General Manager

Secondary Market Department

e-mail :  pkb@sebi.gov.in

 SEBI/SMD/SE/Cir- 19/2003/02/06

June 02, 2003

The Managing Directors and Executive Directors

Of all the Stock Exchanges

Dear Sir,

Sub: Constitution of Arbitration Committees and Arbitration Panels.

Please refer to SEBI order dated April 20, 1993 passed under section 8 of the Securities Contract (Regulation) Act, 1956 directing the stock exchanges to amend their Rules or Articles of Association inter alia to provide for the constitution of Arbitration Committee. As per para 7 of the said order, it is provided that the Rules or Articles of Association shall provide for nomination of not more than 40% of the members of the exchange on the Arbitration Committee and the balance 60% shall be nominated from the persons other than members of the stock exchanges with the prior approval of the Board. Pursuant to the said order, the rules / bye-laws of the stock exchanges provide for the constitution of the Arbitration Committee / Arbitration Panels as per para 7 of the said order.

The Joint Parliamentary Committee (JPC) in relation to Securities Market Scam has recommended in its Report, vide recommendation no.14.60, that arbitration councils for resolution of disputes between the investors and the market intermediaries should be independent of market intermediaries, particularly the brokers.

Pursuant to this recommendation it has been decided that the provision of the Rules or Articles of Association, as the case may be, and bye-laws of the stock exchanges shall provide that in respect of dispute between members and non members the arbitration committees /arbitration councils / arbitration panels shall consist of persons other than members of the stock exchange who shall be nominated with prior approval of the Board.

Accordingly, the Exchanges are directed to make necessary amendments to the rules or Articles of Association / Bye-laws for the implementation of the above decision within two months from the date of this circular.

The Exchanges are directed to reconstitute the arbitration committees /arbitration councils/ arbitration panels/ for resolution of disputes between members and non-members, in the manner specified above, within a period of three months from the date of this circular with the approval of SEBI.

This circular is being issued in exercise of powers conferred by section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

In order to ensure that there is no delay in the disposal of arbitration proceedings which have already commenced, the member arbitrators shall continue till the disposal of such proceedings.  The award in such cases shall be given within a period of three months from the date of this circular.

The Exchanges are directed to bring the provisions of this circular to the notice of the member brokers/clearing members of the Exchange and also to disseminate the same on the website for easy access to the investors.

The Exchanges are also directed to communicate to SEBI, the status of the implementation of the provisions of this circular in Section II, item no. 13 of the Monthly Development Report for the month of June 2003.

Yours faithfully,