Chapter-4 Provisions Relating to Stock Exchange

Chapter-4 Provisions Relating to Stock Exchange

36. License to be obtained to operate stock exchange: (1) A person who desires to operate a stock exchange shall obtain from the Board the license to operate the stock exchange under this Act.

(2) No person shall operate a stock exchange or purchase, sell or exchange securities without obtaining from the Board a license under this Act nor shall any person use the name of stock exchange without obtaining such a license.

(3) Notwithstanding anything contained in Sub-section (2), Nepal securities exchange market which is in operation at the time of commencement of this Act shall have to make an application to the Board for the license to operate a securities exchange market pursuant to this Act within one year from the date of commencement of this Act. Nothing shall be deemed to have been hindered the operating of the securities exchange market by Nepal securities exchange market within that period.

(4) Where Nepal Securities Exchange Market fails to make an application to the Board for a license to operate a securities exchange market within the period referred to in Sub-section (3), Nepal securities exchange market shall not be entitled to operate the stock exchange after the expiry of that period. (5) Notwithstanding anything contained elsewhere in this Section, while incorporating any stock exchange as a company with limited liability under the companies law in force after the commencement of this Act, the Company Registrar’s Office shall incorporate it only with the recommendation of the Board.

37. Application to be made to carry on stock exchange: (1) Only a body corporate may make an application to the Board for a license to carry on a stock exchange. (2) A body corporate shall have to make an application referred to in Sub-section (1) in such format and accompanied by such details. Documents and fee as may be prescribed.

38. Issue of a license to carry on stock exchange: (1) If an application is received pursuant to Section 37, the Board may, if it is satisfied with the following matters by making necessary inquiry into the matter, issue a license to carry on a stock exchange in such format as may be prescribed: (a) Where it considers that the issue of the license to carry on a stock exchange would serve the interests of investors and general public or the issuance of such a license is necessary for the proper operation of the stock exchange,

(b) Where the applicant body corporate has fulfilled the matters referred to in Sub-section (2).

(2) A body corporate which makes an application to the Board for a license to carry on a stock exchange pursuant to subsection (1) shall set out the following matters in the application: (a) Legal provisions of establishing the body corporatoer its memorandum of association stipulates that the body corporate has been established with object to establish and operate at sock exchange,
(b) The body corporate maintains its paid up capital as prescribed by the Board that such capital is not less than fifty million rupees so long as the body corporate operates the stock exchange,
(c) There are sufficient grounds to the satisfaction of the Board that the body corporate can provide such infrastructures and facilities as may be required to operate the stock exchange,
(d) Matters relating to enlisting or making similar other provisions to recognize securities to be transacted through itself,
(e) Matters that the interests of investors would be protected through regular operation of transactions in securities through the provisions and systems to be adopted by the body corporate in relation to the exchange and transactions proposed by the body corporate for the operation of the stock exchange,
(f) That it has appropriate provisions on settlement of transactions in the stock exchange and publication of records thereof and statements of transactions,
(g) That complaints filed in relation to transactions carried on by its members can be examined in a proper manner,
(h) That action can be taken as mentioned in the Bye-laws in the event of failure of its members to fulfill the liabilities under the contract.

39. The Board may specify terms: (1) In issuing the license to carry on a stock exchange, the Board may specify necessary terms taking into account the condition of capital market, healthy operation of the stock exchange and interests of investors. It shall be the duty of the concerned stock exchange to observe such terms. (2) The Board may, as per necessity, alter and modify the terms specified pursuant to Sub-section (1), having regard to the condition of capital market, healthy operation of the stock exchange and interests of investors.

40. Power to refuse to issue license to carry on stock exchange: (1) Notwithstanding anything contained in Section 38, the Board may, on any of the following conditions, refuse to issue a license to a body corporate to carry on a stock exchange: (a) Where it is not necessary to carry on the stock exchange based on the development of industry and business and feasibility of the existing transactions in securities, (b) Where it does not appear just and appropriate to allow the operation of stock exchange for the protection of interests of investors. (2) Where the Board is to refuse the issue of a license to any body corporate to carry on the stock exchange on any condition referred to in sub- section (1), the Board shall give a notice assigning the reason for such refusal to the concerned body corporate.

41. Minimum capital and financial source: The paid up capital of a body corporate carrying on a stock exchange shall be so prescribed by the Board, from time to time, as it shall not to be less than fifty million rupees; and the body corporate shall maintain such financial source as may be adequate for the provision of stock exchange that it carries on.

42. Validity period and renewal of a license to carry on stock exchange: (1) The license issued to carry on a stock exchange shall remain valid only until the last day of the fiscal year of its issue. (2) The corporate carrying on a stock exchange shall have to renew the license to carrying on a stock exchange by paying to the Board an annual fee as prescribed not later than three months after the expiry of each fiscal year. (3) In the event of failure to get renewed such a license by paying the annual fee within the time limit referred to in subsection (2), the license may be renewed by paying a fine of twenty five percent of the annual fee up to three months after the expiry of such time limit. (4) The license to operate stock exchange obtained by a body corporate which fails to renew even within the time limit referred to in Sub-section (3) shall be terminated.

43. Transactions of recognized securities: (1) A stock exchange shall manage a market only for those securities which are recognized by either enlisting in its Bye-laws, as prescribed, securities issued by bodies corporate or making similar other provisions. (2) The purchase, sale or exchange of securities not enlisted in a stock exchange shall be as prescribed.

