Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2020

SECURITIES AND EXCHANGE BOARD OF INDIA

NOTIFICATION

Mumbai, the 8th October 2020

SECURITIES CONTRACTS (REGULATION) (STOCK EXCHANGES AND CLEARING
CORPORATIONS) (AMENDMENT) REGULATIONS, 2020

No. SEBI/LAD-NRO/GN/2020/32.—In exercise of the powers conferred by sections 4, 8A and 31 of the Securities Contracts (Regulation) Act, 1956, read with sections 11 and 30 of the Securities and Exchange Board of India Act, 1992, the Securities and Exchange Board of India hereby makes the following regulations to further amend the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, namely:—

1. These regulations maybe called the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2020.

2. They shall come into force on the date of their publication in the Official Gazette.

3. In the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, –

I. In regulation 2, sub-regulation (1), –

i. clause (d) shall be substituted with the following clause, namely,-

“”clearing corporation” means an entity that is established to undertake the activity of clearing and settlement of trades in securities or other instruments or products that are dealt with or traded on a recognized stock exchange and includes a clearing house and a limited purpose clearing corporation specified under Chapter IV-A.”

ii. after clause (h), the following clause shall be inserted, namely,-

“(ha) “debt securities” means corporate bonds, debentures or any other debt instruments as may be specified by the Board;”

iii. after clause (j), the following clause shall be inserted, namely,-

“(ja)”limited purpose clearing corporation” means an entity that is established to undertake the activity of clearing and settlement of repo transactions;”

iv. after clause (r), the following clause shall be inserted, namely,-

“(ra)“repo” means an instrument for borrowing by selling debt securities with an agreement to repurchase the debt securities on an agreed future date at an agreed price which includes interest on funds borrowed;

(rb)“repo transaction” means a transaction in repo and reverse repo in the debt securities that are dealt with or traded on a recognised stock exchange;

(rc)“reverse repo” means an instrument for lending by purchasing debt securities with an agreement to resell the debt securities on an agreed future date at an agreed price which includes interest on funds lent;”

II. In regulation 7, sub-regulation (4), –

i. after clause (a), the following proviso shall be inserted, namely,-

“Provided that where the applicant is a limited purpose clearing corporation specified under Chapter IV-A, compliance with the requirement under this clause may be demonstrated by way of outsourcing arrangement(s) with a recognized clearing corporation(s), subject to such conditions as may be specified by the Board from time to time;”

ii. after clause (g), the following proviso shall be inserted, namely,-

“Provided that where the applicant is a limited purpose clearing corporation specified under Chapter IV-A, compliance with the requirement under this clause may be demonstrated by way of outsourcing arrangement(s) with a recognized clearing corporation(s), subject to such conditions as may be specified by the Board from time to time;”

III. after Chapter IV, the following Chapter shall be inserted, namely, –

“CHAPTER IV – A

LIMITED PURPOSE CLEARING CORPORATION

Applicability

22A. (1) The provisions of this Chapter shall only apply to the recognized limited purpose clearing corporations.

(2) All provisions under these regulations, except regulation 18, regulation 31 and regulation 38, shall apply to the recognized limited purpose clearing corporation.

Shareholding in a recognised limited purpose clearing corporation

22B. (1) No person resident in India shall at any time, directly or indirectly, either individually or together with persons acting in concert, acquire or hold more than five per cent. of the paid-up equity share capital in a limited purpose clearing corporation:

Provided that, —

(a) a depository;

(b) a banking company;

(c) an insurance company;

(d) a recognised stock exchange;

(e) a recognised clearing corporation;

(f) a public financial institution;

(g) an asset management company of a mutual fund registered with the Board; and

(h) an asset management company of a pension fund registered with the Pension Fund Regulatory and Development Authority;

may acquire or hold, either directly or indirectly, either individually or together with persons acting in concert, up to fifteen per cent of the paid- up equity share capital of a recognised clearing corporation.

(2) No person resident outside India shall, directly or indirectly, either individually or together with persons acting in concert, acquire or hold more than five per cent of the paid-up equity share capital in a recognised clearing corporation.

Provided that, —

(a) a foreign stock exchange;

(b) a foreign depository;

(c) a foreign banking company;

(d) a foreign insurance company;

(e) a foreign commodity derivatives exchange; and

(f) a bilateral or multilateral financial institution approved by the Central Government,

may acquire or hold, either directly or indirectly, either individually or together with persons acting in concert, up to fifteen per cent of the paid-up equity share capital of a recognized clearing corporation.

Explanation. — For the purpose of this proviso, the persons referred to in clauses (a) to (f) shall mean persons recognised/incorporated outside India.

(3) Subject to the limits as otherwise prescribed by the Central Government from time to time, the combined holding of all persons resident outside India in the paid-up equity share capital of a recognised clearing corporation shall not exceed, at any time, forty-nine per cent of its total paid up equity share capital.

(4) The shareholding of persons setting up the limited purpose clearing corporation shall be locked-in for a period of five years from the date of grant of recognition by the Board.

Composition of the governing board of recognised limited purpose clearing corporation

22C. The representative of the issuers of debt securities may be appointed on the governing board of the recognized limited purpose clearing corporation on a rotational basis and such a director shall be deemed to be a shareholder director.

Explanation. — For the purpose of this sub-regulation, representative of issuers of debt securities during a financial year shall be one amongst the top three issuers, which are public sector undertakings, based on their issue size in the preceding financial year.

Contribution to the Settlement Guarantee Fund

22D. (1) The contribution to the Fund as specified in regulation 37 shall be made by the recognized limited purpose clearing corporation, the clearing members and issuers of the debt securities, in the manner as may be specified by the Board from time to time.

(2) Any shortfall in the Fund, shall be replenished by the recognized limited purpose clearing corporation to the threshold level as may be specified by the Board from time to time.

Utilization of profits and investments

22E. (1) The utilization of profits and investments by recognized limited purpose clearing corporations shall be in accordance with the norms specified by the Board:

Provided that for the first five years from the date of grant of recognition by the board, there shall be no distribution of dividend to the shareholders and the profits of recognized limited purpose clearing corporation shall be transferred to the Fund specified in regulation 37.

(2) The limited purpose clearing corporation shall not carry on any activity whether involving deployment of funds or otherwise without the prior approval of the Board:

Provided that the prior approval of the Board shall not be required in case of treasury investments if such investments are as per the investment policy approved by the governing board of limited purpose clearing corporation.

Arbitration Mechanism

22F. The recognized limited purpose clearing corporation shall have arbitration mechanism for settlement of disputes or claims arising out of transactions cleared and settled by it.”

AJAY TYAGI, Chairman

[Advt.-III/4/Exty./285/2020-21]

Footnote:

1. The Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 were published in the Gazette of India on 3^rd October 2018 vide No. SEBI/LAD-NRO/GN/2018/41.

2. The Securities and Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 were subsequently amended –

(a) 4^th June, 2019, the Securities and Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2019 vide No. SEBI/LAD-NRO/GN/2019/21.

(b) 17^th April, 2020, the SEBI (Regulatory Sandbox) (Amendment) Regulations, 2020, vide No. No. SEBI/LAD-NRO/GN/2020/10.