Exit order passed in respect of ACE Derivatives and Commodity Exchange Limited, Ahmedabad

EXIT ORDER IN RESPECT OF THE ACE DERIVATIVES AND COMMODITY EXCHANGE LIMITED, AHMEDABAD

1. The ACE Derivatives and Commodity Exchange Limited, Ahmedabad (hereinafter referred to as “ACE/Exchange” and formerly known as “The Ahmedabad Commodity Exchange”) was granted recognition as a commodity derivatives exchange under Section 6 of the Forward Contracts (Regulation) Act, 1952 (hereinafter referred to as “FCRA”), vide notification S.O. No. 1946 (E) dated August 10, 2010 by the Government of India, on a permanent basis, in respect of forward contracts in all the commodities in which Section 15 of FCRA was applicable. The said recognition was granted subject to the condition that the Exchange shall comply with such directions as may be issued, from time to time, by erstwhile Forward Markets Commission (hereinafter referred to as “FMC”).

2. The Exchange was primarily organising futures trading in certain commodities. However, trading operations in ACE were suspended with effect from May 31, 2015. The Exchange has not been able to resume trading on its platform, till date. Further, more than two years have elapsed from the date of suspension of trading but the Exchange has not formulated any credible revival plan for the purpose of revival of its trading operations.

3. The erstwhile FMC, vide its Circular No. 9/1/2014-MKT-I (Vol-II), dated May 19, 2015, had directed all the commodity derivatives exchanges, who had suspended their trading operations, to refund the clients margin money and members’ deposits and resolve all outstanding client disputes. The erstwhile FMC had also directed that failure by an exchange to revive its trading operations within twelve months from the date of suspension of trading would lead to cancellation of its registration.

4. As per Section 28A (1) of the Finance Act, 2015, pursuant to the merger of FMC with the Securities and Exchange Board of India (hereinafter referred to as ”SEBI”'), all the associations recognised under FCRA are deemed to be recognised stock exchanges under the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as ”SCRA”) and hence ACE became a deemed recognised stock exchange under the SCRA. Exit Order in respect of The ACE Derivatives and Commodity Exchange Limited

5. SEBI issued a Circular No. CIR/CDMRD/DEA/01/2016 dated January 11, 2016 (hereinafter referred to as ”Exit Circular/Exit Policy”) laying out the mandatory requirements/ exit policy for all the commodity derivatives exchanges being deemed recognised Stock Exchanges under SCRA. In terms of clause 4 of the Exit Circular, 2016, if there is no trading operation on the platform of any commodity derivatives exchange for more than twelve months, then such exchange shall be liable to exit.

6. Accordingly vide letter dated April 20, 2017, SEBI informed ACE that since there had been no trading operation on its platform from May 31, 2015, it would be liable to exit in terms of paragraph 4 of the Exit Circular. Vide letter dated July 28, 2017 ACE informed that members present in their Annual General Meeting held on July 27, 2017 unanimously agreed and approved the resolution for surrendering of the license to SEBI which is also seen in the certified true copy of the resolution passed in the Annual General Meeting of ACE on July 27, 2017.

7. In terms of the clause 7 of the Exit Circular, the following conditions are, inter alia, required to be complied with by the de-recognised/non-operational commodity derivatives exchange before grant of exit: (a) Distribution of its assets subject to certain conditions as laid down in the Exit Circular as well as other guidelines that may be issued by SEBI, Government or any other statutory authority from time to time.

(b) For the purpose of valuation of the assets of the commodity derivatives exchange, a valuation agency shall be appointed by SEBI and all valuation charges are to be paid by the commodity derivatives exchange.

(c) Quantum of assets for distribution will be available after payment of the following by the commodity derivatives exchange: (i) Statutory dues including Income Tax; (ii) Transfer of Investor Protection Fund, or any such fund available with the exchange to SEBI Investor Protection and Education Fund (hereinafter referred to as the 'IPEF'); (iii) Payment of following dues to SEBI by the commodity derivatives exchange :-  Dues outstanding to SEBI and the annual regulatory fee;  The outstanding registration fees of brokers/trading members of such de-recognised exchanges as specified in the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, till the date of such de-recognition;

 In case of any shortfall in collection of dues of the brokers to SEBI, the commodity derivatives exchange will make good the shortfall; (iv) Refund of deposit (refundable) to the stock brokers including their initial contribution/deposit to Settlement Guarantee Fund/Trade Guarantee Fund (SGF/TGF).

(d) Contribution of up to 20% of its assets (after tax) towards IPEF taking into account, inter alia, the governance standards of the exchange and estimation of future liabilities.

(e) The concerned commodity derivative exchange to set aside sufficient funds in order to provide for settlement of any claims, pertaining to pending arbitration cases, arbitration awards, not implemented, if any, liabilities/claims of contingent nature, if any, and unresolved investor complaints/grievances lying with it.

