INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY

NOTIFICATION

Gandhinagar, the 12th April, 2021

International   Financial   Services   Centres   Authority   (Market   Infrastructure   Institutions) Regulations, 2021

No. IFSCA/2021-22/GN/REG011.—In exercise of the powers conferred by sub-section (1) of Section 28 read with sub-section (1) of Section 12 and sub-section (1) of Section 13 of the International Financial Services Centres Authority Act, 2019; Sections 4, 8A and 31 read with Section 29B of the Securities Contracts (Regulation) Act, 1956; and Section 25 read with Section 23G of the Depositories Act, 1996, the International Financial Services Centres Authority hereby makes the following regulations, namely: –

CHAPTER I
PRELIMINARY

1. (1) These regulations may be called the International Financial Services Centres Authority (Market Infrastructure Institutions) Regulations, 2021.

(2) They shall come into force on the thirtieth day of its publication in the Official Gazette.

Definitions

2. 1)  In these regulations, unless the context otherwise requires, the terms defined herein shall bear the meanings as assigned below, and their cognate expressions shall be construed accordingly, –

(a) “associate” in relation to a person shall include another person:

• who, directly or indirectly, by himself, or in combination with other persons, exercises control over the first person;
• who  holds  control  of  at  least  twenty  percent  of  the  total  voting  power  of the first person;
• who is a holding company or a subsidiary company of the first person;
• who is a relative of the first person;
• who  is  a  member   of   a  Hindu  Undivided  Family  wherein  the  first  person is also a member; or
• such  other  cases  where  the  Authority  is  of  the  view  that  a  person  shall  be considered   as   an   associate   based   on   the   facts   and   factors   including   the extent of control, independence, conflict of interest;

(b) ―Authority‖ means the International Financial Services Centres Authority established under sub-section (1) of section 4 of the IFSCA Act;

(c) ―clearing corporation” means an entity that is established to undertake the activity of clearing and settlement of trades in securities or other instruments or products that are dealt with or traded on a recognised stock exchange and includes a clearing house;

(d) clearing member‖ means a person having clearing rights in any recognised clearing corporation;

(e) ―Depositories Act‖ means the Depositories Act, 1996 (22 of 1996);

(f) “Foreign Jurisdiction” means a country, other than India, whose securities market regulator is a signatory to International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A signatories) or a signatory to bilateral Memorandum of Understanding with the Authority, and which is not identified in the public statement of Financial Action Task Force as:

• a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or

• a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies;

(g) “governing board” means the board of directors of a recognised stock exchange, a recognised clearing corporation or a recognised depository;

(h) “IFSCA Act” means the International Financial Services Centres Authority Act, 2019 (50 of 2019);

(i) “International Financial Services Centre‖ or ―IFSC‖ shall have the same meaning as assigned to it under clause (g) of sub-section (1) of Section 3 of the IFSCA Act;

(j) “key management  personnel”  includes  a  person  serving  as  head  of  any  department or in such senior  executive  position  that  stands  higher  in  hierarchy  to  the  head(s)  of the department(s) in the recognised market infrastructure institution, or any person who directly reports to chief executive officer or to the director on the governing board of the recognised market infrastructure institution, or any person upto two levels below the chief executive officer or managing director, or any other person as may be identified by its Nomination and Remuneration Committee;

(k) “netting”  means   the   determination   by   clearing   corporation   of   net   payment   or delivery    obligations    of     the     clearing     members     of     a     clearing     corporation by  setting  off  or  adjustment  of  the  inter-se  obligations  or   claims   arising   out   of buying and selling of  securities,  including  the  claims  and  obligations  arising  out  of the determination by the clearing corporation or stock exchange, on the insolvency, winding-up, liquidation or resolution of any clearing member  or  trading  member  or client or  such  other  circumstances  as  the  clearing  corporation  may  specify  in  its bye-laws, of the transactions  admitted  for  settlement  at  a  future  date,  so  that  only  a net claim be demanded, or a net obligation be owed;

