September 01, 2004
PR No. 205/2004

Refusal to Grant Renewal of Recognition to Mangalore Stock Exchange

SEBI has passed an Order under section 4(4) of the Securities Contracts (Regulation) Act, 1956 on August 31, 2004 refusing to grant renewal of recognition to Mangalore Stock Exchange. The Order has been passed by Shri A K Batra, Whole Time Member.
 
SEBI conducted an inspection in August 2003. The Inspection Report brought out that the Exchange has not complied with conditions on which the renewal of recognition was granted in 2002. Apart from this, it also observed major irregularities in the functioning of the Exchange viz non-compliance with the stated investment policy/norms of the Exchange, drain of the Exchange’s resources, inadequate provisioning of software for trading system and failure to appoint Executive Director etc. Further, it was noticed that there was huge gap between the resources currently available and the requirements, in terms of manpower, material etc, to function as a stock exchange. There were lapses in its basic functions and instances of non initiation of effective steps for the general functioning and administration of the Exchange in terms of the provisions of SEBI directives, Circulars, SC(R)A and the SC(R)R. There was weak operational management and misuse of position by elected directors.
 
In view of the above serious deficiencies, SEBI issued a show cause notice to the Governing Board. The Governing Board made its submissions on the show cause notice and also appeared for personal hearing on this matter.
 
The Whole Time Member, in his aforesaid Order, observed that mere existence of a stock exchange, without possessing such essential and basic requirements to function as one, would not have any meaning or serve any purpose towards protection of the interest of the investors and the development of the capital market as a whole. It also defeats the purpose of granting recognition to an Exchange under Section 4 of SC(R)A, which is to be in the interest of the trade and also public interest. The Exchange does not serve any economic purpose for existence as there is nil trading, no fresh listing etc.
 
Based on the facts and circumstances, SEBI passed the above Order. The Order will come into force after 3 weeks from the date of the Order. In view of the Order, the Mangalore Stock Exchange will cease to be a recognized stock exchange. In the interest of investors / shareholders of the listed companies in the Exchange and in the overall interest of the securities market, the Order contains certain directives regarding utilization of Investor Protection Fund and Investor Services Cell of the Exchange, pending claims of investors, pending arbitration cases, companies listed exclusively on the Exchange and the status of members /shareholders of the Exchange as Stock Broker.
 
 
MUMBAI
 
1st September 2004