8. The condition mentioned in paragraph 7 (a) above, is a general clause for necessary compliance by the Exchange.

9. In terms of condition mentioned in paragraph 7(b) above, SEBI in consultation with the Exchange appointed NGS & Co. LLP, as the valuation agency on September 19, 2017 for verification and valuation of assets and liabilities of ACE. Subsequently, the valuation agency submitted its report dated October 28, 2017 to SEBI.

10. With respect to the compliance of conditions specified in the Exit Circular and settlement of liabilities by ACE, from the findings in the report submitted by the valuation agency and also from the undertaking dated December 19, 2018 (hereinafter referred to as the “Undertaking”) submitted by ACE, it is noted as follows:

(a) With respect to 7 (c) (i) above, the Exchange in its Undertaking has submitted that there are no statutory liabilities to be paid.

(b) With respect to condition mentioned in para 7(c) (ii) above, the Exchange has transferred the funds of ACE IPF Trust amounting to ` 81,15,997.72 to SEBI IPEF vide Cheque no. 000036 dated October 29, 2018.

(c) With respect to para 7(c)(iii) above, the Exchange has paid the outstanding annual regulatory fees amounting to ` 1,00,000 for the financial year 2018-19 vide DD No. 786963 dated October 29, 2018.

(d) With respect to condition mentioned in para 7(c) (iv) above, the Exchange has submitted in its Undertaking that there is no liability towards refund of deposit to the stock brokers including their initial contribution. However, the Exchange in its undertaking has stated that it holds an amount of ` 9,70,869 of the members that have defaulted on other exchanges.

(e) With respect to condition mentioned in para 7(d) above, the Exchange has contributed towards SEBI IPEF an amount of ` 1,00,000 vide Cheque no. 009392 dated November 28, 2018.

(f) With respect to condition mentioned in para 7(e) above, the Exchange has submitted in its undertaking that there are no arbitration disputes/investor complaints pending with respect to futures trading and that it will clear all the liabilities before distribution of assets of the exchange.

(g) The Exchange in its undertaking has stated that it does not have any third party liabilities or undisclosed liabilities in respect of futures trading other than available in the balance sheet and other financial records submitted to SEBI.

(h) The Exchange has stated in its undertaking that there are no claims lodged against the Exchange in respect of futures trading and the Exchange undertakes to assume complete responsibility for financial implications of any such claims against the Exchange that at any future date may arise.

(i) The Exchange in its Undertaking has declared that to the best of their information and knowledge, there are no cases pending before various legal fora in connection with futures trading.

(j) The Exchange has stated in its Undertaking to clear any amount/additional amount that may become liable to be paid in future on account of any liability.

11. I have considered the afore-stated facts pertaining to ACE and the relevant documents, valuation report, submissions by ACE placed on record for the purpose of considering the grant of exit to ACE in terms of the Exit Circular. It is observed that all the known liabilities of ACE have been brought out in the valuation report. I note that ACE has substantially complied with the conditions contained in the Exit Circular and has further submitted a written Undertaking to state that it does not have any third party liabilities or undisclosed liabilities in respect of futures trading and that it undertakes to assume complete responsibility for financial implications of any such claims that may arise at any future date against ACE. Therefore, I am of the view that it is a fit case to allow exit to ACE in terms of clause 7 of the Exit Circular.

12. I, therefore, in exercise of the powers conferred upon me by virtue of Section 19 read with provisions of Section 11(1), Section 11(2) (j) of the Securities and Exchange Board of India Act, 1992 and Sections 4, 5 and 12A of the SCRA, permit the exit of the ACE Derivatives and Commodity Exchange Limited as a stock exchange and thus the consequent withdrawal of recognition granted to ACE.

I also hereby direct it to:- (a) comply with its tax obligations under Income Tax Act, 1961; (b) comply with the Undertakings given by it to SEBI; (c) comply with other consequential conditions of Exit Circular; and (d) change its name and in case, after exit as a stock exchange, it continues as a corporate entity under the Companies Act, 2013, it shall not use the expression ‘exchange’ or any variant in its name or in the name of its subsidiary so as to avoid any representation of present or past affiliation with the stock exchange. (e) maintain database of all transactions on its platform for the previous years as per the requirement of Prevention of Money Laundering Act (PMLA), 2015. (f) continue to comply with all applicable laws even after their exit, if the law so demands.

13. This order shall come into force with immediate effect. A copy of this order shall also be forwarded to the Income Tax Authorities, the Ministry of Corporate Affairs, the Ministry of Finance and the Government of Gujarat intimating the exit of the ACE Derivatives and Commodity Exchange Limited and for appropriate action at their end as per applicable laws.

DATE: 31/12/2018 SANTOSH KUMAR MOHANTY PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA