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Unit 14: Securities and Exchange Board of India

of the rules relating in general to the constitution of the stock exchange and in particular to, among Notes
other things, the admission into the stock exchanges of various bases of members, the exclusion,
expulsion and readmission of members, and the procedure for registration of a stock exchange. In
determining whether to grant recognition, the Central Government may make whatever require
is necessary and impose in the rules and bye-laws of the stock exchanges, whatever conditions
are required to ensure “fair dealing” and to “protect investors” These conditions concern, inter

alia, the qualification for members, the manner in which contracts are to be entered into and
enforced, the representation of not more than three Central Government nominees on the board
of the stock exchange, and the maintenance of books and record by members and their audit
by chartered accountants. The Central Government has the power to impose further conditions,
other than in the rules and bye-laws, such as limiting the number of members. Finally, the Central
Government has the power unilaterally to withdraw recognition.

After it recognizes a stock exchange, the Central Government exerts regulatory control over it,
and reports are furnished to the Central Government. Certain books and records are maintained
for a period years. The Central Government can make an equity itself, or through an appointment
of a third party, into the stock exchange or any of its members. All officers, directors, members,

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 bye-laws and its rule
amendment. The stock exchange, subject to previous Central Government approval, has the
authority to make bye-laws 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.

Did u know? Mumbai, Feb 7 (PTI) Taking a leaf out of the ` 14,000 crores Satyam fraud,
market regulator Sebi will recommended to the Corporate Affairs Ministry not to
provide voting rights to any person related to a company to guard against related party
transactions.
The Securities and Exchanges Board of India (SEBI) will suggest the rider to be included in new
Companies Bill, which is expected to be brought up for passage in Parliament in the Budget
session, the market regulator’’s exiting chief C B Bhave said at a press conference here.
“SEBI will recommend to the MCA...disallowing interested shareholders from voting on the
special resolution of the prescribed related party transaction. This will protect shareholders
from abusive related party transactions. This view was taken based on the learnings from the
investigation in the matter of Satyam Computer Services,” Bhave said.

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