Bangladesh Securities and Exchange Commission (Clearing and Settlement) Rules, 2017

Registered No. D.A-1

Bangladesh Gazette
Extraordinary Issue
Published by Authority

Tuesday, June 13, 2017

[ Notices and advertisements issued by private individuals and corporations for monetary consideration ]

Bangladesh Securities and Exchange Commission
Securities Commission Building
E-6/C, Agargaon
Sher-e-Bangla Nagar Administrative Area
Dhaka-1209, Bangladesh.

Notification

Date: 28 Jyestha 1424 Bangabda / 11 June 2017 AD

No. BSEC/CMRRCDI/2017-356/199/Admin/76—Under the powers conferred by Section 33 of the Securities and Exchange Ordinance, 1969 (Ordinance No. XVII of 1969) and Section 24 of the Bangladesh Securities and Exchange Commission Act, 1993 (Act No. 15 of 1993), the Commission, after prior publication, hereby makes the following rules, namely:—

First Chapter
Preliminary

Short title and commencement.—(1) These rules shall be known as the Bangladesh Securities and Exchange Commission (Clearing and Settlement) Rules, 2017.

(2) These rules shall come into force immediately.

(6433)
Price: 40.00 Taka

6434 Bangladesh Gazette, Extraordinary, June 13, 2017

Definitions.—(1) Unless the subject or context otherwise requires, in these rules:—

(a) “Ordinance” means the Securities and Exchange Ordinance, 1969 (Ord. No. XVII of 1969);

(b) “Participant” means any person or institution registered or authorized to participate in the clearing and settlement system;

(d) “Investors Protection Fund” means a fund established by the Central Counterparty to be used for ensuring investor safety, protecting interests, and enabling independent decision-making;

(e) “Commission” means the Bangladesh Securities and Exchange Commission established under the Bangladesh Securities and Exchange Commission Act, 1993 (Act No. 15 of 1993);

(f) “Clearing and Settlement Company” means an institution incorporated as a public limited company limited by shares under the Companies Act, 1994, and registered by the Commission under these rules as a Central Counterparty to perform all activities, duties, and powers of a Central Counterparty and to provide related facilities;

(g) “Clearing” means all activities conducted by the Central Counterparty to determine liabilities of securities and funds through matching purchase and sale orders for securities transactions, including trade management, position management, collateral and risk management, and delivery management;

(h) “Strategic Investor” means a foreign institution engaged in activities related to the Central Counterparty or Exchange or financial institution, whose investment ensures greater transparency, accountability, and dynamism in the operation of the Central Counterparty;

(i) Chief Regulatory Officer (CRO) means the officer responsible for conducting and executing all regulatory affairs of the Central Counterparty;

(j) Chief Risk Management Officer (CRMO) means the officer responsible for conducting and executing all risk management activities of the Central Counterparty;

(k) “Schedule” means any schedule appended to these rules;

(l) “Novation” means the process by which the Central Counterparty becomes the party in the middle of each transaction, acting as the legal counterparty to both sides, and providing unconditional guarantee for the settlement of all transactions;

(m) “Registration Certificate” means the registration certificate issued under these rules;

Bangladesh Gazette, Extraordinary, June 13, 2017 6435

(n) “Board of Directors” means the Board of Directors of the Central Counterparty;

(o) “Form” means any form in Schedule-1 appended to these rules;

(p) “Managing Director” or “Chief Executive Officer” means the officer appointed as the Managing Director or Chief Executive Officer of the Central Counterparty;

(q) “Person” includes a natural person as well as any company, partnership firm, or institution or organization;

(r) “Business License” means the business license issued by the registered Central Counterparty under these rules;

(s) “Margin” means collateral provided by the Participant or, where applicable, the Client as security for transactions;

(t) “Settlement” means the activities conducted by the Central Counterparty to transfer securities and funds to the respective creditors to discharge liabilities arising from securities transactions;

(u) “Central Counterparty” or “CC” means an institution that appears as an intermediary party in the legal manner of clearing and settlement of securities and related activities, taking on the liability of the buyer in the case of the seller and the seller in the case of the buyer, and providing guarantee for the payment of their debts; whatever name it may be called;

(v) “CC Policy” means all methods, procedures, rules, standards, and related conditions adopted, formulated, or introduced by the Board of Directors of the company, with the prior approval of the Commission and subject to the Act and these rules, to ensure the proper, safe, accountable, smooth, and transparent fulfillment, execution, and application of the duties, functions, and powers of the Central Counterparty;

(w) “Independent Director” means any director of the Central Counterparty who represents the interests of investors in the capital market and is not associated with the business, services, transactions of the Central Counterparty, nor with any significant number of its shareholders or any institution acting as an intermediary in the capital market;

(x) “Settlement Guarantee Fund” means a fund established under these rules to be used in the event of failure to fulfill any obligations or pay dues related to the clearing and settlement of securities transactions.

(2) Unless the context requires otherwise, words or expressions used in this Act that have not been defined in these rules shall bear the meaning in which they are used in the Securities and Exchange Ordinance, 1969 (Ordinance No. XVII of 1969), the Bank Companies Act, 1991 (Act No. 14 of 1991), the Bangladesh Securities and Exchange Commission Act, 1993 (Act No. 15 of 1993), the Financial Institutions Act, 1993 (Act No. 27 of 1993), the Companies Act, 1994 (Act No. 18 of 1994), the Depository Act, 1999 (Act No. 6 of 1999), the Insurance Act, 2010 (Act No. 13 of 2010), the Exchange Demutualization Act, 2013 (Act No. 15 of 2013), and the rules and regulations made thereunder.

