Investment in the equity shares of (BSEL) Bombay Stock Exchange Limited

Attensions to the investors: read for investing in shares of BSEL (Bombay Stock Exchange Limited)
1.1 Attention of the investors is invited to the Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) Regulations, 2006, (hereinafter 'the Regulations'), notified by Securities and Exchange Board of India (SEBI) on 13th November,2006.

1.2 Chapter III of the Regulations inter-alia stipulates the shareholding restrictions and eligibility criteria for holding equity shares in the recognized Stock Exchange as under:

1.2.1 Shareholding and transferability restrictions
Regulation 8 (1) of the Regulations provides that no person shall, directly or indirectly, acquire or hold more than five per cent in the paid up equity capital of a recognised stock exchange at any time after commencement of these regulations.

1.2.2 Eligibility criteria for persons acquiring or holding more than one per cent equity shares in a recognised stock exchange

Regulation 9. (1) of the Regulations provides that no person shall, either individually or together with persons acting in concert with him, acquire and/or hold more than one per cent of the paid up equity capital of a recognised stock exchange after commencement of these regulations, unless he is a fit and proper person and has taken prior approval of the SEBI for doing so.

Further, regulation 9(2) provides that for the purpose of sub-regulation (1), a person shall be deemed to be a fit and proper person if -

1. such person has a general reputation and record of fairness and integrity, including but not limited to -
1. financial integrity;
2. good reputation and character; and
3. honesty.
2. such person has not incurred any of the following disqualifications -

1. the person or any of its whole time directors or managing partners has been convicted by a Court for any offence involving moral turpitude or any economic offence, or any offence against the securities laws;

2. an order for winding up has been passed against the person;

3. the person or any of its whole time directors or managing partners has been declared insolvent and has not been discharged;

4. an order, restraining, prohibiting or debarring the person, or any of its whole time directors or managing partners from dealing in securities in the capital market or from accessing the capital market has been passed by the Board or any other regulatory authority and a period of three years from the date of the expiry of the period specified in the order has not elapsed;

5. any other order against the person or any of its whole time directors or managing partners which has a bearing on the capital market, has been passed by the Board or any other regulatory authority and a period of three years from the date of the order has not elapsed;

6. the person has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force; and
7. the person is financially not sound.

In terms of regulation 9(3) If any question arises as to whether a person is a fit and proper person, the SEBI's decision on such question shall be final.

2.1 Under the BSE (Corporatisation and Demutualisation) Scheme, 2005 the Exchange has to ensure that "Public" other than shareholders having trading rights continuously hold at least 51% of equity shares of the Exchange.

2.2 In terms of regulation 2 (h) of the Regulations "public" includes any member or section of the public but does not include any share holder of the recognised stock exchange having trading rights therein or any associate of such shareholder;

2.3 According to the clarification received from SEBI vide MRD/DSA/SE/Cir-09/08 dated April 17, 2008 the term "shareholder having trading rights' mentioned in the Regulations would mean a shareholder who has a trading interest in the stock exchange, whether directly or indirectly through a person having trading rights.

Explanation: a shareholder having trading interest 'indirectly' in relation to a person having trading rights would be understood in the same manner as the term 'associate' is in relation to a shareholder having trading rights under regulation 2(1)(b) of the Regulations.

2.4 Attention of the Investors is also invited to the term "Associate" in relation to a shareholder having trading rights in a recognised stock exchange as defined in the Regulations.

In terms of regulation 2 (1) (b) of the Regulations "associate" in relation to a shareholder having trading rights in a recognised stock exchange means a person -

1. who directly or indirectly, by himself or in combination with other persons, exercises control over such shareholder or holds substantial shares entitling not less than fifteen per cent of the voting rights in such shareholder being a body corporate; or

2. over whom such shareholder, directly or indirectly, by itself or in combination with other persons, exercises control; or

3. whose director or partner is also a director or a partner of such shareholder , being a body corporate or a partnership firm, as the case may be; or

4. who is a holding company or subsidiary company of such shareholder or acompany under the same management as such shareholder; or

5. who is a relative of the shareholder being a natural person under Schedule IA of the Companies Act, 1956 (1 of 1956); or
6. who is a sub-broker of the shareholder in that stock exchange; or

7. who acts in accordance with instructions of such shareholder in the exercise of voting rights and other rights in the recognised stock exchange, directly or indirectly.

3 Attention of the Investors is further invited to the term "Persons Acting in Concert" [for the purpose of regulation 9(1) of the Regulations] as defined under Securities & Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (SAST Regulations)

In terms of regulation 2 (e) of the SAST Regulations "person acting in concert" comprises,-

1. persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company,

2. without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established :

1. a company, its holding company, or subsidiary or such company or company under the same management either individually or together with each other;
2. a company with any of its directors, or any person entrusted with the management of the funds of the company;
3. directors of companies referred to in sub-clause (i) of clause (2) and their associates;
4. mutual fund with sponsor or trustee or asset management company;
5. foreign institutional investors with sub-account(s);
6. merchant bankers with their client(s) as acquirer;
7. portfolio managers with their client(s) as acquirer;
8. venture capital funds with sponsors;

9. banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirer :
   
   Provided that sub-clause (ix) shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptances and other registration work;

10. any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2 per cent of the paid-up capital of the latter company.

Note: For the purposes of this clause "associate" means,-

1. any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and

2. family trusts and Hindu undivided families.

4.1 In view of the aforesaid provisions, any person desirous of acquiring the shares of Bombay Stock Exchange Limited (BSE) should adhere to the following conditions:

1. That under the Regulations, there are restrictions on holding (either directly or indirectly) more than 5% of the paid up capital of the BSE;

2. That under the Regulations there are restrictions on holding (either individually or together with persons acting in concert with him) more than 1% in the paid up equity capital of BSE without complying with "fit and proper" criteria.

4.2

In order to comply with the aforesaid provisions as stipulated by SEBI, investor(s) before acquiring equity share(s) of BSE, are hereby advised to disclose/declare in the prescribed format given hereunder to the Exchange, which inter alia include among other things:

1. Whether such investor(s) is falling under the category of "Public" / "Trading Member of BSE" / "Associate of shareholder having trading rights in BSE";

2. details of the persons with whom he is associated [in terms of regulation 2(1)(b) of the Regulations]; and

3. details of the persons acting in concert [for the purpose of regulation 9(1) of the Regulations] with such investor(s) as defined under SAST Regulations.

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