CSD-5 CSD-5 Administrative Provisions Applicable to Clearing House or Central Depository
CSD-5.1 CSD-5.1 Control of Substantial Shareholding in Licensed Clearing Houses or Licensed Central Depositories
CSD-5.1.1
No
person shall enter into any agreement to acquire shares in alicensed clearing house orlicensed central depository by virtue of which he would, if the agreement had been carried out, become a substantial shareholder of thelicensed clearing house orlicensed central depository without first obtaining the approval of the CBB to enter into the agreement.Amended: April 2016CSD-5.1.2
In rule CSD-5.1.1 "substantial shareholder" means a
person who alone or together with his associates:(a) Holds not less than 5% of the equity shares in thelicensed clearing house orlicensed central depository ; or(b) Is in a position to control not less than 5% of the votes in thelicensed clearing house orlicensed central depository .Amended: April 2016CSD-5.1.3
In this section:
(a) Aperson holds a share if:1. He is deemed to have an interest in that share in terms of the Commercial Companies Law (CCL); or2. He otherwise has a legal or a beneficial interest in that share, except such interest as is to be disregarded in the terms of the CCL;(b) A reference to the control of a percentage of the votes in alicensed clearing house orlicensed central depository shall be construed as a reference to the control, whether direct or indirect, of that percentage of the total number of votes that might be cast in a general meeting of thelicensed clearing house orlicensed central depository ; and(c) An associate of anotherperson means in respect of individuals, a direct family member and in the case of a company, means the company is bound to follow the directives of the substantial shareholder, or the company in which the substantial shareholder has 20% of the votes of that company.Amended: April 2016CSD-5.1.4
The CBB may grant its approval in accordance with Paragraph CSD-5.1.1, subject to such conditions or restrictions as the CBB may deem fit.
Amended: April 2016CSD-5.2 CSD-5.2 Application and Criteria for Approval to Acquire Substantial Shareholding
CSD-5.2.1
Any
person applying for approval for acquiring substantial shareholding as defined hereunder shall submit to the CBB a written application that sets out:(a) The name of the applicant;(b) In the case where the applicant is a corporation:(i) Its place of incorporation;(ii) Its substantial shareholders;(iii) Its directors and chief executive officer; and(iv) Its principal business;(c) In the case where the applicant is a naturalperson :(i) His nationality;(ii) His principal occupation; and(iii) His directorships;(d) All the corporations in which the applicant has a substantial shareholding;(e) The percentage of shareholding and voting power that the applicant has in thelicensed clearing house or thelicensed central depository ;(f) The percentage of shareholding and voting power the applicant is seeking to have in thelicensed clearing house or thelicensed central depository ;(g) The reasons for making the application;(h) The mode and structure, as appropriate, under which the increase in shareholding would be carried out;(i) Whether the applicant will seek representation on the board of directors of thelicensed clearing house or thelicensed central depository ; and(j) Any other information that may facilitate the determination of the CBB as to whether the applicant is a fit and properperson for the purposes of Subparagraph CSD-5.2.3 (a).Amended: April 2016CSD-5.2.2
The CBB may require the applicant to furnish it with such information or documents as the CBB considers necessary in relation to the application, and the applicant shall furnish such information or documents as required by the CBB.
CSD-5.2.3
The CBB may approve an application made under rule CSD-5.2.1 if the CBB is satisfied that:
(a) The applicant is a fit and properperson to be a substantial shareholder;(b) Having regard to the applicant's likely influence, thelicensed clearing house orlicensed central depository will, or will continue to conduct its business prudently and in compliance with the provisions of this Module; and(c) It would not be contrary to the interests of the public to do so.Amended: April 2016CSD-5.2.4
The CBB may, for the purposes of securing compliance with rule CSD-5.2.1 or paragraph CSD-5.2.2, or any condition or restriction imposed under rule CSD-5.2.5, by notice in writing, direct the transfer or disposal of all or any of the shares of a
licensed clearing house orlicensed central depository in which a substantial shareholder of thelicensed clearing house orlicensed central depository has an interest.Amended: April 2016CSD-5.2.5
Until a