(l) ―novation‖ means the act of one or more recognised clearing corporations interposing between the parties of every trade, so as to be a legal counterparty;

(m)”public  interest   director”   means   an   independent   director   representing   the   interests of investors in securities market in an IFSC and who is not having any association, directly or indirectly, which in the opinion of the Authority, is in conflict with his role;

(n) ―recognised clearing corporation” means a clearing corporation in an IFSC recognised by the Authority;

(o) ―recognised depository‖ means a depository in an IFSC recognised by the Authority;

(p) ―recognised market infrastructure institution‖ means a recognised stock exchange, a recognised clearing corporation or a recognised depository;

(q) ―recognised stock exchange‖ means a stock exchange in an IFSC recognised by the Authority;

(r) “rules” means the Securities Contracts (Regulations) Rules, 1957;

(s) “SCRA” means the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(t) ―SEBI‖ means the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992;

(u) “shareholder   director”   means  a  director   who   represents   the  interest   of  shareholders, and elected or nominated by such shareholders;

(v) “trading member” means a person having trading rights in a recognised stock exchange.

(2) Words and expressions used and not defined in these regulations but defined in the SCRA, the IFSCA Act, the Securities and Exchange Board of India Act, 1992, the Depositories Act, the Companies Act, 2013, or any rules or regulations made thereunder shall have the same meanings respectively assigned to them in those Acts, rules or regulations made thereunder or any statutory modification or re-enactment thereto, as the case may be.

Application for seeking recognition

3. No person shall conduct, organise or assist in organising any stock exchange, clearing corporation or depository in an IFSC unless he has obtained recognition from the Authority in accordance with these regulations.

4. A person seeking recognition as a market infrastructure institution in an IFSC shall be a company incorporated in an IFSC in compliance with the shareholding requirements prescribed under these regulations.

5. An application for recognition as a market infrastructure institution in an IFSC shall be submitted to the Authority in the form and manner, and shall be accompanied by the fee as may be prescribed by the Authority.

6. An application for recognition as a stock exchange or a clearing corporation in an IFSC, as the case may be, shall be accompanied by a copy of the memorandum of association, articles of association, bye-laws and other documents as provided in sections 3 and 4 of the SCRA, rule 5 of the rules and these regulations.

7. An application for recognition as a depository in an IFSC shall be accompanied by a copy of the draft bye-laws of the depository.

Requirements for grant of recognition

8. (1) An applicant seeking recognition as a stock exchange or clearing corporation, as the case may be, shall comply with the following conditions, namely, –

(a) the applicant is a company limited by shares;

(b) the applicant is demutualised;

(c) the applicant, its directors and its shareholders who hold or intend to hold shares, are fit and proper persons as specified in these regulations;

(d) the   applicant   satisfies   the   requirements   relating   to   the   ownership   and   governance structure specified in these regulations;

(e) the applicant satisfies the net worth requirements specified in these regulations;

(f) the applicant satisfies the requisite capability including its financial capacity, functional expertise and infrastructure.

(2) An  applicant  seeking  recognition  as  a  stock  exchange  shall,  in  addition  to  the  conditions specified in sub-regulation (1), comply with the following conditions, namely, –

(a) the applicant has the necessary infrastructure for the orderly execution of trades;

(b) the applicant has an online screen-based trading system;

(c) the applicant has an online surveillance capability which monitors prices, volumes and positions in real time so as to ensure market integrity;

(d) the  applicant  has  adequate  infrastructure  to  list  securities  for  trading  on  its  platform, wherever applicable;

(e) the applicant has necessary capability to have a comprehensive network of trading members and has adequate facility to admit and regulate its members;

(f) the applicant has made necessary arrangements to establish connectivity with its trading members and clearing corporation;

(g) the  applicant  has  adequate  investor  grievances  redressal  mechanism  and  arbitration mechanism to resolve disputes arising out of trades and its settlement;

(h) the applicant has the facility to disseminate information about trades, quantities and quotes in real time to at least two information vending networks which are accessible to investors;

(i) the  applicant  has  adequate  systems’  capacity  supported  by  a  business  continuity  plan including a disaster recovery site;

(j) the  applicant  has  in  its  employment,  sufficient  number  of  persons  having  adequate professional and other relevant experience; and

(k) any other conditions as may be specified by the Authority.

