Exit Policy for De-Recognized / Non-Operational Stock Exchanges

Securities & Exchange Board of India vide Circular No. CIR/MRD/DSA/14/2012 has revised/ modified the exit policy for de-recognized / non-operational stock exchanges which were earlier notified vide circular dated 29th December, 2008.

The Board has provided for the following exit options to Recognized stock exchanges, Stock exchanges that stand de-recognized as on date of this circular and Stock exchanges that have applied for de-recognition / exit as on the date of this circular:

1. Application to SEBI for voluntary surrender of recognition and exit, at any time before the expiry of 2 years from the date of issuance of this circular, for Stock exchanges with annual trading turnover of less than Rs. 1000 Crore on its own platform;
2. Compulsory de-recognition and exit by SEBI, if:
   • a stock exchange is unable to achieve turnover of Rs. 1000 Crores on continuous basis or;
   • does not apply for voluntary surrender of recognition and exit before the expiry of two years from the date of this Circular
   • failure of de-recognized stock exchanges to make an application for exit within two months from the date of this circular.

Provisions for the shareholders of exclusively listed companies

The Circular also provides for the process of exit option to the shareholders of such companies that are exclusively listed on stock exchanges seeking de-recognition and/ or exit and de-recognized stock exchanges.
It prescribes for the following:

• Facilitation by other recognized stock exchanges for the listing of such exclusively listed companies
• In the interest of the investors, such other recognized Exchanges may carry out changes in the listing criteria if necessary; or providing for differential listing criteria
• In case of failure of listing on other recognized exchange, such listed companies shall cease to a listed company and will be moved to the dissemination board, to be set-up by stock exchanges having nationwide trading terminals.

Dissemination Mechanism

Stock exchanges hosting the same shall be providing for the guidelines, under which a willing buyer and seller will be given an opportunity to disseminate their offers using the services of brokers of stock exchanges hosting dissemination board. The main features of the dissemination board shall be:

• Wide publicity in one leading national daily and one local daily for the benefit of the investors of exclusively listed companies
• Agreement between such exiting exchanges with the nation wide stock exchanges.
• Non-applicability of listing agreement
• Registration of buyers/ sellers with the broker of the exchange where the dissemination board is set up.
• No requirement of issuing contract notes for the transactions.
• No recourse to the Settlement/ Trade Guarantee Fund and Investor Protection Fund of the Exchange for the trades on Dissemination Board

Provisions for the members of the stock exchanges seeking de-recognition and/ or exit and de-recognized stock exchanges

• Such exchanges to provide trading opportunity to their trading members to trade on stock exchanges having nationwide terminals through their subsidiary company, which will function as normal broking entity (with change in name so to avoid any affiliation with stock exchange), in terms of SEBI circular dated December 29, 2008 and in compliance of, inter alia, the provisions of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.
• Termination of MoU mechanism, if any, between a stock exchange not having nationwide trading terminal and a stock exchange having nationwide trading terminal, and providing the trading members of erstwhile stock exchanges access to exchanges having nationwide terminals through membership of the existing subsidiary company.

Treatment of assets of de-recognized exchange

• The Circular also lays down the provisions for treatment of assets of the Exchange in case of derecognition, subject to certain conditions laid by SEBI, Government(s), or any other statutory authority from time to time.
• Appointment of valuation agency by SEBI
• Approval of SEBI before alienating any assets
• Method for determination of quantum of assets for distribution
• Contribution of up to 20% of its assets (after tax) towards SEBI Investor Protection and Education Fund (IPEF) for investor protection and in order to cover future liabilities, if any. The contribution may be decided by SEBI taking into account, inter alia, the governance standards of the stock exchange and estimation of future liabilities.
• Sale/distribution/transfer of assets/winding up of such exchanges/ companies shall be subject to the applicable laws in force.
• In case of continuity as an entity after de-recognition, prohibition to use expression stock exchange or its variant in its name or in its subsidiaries name