person to whom a direction has been issued under Paragraph CSD-5.2.6 transfers or disposes of the shares which are the subject of the direction, and notwithstanding anything to the contrary in the Commercial Companies Law or the memorandum or articles of association, or other constituent document or documents of thelicensed clearing house orlicensed central depository :(a) No voting rights shall be exercisable in respect of the shares which are the subject of the direction;(b) Thelicensed clearing house orlicensed central depository shall not offer or issue any shares, whether by way of rights, bonus, share dividend or otherwise, in respect of the shares which are the subject of the direction; and(c) Except in a liquidation of thelicensed clearing house orlicensed central depository ,the licensed clearing house orlicensed central depository shall not make anypayment , whether by way of cash dividend, dividend in kind, or otherwise, in respect of the shares which are the subject of the direction.Amended: April 2016CSD-5.2.6
Any issue of shares by a
licensed clearing house orlicensed central depository in contravention of Subparagraph CSD-5.2.5 (b) shall be deemed to be null and void, and aperson to whom a direction has been issued under this paragraph shall immediately return those shares to thelicensed clearing house orlicensed central depository , upon which thelicensed clearing house orlicensed central depository shall return to theperson anypayment received from him in respect of those shares.Amended: April 2016CSD-5.2.7
Any
payment made by alicensed clearing house orlicensed central depository in contravention of rule CSD-5.2.5 (c) shall be deemed to be null and void, and aperson to whom a direction has been issued under Paragraph CSD-5.2.6 shall immediately return thepayment he has received to thelicensed clearing house orlicensed central depository .Amended: April 2016CSD-5.3 CSD-5.3 Authorisation of Approved Persons
Prior Approval Requirements and Process
Contents:
CSD-5.3.1
Licensees must obtain the CBB's prior written approval for any person wishing to undertake acontrolled function in alicensee . The approval from the CBB must be obtained prior to their appointment.Amended: April 2016
Amended: April 2013CSD-5.3.2
Controlled functions are those functions occupied by board members and persons in executive positions and include:(a) Board member;(b)Chief Executive orGeneral Manager ;(c)Head of function ;(d) Compliance Officer; and(e) Money Laundering Reporting Officer (MLRO).Amended: April 2016
Amended: April 2013CSD-5.3.2A
For the purpose of this Module, the following positions are considered as
head of function :(a) Head of clearing;(b) Head of settlement;(c) Head of netting;(d) Head of central depository;(e) Head of central registry;(f) Head of risk management; and(g) Head of other functions.Added: April 2016CSD-5.3.2B
Whether a person is
head of function will depend on the nature, scale and complexity of the function and is not determined by the presence or absence of the word in their job title.Added: April 2016CSD-5.3.2C
Licensees must maintain adequate segregation of responsibilities in their staffing arrangements, to protect against the misuse of systems or errors. The segregation of responsibilities must ensure avoidance of any conflict of interest and maintain a Chinese Wall between such critical controlled functions.Added: April 2016CSD-5.3.3
The Chief Executive Officer or General Manager, Compliance Officer and Money Laundering Reporting Officer must be resident in Bahrain.
Amended: April 2013CSD-5.3.4
All
persons wishing to undertake any of the controlled functions shall be subject to the fit and proper requirements.Amended: April 2013CSD-5.3.5
In accordance with Subparagraph CSD-5.3.2(d), every
licensed clearing house orlicensed central depository must appoint a compliance officer. The compliance officer is responsible for discharging the obligations of thelicensee .Amended: April 2016
Amended: April 2013CSD-5.3.6
In accordance with Paragraph CSD-5.3.5:
(a) The Compliance Officer should be competent and knowledgeable regarding the CBB Law, rules and regulations, as well as the various applicable Volume 6 Modules;(b) The Compliance Officer shall:(i) Monitor the transactions undertaken by themember , its representatives, orparticipants ;(ii) Identify disorderly transactions or conduct that may involve market abuse or disruption;(iii) Identify any breach of CBB Law, rules and regulations; and(iv) Identify any breach of the rules of theSRO .Amended: April 2013CSD-5.3.7
The Compliance Officer shall on the identification of any breach referred to in Subparagraph CSD-5.3.6(b), report such breach to the CBB without delay for the investigation and shall provide full assistance to the latter in investigating the conduct occurring on or through the
licensed clearing house orlicensed central depository .Amended: April 2016
Amended: April 2013CSD-5.3.7A
The request for CBB approval must be made by submitting to the CBB a duly completed Form 3 (Application for Approved Person status) and Curriculum Vitae after verifying that all the information contained in the Form 3, including previous experience, is accurate. Form 3 is available under Volume 6 Part B Authorisation Forms CSD Forms of the CBB Rulebook.
