This document discusses the corporatization and demutualization of stock exchanges in India. When the Bombay Stock Exchange (BSE) was originally formed, it was organized as an Association of Persons (AOP) or Body of Individuals (BOI), with members handling all activities as owners, directors, employees, and brokers. The Securities and Exchange Board of India (SEBI) now requires all stock exchanges in India to corporatize by becoming companies and demutualize by separating ownership and management from trading. This involves stock exchanges preparing schemes for corporatization and demutualization to submit to SEBI for approval. If approved, the schemes must be published and the recognized stock exchange must meet ongoing

1. Securities Contracts Regulation Act, 1956
Part – 1

2. SCRA, 1956
Applicable to all securities and their transactions in India
It does not apply to:
• Government/RBI
• Local Authority
• Corporation set by special Law
• Any person who is having transaction with above entities
• Any convertible instruments there of
• Any class of contract exempted by CG

3. Buy
Sell
BSE

4. Corporatization and Demutualization
When BSE was formed – It was in the category of AOP / BOI
AOP – Association of Persons
BOI means a group of individuals (individual only) who join together for common
purpose(s) whether or not to earn income
A group of persons (whether individuals, HUF, companies, firms, etc.) who join
together for common purpose(s). Every combination of person cannot be termed as
AOP. It is only when they associate themselves in an income-producing activity then
they become AOP
BOI – Body of Individuals

5. In APO/BOI – All the members handle all the activities
• Owners
• Board of Directors
• Decision Makers
• Reporting Authority
• Employees
• Brokers
AOP/BOI/any other
Corporatization
Company

6. Demutualization
Members
Owners Management
Decision Makers Brokers/Trading Members
(Governing Body)

7. Management DM Brokers
Decision Making Yes Yes No
Price sensitive
information
Yes Yes No
Trading No No Yes
Stock Brokers No No Yes
Shareholding May Be Min. 51% Max. 49%
Governing Body NA Min. 3/4th
Representation
Max. 1/4th
Representation

8. CG/SEBI: It is compulsory for any body in India to Corporatize and Demutualize itself
if it has to work as Stock Exchange
The entity has to prepare a scheme (on how it will corporatize and Demutualize
itself) and submit it to SEBI
If Corp. & Dem. Happens according to scheme then it has to be published
News Paper Official Gazette
English Regional CG SG

9. Recognition of Stock Exchange
MOA, AOA & Bye Laws
Form A + Rs.500
If SEBI (CG) is satisfied then it may grant approval subject to some conditions
It can also refuse to give approval after giving chance of being heard

10. Conditions:
• Qualification for membership
• Representation of CG on Board of SE
• Maintenance of accounts of members and their audit
• Manner in which contract will be entered into and enforced between members
Maintenance of Books of Accounts
SE and its members have to maintain Books of Accounts up to 5 years
Reporting:
Annual – To CG & SEBI
Periodical – To SEBI
Based on such reporting – CG has the power to call information (within
specified period) (SEBI has the power of Inspection & Investigation)

11. Power to make Laws
CG has the power to make and amend (suo-moto) the bye laws of the SE with reason
SE has to apply these amendments within 2 months
If SE fails to apply these amendments within 2 months, an officer will be appointed
by CG to execute these law
SEBI can amend bye-laws in 2 ways
1) By Suo Moto
2) By Application from Governing Board of SE
Execution rules – Same as in case of CG
CG has power to suspend the business of SE not exceeding 7 days by notification in
the Official Gazette – for extension CG has to notify again

12. CG has power to suspend the business of SE not exceeding 7 days by notification in
the Official Gazette – for extension CG has to notify again
Power to Suspend:
Power to Supersede:
CG has power to supersede the Governing Body if it is engaged in fraudulent
activity by notification in Official Gazette (after giving enough chanced to
Governing Board of being heard)
CG may also appoint any person in place of GB to execute all the powers of the GB

13. Thank you