6436 Bangladesh Gazette, Extraordinary, June 13, 2017

Prohibition of conducting clearing and settlement activities without Registration Certificate and Business License.—After these rules come into force, any person wishing to act as a Central Counterparty must obtain a Registration Certificate from the Commission. A registered person cannot conduct, perform duties, or exercise powers related to clearing and settlement without obtaining a Business License.
Introduction of Clearing and Settlement System.—The Central Counterparty shall, subject to necessary rules and regulations, properly introduce and operate its own safe, transparent, reliable, authoritative, and responsible clearing and settlement system for all types of securities, through which:—

(a) Clearing and settlement of each securities transaction will be completed smoothly and securely;

(b) The Central Counterparty will appear as an intermediary party for each transaction and provide guarantee for the payment of debts;

(d) Transferred securities and funds will be properly transferred;

(e) Control, security, and confidentiality of the clearing and settlement system will be ensured;

(f) All other related activities will be conducted.

Second Chapter
Registration and Business License as Central Counterparty

Qualifications required for registration.—A person will not be eligible for registration under these rules as a Central Counterparty if:—

(a) It is not incorporated as a public limited company limited by shares under the Companies Act, 1994, and not structured according to the structure mentioned in these rules;

(b) Its memorandum of association does not record the conduct of all types of securities clearing and settlement activities as a Central Counterparty;

(d) More than 49% (forty-nine percent) of its paid-up capital shares are held by any single institution or its subsidiaries or affiliates;

(e) At least 25% (twenty-five percent) of its paid-up capital shares are not held by Exchanges or Exchanges;

(f) It is not capable of operating as a Capital Central Counterparty;

(g) The conditions regarding paid-up capital and net assets mentioned in Rule 13 are not met;

(h) It or its directors are free from loan defaults; and

(i) Other qualifications and conditions determined by the Commission are not met.

Bangladesh Gazette, Extraordinary, June 13, 2017 6437

Application for registration and issuance of certificate.—(1) A person applying for registration as a Central Counterparty must submit an application to the Commission in Form ‘A’ described in the Schedule.

(2) Along with the application mentioned in sub-rule (1), a non-refundable application fee of one lakh Taka must be deposited with the Commission via bank draft or pay order.

(3) Necessary documents supporting the information mentioned in the application, and additional information and documents as directed by the Commission, must be submitted according to such directions.

(4) If satisfied with the documents and information submitted with the application, the Commission will approve the application within sixty days of receiving all necessary information regarding the application, inform the applicant, and direct the deposit of a registration fee of ten lakh Taka via pay order or bank draft within a specified time.

(5) Upon deposit of the registration fee within the specified time, the Commission will issue a Registration Certificate in Form ‘B’ to the applicant.

(6) If not satisfied with the documents and information submitted with the application, the Commission will reject the application within fifteen days of receiving it, stating the reasons in writing, and inform the applicant of this decision.

(7) The Registration Certificate may mention conditions to be fulfilled by the applicant, and the Registration Certificate will remain valid under such conditions.

(8) If any information or document submitted with the application is proven to be false or forged to the Commission, the Commission may cancel the Registration Certificate:

Provided that no Registration Certificate will be cancelled without providing a reasonable opportunity of hearing.

(9) If any information provided to the Commission is subsequently changed, the applicant must immediately inform the Commission in writing.

Annual fee for registration.—An annual fee of fifty lakh Taka must be deposited with the Commission within three (3) months of the end of each financial year via pay order or bank draft as the annual fee for the Registration Certificate.
Application for Business License.—(1) The registered Central Counterparty must apply to the Commission for commencing business in Form ‘C’ within twelve (12) months of receiving the Registration Certificate.

Provided that the Commission may extend this time period upon reasonable grounds based on the Central Counterparty's application.

(2) Along with the application for the Business License, drafts of the clearing and settlement system, Participant code of conduct, manual, Participant registration system, and other necessary rules and regulations, as well as all documents and information mentioned in the application form, must be attached.

(3) If the Commission requires additional information to consider approving the application, the applicant must provide it.

(4) The Commission may, if necessary, call any representative or promoter of the applicant to provide explanations or for a hearing, and may inspect the applicant's office and other facilities.

6438 Bangladesh Gazette, Extraordinary, June 13, 2017

Qualifications and disqualifications for Business License.—(1) One must obtain a Registration Certificate under these rules to act as a Central Counterparty.

(2) A registered Central Counterparty will not be granted a Business License if it:—

(a) Lacks the necessary physical infrastructure, facilities, and manpower to provide efficient, secure, transparent, responsible, and safe clearing and settlement services;

(b) Lacks detailed rules and regulations regarding all aspects of operations (operational procedures, reporting procedures, complaint resolution mechanisms, investigation mechanisms, provisions for fines and account suspension, account retention and audit procedures, special audit mechanisms, and others);

(c) Lacks sufficient methods and facilities to protect clearing and settlement services from damage or loss of records, documents, or data or their storage systems;

(d) Lacks sufficient measures to handle and compensate for risks related to clearing and settlement.

Issuance of Business License.—(1) If, after receiving the application for the Business License, the Commission is satisfied that the application is worthy of approval, it will approve it within seventy-five days of receiving it and issue a Business License in Form ‘D’.

(2) If the Commission considers that more information is required to consider an application for a Business License, it may request such information within twenty-one days of receiving the application, and upon receiving such information within the time determined by it, if the application is acceptable, it will approve it and issue the Business License.

(3) If, after considering an application for a Business License, the Commission concludes that the application is not worthy of approval, it may reject the application within such time, stating the reasons in writing:

Provided that no application will be rejected without providing a reasonable opportunity of hearing:

Further provided that if an application is rejected, the applicant may reapply for the license after removing the reasons for rejection.

Temporary suspension or cancellation of Business License.—The Commission may, on its own initiative or upon reasonable written complaint from anyone, temporarily suspend or cancel the Business License granted to the Central Counterparty:

Provided that the Commission must be satisfied before such suspension or cancellation that:—

(a) Sufficient measures exist to conduct clearing and settlement activities through alternative means; and

(b) Such suspension or cancellation will be conducive to the interests of investors and the capital market.

