VOLUNTARY INACTIVATION OF BUSINESS OPERATIONS OF A STOCKBROKER FIRM

Transcription

1 SECTION 12 VOLUNTARY INACTIVATION OF BUSINESS OPERATIONS OF A STOCKBROKER FIRM 12.1 GENERAL A Stockbroker Firm may inactivate its business operations for a period of two (02) years with the approval of the SEC after provisional approval has been first obtained from the CSE A Stockbroker Firm intending to inactivate its business operations shall comply with Section 12 of these Rules Inactivation of business operations shall be permitted only once during a Stockbroker Firm s membership in the CSE A Stockbroker Firm may reactivate its business operations in accordance with Rule of these Rules PROVISIONAL APPROVAL FOR VOLUNTARY INACTIVATION A Stockbroker Firm seeking to inactive its business operations shall submit a written application to the CSE in the prescribed format requesting for provisional approval to inactivate An application for provisional approval referred to in Rule above shall be supported by the following information/documents: A Report indicating the; (i) (ii) (iii) reasons for seeking inactivation; financial implications of inactivating the business operations as against continuing to operate; and, the manner in which the Stockbroker Firm intends to recover funds from debtors and settle creditors of the Firm during the period of provisional inactivation. (c) (d) An extract of the Board Resolution approving the inactivation of business operations and the appointment of the two (02) nominated directors referred to in Rule 12.6 of these Rules, certified by the Company Secretary of the Stockbroker Firm to be a true copy. An extract of the Special Resolution passed by the shareholders of the Stockbroker Firm approving the inactivation, certified by the Company Secretary of the Firm to be a true copy. Any other additional information requested by the CSE. 3 rd July

2 The CSE, on receipt of such application, shall make a determination in respect of granting provisional approval with seven (7) Market Days written notice to the SEC, before such determination is conveyed to the applicant In the event an application for provisional approval referred to in Rule above is rejected by the CSE, the reasons for such rejection will be provided by the CSE to the applicant Stockbroker Firm with a copy to the SEC Where a provisional approval is granted by the CSE, the applicant Stockbroker Firm shall comply with the Rules set out below TRANSFER OF SECURITIES PORTFOLIO/S OF CLIENTS TO OTHER STOCKBROKER FIRMS OR CUSTODIAN BANKS The Stockbroker Firm shall, within fourteen (14) days from receiving provisional approval for inactivation, take all necessary steps to notify the clients, in writing, regarding the voluntary inactivation of business operations of the Stockbroker Firm and shall request the clients to transfer their securities portfolio/s held through the Stockbroker Firm to another Stockbroker Firm(s) or Custodian Bank(s) of their choice, within a period of two (2) months from the date of notification to clients. Further, the Stockbroker Firm shall retain such evidence of notifying to its clients Immediately upon receiving the response of the clients to the notice of inactivation referred to in Rule the Stockbroker Firm shall take steps to transfer the securities portfolio/s of all existing clients of the Stockbroker Firm to another Stockbroker Firm(s) or Custodian Bank(s) of the clients choice after recovering any outstanding dues from the clients Upon the expiry of the two (02) months period referred to in Rule above, if any clients of the Stockbroker Firm have failed to transfer their securities portfolio/s held through the Stockbroker Firm to another Stockbroker Firm(s) or Custodian Bank(s) of their choice or have not responded to the Stockbroker Firm in spite of the Firm s attempts to notify such clients in writing, the Stockbroker Firm shall publish a notice in the national newspapers in Sinhala, Tamil and English languages in conformity with Rule below. 3 rd July

3 The newspaper notice referred to in Rule above shall include the following information to the clients: (c) (d) That the Stockbroker Firm has obtained the provisional approval of the Colombo Stock Exchange for inactivating the business operations of the Stockbroker Firm. The clients are provided with a further period of one (01) month from the date of publishing the newspaper notice to transfer their securities portfolio/s held through the Stockbroker Firm to another Stockbroker Firm(s) or Custodian Bank(s) of their choice. In the event the clients do not transfer their securities portfolio/s held through the Stockbroker Firm to another Stockbroker Firm(s) or Custodian Bank(s) of their choice within the further period of one (01) month, the dealings in the respective Securities Accounts maintained by such Clients through the Stockbroker Firm in the Central Depository Systems (Private.) Ltd shall be suspended by the Central Depository Systems (Private) Limited upon the expiry of the said one (01) month period. In the event the clients require to transfer their securities portfolio/s held through the Stockbroker Firm to another Stockbroker Firm(s) or Custodian Bank(s) of their choice subsequent to the suspension of the dealings in the Securities Accounts maintained through the Stockbroker Firm in the Central Depository Systems (Private) Limited, such clients may do so in terms of Rule 9.1 of the Rules of the Central Depository Systems (Private) Limited Margin Trading accounts Any Margin Trading Accounts registered in the CDS through the Stockbroker Firm shall also be transferred to other Stockbroker Firm(s) or Custodian Bank(s) as per the terms and conditions agreed between the respective clients, Stockbroker Firms or Custodian Banks, and the Margin Provider OBLIGATIONS OF THE STOCKBROKER FIRM RELATING TO CLIENTS MONEY The Stockbroker Firm shall fully settle all creditors and shall ensure that all clients money held with the Stockbroker Firm is returned to the respective clients prior to obtaining the final approval of the SEC for inactivation of business operations of the Firm. 3 rd July

