SECURITIES AND EXCHANGE BOARD OF INDIA SECONDARY MARKET DEPARTMENT Mittal Court, A Wing, Gr. Floor, 224, Nariman Point, Mumbai 400 021
To
The Presidents/ Executive Directors/ Managing Directors All Stock Exchanges.
Dear Sirs,
Sub : Merger/ Amalgamation of trading members.
When two or more corporate broking firms merge leading to creation of a new entity, the SEBI registration granted to the extinguishing entity does not automatically devolve upon the emerging entity and the new entity has to fulfil the eligibility criteria and apply afresh for registration and pay the registration fees.
It is generally seen that while the application comes to SEBI after the court has approved the scheme of amalgamation/ merger, the existing entity is required to seek prior approval from SEBI in case of any change in its constitution, in terms of Rule 4(c ) of SEBI (Stock Brokers and Sub-brokers) Rules and Regulations, 1992. Therefore, you are advised that as soon as the application for merger is filed before the High Court, the extinguishing broking entity should approach SEBI through the Stock Exchange for obtaining prior permission, to the scheme of merger/ amalgamation giving all necessary details of the proposal.
It is also seen that some of the Stock Exchanges would be inclined to disconnect the trading terminal of the extinguishing entity, on the approval of the scheme of the merger by the High Court until SEBI grants registration to the new emerging entity. As this may cause hardship to the business interests of the emerging entity , it is suggested that the emerging entity may be allowed to trade on the registration of the extinguishing entity for a period of say 45 days. However, the emerging entity should apply to SEBI at the earliest and give an undertaking to be liable for the act of the extinguishing entity and such applications in any case should be made not later than 30 days of the registration granted by the Registrar of companies to the emerging entity. In view of the above, you may consider amending the Bye-laws/ trading rules suitably.
Yours faithfully,
M.D. PATEL EXECUTIVE DIRECTOR