Stock exchange bye-laws
Also written Bye-laws of stock exchanges · Exchange bye-laws
The rules each stock exchange frames for its own trading members — admission, listing, fees, trading and settlement, members' rights, arbitration — approved by SEBI and consistent with the SCRA, SCRR and SEBI Act.
In plain language
The SEBI Act and the SCRA set the national framework, but they do not tell a broker at 9:15 a.m. how to place an order on a particular exchange, when settlement closes, or how a dispute with a client goes to arbitration. That level of detail lives in each exchange's own bye-laws.
Bye-laws are binding rules, not guidance. A broker who breaks them breaches a condition of its SEBI registration, a compliance officer must monitor them, and penalties under the SCRA are tied to them.
How it works
What they are (Chapter 2). Indian stock exchanges — BSE, NSE, MCX, NCDEX, MSEI and others — frame their own bye-laws, binding on all trading members registered with that exchange. They:
- need to be approved by SEBI;
- must be in conformity with the SCRA, 1956, SCRR, 1957 and the SEBI Act, 1992;
- lay down rules on admission of trading members, listing requirements, fees, suspension of admission, transactions and settlement, rights and liabilities of members, and arbitration.
It is the responsibility of the trading member, its compliance officer or any person the member appoints to ensure the bye-laws are adhered to. Among the SCRA's objects is the power of SEBI to make or amend bye-laws of recognised stock exchanges.
Where bye-laws carry legal weight.
| Provision | Role of bye-laws | Chapter |
|---|---|---|
| Registration condition for a stock broker | Must abide by the rules, regulations and bye-laws of the exchange applicable to it | 12 |
| Compliance officer's remit | Monitor compliance with the rules, regulations and bye-laws of the concerned stock exchanges | 3 |
| SCRA s. 18A | Derivative contracts are legal and valid if traded on a recognised exchange and settled on its clearing house in accordance with its rules and bye-laws | 5 |
| SCRR Rule 9 | Contracts between members must be confirmed in writing and enforced under the exchange's rules and bye-laws | 5 |
| SCRA s. 23A | Failure to furnish information within the time in the bye-laws, or to maintain books as per them: Rs 1 lakh, up to Rs 1 lakh a day, max Rs 1 crore | 5 |
| SCRA s. 23B | Failure to enter into an agreement with a client required by the Act or bye-laws: same scale | 5 |
| Broker–client agreement | No brokerage more than the maximum permitted by the exchange's rules, regulations and bye-laws / SEBI | 12 |
| Action against a broker | Charging brokerage in excess of that in the regulations or bye-laws is a ground for action | 12 |
Beyond exchanges. Depositories also have bye-laws — a DP's agreement with a beneficial owner is in the format in the depository's bye-laws — and an investment adviser enlisted with the IAASB is bound by specified provisions of that body's bye-laws.
A worked example
Illustrative facts. Vasai Securities Pvt Ltd is a member of NSE and BSE. An internal audit turns up three problems.
| Finding | Bye-law link | Exposure |
|---|---|---|
| Brokerage of Rs 38,000 charged to a client against a maximum of Rs 30,000 under the exchange's rules | Excess over bye-law maximum — ground for action under the Stock Brokers Regulations | Under Section 15F of the SEBI Act: not less than Rs 1 lakh, up to five times the excess brokerage, whichever is higher |
| No written confirmation of 14 trades with another member | SCRR Rule 9 — contracts between members confirmed in writing, enforced under bye-laws | Disputes on those trades lack their bye-law footing |
| Books required by the exchange not maintained for 45 days | SCRA s. 23A — books as per bye-laws | Not less than Rs 1 lakh, up to Rs 1 lakh a day, capped at Rs 1 crore |
The excess brokerage, in numbers.
Excess charged = Rs 38,000 − Rs 30,000 = Rs 8,000
Five times the excess = Rs 40,000
Section 15F ceiling = higher of Rs 1 lakh and Rs 40,000 = Rs 1 lakh
The books failure, in numbers.
Maximum at the daily rate = 45 × Rs 1 lakh = Rs 45 lakh (below the Rs 1 crore cap)
A compliance officer who reads the exchange circulars but not the bye-laws misses exactly these three.
Why NISM asks about it
Chapter 2 (Regulatory Framework – General View), 9% of the paper, has a section on bye-laws of stock exchanges, and its review question 4 — "The bye-laws of the stock exchanges are same across exchanges and need to be approved by SEBI" — is False, because each exchange frames its own. Bye-laws then recur in Chapters 3, 5 and 12.
Expect the True/False above, the SEBI approval and conformity with SCRA, SCRR and SEBI Act points, and the list of matters bye-laws cover.
Common exam traps
- Each exchange frames its own bye-laws — they are not the same across exchanges.
- SEBI approves them, and has the power under the SCRA to make or amend them.
- They must conform to the SCRA, SCRR and SEBI Act — bye-laws cannot override the statute.
- They bind that exchange's trading members; the trading member and its compliance officer are responsible for adherence.
- Arbitration is a bye-law subject, alongside admission, listing, fees, suspension, settlement and members' rights and liabilities.
- Section 23A and 23B penalties run from Rs 1 lakh, up to Rs 1 lakh per day, capped at Rs 1 crore.
- Depository bye-laws are a different set from exchange bye-laws, even though both bind participants.
Where this is taught
Free preparation for NISM Series III-ARelated terms
- Clearing corporationThe entity that steps between every buyer and seller in the derivatives segment by novation, becoming the counterparty to both sides and guaranteeing that the trade settles.
- ComplianceThe set of actions by which securities market intermediaries and issuers conform to the rules of SEBI, the exchanges, the depositories and their own boards — records, policies, reports and submissions.
- Investment Adviser Administration and Supervisory BodyA body recognised by SEBI under Regulation 14 of the IA Regulations to administer and supervise investment advisers; no one may act as an investment adviser without enlisting with it. The first was BASL.
- Minimum public shareholdingThe minimum share of a listed company that must be held by the public — 25% under Rule 19A of the SCRR, a continuous listing requirement rather than a condition met only at listing.
- Trading memberA member of a stock exchange who trades on behalf of clients or on his own account, under a trading member ID shared by all his registered users — and who must clear through a clearing member.
- Stock exchangeA body of individuals, or a body incorporated under the Companies Act, that assists, regulates or controls the business of buying, selling or dealing in securities.