MoF issues Securities Contracts (Regulation) (Amendment) Rules, 2017

Ministry of Finance (MoF) vide notification dated 27^th June, 2017 issued the Securities Contracts (Regulation) (Amendment) Rules, 2017 (Amendment Rules)[1] to amend Rule 8 of the Securities Contracts (Regulation) Rules, 1957[2] (Principal Rules).

Rule 8 of the Principal Rules deals with the qualifications for membership of a recognized stock exchange.

The above mentioned notification amends Rule 8 of the Principal Rules in the following way:

1. First proviso to Rule 8(1)(f) is omitted;
2. Second proviso to Rule 8(1)(f) is substituted;

• The words “items (a) to (n) of the proviso to sub-rule (4)” in Rule 8(3)(f)(iii) is substituted;

First proviso to Rule 8 (1)(f) omitted

The first proviso to Rule 8(1)(f) of the Principal Rules reads:

“Provided that no member may conduct business in commodity derivatives, except  by  setting  up  a  separate  company  which  shall  comply  with  the  regulatory  requirements,  such  as,  networth,  capital  adequacy,  margins  and  exposure  norms  as  may  be  specified  by  the  Forward  Market  Commission,  from time to time”

Second proviso to Rule 8 (1)(f) substituted

Prior to the Amendment Rules, second proviso to Rule 8(1)(f) read:

“Provided further that nothing herein shall be applicable to any corporations, bodies corporate, companies or institutions referred to in items (a) to (n) of the proviso to sub-rule (4)”

The above proviso has been substituted by the Amendment Rules to read:

““Provided that nothing herein shall be applicable to any corporations, bodies corporate, companies or institutions referred to in clauses (a) to (n) of sub-rule (8)”

Sub-rule 8 of Rule 8 of the Principal Rules reads:

“Where  the  Securities  and  Exchange  Board  of  India  makes  a  recommendation,  the  governing  body  of  a  stock  exchange  shall,  admit  as  member  the  following  corporations, bodies corporate, companies or institutions, namely :‑

1. the Industrial Finance  Corporation,  established  under  the  Industrial  Finance Corporation Act, 1948 (15 of 1948);
2. the Industrial  Development  Bank  of  India,  established  under  the  Industrial Development Bank Act, 1964 (18 of 1964);
3. any insurance   company   granted   registration   by   the   Insurance   Regulatory  Development  Authority  under  the  Insurance  Act,  1938  (4  of1938);
4. the Unit  Trust  of  India,  established  under  the  Unit  Trust  of  India  Act,  1963 (52 of 1963);
5. the Industrial  Credit  and  Investment  Corporation  of  India,  a  company  registered under the Companies Act, 1956 (1 of 1956);
6. the subsidiaries  of  any  of  the  corporations  or  companies  specified  in  clauses  (a)  to  (e)  and  any  subsidiary  of  the  State  Bank  of  India  or  any  nationalised  bank  set  up  for  providing  merchant  banking  services,  buying  and selling securities and other similar activities;
7. any bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);
8. the Export  Import  Bank  of  India,  established  under  the  Export  Import  Bank of India Act, 1981 (28 of 1981);
9. the National  Bank  for  Agriculture  and  Rural  Development,  established  under the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);
10. the National  Housing  Bank,  established  under  the  National  Housing  Bank Act, 1987 (53 of 1987);
11. Central Board  of  Trustees,  Employees’  Provident  Fund,  established  under  the  Employees’  Provident  Funds  and  Miscellaneous  Provisions  Act,  1952 (19 of 1952);
12. any pension  fund  registered  or  appointed  or  regulated  by  the  Pension  Fund  Regulatory  and  Development  Authority  under  the  Pension  Fund  Regulatory And Development Authority Act, 2013 (23 of 2013);
13. any Standalone  Primary  Dealers  authorised  by  the  Reserve  Bank  of India  constituted  under  the  Reserve  Bank  of  India  Act,  1934  (2  of  1934);  and
14. Category I and Category II foreign portfolio investors registered under the Securities  and  Exchange  Board  of  India  (Foreign  Portfolio  Investors)  Regulations, 2014:

Reference to sub rule 8 in Rule 8(3)(f)(iii)

Prior to the amendment, Rule 8(3)(f)(iii) of the Principal Rules read:

“nothing  herein  shall  affect  members  of  a  recognised  stock  exchange  which  are  corporations,  bodies  corporate,  companies  or  institutions  referred to in items (a) to (n) of the proviso to sub-rule (4).”

Vide the Amendment Rules, the reference to sub-rule 4 has been changed to sub-rule 8 as the relevant provisions previously under sub-rule 4 was placed under sub-rule 8 vide Securities Contracts (Regulation) (Amendment) Rules, 2017 with effect from 20 March 2017.

Conclusion

The Amendment Rules primarily was to amend Rule 8 which deals with the qualifications for membership of recognized stock exchanges. Pursuant to the omission of the First Proviso to Rule 8(1)(f) of the Principal Rules vide the Amendment Rules,  the restriction on a member of a stock exchange to conduct business in commodity derivatives only by a separate company has been removed.

[1] http://egazette.nic.in/WriteReadData/2017/176971.pdf

[2] http://www.sebi.gov.in/legal/rules/feb-1957/securities-contracts-regulations-rules-1957_34671.html

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by Vignesh Iyer (corplaw@vinodkothari.com)