Sebi withdraws recognition to Delhi Stock Exchange citing 'serious irregularities'

The Securities and Exchange Board of India (Sebi) on Wednesday withdrew the recognition granted to the Delhi Stock Exchange (DSE), citing "serious irregularities" in the functioning of the bourse.

The capital market regulator has also observed that activities of DSE were "carried out in a manner contrary to the interest of the investors".

"... Hereby withdraw the recognition granted to Delhi Stock Exchange," Sebi Whole Time Member Prashant Saran said in a 19-page order.

The watchdog will take all necessary steps consequential to the derecognition.

"I note that serious irregularities have been found in the functioning of DSE at the time when DSE was taking steps for demutualisation," Saran said.

"It is seen that for completing the demutualisation process the erstwhile board of DSE had overlooked the due transfer of shares in the demat accounts and receipt of the funds by the appointed date," the official added.

Further, the bourse acted in a irregular manner in case of "releasing the funds to the merchant banker, without receipt of the application money, allotment of shares to media company and in turn awarding them media contract etc, without any corresponding utilisation of media space".

Among others, Sebi rules pertaining to demutualisation requires every stock exchange to sell brokers' 51 per cent equity to separate their trading and ownership rights.

The present governing board of DSE admitted that a false certificate of completion of demutualisation process has been submitted by the erstwhile management of the exchange.

"It is seen that the present management, even after getting to know about the irregularities committed by the erstwhile management, has not initiated any action," the capital market regulator said.

"From the same, it can be concluded that DSE had failed to complete the demutualisation process before the 'appointed date," Sebi said.

Therefore, the recognition granted to DSE was withdrawn, Sebi added.

The watchdog also said that mutual fund companies, which are yet to comply with the requirement of minimum Rs 50 crore networth, can only launch a maximum of two schemes annually till the time they meet norms.

However, such permission would be considered on a case to case basis, depending on such fund houses demonstrating that serious efforts are being made by them to meet the networth requirements within the prescribed timelines.

The regulator hiked the minimum net worth requirement for mutual funds to Rs 50 crore from Rs 10 crore in a move to weed out non-serious players and to ensure stability of the financial system. They have been given three years to comply with regulations.

Sebi is said to have stopped clearing applications for any new fund offers (NFOs) of fund houses whose networth is below the required level.

According to industry experts, the regulator has received offer documents from many of these fund houses to launch new schemes, but it is not approving them.

The capital market watchdog has approved one-time registration process for depository participants to operate on both CDSL and NSDL.

The initiative would help streamline and simplify the registration process and will reduce the regulatory burden and save the cost and time of the applicants.

Currently, the depository participants are required to obtain separate registration for both the depositories.

Further, the applicants are granted initial registration for five years and then permanent registrations.

The board also took note of the recommendations - regarding simple, formalised and risk-based supervision approach for market intermediaries - made by consultant Oliver Wyman, who was appointed by Sebi.

Based on the recommendations, the market watchdog is in the process of formalising its risk based approach towards supervision of market intermediaries which would be in alignment with the global best practices. The system will be implemented in a phased manner, the release said.

Further, the Sebi board has approved a proposal to allow Venture Capital Investors (FVCIs) in Core Investment Companies (CICs) for infrastructure sector to help attract overseas funds in this space.

The move will remove any hindrance for investment in the infrastructure sector through the FVCI route and to boost the infrastructure sector in the country.

Besides, the regulator has accepted the recommendations of 'Depository System Review Committee' on risk management, financial inclusion and expanding the reach of depository services and Investor Protection Fund of the depositories.

The committee was constituted to assess the depository system on the basis of CPSS-IOSCO principles so as to benchmark with global best practices and suggest areas for improvement.

Further Sebi's board approved the proposal to frame suitable regulations for using secondary market infrastructure for public issuance (e-IPO).

Additionally, the capital market regulator has given nod to the proposal to initiate public consultation process on re-classification of promoters and the regulator also approved proposal regarding issuance of partly paid shares and warrants by domestic companies.