44. Managerial responsibility of stock exchange: The board of directors of the stock exchange shall assume responsibility in relation to the management of transactions in securities carried on by such a stock exchange.

45. Functions, duties and powers of stock exchange: The functions, duties and powers of the stock exchange shall be as follows: (a) To carry on, or cause to be carried on, transactions in securities to be carried on through it in a transparent, fair and regular manner,
(b) In carrying on the stock exchange, to carry on, or cause to be carried on, the same, having regard to the interest of general public investors,
(c) To get its members to fully comply with this Act and the Rules and Bye-laws framed under this Act and monitor and supervise, or cause to be monitored and supervised, the matters pertaining thereto,
(d) To manage such a transaction place as may be adequate and convenient for operating securities transaction,
(e) To manage such employees as may be efficient in carrying on transactions,
(f) To arrange for such facilities and systems as may be adequate and proper for emergency and security provisions,
(g) To frame Bye-laws, with the permission of the Board, for enlisting of securities for the arrangements of the exchange, purchase or sale of securities and making provisions relating to membership,
(h) To perform or cause to be performed such other functions as may be required for the operation of the stock exchange.

46. Disclosure to be made by stock exchange: Every stock exchange shall give information on the following matters to the Board immediately when it comes to its knowledge:- (a) Where it appears that any of its members has committed any financial irregularity or the economic status of such a member appears to be suspicious from any activities of such a member, (b) Where it appears that any of its members has failed to fulfill such obligation as required to be fulfilled by such a member under laws or is not capable of performing such obligation, (c) Where it appears that any of its members has failed to observe financial Rules and Bye-laws or is not capable of observing such Rules and Bye-laws, (d) Such other information as may be prescribed.

47. Stock exchange to submit a report: Stock exchange shall submit to the Board a report on the activities carried out by it in each fiscal year not later than three months after the expiration of such a fiscal year.

48. Stock exchange to issue direction: (1) The stock exchange may, where a body corporate carrying on securities transactions through a stock exchange violates the agreement entered with the stock exchange or where the stock exchange considers that it is necessary to give direction to such a body corporate in order to make securities transactions fair and regular or having regard to the interests of investors, give necessary direction to such a body corporate.

(2) It shall be the duty of the concerned body corporate to observe the direction given pursuant to Sub-section (1).

49. Ceiling of securities transactions may be fixed : (1) The Board may fix the ceiling of securities that can be transacted at one time or the ceiling of securities that any one person can purchase, sell and hold at one time as prescribed.

(2) In fixing the ceiling pursuant to Sub-section (1), several ceilings may be determined based on the types of securities or types of transactions.

(3) Without prejudice to the generality of Sub-section (1), the Board may specify or fix the maximum limit of securities of any type that one person may own at one time, in such manner as prescribed.

50. Charge to be paid by stock exchange: (1) A stock exchange shall collect such securities transaction charge as may be chargeable as prescribed for the purchase, sale and exchange of securities in the stock exchange and pay such charge to the Board. Provided that such charge shall not exceed 0.03 percent of the total turn over of securities transactions.

(2) A stock exchange shall pay to the Board the amount for the charge prescribed pursuant to Sub-section (1) and collected in the previous year, not later than the last day of each month. A stock exchange that fails to observe this Section shall be deemed to have committed an offense referred to in this Act.

(3) The Board shall realize and recover the amount receivable for the securities transaction charge, in addition to an interest at the rate of ten percent, from a stock exchange failing to pay to the Board the securities transaction charge within the time limit specified in Sub-section (2).

51. Stock exchange to assist Board: A stock exchange shall render necessary assistance to the Board for the performance of functions referred to in this Act. In the course of rendering such assistance, if the Board asks for any information or advice on securities transactions or on any other specific matter, such information or advice has also to be provided to the Board.

52. Information of action to be given: If a stock exchange has demanded explanation from any of its members on any action against such a member or suspended or canceled the membership of such a member or imposed any fine on such a member or taken any other action against such member, the stock exchange shall give information thereof to the Board, specifying the name of the concerned member and also description on action and the reason for taking such action, within seven days after taking such action.

53. Stock exchange to provide for compensation fund: (1) A stock exchange shall establish and operate one such compensation fund as may be prescribed by the Board in order to protect investors against possible loss or damage.

(2) The funds deposited to the fund referred to in subsection (1) shall be used to bear compensation as prescribed.

54. Provisions relating to operation of compensation fund: The following provisions shall be made in the Rules in relation to the operation of the compensation fund to be established pursuant to Section 53 or 55: (a) Provisions relating to the deposit of money to the fund,
(b) Maximum amount to be paid as a compensation from the fund,
(c) Provisions relating to the accounts and audit of the fund,
(d) Conditions for making claim to obtain amount from the compensation fund and procedures from making such a claim,
(e) Conditions where any claim cannot be made on the compensation fund,
(f) Procedures for taking action and making decision on payment of money as claimed from the compensation fund,
(g) Maximum limit of amount payable as a compensation to one person,
(h) Other necessary matters in relation to the examination of compensation claims,
(i) Provisions to be made in the event of the revocation of the license of a stock exchange,
(j) Other necessary provisions in relation to compensation.

55. Board to make provisions on compensation: If a stock exchange is not able to establish and operate the compensation fund pursuant to Section 53 in order to protect investors against possible loss and damage or does not pay or fails to pay the amount of compensation to be payable as prescribed, the Board may establish and operate the compensation fund as prescribed or make necessary provisions in relation to the payment of the amount of compensation required to be paid as prescribed.