MEMBERSHIP DEPARTMENT

 

Circular No. 513        

Ref. NSE/MEM/7157                                                                                  February 9, 2006

 

All Trading members,

 

            Sub: Admission and continued compliance of Dominant Promoter Norm

Trading members are hereby notified the current norms relating to dominant promoters in respect of corporate trading members and dominant partners in respect of partnership firms. All trading members are required to meet these norms on a continuous basis.  

I.          Corporate Trading Member

A.        Unlisted Corporate Trading Member    

A corporate trading member is required to identify a group of shareholders (Dominant Promoter Group - DPG), who normally would be individuals, not exceeding 4, who jointly and/ or severally shall hold not less than 51% of shares in the trading member corporate at the time of admission as well as subsequently at all relevant points of time.

The shareholding/interest of close relatives of the DPG viz. Parents, spouse, children, brothers and sisters would also be counted for arriving at total dominant holding / interest, if such relative(s) give an unqualified and irrevocable support in writing to the individual concerned in respect of such holding / interest.

 

 

B.         Listed Corporate Trading Member

a) A corporate trading member with net worth of less than Rs.50 Crs, is required to identify a group of shareholders (Dominant Promoter Group - DPG), who normally would be individuals, not exceeding 4, who jointly and/ or severally shall hold not less than 40% of shares in the trading member corporate at the time of admission as well as subsequently at all relevant points of time.

b) A corporate trading member with net worth of Rs.50 Crs and above, is required to  identify a group of shareholders (Dominant Promoter Group – DPG), who normally would be individuals, not exceeding 4, who jointly and/ or severally shall hold not less than 26% of shares in the trading member corporate at the time of admission as well as subsequently at all relevant points of time.

The shareholding / interest of close relatives of the DPG viz. Parents, spouse, children, brothers and sisters would also be counted for arriving at total dominant holding / interest, if such relative(s) give an unqualified and irrevocable support in writing to the individual concerned in respect of such holding / interest.

The above norms will be applicable even for the existing unlisted trading member corporate proposing to get listed and on listing they are required to meet the existing norms applicable to the listed corporate trading members.

If there is a change in the promoter group through a take over process and a new group acquires controlling interest, the changes shall be treated as transfer of membership of the trading member corporate.

 

II.        Corporate shareholders to be identified as dominant shareholders

(a) Corporate shareholders are allowed to be identified as dominant shareholders (Dominant Promoter Group - DPG) of a corporate trading member, if they are listed corporates, each having a networth of Rs.50 Crores and above and the promoter group of the listed corporate holds at least 26% of the share capital.

(b) Corporate shareholders not meeting the above norm can still be brought into the dominant shareholders group (DPG) provided:

 

                                                 or

 

there are two or more listed corporate shareholders jointly holding at least 51%  of the share capital of the holding company and the promoter group holding in the listed corporates (independently) is at least 40%

or

 

one or more listed corporate shareholders along with individual shareholders (belonging to the promoter group) together, not exceeding four in number, jointly hold at least 51% of the shares of the holding company, and the promoter group holding in the listed corporate is at least 40%

Provided that in none of the above instances the holding company of the trading member corporate becomes the subsidiary of another corporate.


Note:

Existing unlisted corporate shareholder(s) of the trading member entity, proposing to get listed should continue to have their dominant promoters holding not less than 40% or 26% as the case may, of the share capital post listing. 

The said dominant promoters undertake in writing, not to dilute their shareholding in the holding company without prior consent of the Exchange.

If there is a change in the promoter group of such dominant corporate shareholders through a take over process and a new group acquires controlling interest in such dominant corporate shareholder, the changes may be treated as reconstitution of the trading member corporate tantamounting to transfer of membership.

III.       Banks, central or state government owned Finance and/or Development Institutions 

 

Scheduled banks, central or state government owned Finance and/or Development Institutions etc are also allowed to be identified as dominant shareholder(s) even if they are not listed provided they have a networth of atleast Rs.50 Crores.


IV.       Foreign Entities

 

For foreign entities taking trading membership of the Exchange through their Indian subsidiary under the automatic approval route permitted by the Government (i.e., without approaching the FIPB), subject to compliance with the guidelines of the RBI in this regard :-

(1) The promoting foreign entity or its subsidiary should be either a bank or insurance organisation regulated by the Central Bank or such other appropriate regulatory authority of that country

Or

The promoting foreign entity or its subsidiary should be broking house/ participant in the securities market that is registered or regulated by the relevant regulatory authority of that country and that the relevant authority should be a member of International Organisation of Securities Commission (IOSCO). The entity should have a sound track record.

Or

The promoting foreign entity is one whose domestic arm or subsidiary is registered with SEBI for participation in any domestic venture for custodial or Asset Management services.

 

(2) The promoting foreign entity shall hold, directly or indirectly not less than 51 % of the controlling stake in the applicant company proposing to take the trading membership of the Exchange.

 

(3) The net worth of the entity having controlling stake in the applicant company or the promoting foreign entity should be at least Rs.50 Crores

Corporate shareholders of the trading member company can also extend their support to the DPG, provided the shareholding of the dominant promoter group along with the support of their specified relatives in the corporate shareholder is not less than 51% or 40% if listed corporate as the case may be. The indirect shareholding shall be calculated proportionately by reckoning the direct shareholding of the DPG along with the support of their specified relatives in the corporate shareholder of the trading member company.

Corporate trading members will also be allowed to change their shareholding pattern so long as such change is within the above norms as specified in I and II above and existing Dominant promoter group continues to hold controlling interest and prior approval from the Exchange is obtained.

The aforesaid norms are also applicable to trading members who are partnership firms. The term dominant shareholder/promoter may be substituted as ‘dominant partner’

 

Once a trading entity nominates/determines a group of shareholders as the DPG, no other shareholder (existing or new) would be allowed to join the DPG. However, one or more shareholders within the DPG may be allowed to divest their shares and quit the group. In such an eventuality, it is to be ensured that the remaining dominant shareholders always maintain among themselves the minimum required shareholding as specified above at all points of time. Any change in the DPG other than as stated herein, will be treated as reconstitution of the trading member corporate tantamounting to transfer of membership.

 

If there is a change in the DPG of the trading member / corporate shareholder identified as dominant shareholder of the trading member corporate, through a take over process and / or a new group acquires controlling interest, the changes shall be treated as reconstitution of the trading member corporate tantamounting to transfer of membership.

 

Members are required to seek prior approval from the Exchange for any change in the shareholding / sharing pattern of the trading member corporate/ firm or the corporate shareholder (s)/ identified as dominant promoter (s).

 

Failure to maintain the required level of shareholding will be treated as a breach of the continuing membership norms, which would tantamount to a reconstitution of the trading member corporate as the existing DPG would no longer hold controlling interest in the trading member corporate or alternatively a new group would have emerged with controlling stake. In such case NSE may initiate disciplinary action including withdrawal of the trading facility of such trading members.

 

Dominant promoter norms for sub-brokers and authorised persons

 

Trading members are required to note that while applying for registration of sub-broker or appointment of Authorised Person, a corporate applicant or a partnership applicant is not required to identify dominant promoter or dominant partner, as the case may be, as required vide circular nos 168 (Ref No NSE/MEM/1708) dated June 19, 2000 and 333 (Ref No NSE/MEM/4082) dated April 10, 2003. Trading members are requested to refer to the revised format of Annexure’ while applying for sub-broker registration at www.nseindia.com/Application for registration of sub brokers

 

For National Stock Exchange of India Ltd

 

Sd/-

 

Sanjiv Nagar

Manager