Bangladesh Gazette, Extraordinary, June 13, 2017 6439

Third Chapter
Formation-Structure and Responsibilities of Central Counterparty

Organizational Structure.—(1) The ownership of the Central Counterparty will be separate from its Participants.

(2) The institution will be managed by a professional management team, which will be separate from its shareholders and Participants.

Capital and Net Assets.—Each Clearing and Settlement Company must have a minimum paid-up capital of 300 (three hundred) crore Taka and permanent net assets of at least 75% (seventy-five percent) of the paid-up capital;

Provided that sufficient risk-based capital adequacy must be maintained as determined by the Commission from time to time.

Qualifications of Shareholders.—Only the following categories of institutions will be shareholders of the Clearing and Settlement Company, namely:—

(a) Exchange;

(b) Depository;

(d) Strategic Investor.

Limits on shareholding, transfer, inclusion, allocation, etc.—(1) The limits on shareholding by the institutions mentioned in Rule 14 will be as follows, depending on the institutional category and for a single institution:—

(a) Exchange: Exchanges may jointly hold a maximum of 65% (sixty-five percent) of the total issued and paid-up capital of the Clearing and Settlement Company; however, no single Exchange may hold more than 49% (forty-nine percent) of the shares;

(b) Depository: The Depository may hold 10% (ten percent) of the total issued and paid-up capital of the Clearing and Settlement Company jointly or individually;

(c) Bank: Banks may jointly hold a maximum of 15% (fifteen percent) of the total issued and paid-up capital of the Clearing and Settlement Company; however, no single Bank may hold more than 2% (two percent) of the shares;

6440 Bangladesh Gazette, Extraordinary, June 13, 2017

(d) Strategic Investor: A Strategic Investor acceptable to the Commission may hold 10% (ten percent) of the total issued and paid-up capital of the Clearing and Settlement Company individually or jointly:

Provided that after inclusion as a Strategic Investor shareholder, the 10% (ten percent) shares allocated for this category will be issued in favor of a Depository:

Further provided that if the 10% (ten percent) shares allocated for the Strategic Investor category are allocated in favor of a Depository, they and any stock dividends accrued thereon will remain in the record until transferred to the Strategic Investor at the time of transfer.

(2) If the amount of shares applied for by any shareholder category mentioned in sub-rule (1) is less than the portion determined by rule, the unallocated portion will be distributed among other categories of shareholders according to the Commission's decision.

(3) The Commission may issue instructions regarding shareholding or redistribution among shareholders of any shareholder category.

(4) No shareholder may transfer shares without the Commission's permission:

Provided that share transfers may only be completed among specific categories of institutions:

Further provided that the Commission's decision regarding share transfer will be final.

(5) Shares of the Clearing and Settlement Company will be allocated in dematerialized form.

(6) Within three (3) years immediately after the issuance of the Business License mentioned in Rule 10, after issuing instructions to the Clearing and Settlement Company to sell shares to Strategic Investors at a value specified by the Commission, the Clearing and Settlement Company must execute contracts for the purchase and sale of shares with Strategic Investors within one (1) year following such instructions:

Provided that if the relevant Clearing and Settlement Company is unable to comply with such instructions within the specified time for reasonable reasons, the Commission may extend the time limit for such compliance.

Structure of the Board of Directors.—(1) The Board of Directors of the Central Counterparty will be formed by shareholder directors, independent directors, and the Managing Director, and the number of board members will be 14, distributed as follows, namely:—

(a) 7 (seven) independent directors. For each independent director position, the Board of Directors of the Clearing and Settlement Company will send at least 2 (two) names to the Commission as proposals, from which the Commission will approve the names of independent directors if acceptable; however, if the proposed names are not acceptable to the Commission, in that case, the Board of Directors of the Central Counterparty will submit a list of at least 2 (two) names for each vacant position to the Commission for approval:

Provided that the Commission will appoint independent directors for the first Board of Directors of the Central Counterparty without any proposal:

Bangladesh Gazette, Extraordinary, June 13, 2017 6441

(b) 3 (three) directors nominated or elected by the Board of Directors of the shareholder Exchanges;

Provided that at least one director from each Exchange will be represented.

(d) 1 (one) director nominated or elected by the shareholder Banks from among themselves;

(e) 1 (one) director nominated or elected by the Strategic Investor;

Provided that the position of this director will remain vacant prior to the inclusion of the Strategic Investor.

(f) The Managing Director of the Central Counterparty will be a director by virtue of their office and will have voting rights.

(2) No Participant or their representative can be a director of the Central Counterparty.

(3) The Board of Directors will elect one of the independent directors as Chairman at its first meeting.

Term of the Board of Directors.—The term of the Board of Directors of the Central Counterparty will be as follows, namely:—

(1) A director cannot be elected for more than 2 (two) consecutive terms and can be elected again after a 1-term break;

(2) An independent director can be nominated for a term of 3 (three) years and can be renewed for one more term upon the recommendation of the Central Counterparty's board and with the Commission's approval; however, after that, they will not be considered eligible for nomination as an independent director without a 1-term break;

(3) The Managing Director cannot be appointed for more than 4 (four) years. Upon the recommendation of the Central Counterparty's board and with the Commission's approval, they can be appointed for the next term;

Qualifications, disqualifications, and obligations of directors, Managing Director, and other management officers of the Central Counterparty.—The qualifications, disqualifications, and obligations of the directors, Managing Director, and other officers of the Central Counterparty will be determined by Schedule-2.

