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#### #### #### Chief General Manager M arket Intermediaries Regulation & Supervision Department MIRSD/MSS/Cir- 30/ 13289/03 July 09, 2003 To The Executive Director/Managing Director All Stock Exchanges Dear Sir / Madam, Subject: Change in Status and Constitution of the Stock Brokers in Cash and Derivatives Segments of the Exchanges under Rule 4 (c) of the SEBI (Stock Brokers and Sub-Brokers) Rules, 1992 Rule 4 of the SEBI (Stock-brokers and Sub-brokers) Rules, 1992 prescribes the conditions for grant of certificate of registration to a stock-broker. Rule 4 (c) of the said Rules prescribes that in case of any change in the status and constitution, the stock-broker shall obtain prior approval of the SEBI to continue to buy, sell or deal in securities in any stock exchange. In the absence of any general advice to stock exchanges about the circumstances requiring prior approval, it is observed that different exchanges follow different practices. For a particular type of change, some exchanges seek approval while some others do not. In order to clarify the circumstances which require prior approval and streamline the process of such approvals, this circular is being issued. 2. The following table enumerates the circumstances which would mean change in status and constitution under rule 4 (c) of the SEBI (Stock Brokers and Sub-Brokers) Rules, 1992 and hence would require prior approval of the SEBI:
Sl. No. | Type of Change in Status and Constitution | Remarks
A | Change in designated / whole time directors | The fees need to be paid as per the prevailing policy.
B | Change in ‘Control’ ‘Control’ would have same meaning as defined in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. | Full fees along with interest, if any, as on the date of application for approval needs to be paid. These prior approvals would have a validity of six months from the date of issue, i.e. applications for fresh registration, wherever required, shall be made to SEBI within six months.
C | Conversion from one form to another (Proprietorship, partnership and corporate)
D | Transfer by way of sale, nomination, or otherwise
E | Consolidation / merger / amalgamation of brokers
F | Surrender of Certificate of registration | Full fees, along with interest, if any, as on the date of acceptance of surrender by the Exchange needs to be paid. If application for surrender is accepted by SEBI, registration would be cancelled by SEBI with effect from the date of acceptance of surrender by the exchange. The exchange would cancel registration with effect from the same date but after receipt of advice from SEBI that the surrender has been accepted by SEBI. Until SEBI cancels the registration and issues No Dues Certificate, the security deposit of the broker shall not be released to the broker by the exchange.
3. In all the above cases (Para 2), the exchange must approve the application of the broker and forward the same, within a week of its approval, to SEBI for prior approval along with a confirmation (if otherwise, the details of the same) on the following: a) the broker is not connected with any of the defaulting brokers of any exchange, b) no complaint / arbitration /disciplinary proceeding is pending against the broker, c) no investigation / inquiry by any exchange is pending against the broker, d) as on date of application, the broker, as a broker of the concerned exchange, has paid fees, as applicable, to SEBI, e) the turnover details necessary to assess the fee liability of the broker have been provided to SEBI in the prescribed manner, f) in case of approvals at Sl. C, D, and E, the outgoing broker has submitted an undertaking to the exchange that it / he would be liable for the fees that may accrue from the date of application for prior approval till the date of change in status, g) in case of approvals at Sl. C, D, E and F, the outgoing broker has submitted an undertaking to the exchange that it / he would be liable for all liabilities/obligations (including monetary penalties, if any) for violations, if any, of the provisions of the SEBI Act and the SEBI (Stock-brokers and Sub-brokers) Rules and Regulations, 1992 that have taken place before this change in status and constitution, h) in case of approvals at Sl. C, D, E and F, the outgoing broker has submitted an undertaking to the exchange that it / he has no sub-brokers on the concerned exchange and he / it is not a sub-broker of the subsidiary of the concerned exchange, i) the incoming designated / whole time director is eligible to be appointed as director under the Securities Contracts (Regulation) Act, 1956, and j) in case of approval at Sl. No. F, the surrendering broker has been disabled from trading and the application for surrender is accompanied by the original certificate of registration (or indemnity) for cancellation. 4. The exchanges shall obtain fee clearance from SEBI before taking on record / approving the following changes: Change in shareholding pattern without change in control, Issue and redemption of preference shares, issue of bonus shares, and Change in directors other than designated / whole time directors 5. In order to enable SEBI to determine fee liability of the broker, the exchange shall provide turnover details of the broker in the prescribed manner along with the application for prior approval or fee clearance. 6. Change in name would not amount to change in status and constitution and hence no approval is required for the same. However, change in name must be intimated to SEBI within a week of the change in name along with the original certificate for record. 7. This circular supercedes SEBI circulars / letters (i) SMD/BAD-II/9657/98 dated April 06, 1998 regarding prior approval for sale of membership, (ii) SMD/DBA-II/AK/10162/02 dated June 06, 2002 regarding Applications for registration / requisite approvals and (iii) SMD/NDC/ MSS/3998/2003 dated March 11, 2003 regarding Cancellation of Certificate of Registration and Issue of No Due Certificate. Yours faithfully, (M. S. Sahoo)