. Accordingly SEBI constituted a group headed by Justice M.H.

Kania, former Chief Justice of India on

Corporatisation & Demutualisation of Stock Exchanges in India

t is thus clear that BSE, ASE and Indore Stock Exchange will have to be both corporatised and demutualised, while
of the balance 20 stock exchanges, 18 stock exchanges which are already corporate entities, will only have to be
demutualised. Two stock exchanges, NSE and OTCEI, are not only corporatised but also demutualised with
segregation of ownership and trading rights of members

Demutualisation – the new governance structure 5.6 This redefinition of the roles and the new paradigm of
competition, forced changes in the traditional governance structures of stock exchanges. Countries responded to
these pressures by converting their traditional "not for-profit" stock exchanges into a "for profit" company.
This process of transition from "mutually-owned" association to a company "owned by shareholders", in
other words transforming the legal structure from a mutual form to a business corporation form and privatising the
corporations so constituted, is referred to as demutualisation. Further, the company so constituted may choose
to be a listed or an unlisted, closely held public company. The concept of demutualisation can be applied to
any "non-profit" organisation or association as well

Demutualisation involves the segregation of members' right into distinct segments, viz. ownership rights and
trading rights. It changes the relationship between members and the stock exchange. Members while retaining their
trading rights acquire ownership rights in the stock exchange, which have a market value, and they also acquire the
benefits of limited liability. The shareholders in a corporatised stock exchange may be a diverse group, as members
may decide to retain their shares or to sell them. Demutualisation however, does not insulate them from competition.
A stock exchange whose management does not effectively work to maintain its position in the market may soon
become a take-over target

A basic character of the stock exchanges in India, saving NSE, irrespective of their legal constitution, is that they are
meant to be voluntary, not for-profit mutual entities. It is on this ground that the stock exchanges (except NSE) have
claimed tax exemptions, though in dispute in some cases. Demutualisation fundamentally alters this position of the
stock exchanges, as these would no longer retain their voluntary, not for-profit mutual character, but become for-
profit corporate bodies.

Demutualization means segregation of ownership and management from the trading rights of the members of stock
exchange

Corporatization means succession of recognized stock exchange from a body of individuals or society by another
stock exchange being a company incorporated

Securities contract ACT came into force in 1957

Securities include –

shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in
or of any incorporated company or body corporate

derivative

units or any other instrument issued by any collective investment scheme to the Investors in such schemes

security receipt as defined in clause (zg) of Section 2 of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002
units or any other such instrument issued to the investors under any mutual fund scheme

Explanation : “securities” shall not include any unit linked insurance policy or scripts or any such
instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the
persons and investment by such person and issued by an insurer referred to in clause (9) of section 2 of
the Insurance Act, 1938.

any certificate or instrument (by whatever name called)issued to an investor by any issuer being a special
purpose distinct entity which possess any debt or receivable, including mortgage debt, assigned to such
entity, and acknowledging beneficial interest of such investor in such debt or receivable, including
mortgage debt, as the case may be;

SPOT DELIVERY CONTRACT- same or next day

Ready delivery contract- maximum 11 days

CENTRAL govt grants recognition to stock exchanges, can withdraw recognition too. Powers given to
SEBI too concurrently

SEBI may, while approving the scheme by an order in writing, restrict:

the maximum number of representatives of the stock brokers of the recognised stock exchange to be
appointed on the governing board of the recognised stock exchange, which shall not exceed one-fourth of
the total strength of the governing board.

Section 8A(1) provides that a recognised stock exchange may, with the prior approval of SEBI, transfer
the duties and functions of a clearing house to a clearing corporation, being a company incorporated
under the Companies Act, 2013, for the purpose of –

(a) the periodical settlement of contracts and differences thereunder

(b) the delivery of, and payment for, securities
(c) ny other matter incidental to, or connected with, such transfer

REFUSAL OF LISTING SECURITIES-

Give reasons within 15 days

where the stock exchange has omitted or failed to dispose of, within the time specified in sub-section 1A)
of section 40 of the Companies Act, 2013, the application for permission for the shares or debentures to
be dealt with on the stock exchange, within fifteen days from the date of expiry of the specified time or
within such further period, not exceeding one month, as the Securities Appellate Tribunal may, on
sufficient cause being shown, allow appeal to the Securities Appellate Tribunal having jurisdiction in the
matter against such refusal, omission or failure, as the case may be, and thereupon the Securities
Appellate Tribunal may, after giving the stock exchange, an opportunity of being heard,

406 PAGE, 408, 409

Right of investors for dividend- within 15 days on which dividend became due

Right to receive income from collective investment scheme- same above

Right to receive income from mutual funds- same above

Central govt can delegate to SEBI or RBI powers as per securities act

ACT NOT APPLY TO NON TRANSFERRABLE SPECIFIC DELIVERY CONTRACTS

Stock exchanges and clearing corp networth required- 100 crores

414 page, 416 page, 417, 418, 428, 432, 433

Continous listing requirement- every listed company except publc sector co, shall maintain public
shareholding of atleast 25 percent