6442 Bangladesh Gazette, Extraordinary, June 13, 2017

Duties and responsibilities of the Central Counterparty.—(1) Subject to other provisions of these rules, the duties and responsibilities of the Central Counterparty will be as follows, namely:—

(a) Performing duties as a Central Counterparty for each securities transaction and providing settlement guarantee and completing clearing and settlement activities within the specified time;

(b) Ensuring that transactions of other Participants are not disrupted due to the inability of any Participant to pay debts;

(c) Monitoring the combined positions of all types of securities transactions of each Participant and taking corrective or punitive measures (account freezing or suspension) in case of any errors or deviations;

(d) Determining margins based on each Participant's ability to bear risks, position-related risks, market price trends, transaction types, and types of securities, and ensuring margin receipt through continuous monitoring of transactions conducted by Participants and, where applicable, Clients;

(e) Arranging for the matching of transactions of the clients of any Participant unable to pay debts and stopping the excessive liability assumption of such Participant;

(f) Determining the type, value, and timing of deposit of collateral deposited as margin by Participants and, where applicable, Clients; furthermore, imposing the obligation to collect margins from Participants and Clients for derivatives transactions; and collecting margins from Participants and Clients separately in all cases;

(g) Establishing and maintaining “Settlement Guarantee Fund” and “Investors Protection Fund” and, with the Commission's approval, formulating rules regarding control mechanisms, contribution rates, and usage;

(h) Formulating risk management policies;

(i) Introducing a complete and automatic clearing and settlement system, which will be integrated with the Exchange, Depository, Participants, and Banking systems, and executing necessary related contracts;

(j) Conducting the regulatory affairs activities of the CCP separately from the activities of other departments;

(k) Determining the qualifications and experience of its officers and employees and formulating a Code of Conduct;

(l) Formulating a transparent structure to ensure equal participation and fair rights for all in clearing and settlement activities;

Bangladesh Gazette, Extraordinary, June 13, 2017 6443

(m) Formulating and introducing a clearing and settlement system that is equal, unimpeded, transparent, and impartial for all;

(n) Not conducting any activities other than clearing and settlement without the prior permission of the Commission;

(o) Operating its activities independently without preserving the personal or group interests of any director, employee, or person;

(p) Complying with all laws, rules and regulations, CCP policies, orders, and instructions regarding securities;

(q) Performing other duties or responsibilities from time to time according to the Commission's instructions.

(2) Subject to laws and rules and regulations regarding securities, the Central Counterparty will, to ensure the proper execution of its activities, performance of duties, and application of powers, formulate CCP policies with the prior approval of the Commission, regarding the following matters mentioned in these rules:—

(a) Qualifications and appointment of Directors, Managing Directors, and other management personnel;

(b) Code of conduct for Directors and management personnel;

(d) Matters concerning Clearing Participants and Trading Participants;

(e) The amount, nature, and terms of deposits by each participant in the Settlement Guarantee Fund, rules for withdrawal from the fund, rules for the use of the fund, penalties for failure in this regard, and punitive measures;

(f) Formulation of necessary provisions, procedures, and terms for the management of the Investor Protection Fund, and conducting investor awareness programs;

(g) Any other matter mentioned in these Rules;

(h) Any matter determined by order from time to time by the Commission.

(3) The Directors of the Central Counterparty shall have special responsibilities, in addition to other duties, as follows:—

(a) Ensure the proper role of the Central Counterparty to protect the interests of investors;

(b) Take necessary measures for the prompt settlement and prevention of investor complaints, and encourage all parties in securities transactions to act with fair practice;

(d) Do not disclose any confidential matters unless required by law;

6444 Bangladesh Gazette, Extraordinary, June 13, 2017

(e) Do not use any confidential information for direct or indirect personal gain;

(f) The Chairman and Directors shall be particularly involved in decision-making regarding the policy formulation of the Central Counterparty and shall complete the policy formulation process mentioned in Rule 19(1) of these Rules at the earliest possible time; the Managing Director shall not perform any act that may impair independence or be considered interference in daily operations;

(g) Ensure transparency and neutrality in matters involving the interests of the Central Counterparty and investors;

(h) Exercise appropriate due diligence in the performance of duties.

Appointment, dismissal, powers, etc. of the Managing Director.—For the purpose of these Rules, to ensure the smooth performance of duties imposed on the Central Counterparty, the Board of Directors, subject to the prior approval of the Commission, shall appoint a “Managing Director” under the following conditions:

(1) The conditions for the appointment, dismissal, etc. of the Managing Director are as follows:—

(a) Appoint a full-time “Managing Director”;

(b) The person appointed as Managing Director shall not be involved in any direct or indirect manner with the assets of any exchange or any member of the exchange, or any asset management company of a trading holder, or any issuer company, or any securities business; simultaneously, he shall not be a shareholder, promoter, or director of any market banker;

(c) The term of office of the Managing Director shall be 4 (four) years, which may be renewed with the prior approval of the Commission;

Provided that, if a person has completed 65 (sixty-five) years of age, he shall not be eligible to be appointed as Managing Director or shall not remain in the post of Managing Director.

(d) If the Managing Director fails to perform his duties properly or is found guilty of misconduct or moral turpitude, the Board of Directors may dismiss or remove (as applicable) him subject to the prior approval of the Commission; however, such decision must be passed by a vote of at least two-thirds of the special members of the Board of Directors for this purpose:

Provided that, before taking such decision, he must be given a reasonable time to present his written and oral views regarding the relevant complaint.

Bangladesh Gazette, Extraordinary, June 13, 2017 6445

(e) If the Managing Director wishes to resign, he shall submit an application to the Chairman of the Board of Directors 3 (three) months in advance and provide a copy to the Commission;

(f) If the post of Managing Director is vacant or he is unable to perform his duties for any reason, the next senior officer shall perform the duties of the Managing Director during his absence;

(g) If the Board of Directors fails to appoint a person to the post within 90 (ninety) days after the post of Managing Director becomes vacant, the Commission may, if necessary, appoint a suitable person to this post for the time determined by it. However, the relevant company shall bear the expenses for his remuneration and other benefits;

(h) The Commission may issue guidelines from time to time regarding the qualifications of the Managing Director as necessary.

