The conditions envisage that the stock exchange (SE) and its trading members shall together hold 100 per cent in nominal value of the equity share capital of the subsidiary company, with the exchange holding not less than 51 per cent in nominal value of the equity share capital of the subsidiary company.

The regulator –– which issued a spate of Master Circular on Tuesday on allotment of codes to SE and subsidiary management by SEs, besides governance and arbitration in recognised SEs –– made it clear that the subsidiary entity shall not undertake any dealing in securities on its own account. It shall register only the trading members of the SE, which is promoting the subsidiary company as its sub-broker and no other client or sub-broker shall be
entertained by the subsidiary firm.

All the stock exchanges which have set up subsidiaries have to make the necessary provisions in their rules, regulations and the bylaws to provide for the above requirement. Also, the sub-brokers of the subsidiary company shall maintain separate deposit with the subsidiary company. The base minimum capital deposited by the sub-broker with the promoting SE should not be transferred to the subsidiary company.

This deposit to be maintained with the subsidiary company could be 25 per cent in the form of cash and the balance 75 per cent in irrevocable bank guarantees or Fixed Deposit Receipts (FDRs).