regulation 27 of SECC Regulations within
one year.
19.
Regional Commodity Derivatives Exchanges shall comply with the provisions of
Regulations 23 to 27 of SECC Regulations within
three years.
Segregation of Regulatory Departments:
20.
Commodity derivatives exchanges shall segregate their regulatory departments
(as indicated in SECC Circular) from other departments in the manner specified
in Part C of Schedule II of SECC Regulations within
six months.
Oversight Committees:
21.
Commodity derivative exchanges shall comply with the requirements of Regulation
29 read with Regulation 44D (1) (b) of SECC Regulations within three months. National commodity derivatives
exchanges shall constitute an oversight committee for ‘Product design’, chaired
by a Public Interest Director, within
three months.
Advisory Committee and other Statutory Committees:
22.
National commodity derivatives exchanges shall constitute Advisory committees
in line with Regulation 30 of SECC Regulations, 2012 and statutory committees
as specified in SECC Circular within one year.
23.
Regional commodity derivatives exchanges shall constitute Advisory committees
in line with Regulation 30 of SECC Regulations, 2012 and statutory committees
as pre specified scribed in SECC Circular within three
Risk Management Committee:
24.
Till the functions of clearing and settlement are transferred to a separate
clearing corporation, commodity derivatives exchanges shall comply with
provisions of Regulation 31 of SECC Regulations relating to risk management
committee. This committee shall be constituted.
Appointment of Compliance Officer:
25.
All commodity derivative exchanges shall appoint a compliance officer in terms
of Regulation 32 of SECC Regulations.
Transfer of Penalties:
26.
National commodity derivative exchanges shall credit all settlement related
penalties to their settlement guarantee fund (SGF) and other penalties to
Investor Protection Fund (IPF).
27.
Regional Commodity Derivatives Exchanges shall credit all penalties to their
SGF. On creation of IPF, regional commodity derivatives exchanges shall credit
penalties other than settlement related to their IPF.
Disclosure and Corporate Governance Norms:
28.
Regulation 35 of SECC Regulations shall be applicable to national commodity
derivative exchanges immediately. Regional commodity derivatives exchanges
shall comply with this Regulation within three years.
General Obligations:
29.
Till the functions of clearing and settlement are transferred to a separate
clearing corporation, commodity derivative exchanges shall comply with the
provisions of Regulation 39 of SECC Regulations on Fund to guarantee settlement
of trades.
30.
The provisions of Regulations 41, 42, 43, 44 and 44A of SECC Regulations to a
recognized stock exchange shall be applicable to commodity derivatives
exchanges. Additionally, the provisions of Regulations 41, 42, 43, 44 and 44A
of SECC Regulations in so far as they pertain to a recognized clearing
corporation shall be applicable to commodity derivatives exchanges till the
functions of clearing and settlement are transferred to a separate clearing
corporation
31.
Till the functions of clearing and settlement are transferred to a separate
clearing corporation, commodity derivative exchanges shall have right to
recover dues from its trading/clearing members arising from the discharge of
their clearing and settlement functions from the collaterals, deposits and the
assets of the trading/clearing members in line with Regulation 44B of SECC
Regulations.
32.
Regulation 44C and 44D of SECC Regulations shall be applicable to commodity
derivatives exchanges.
Listing:
33.
Regulation 45 of SECC Regulations shall be applicable to commodity derivatives
Dematerialization of Securities:
34. National commodity derivative exchanges shall comply
with Regulation 46 of SECC Regulations with respect to holding securities in
dematerialized form within six months, and regional commodity derivatives
exchanges shall comply with the same within three
35. Commodity derivative exchanges are advised to:-
a) Make necessary amendments to the relevant rules/
bye-laws/ regulations for the implementation
of the above decision;
b) Bring the provisions of this circular to the notice of
their members and also to disseminate
the same through their website; and,
c) Communicate to SEBI, the status of implementation of the provisions of this
circular in the Monthly / Quarterly Development Reports to SEBI.
36. This circular is issued in exercise of the powers
conferred under Regulation 44D (1) and 51 of SECC Regulations read with Section 11 (1) of the
Securities and Exchange Board of India Act, 1992 with a view to protect the interests of
investors in securities and to promote the development of, and to regulate the securities market
and shall come into with immediate
effect.
37. This circular is also
available on SEBI website at www.sebi.gov.in
Yours faithfully,
Vishal Nair
Deputy General Manager
Division of Exchange Administration
Commodity Derivatives Market Regulation Department
vishaln@sebi.gov.in
Deputy General Manager
Division of Exchange Administration
Commodity Derivatives Market Regulation Department
vishaln@sebi.gov.in
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