(2) The powers and duties of the Managing Director are as follows:—

(a) The Managing Director shall implement all laws, rules, regulations, directives, orders, sub-laws, or directives, orders issued from time to time by the Commission or the Board of Directors regarding the securities market:

Provided that, if any directive or order issued by the Commission and the Board of Directors is contradictory, in such case, the directive or order of the Commission shall be considered final.

(b) The Managing Director shall ensure the enforcement of these Rules and supervise the activities of the officers and employees of the relevant Central Counterparty;

(c) The Managing Director shall be the Member-Secretary of all committees formed by the Board of Directors except the Risk Management Committee;

Provided that, he shall not be a member of the inquiry committee formed for the purpose of taking disciplinary action against the Managing Director.

(d) In any special situation, the Managing Director shall perform or exercise duties or powers not entrusted to him, informing both the Chairman of the Board of Directors and the Commission; however, such action must be approved at the next meeting of the Board of Directors;

(e) The Managing Director shall submit reports to the Commission and the Board of Directors as required by the Commission, regarding administrative activities and the enforcement of all relevant laws, rules, sub-rules, directives, or orders;

(f) Take appropriate measures to protect the interests of investors and shareholders;

6446 Bangladesh Gazette, Extraordinary, June 13, 2017

(g) Ensure free, neutral, transparent, efficient, and accountable management;

(h) Ensure effective administration, efficient financial and general management;

(i) Ensure the appropriate use of information technology;

(j) If any difference of opinion arises between any policy, directive, decision, or order formulated by the Board of Directors and the Commission of the Central Counterparty, the rules, directives, or orders formulated by the Commission shall prevail, and the Managing Director shall ensure this.

Formation and responsibilities of committees.—(1) For the purpose of these Rules, to ensure the smooth performance of duties imposed on the Central Counterparty and to ensure institutional governance, the Board of Directors shall form the following committees, namely:—

(a) Advisory Committee: This committee shall advise the Board of Directors on non-regulatory and operational matters of the CCP, including technology issues, types of services, determination of clearing and settlement charges, and regulatory fees. This committee shall be formed with representatives of Clearing Members, and the Chairman of the Board shall be the head of this committee;

(b) Risk Management Committee: This committee shall be formed with independent directors and the Managing Director, and its decisions shall inform the Board of Directors; this committee shall formulate a detailed risk management policy, which shall be approved by the Management Board; the head of the Risk Management Department shall be the Member-Secretary of this committee, and he shall be responsible for implementing the decisions of this committee; this committee shall evaluate the progress of implementing the risk management policy and keep the Commission and the Board of Directors informed regarding this;

(c) Audit Committee: An Audit Committee shall be formed following the corporate governance guidelines issued by the Commission from time to time. The said Audit Committee shall ensure the enforcement of the corporate governance provisions formulated by the Commission;

(d) Ethics and Discipline Committee: An Ethics and Discipline Committee shall be formed under the Board of Directors to evaluate the progress of implementing the ethics policy of the CCP. The said committee shall have at least 02 (two) independent directors as members;

(2) For the purpose of sub-rule (1), the Board of the Central Counterparty shall inform the Commission about the formation, procedure, and other matters of all committees:—

Provided that, the Commission may issue any directive regarding the formation and responsibilities of all the aforementioned committees.

Code of conduct of Directors.—For the smooth and proper conduct of the activities of the Central Counterparty, the Directors shall enforce the code of conduct mentioned in Schedule-3.

Bangladesh Gazette, Extraordinary, June 13, 2017 6447

Service fees provided by the Central Counterparty.—(1) The Commission may issue directives to the Central Counterparty from time to time regarding the determination, collection, and payment of regulatory fees:

Provided that, if any other charges such as cost recovery, deposit, etc., are to be collected in addition to the fees payable for services, such determination and collection must also be done with the prior approval of the Commission.

(2) The Central Counterparty may determine and collect regulatory fees with the prior approval of the Commission and in accordance with the directives.

Complaints and resolution.—(1) The Central Counterparty shall properly record all complaints submitted to it and take immediate appropriate action to resolve the complaints.

(2) Formulate and apply Alternative Dispute Resolution (ADR) mechanisms.

(3) If unable to resolve the complaint, it shall be referred to the Commission.

Submission of reports to the Commission.—(1) The Central Counterparty shall submit written reports to the Commission, among others, within the following timeframes, namely:—

(a) If short-sale occurs on the previous business day, within the next business day after its settlement;

(b) If any punitive action is taken against a participant, within the next business day after the description;

(d) Half-yearly report of the Central Counterparty within one month after the next, and annual report and audited financial statements within 04 (four) months after the next.

(2) If the Commission asks for any other information from time to time, the Central Counterparty shall be obliged to supply it as per the Commission's directive.

Contracts, rights, and liabilities between the Central Counterparty and others.—(1) The rights and liabilities of the Central Counterparty, participants, and clients shall be determined by these Rules along with other laws, CCP policies, and legal contracts concluded between the relevant parties:

Provided that, in this case, if any problem arises, the decision given by the Commission in this regard shall be considered final.

(2) The Central Counterparty shall conclude necessary bilateral or multilateral contracts with exchanges, depositories, and clearing banks for the purpose of performing its duties; wherein:—

6448 Bangladesh Gazette, Extraordinary, June 13, 2017

(a) Conclude contracts between the exchange and the Central Counterparty for the purpose of service exchange, which shall include, among others, rights, liabilities, inclusion of securities for the purpose of clearing and settlement, risk management, clearing and settlement fees or charges, and other matters;

(b) Conclude contracts between the depository and the Central Counterparty for the purpose of service exchange, which shall include, among others, rights, liabilities, provision of securities for the purpose of clearing and settlement, risk management, clearing and settlement fees or charges, and other matters;

(c) Conclude contracts between the clearing bank and the Central Counterparty for the purpose of service exchange, which shall include, among others, rights, liabilities, methods of financial transactions for the purpose of clearing and settlement, risk management, fees or charges, and other matters;

(d) In case of any complaint or claim arising in clearing and settlement, exchanges, depositories, clearing banks, and the Central Counterparty shall include the method of determining the procedure for mediation and the contract document.

Internal evaluation, observation, and control systems.—(a) The Central Counterparty shall have sufficient internal evaluation, observation, and control systems to ensure its systems, operations, controls, and security.

(b) Specific responsibilities and accountability at various levels shall be ensured for the control of the aforementioned systems.

(d) To ensure the separation of regulatory activities, the Central Counterparty shall adopt a “clear” policy which shall keep its regulatory department separate from the activities of all other departments. No employee of the regulatory department shall inform any other department about regulatory activities without the recommendation of the Managing Director. However, the head of the regulatory department shall be informed of all matters by the executive, and advice shall be sought from him if necessary.

Information, record, etc. preservation systems.—(1) The Central Counterparty shall preserve the following information, records, etc., following the prescribed method, namely:—

(a) Records of transactions that have been settled;

(b) Transaction settlement list or index (index) for all participants;

(d) Detailed descriptions of all participants;

(e) Any other information or records determined by the Commission from time to time.

Bangladesh Gazette, Extraordinary, June 13, 2017 6449

(2) The Central Counterparty shall inform the Commission in writing in advance where its information, records, and documents are stored.

(3) Subject to the provisions of any other law, the Central Counterparty shall preserve its information, records, and documents for a minimum of seven years.

Regular inspection system.—For the purpose of smooth operation, the Central Counterparty shall regularly inspect its and the participants' systems, operations, controls, and security systems, and submit a copy of the inspection report to the Commission.
Effective electronic communication and preservation systems by the Central Counterparty.—The Central Counterparty shall ensure effective electronic communication and preservation systems with participants, exchanges, depositories, clearing banks, and any other person, authority, or institution designated by the Commission.
Cooperation with other persons or institutions.—The Central Counterparty shall cooperate with each participant, clearing bank, exchange, depository, and any person, authority, or institution designated by the Commission in such a manner as to ensure reliable, fast, and safe provision of all services.
Coordination with clearing and settlement systems.—If any proposal for changes in the clearing and settlement system by the Central Counterparty is approved by the Commission, the Central Counterparty shall inform the exchange and depository as soon as possible, and the exchange and depository shall take appropriate steps to quickly integrate the Commission-approved changes into their systems.
Compensation system.—If any person suffers loss due to any activity of the Central Counterparty, the Central Counterparty shall have sufficient arrangements to compensate such person, which may include insurance:

Provided that, the insurance company, any part of its organization, or any of its officers, shareholders, or representatives shall not be included in or remain in the Board of Directors of the Central Counterparty during the period of insurance.

Prohibition on delegation of duties or responsibilities.—The Central Counterparty shall not delegate its clearing and settlement activities to anyone without the prior permission of the Commission.

Fourth Chapter
Central Counterparty, Participants, Their Registration and Liabilities

Classification and responsibilities of participants.—(1) Participants in clearing and settlement activities shall be divided into the following categories, namely:

(a) Self-Clearing Participants: Only stock brokers or stock dealers may be participants of this category, who may only clear and settle transactions of themselves or their clients;

6450 Bangladesh Gazette, Extraordinary, June 13, 2017

(b) Full-Clearing Participants: Only institutions with high net worth, which have sufficient capacity to bear all types of settlement risks, may be participants of this category. A full-clearing participant may clear and settle transactions of himself, his clients, as well as other persons contracted with him. Clearing participants of this category shall register transaction information and records and clear contracts.

(2) Participants shall have prescribed qualifications, and they shall be registered subject to fulfilling such qualifications and following the procedure.

(3) Among others, participants shall have the following responsibilities, namely:—

(a) Comply with all laws, rules, regulations, procedures, processes, manuals, standards, codes of conduct, discipline, and CCP policies regarding securities transactions, clearing, and settlement;

(b) Pay the prescribed margin on time and, where applicable, collect and pay margin from clients;

(d) Give priority to the interests of clients over their own interests and under no circumstances use clients' securities or money for clearing and settlement of transactions in their own accounts;

(e) Pay all dues to the exchange and the Central Counterparty on time.

Application for registration of participants.—(1) No institution may function as a participant without a registration certificate under these Rules.

(2) For registration as a participant:—

(a) Apply in ‘Form-Eng’ through the Central Counterparty with the recommendation of the Commission-licensed Central Counterparty to the Commission;

(b) Submit a bank draft or pay order of the following amounts as fees payable to the Securities and Exchange Commission along with the documents and information mentioned in the application form:

For Full-Clearing Participants: 50,000 (fifty thousand) Taka;

For Self-Clearing Participants: 25,000 (twenty-five thousand) Taka.

(c) The Central Counterparty, after completing the specified part of the received application, shall submit it to the Commission within seven business days along with the said bank draft or pay order;

Bangladesh Gazette, Extraordinary, June 13, 2017 6451

(d) If the Central Counterparty determines for any reason that the application cannot be recommended for registration to the Commission, it shall inform the applicant in writing within seven business days along with the pay draft or pay order, stating the reasons, a copy of which shall be sent to the Commission simultaneously:

Provided that, if the Central Counterparty decides not to recommend the application for any reason, the applicant may reapply after removing the said reasons.