4 12.5 ARRANGEMENTS PERTAINING TO THE EMPLOYEES OF THE STOCKBROKER FIRM The Stockbroker Firm shall make suitable arrangements for the smooth exit/retention of the Employees of the Stockbroker Firm prior to becoming inactive If a voluntary retirement scheme is introduced, the Stockbroker Firm shall ensure that the requisite approvals are obtained from the relevant authorities as per the applicable laws The Stockbroker Firm may arrange with any other Stockbroker Firm/s to absorb the employees of the Firm, as per any terms and conditions agreed between the respective Stockbroker Firms. The Stockbroker Firm shall inform the CSE and SEC, in writing, regarding the arrangements made for employees dealing with clients NOMINATION OF DIRECTORS TO HANDLE MATTERS POST-INACTIVATION The Stockbroker Firm shall nominate two (02) directors prior to its inactivation, who shall attend to all affairs of the Firm subsequent to its inactivation, including any pending issues and new issues that may arise during the period of inactivation. The names and contact details of the nominated directors, as approved by the Board of Directors of the Stockbroker Firm, shall be communicated to the CSE and SEC in writing by the Stockbroker Firm prior to its inactivation The two (02) directors nominated by the Stockbroker Firm in terms of Rule 12.6 shall liaise with the CSE and SEC, as and when necessary. The Board of Directors of the Stockbroker Firm shall be held responsible for all actions and omissions of the two (02) nominated directors during the period of inactivation SETTLEMENT OBLIGATIONS OF THE STOCKBROKER FIRM The Stockbroker Firm shall ensure that all settlement obligations arising from transactions carried out on the CSE in relation to the CDS, other Stockbroker Firms, Custodian Banks, and clients of the Firm are duly settled prior to the final approval being granted by the SEC, even if such settlement falls due on a date subsequent to inactivating the business operations of the Stockbroker Firm. 3 rd July

5 12.8 CLIENT COMPLAINTS, INSPECTIONS AND INVESTIGATIONS PENDING AGAINST THE STOCKBROKER FIRM WITH THE CSE The Stockbroker Firm shall resolve all pending client complaints prior to obtaining the final approval of the SEC for inactivation of business operations of the Firm. Provided however, if any client complaints remain unresolved due to extraneous and/or unavoidable circumstances, the CSE at its sole discretion, may permit the Stockbroker Firm to inactivate its business operations subject to the Firm resolving such pending complaints in accordance with Rule , notwithstanding the inactivation of business operations in terms of these Rules Any new client complaints lodged against the Stockbroker Firm during the period of inactivation shall be resolved as set out in Rule of these Rules Any investigations and inspections pending against a Stockbroker Firm seeking inactivation of business operations will be carried out by the CSE in relation to the Firm notwithstanding the inactivation of the Stockbroker Firm In the event of such investigation or inspection, the Board of Directors and all employees of the Stockbroker Firm shall render its fullest cooperation to the CSE and shall provide access to books, accounts and electronic data of the Stockbroker Firm, which shall be kept in safe custody of the Stockbroker Firm, notwithstanding its inactivation of business operations INVESTIGATIONS, COMPLAINTS, INSPECTIONS AND INQUIRIES INVOLVING THE STOCKBROKER FIRM PENDING WITH THE SEC OR ANY OTHER STATUTORY BODY Any grant of a provisional inactivation by the CSE and the subsequent inactivation with the approval of the SEC shall not operate as a hindrance or a discontinuation of any pending statutory inspection, investigation or inquiry conducted by the SEC or any other regulatory authority on the stockbroker firm. Such pending statutory inspections, investigations or inquiries as the case may be shall be carried out notwithstanding the inactivation of the Stockbroker Firm In the event of such investigation, inspection or inquiry the Board of Directors of the Stockbroker Firm and all employees of such Firm shall render its fullest cooperation with regard to the affairs of the Stockbroker Firm to the investigating/inquiring authority. 3 rd July