(3) An applicant seeking recognition as a clearing corporation shall, in addition to the conditions specified in sub-regulation (1), comply with the following conditions, namely,-

(a) the applicant has necessary infrastructure to ensure timely clearing and settlement of trades;

(b) the applicant has adequate risk management mechanism;

(c) the applicant has a settlement procedure including netting, novation and guarantee for settlement of trades in place, which is in accordance with the manner specified by the Authority;

(d) the applicant has the capacity to establish a fund to guarantee settlement of trades;

(e) the applicant has necessary capability to have a wide network of clearing members and has adequate facility to admit and regulate its members;

(f) the  applicant  has  established  connectivity  with  the  depositories,  clearing  banks,  stock exchange and clearing members;

(g) the applicant has adequate systems’ capacity for on-line/real time risk management of trades cleared and settled and is supported by a suitable business continuity plan including a disaster recovery site;

(h) the  applicant  has  in  its  employment,  sufficient  number  of  persons  having  adequate professional and other relevant experience to the satisfaction of the Authority;

(i) the applicant has the necessary arrangements in place for resolving disputes and redressal of grievances arising out of clearing and settlement of trades;

(j) the applicant has an agreement with a depository and with a recognised stock exchange in respect of clearing and settlement of the trades; and

(k) any other conditions as may be specified by the Authority.

(4) An applicant seeking recognition as a depository shall have the necessary resources for efficient and orderly functioning of a depository and in particular, comply with the following conditions:

(a) the depository satisfies the net-worth requirements specified in these regulations;

(b) the bye-laws and legal documents are consistent with the objective of the depository and protecting the interest of investors;

(c) the automatic data processing systems of the depository have been protected against unauthorised access, alteration, destruction, disclosure or dissemination of records and data;

(d) the network through which continuous electronic means of  communications  are established between the depository, participants, issuers and issuers’ agents is  secure against unauthorised entry or access;

(e) the depository has established standard transmission and encryption formats for electronic communications of data between the depository, participants, issuers and issuers’ agents;

(f) the physical or electronic access to the premises, facilities, automatic data processing systems, data storage sites and facilities including back up sites and facilities and to the electronic data communication network connecting the depository, participants, issuers and issuers’ agents is controlled, monitored and recorded;

(g) the depository has a detailed operations manual explaining all aspects of its functioning, including the interface and method of transmission of information between the depository, issuers, issuers’ agents, participants and beneficial owners;

(h) the depository has established adequate procedures and facilities to ensure that its records are protected against loss or destruction and arrangements have been made for maintaining back up facilities at a location different from that of the depository;

(i) the depository has made adequate arrangements including insurance for indemnifying the beneficial owners for any loss that may be caused to such beneficial owners by the wrongful act, negligence or default of the depository or its participants or of any employee of the depository or participant; and

(j) any other conditions as may be specified by the Authority.

Grant of recognition

9. (1) The Authority may, after considering the application and on being satisfied that the applicant has complied with the conditions laid down in these regulations and is eligible to act as a stock exchange, a clearing corporation, or a depository, as the case may be, grant recognition to the applicant subject to such conditions as the Authority may deem fit;

(2) A recognised market infrastructure institution shall comply with such additional conditions as may be imposed by the Authority from time to time.

10. The period of recognition granted to a market infrastructure institution shall be permanent or for such period not less than one year as may be specified by the Authority.

Regulatory Fee

11. A recognised market infrastructure institution shall pay the regulatory fee as specified by the Authority from time to time…………………….. Click here to read more.