Qualifications for registration as a participant.—Under these Rules, an applicant shall be eligible for registration as a participant if he belongs to any of the following categories, namely:—

(1) Self-Clearing Participants:—

(a) Stock brokers or stock dealers licensed by the Commission;

(b) The applicant for registration as a participant under these Rules shall have the infrastructure, security systems, and suitable manpower determined by the Central Counterparty; and

(2) Full-Clearing Participants:—

(a) Any bank company defined in the Bank Companies Act, 1991 (Act No. 14 of 1991) or its subsidiary company;

(b) Any financial institution defined in the Financial Institutions Act, 1993 (Act No. 27 of 1993) or its subsidiary company;

(d) The minimum paid-up capital shall be 50 (fifty) crore Taka, and the Commission may re-determine it by order from time to time;

(e) The applicant for registration as a participant under these Rules shall have the infrastructure, security systems, and suitable manpower determined by the Central Counterparty; and

(f) The applicant shall maintain adequate risk-based capital adequacy as determined by the Commission from time to time.

Registration of participants.—(1) After receiving an application for registration as a participant, if the Commission is satisfied that the application is eligible for approval under these Rules, the Commission shall approve it within thirty business days of receiving the application and issue a registration certificate (Form-Ch) to the applicant.

6452 Bangladesh Gazette, Extraordinary, June 13, 2017

(2) If more information is required to consider an application for registration, the Commission may request such information within 15 (fifteen) business days of receiving the application; and if the application is acceptable after receiving such information within the time determined by the Commission, the Commission shall approve it and issue a registration certificate to the applicant.

(3) If, after examining an application for registration, the Commission concludes that the application is not eligible for approval under these Rules, or if approving it would not be conducive to the capital market or public interest, the Commission may reject it in writing stating the reasons:

Provided that, the applicant may reapply to the Commission through the Central Counterparty after removing the said reasons.

(4) Any registration certificate issued by the Commission shall remain valid for five years from the date of issuance, subject to the conditions mentioned therein.

(5) If any information provided by the participant is subsequently changed, it shall be informed in writing to the Central Counterparty and the Commission immediately.

(6) A renewal fee of the following amounts in bank draft or pay order shall be submitted to the Commission through the Central Counterparty along with an application in the format provided in Schedule-3, and any registration certificate may be renewed for the next five years:

For Full-Clearing Participants: 100,000 (one lakh) Taka

For Self-Clearing Participants: 50,000 (fifty thousand) Taka.

(7) The application for renewal of the registration certificate mentioned in sub-rule (6) shall be submitted to the Commission one month prior to the expiration of the period mentioned in the registration certificate; in case of failure, a penalty of 500 Taka per delayed day shall be deposited with the Commission.

Maintenance of effective electronic connection by participants.—Participants shall ensure effective electronic connection systems with the Central Counterparty in the manner described by the Central Counterparty.
Preservation of information, records, etc. by participants.—(1) Participants shall have sufficient internal evaluation and audit to ensure the preservation of appropriate information, records, etc., in the manner prescribed by the Central Counterparty.

(2) Participants shall reconcile their records with the Central Counterparty every business day.

(3) Participants shall submit returns in the specified format to the Central Counterparty at specified intervals in the manner described by the Central Counterparty.

Bangladesh Gazette, Extraordinary, June 13, 2017 6453

(4) Upon request by the Commission, each participant shall supply the information mentioned in the demand letter to the Commission.

(5) Participants shall preserve and keep ready for inspection and examination by the Central Counterparty or any person or institution designated by the Commission, among others, the following information, namely:—

(a) Information regarding every transaction between the Central Counterparty and the account holder;

(b) All records related to clearing and settlement conducted through the participant; and

(6) The participant shall inform the Commission and the Central Counterparty in writing in advance where he is storing his information, records, etc., and shall inform the Commission and the Central Counterparty in writing immediately of any changes.

(7) Subject to the provisions of any other applicable law, the participant shall preserve his information, records, and documents for a minimum of seven years.

Inspection of participant activities and demand for information.—(1) The Commission or the Central Counterparty or any person appointed by them may enter the office or workplace of the participant and inspect and observe their activities, records, systems, etc.

(2) The Commission or the Central Counterparty or any person appointed by them may demand and examine any information or documents from the participant or client.

Prohibition on delegation of participant activities.—No participant may delegate any of his activities to others without the prior permission of the Commission.

Fifth Chapter
Miscellaneous

Issuance and Enforcement of Orders or Directives.—The regulatory provisions mentioned in these Rules shall be considered as compliance with directives or orders issued in accordance with the Securities and Exchange Ordinance, 1969 and the Bangladesh Securities and Exchange Commission Act, 1993:

Provided that the Commission may, from time to time, issue any necessary orders or directives in the interest of smooth control of clearing and settlement activities.

6454 Bangladesh Gazette, Extraordinary, June 13, 2017

Declaration of Emergency.—(1) In any special situation beyond the control of the Central Counterparty, such as earthquake, rioting, natural disaster, fire, etc., where communication, electricity, or telephone systems are damaged or disrupted, or operations are hindered, the Central Counterparty may declare an emergency in consultation with the Commission.

(2) During the declared emergency, the Central Counterparty must take temporary special measures for the clearing and settlement process, which must be reported in writing to the Commission within a maximum of six hours.

Disaster Management Measures and Procedures.—There must be adequate measures to immediately address disasters arising from technical errors or other causes of the Central Counterparty, and detailed procedures regarding this must be contained in the CCP Policy.
Information Security of the Central Counterparty.—(1) The Central Counterparty, along with its emergency systems, shall take all such measures to ensure that stored information is completely safe and secure, that it is not destroyed or distorted, that the Central Counterparty’s internal and external (inward and outward) data transmission is thoroughly (encrypted), and that no one outside the law, these Rules, the CCP Policy, or procedures accesses or uses such collection or usage.

(2) The Central Counterparty shall store all information and data related to the clearing and settlement of transactions in at least 2 locations, including one in a seismic zone different from its location, for a minimum of 10 (ten) years.

