The code is particularly tough on elected broker-directors and imposes a series of conditions on their functioning in a bid to clean up exchange administrations and reduce vested interests from controlling governing boards. The code is to be made applicable for all ``key functionaries'' to be decided by the exchanges, but would have to include all officials of the rank of general manager and above. The code is to be discussed for final approval at a meeting between Sebi and all the stock exchanges on January 17. The code says key functionaries of the exchange would have to disclose, on a periodic basis, their dealing in securities, to the governing board or a designated compliance officer. The dealings in securities would also be subject to trading restrictions for securities about which key functionaries in the exchange may have non-public price-sensitive information. The requirements laid down in the Sebi insider trading regulations would also have to be referred to in this regard, the code says.

All transactions will have to be of an investment nature and not speculative in nature. Towards this end, all securities purchased must be held for a minimum period, to be determined by the exchange, in their name, before they are sold. Additionally, nothing may be sold unless it has been held by the person concerned for the minimum period in their name. The issue of trading by elected directors, particularly the president and the vice-president of the exchange, and trading during the course of their tenure, would be discussed by Sebi with the bourses.

On conflict of interest, the code says that no director of the governing board or member of any committee of the exchange would directly or indirectly participate in any decision making or adjudication in respect of any person or matter in which he is directly or indirectly interested. Whether there is any conflict of interest or not in the matter would be decided by the governing board.

On the role of the president and elected directors in the day-to-day running of the exchange, the code says the president and elected directors would not interfere in the day-to-day functioning of the exchange and would limit their role to decision-making on policy issues and to issues as the governing board may decide. They would also abstain from influencing the employees of the exchange in conducting their day-to-day activities. The president and elected directors would also not be allowed to be directly involved in the appointment and promotion of employees.

The directors and key functionaries would also have to restrain themselves from acquiring information other than as may be necessary for the discharge of their functions as directors/key functionaries and in relation to the scope of their responsibilities. Further, no director would see information in his individual capacity. If the director is a member on a committee, then the committee only shall call for the required information. There would also be prescribed channels through which information would move and there would be an audit trail for it.

The code says all such information, especially which is non-public and price sensitive, would be kept confidential and not be used for any personal consideration or gain. Directors or members of committees would have to seek information only from the executive director or heads of departments as far as possible. Directors/members would hold in strict confidence any information relating to the business or operations of the exchange which may come to their knowledge during performance of their duties and would not divulge it to any third party and would not make use of it in any manner except for the performance of their duties.

Elected directors and key functionaries would also have to disclose to the governing board, upon assuming office and during their tenure in office, whenever the following arises:

* any fiduciary relationship of self and family members in all concerns;
* directorship/partnership of self and family members in any broking outfit;
* shareholding in cases where the shareholding of the director, directly or through his family exceeds 5 per cent in any listed company on the exchange or in other entities related to the capital markets;
* business interests other than broking.

Family members would be defined by the exchange.

Directors and committee members would not, the code says, use their position to obtain business or any pecuniary benefit (as intermediaries like brokers or as consultants or professionals) in the organisation for themselves or family members. Directors and committee members would not interact with media except when authorised by the board. The president and vice-president would act as spokespersons for the exchange only on policy matters and the executive director would act as spokesperson for administrative and policy matters.

The code also lays down some general standards for elected directors and key functionaries and puts down some fundamental principles guiding it.