6 All books accounts and electronic data which are the property of the Stockbroker Firm shall be kept in safe custody of the Stockbroker Firm notwithstanding its inactivation and shall be made available to the investigating/inquiring authority if required by such authority FINAL APPROVAL FOR INACTIVATION Upon compliance with the requirements set out in Section 12 of these Rules and due completion of the inactivation process, the Stockbroker Firm shall notify the CSE, in writing, of that fact and submit a Declaration to the CSE in the format prescribed by the CSE signed by the two (02) nominated directors of the Stockbroker Firm Upon being satisfied that the Stockbroker Firm has duly completed the inactivation process in compliance with Section 12 of these Rules, the Board of Directors of the CSE shall recommend the inactivation of the Stockbroker Firm to the SEC for the final approval of the SEC Upon the final approval for inactivation being granted by the SEC in terms of Rule above, the CSE shall communicate the decision of the SEC to the Stockbroker Firm, in writing, together with the effective date from which the Stockbroker Firm has been/will be declared inactive CONSEQUENCES OF INACTIVATING THE BUSINESS OPERATIONS OF A STOCKBROKER FIRM From the effective date of inactivation, the Stockbroker Firm shall; be disconnected from the ATS/Order Management System (OMS) and shall not be permitted to transact on the CSE on behalf of clients and/or the Firm s own trading account (if applicable); and, be disconnected from the CDS and shall not be permitted to perform any CDS activities or clearing and settlement functions, except to the extent as stipulated in Rule 12.7 of these Rules The CSE shall; refund the liquidity deposit maintained by the Stockbroker Firm with the CSE in terms of Section 5 of these Rules, subject to recovering any outstanding dues; and, discontinue to charge the monthly Stockbroker Fee and Service Fee in respect of the Stockbroker Firm The CSE may discontinue supervision functions relating to the Stockbroker Firm, unless otherwise deemed necessary by the CSE. 3 rd July

7 12.12 OBLIGATIONS OF THE STOCKBROKER FIRM DURING THE PERIOD OF INACTIVATION Maintenance of License as a Stockbroker Firm and Membership with the CSE during the period of inactivation The Stockbroker Firm shall maintain its Stockbroker license by paying the licensing fee to the SEC and shall maintain its membership with the CSE. However, the maintenance of such license shall not be utilized to perform the functions of a Stockbroker contrary to these Rules. The SEC shall be entitled to impose conditions deemed fit on such Stockbroker Firm in respect of the maintenance of the license issued during the period of inactivation Submission of audited financial statements The Stockbroker Firm shall ensure that the audited financial statements of the Firm are submitted to the CSE and SEC in accordance with Rule of these Rules Transfer of Securities Portfolio/s of Clients to other Stockbroker Firms or Custodian Banks The nominated directors of the Stockbroker Firm shall promptly attend to all requests made by their clients to transfer their securities portfolio/s held through the Stockbroker Firm in the CDS to another Stockbroker Firm(s) or Custodian Bank(s) of their choice subsequent to the suspension of the Securities Accounts maintained with the CDS in accordance with Rule 12.3 of these Rules Client Complaints Any client complaints against the Stockbroker Firm, including pending client complaints which may continue beyond the effective date of inactivation of the business operations of the Stockbroker Firm due to extraneous and unavoidable circumstances and new client complaints lodged against the Stockbroker Firm during the period of inactivation, shall be attended to by the two (02) nominated directors of the Stockbroker Firm in accordance with Rule 12.8 of these Rules. The two (02) nominated directors of the Stockbroker Firm shall ensure that such pending and new complaints are followed through to completion and the decision of the CSE and/or the SEC (as the case may be) is implemented. 3 rd July

8 12.13 COMPLIANCE WITH APPLICABLE LAWS, ARTICLES OF ASSOCIATION OF THE CSE AND RULES OF THE CSE During the period of inactivation, the Stockbroker Firm shall comply with all applicable laws including the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 (as amended) and the Companies Act No. 7 of 2007 (as amended) and the Articles of Association of the CSE to the extent applicable The CSE may, at any time during the period of inactivation, require the Stockbroker Firm to comply with any Rule contained in the Stockbroker Rules, as the CSE may deem necessary REACTIVATION OF BUSINESS OPERATIONS OF THE STOCKBROKER FIRM The Stockbroker Firm may, within two (02) years from the effective date of inactivation of business operations of the Firm, reactivate its business operations In the event the Stockbroker Firm reactivates its business operations within the period of two (02) years referred to in Rule of these Rules, such Stockbroker Firm shall be liable to pay a non-refundable reactivation fee of Rupees Fifteen Million (Rs.15 Mn.) to the CSE The Stockbroker Firm shall ensure that it is fully compliant, at the time of reactivating the business operations of the Firm, with all applicable entry requirements and minimum standards set out in these Rules, excluding any stipulated entry fee An inactive Stockbroker Firm may be reactivated through any method, including the following: The inactive Stockbroker Firm may be sold either in full or part. The sale transaction shall be carried out only with the prior written approval of the CSE and SEC. In such event, the new shareholders and board of directors of the Stockbroker Firm shall ensure that the operations of the Stockbroker Firm are reactivated within six (6) months of the CSE and SEC granting approval for the sale transaction. The inactive Stockbroker Firm may be amalgamated with any other Stockbroker Firm of the CSE with the prior written approval of the CSE and SEC If the Stockbroker Firm fails to reactivate the business operations of the Firm on or before the expiry of the period of (02) years referred to in Rule above, the Stockbroker Firm shall, upon the expiry of the period of inactivation, ipso facto cease to be a member of the CSE in terms of the Articles of Association of the CSE and the license issued by the SEC to operate as a Stockbroker Firm shall ipso facto be deemed to be cancelled. 3 rd July