Provisions Regarding the Cessation of the Central Counterparty.—If any Central Counterparty wishes to cease operations, it must first submit a written application to the Commission for approval of cessation, containing the following information:

(a) The reason for cessation;

(b) A description of how it wishes to be terminated;

(d) A detailed description of how the security and custody of information stored therein will be maintained and what will happen to such information after the cessation of the Central Counterparty; and

(e) Detailed measures taken regarding liabilities with persons or institutions with which the Central Counterparty is contracted; and

(f) Any other information requested by the Commission.

Provided that no Central Counterparty may commence formalities regarding cessation only after obtaining written approval from the Commission.

Bangladesh Gazette, Extraordinary, June 13, 2017 6455

Agreement between Central Counterparty, Exchange, and Depository.—The relationship between the Central Counterparty, Exchange, and Depository shall be determined by mutual agreement.
Obligation to Operate Considering Investor Interests.—The Central Counterparty shall always work in the interest of the public, i.e., the protection of investors' interests, and shall prioritize the public interest, i.e., the interests of investors, even if it conflicts with its own interests.
Responsibilities of the Exchange Regarding Clearing and Settlement.—Without limiting other responsibilities, the responsibilities of the Exchange regarding clearing and settlement shall be as follows, namely:—

(a) Supplying information of each of its transactions to the Central Counterparty;

(b) Not allowing transactions exceeding the transaction limits determined by the Central Counterparty for each trading participant;

(d) Properly fulfilling any other responsibilities determined by the Commission.

Inspection or Inquiry.—(1) The Commission may inspect (Inspection) or inquire (Enquiry) into any activities of the Central Counterparty, its directors, officers, employees, and participants.

(2) Such inspection or inquiry shall be conducted in accordance with the relevant sections of the Securities and Exchange Ordinance, 1969 or the Bangladesh Securities and Exchange Commission Act, 1993, and legal action may be taken in the manner described.

(3) The Central Counterparty shall regularly inspect the activities of its participants and send inspection reports to the Commission for necessary action.

Maintenance of Account Books and Records.—(1) The Central Counterparty shall maintain the following account books, records, and documents for each accounting period, namely:—

(a) Balance Sheet;

(b) Profit and Loss Account;

(d) Auditor's Report on Accounts.

(2) All account books, records, and documents stored under these Rules must be preserved for 12 (twelve) years.

(3) The Central Counterparty shall be obligated to submit the Balance Sheet, Profit and Loss Account, Cash Receipt and Payment Statement, and other reports as required by the Commission (if any) to the Commission at the end of each accounting period.

6456 Bangladesh Gazette, Extraordinary, June 13, 2017

Unaudited Account Statements.—The Central Counterparty shall submit its unaudited first quarterly account statement to the Commission within 45 (forty-five) days after the end of the first quarter, and the second and third quarterly statements within 30 (thirty) days after the end of the second and third quarters, respectively.
Management Takeover and Appointment of Administrator.—If it appears to the Commission that any Central Counterparty—

(a) Has failed or neglected to protect investors' interests, or has engaged in activities with dishonest intentions, or

(b) Is doing any work harmful to the economic interests of the state,

then the Commission, after providing a reasonable opportunity of hearing to such Central Counterparty, may take over the Board of Directors of such Central Counterparty by written order for the period mentioned in the order and manage its administration, or appoint an Administrator to manage its administration.

Preservation of Confidentiality.—No director, member, Chief Executive Officer, officer, employee, committee member, shareholder, or any participant or any person of the Central Counterparty shall disclose any information obtained while performing duties related to clearing and settlement, or any other price-sensitive information or information regarding such matters or market surveillance (Market Surveillance) to anyone else without the Commission's consent, nor shall they trade any securities based on such information.
Transfer of Existing Clearing and Settlement System of the Exchange to the Licensed Central Counterparty.—(1) The Exchange may continue its existing clearing and settlement system for up to three months after the registered Central Counterparty obtains the license to commence business, and within the aforementioned three months, the Exchange shall transfer its existing clearing and settlement system to the registered and licensed Central Counterparty, after which the Exchange's clearing and settlement system shall be abolished:

Provided that in any special case, the Commission may extend this time period if necessary.

(2) After the expiration of three months from the date of obtaining the license to commence business by the registered Central Counterparty, or the extended time period by the Commission, clearing and settlement activities for all types of securities traded in the capital market shall fall under the jurisdiction of the registered Central Counterparty, and such activities shall not be completed by any other means or channel except through it.

(3) As a result of the transfer of the Exchange's existing clearing and settlement system and operations to the registered and licensed Central Counterparty under sub-rule (1)—

(a) Any order or directive issued under any law or regulation shall apply to the Central Counterparty;

Bangladesh Gazette, Extraordinary, June 13, 2017 6457

(b) Any acquired rights, benefits, liabilities, contracts executed, or debts shall not change, nor shall any legal proceedings initiated against them be considered defective, and any legal proceedings initiated against them shall continue or remain ongoing if initiated;

(d) Any approval, declaration of responsibility, release, exemption granted, decision taken and measures adopted, fees paid, mortgages and transfers made, books, documents, leases, and acts performed thereon or acts performed in their favor shall remain valid and effective as before.

(4) If any difficulty arises during the transfer of the Exchange's existing clearing and settlement system to the registered and licensed Central Counterparty, the Commission may issue any order to resolve such difficulty, or provide any instructions to the Exchange, company, depository, participant, customer, or any other institution.

Power to Grant Exemption.—The Commission may, in the public interest and for the purpose of fulfilling these Rules, exempt any person from any obligation of these Rules upon receiving a reasonable cause and a written application from them.
Resolution of Difficulties.—If any difficulty or inconvenience arises in implementing the provisions of these Rules, the Commission may provide clarification or explanation and issue relevant guidelines on the matter, keeping in harmony with existing laws and regulations.

Bangladesh Securities and Exchange Commission (Clearing and Settlement) Rules, 2017

Lineage: In force

Similar documents from other regulators