Added: April 2016CSD-5.3.7B
When the request for
approved person status forms part of a license application, the Form 3 must be marked for the attention of the Director, Licensing Directorate. When the submission to undertake acontrolled function is in relation to an existinglicensee , the Form 3 must be marked for the attention of the Director, Capital Markets Supervision. In the case of the MLRO, Form 3 should be marked for the attention of the Director, Compliance Directorate.Amended: April 2018
Added: April 2016CSD-5.3.7C
When submitting Form 3,
licensees must ensure that the Form 3 is:(a) Submitted to the CBB with a covering letter signed by an authorised representative of thelicensee , seeking approval for the proposedcontrolled function ;(b) Submitted in original form;(c) Submitted with a certified copy of the applicant's passport, original or certified copies of educational and professional qualification certificates (and translation if not in Arabic or English) and the Curriculum Vitae; and(d) Signed by an authorised representative of thelicensee and all pages stamped on with thelicensee's seal.Added: April 2016CSD-5.3.7D
For existing
licensees applying for the appointment of a BoardDirector or theChief Executive /General Manager , the authorised representative should be the Chairman of the Board or aDirector signing on behalf of the Board. For all othercontrolled functions , the authorised representative should be theChief Executive /General Manager .Added: April 2016Fit and Proper Requirements
CSD-5.3.8
Licensees seeking anapproved person authorisation for an individual, must satisfy the CBB that the individual concerned is 'fit and proper' to undertake thecontrolled function in question.Amended: April 2016
Amended: April 2013CSD-5.3.8A
Each applicant applying for
approved person status and those individuals occupyingapproved person positions must comply with the following conditions:(a) Has not previously been convicted of any felony or crime that relates to his/her honesty and/or integrity unless he/she has subsequently been restored to good standing;(b) Has not been the subject of any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud;(c) Has not been adjudged bankrupt by a court unless a period of 10 years has passed, during which the person has been able to meet all his/her obligations and has achieved economic accomplishments;(d) Has not been disqualified by a court, regulator or other competent body, as a director or as a manager of a corporation;(e) Has not failed to satisfy a judgement debt under a court order resulting from a business relationship;(f) Must have personal integrity, good conduct and reputation;(g) Has appropriate professional and other qualifications for thecontrolled function in question, including qualifications such as the Securities Market Regulation Certification Programme (Series 7), the General Securities Representative Qualification (Series 79), and/or any other relevant examinations and qualifications recognised by the CBB that are appropriate to capital market advisory services, as the case may be. However the CBB reserves the right to impose a higher level of qualifications as it deems necessary; and(h) Has sufficient experience to perform the duties of thecontrolled function .Added: April 2016CSD-5.3.8B
In assessing the conditions prescribed in Rule CSD-5.3.8A, the CBB will take into account the criteria contained in Paragraph CSD-5.3.8C. The CBB reviews each application on a case-by-case basis, taking into account all relevant circumstances. A person may be considered 'fit and proper' to undertake one type of
controlled function but not another, depending on the function's job size and required levels of experience and expertise. Similarly, a person approved to undertake acontrolled function in onelicensee may not be considered to have sufficient expertise and experience to undertake nominally the samecontrolled function but in a much biggerlicensee .Added: April 2016CSD-5.3.8C
In assessing a person's fitness and propriety, the CBB will also consider previous professional and personal conduct (in Bahrain or elsewhere) including, but not limited to, the following:
(a) The propriety of a person's conduct, whether or not such conduct resulted in a criminal offence being committed, the contravention of a law or regulation, or the institution of legal or disciplinary proceedings;(b) A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;(c) Any adverse finding in a civil action by any court or competent jurisdiction, relating to misfeasance or other misconduct in connection with the formation or management of a corporation or partnership;(d) Whether the person, or any body corporate, partnership or unincorporated institution to which the applicant has, or has been associated with as a director, controller, manager or company secretary been the subject of any disciplinary proceeding, investigation or fines by any government authority, regulatory agency or professional body or association;(e) The contravention of any financial services legislation;(f) Whether the person has ever been refused a license, authorisation, registration or other authority;(g) Dismissal or a request to resign from any office or employment;(h) Whether the person has been a Director, partner or manager of a corporation or partnership which has gone into liquidation or administration or where one or more partners have been declared bankrupt whilst the person was connected with that partnership;(i) The extent to which the person has been truthful and open with supervisors; and(j) Whether the person has ever entered into any arrangement with creditors in relation to the inability to pay due debts.Added: April 2016CSD-5.3.8D
With respect to Paragraph CSD-5.3.8C, the CBB will take into account the length of time since any such event occurred, as well as the seriousness of the matter in question.
Added: April 2016CSD-5.3.9
Approved persons undertaking acontrolled function must act prudently, and with honesty, integrity, care, skill and due diligence in the performance of their duties. They must avoid any conflict of interest arising whilst undertaking acontrolled function and shall be subject, among all accepted market conducts, to the insider trading rules.Amended: April 2013CSD-5.3.10
In determining where there may be a conflict of interest arising, factors that may be considered will include whether:
(a) Aperson has breached any fiduciary obligations to thelicensed clearing house orlicensed central depository or terms of employment;(b) Aperson has undertaken actions that would be difficult to defend, when looked at objectively, as being in the interest of thelicensed clearing house orlicensed central depository ; and(c) Aperson has failed to declare a personal interest that has a material impact in terms of theperson's relationship with thelicensed clearing house orlicensed central depository in general, and interest in holding any listedsecurities or futures contracts in particular.Amended: April 2013CSD-5.3.11
[This Paragraph was deleted in April 2016.]
