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Unit 14: Financial Regulations

of a third party, into the stock exchange or any of its members. All officers, directors, members, Notes
and others who have had dealings in matters under inquiry, are required to produce requested
documents, statements, or information.

The Central Government retains control over the stock exchange's bylaws and its rule amendment.
The stock exchange, subject to previous Central Government approval, has the authority to
make bylaws for regulation and control of contracts and the regulation of trading. Similarly, no
rule amendments have effect unless they are approved by the Central Government. The Central
Government, furthermore, has the power to direct the stock exchange to amend its rules; and if
it fails to do so, the Government may directly amend the rules of such a stock exchange. The
suspension of business may be complete or subject to conditions. Suspensions may not be of
more than seven days initially, but may be extended from time to time. The Central Government
may supervise the governing body of any exchange of declaration and then appoint any person
or group of persons to exceed and perform all the power and duties of the governing body.
Other powers granted to the Central Government include the authority to stop further trading
in a specified round for the purpose of preventing undesirable speculations, and the power to
compel a public company "in the initial of the trade or in the public interest" to list its securities
on any of the recognized exchanges.
The Securities Regulation Rules specifically provide for membership of an exchange. No person
can be eligible for membership if he is less than twenty-one years of age, is not a citizen of India,
has been adjudged bankrupt, or has been convicted of an offence involving fraud or dishonesty.
Under Section 8, rules relative to the membership of stock exchanges are given which are
reproduced as below.

Regulation of OTCEI

The functioning and operations of the OTCEI are subject to the provision of the Securities
Contracts (Regulation Act, 1956, the Companies Act, 1956 and other relevant laws, which are
applicable to Indian Stock Exchanges of operations are supervised by SEBI and Government of
India. The criteria for admission of members, licensed dealers and companies on the OTCEI are
prescribed as follows.

Criteria for Admission of Members

The members would be public financial institutions, scheduled banks, mutual funds, banking
subsidiaries, SEBI-registered merchant banks, venture capital funds and venture capital
companies, non-banking financial companies having a minimum financial net worth as specified
by OTCEI. The applicant should satisfy the elegant requirements of the Securities Contracts
(Regulation) Rules, 1957.
The member should posses the necessary skills, resources and capabilities to appraise project/
common establish its viability, analyze a company's financial worth, evaluate a company's
management and determine value for a company's products.
The member should have the necessary status and standing to be able to carry the confidence of
the members and licensed dealers while recommending any scrip for investment.

The member should have sufficient financial reserves to 'sponsor' and trade in the scrip.
The member should be authorized by SEBI for carrying out merchant banking activities.
The member should have adequate organizational infrastructure to establish and manage the
OTC count (that is, office space, computers, PTI scam, telephones, telex, fax and any other data
communication equipped specified).
The net worth of the member should be a minimum of ` 2.50 crores.

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