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Stock exchanges to give share-holding information to SEBI

23rd March, 2012

The Bombay High Court, in its recent judgment, has held that stock exchanges should keep SEBI informed regarding their shareholdings as required under the Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognized Stock Exchanges) Regulations, 2006 [in short MIMPS]. The court observed that the Petitioner and its promoters may be correct in asserting that existence of buy back agreement does not ipso facto result in a violation of the MIMPS Regulations, but SEBI as a regulator must be informed about the same.
The court observed that existence of buy back agreement is a relevant consideration in enabling SEBI to determine as to whether there was a genuine divesting of shares held by the promoters in exeess of the limit. It held that compliance with the provisions of the MIMPS Regulations by the promoters of the stock exchange cannot be cloaked in secrecy qua SEBI as a regulator. It was observed that the relationship between a stock exchange and SEBI must be founded in trust and good faith and that mandating full disclosure of compliance requirements is necessary in order to ensure transparent and accountable governance.

The High Court, however, found that there was bona fide effort on the part of the petitioner and its two promoters to ensure that they do not breach MIMPS Regulations by undertaking to the Court that shareholding of the promoters together shall not exceed the limit of 5% prescribed under the MIMPS Regulations. The Court remanded the matter back to SEBI for reconsideration. According to the Court, buy-back arrangements were not forward contracts.  Earlier, SEBI had rejected an application filed by the petitioner for permission to undertake business as a stock exchange, other than for the currency derivatives segment.
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