Deleted: April 2016
Amended: April 2013CSD-5.3.12
[This Paragraph was deleted in April 2016.]
Deleted: April 2016
Amended: April 2013CSD-5.3.13
[This Paragraph was moved to Paragraph CSD-5.3.7B in April 2016.
Deleted: April 2016
Added: April 2013Assessment of Application
Contents:
CSD-5.3.14
The CBB shall review and assess the application for
approved person status to ensure that it satisfies all the conditions required in Paragraph CSD-5.3.8A and the criteria outlined in Paragraph CSD-5.3.8C.Amended: April 2016
Added: April 2013CSD-5.3.14A
For purposes of Paragraph CSD-5.3.14,
licensees should give the CBB a reasonable amount of notice in order for an application to be reviewed. The CBB shall respond within 15 business days from the date of meeting all required conditions and regulatory requirements, including but not limited to, receiving the application complete with all the required information and documents, as well as verifying references.Added: April 2016CSD-5.3.15
The CBB reserves the right to refuse an application for approved person status if it does not satisfy the conditions provided for in Paragraph CSD-5.3.8A and the criteria outlined in Paragraph CSD-5.3.8C. A notice of such refusal is issued by registered mail to the
licensee concerned, setting out the basis for the decision.Amended: April 2016
Added: April 2016Appeal Process
CSD-5.3.16
Licensees or the nominatedapproved persons may, within 30 calendar days of the notification, appeal against the CBB's decision to refuse the application forapproved person status. The CBB shall decide on the appeal and notify thelicensee of its decision within 30 calendar days from submitting the appeal.Amended: April 2016
Amended: April 2013CSD-5.3.17
Where notification of the CBB's decision to grant a person
approved person status is not issued within 15 business days from the date of meeting all required conditions and regulatory requirements, including but not limited to, receiving the application complete with all the required information and documents,licensees or the nominatedapproved persons may appeal to the Executive Director, Financial Institutions Supervision of the CBB provided that the appeal is justified with supporting documents. The CBB shall decide on the appeal and notify thelicensee of its decision within 30 calendar days from the date of submitting the appeal.Amended: April 2016
Amended: April 2013Notification Requirements and Process
Contents:
CSD-5.3.18
A
licensed clearing house orlicensed central depository must immediately notify the CBB when anapproved person ceases to hold acontrolled function together with an explanation as to the reasons why. In such cases, theirapproved person status is automatically withdrawn by the CBB.Amended: April 2016
Added: April 2013CSD-5.3.18A
Licensees must immediately notify the CBB in case of any material change to the information provided in a Form 3 submitted for anapproved person .Added: April 2016CSD-5.3.19
The CBB may impose regulations relating to the composition and duties of the board of directors or any committee of a
licensed clearing house orlicensed central depository .Amended: April 2016
Amended: April 2013CSD-5.3.20
In this section, "committee" includes any committee of directors, disciplinary committee, appeals committee or any body responsible for disciplinary action against a member or depository participant of a
licensed clearing house orlicensed central depository .Amended: April 2016
Amended: April 2013Amendment of Authorisation
CSD-5.3.21
A
licensed clearing house orlicensed central depository must seek prior CBB approval before anapproved person may move from onecontrolled function to another within the samelicensee .Amended: April 2016
Added: April 2013CSD-5.3.22
In such instances, a new application should be completed and submitted to the CBB. Note that a
person may be considered 'fit and proper' for onecontrolled function , but not for another, if for instance the new role requires a different set of skills and experience. Where anapproved person is moving to acontrolled function in anotherlicensee , the firstlicensee should notify the CBB of thatperson's departure, and the newlicensee should submit a request for approval under this Section.Added: April 2013Cancellation of Authorisation and Power of CBB to Remove Approved Person
CSD-5.3.23
Where the CBB is satisfied that an
approved person :(a) Has wilfully contravened or wilfully caused thatlicensee to contravene the CBB Law, rules and regulations;(b) Has without reasonable excuse, failed to ensure compliance by thelicensee , or aperson associated with thatlicensee with:1. The CBB Law rules and regulations;(c) Has failed to discharge the duties or functions of his office or employment;(d) Is an undischarged bankrupt, whether in Bahrain or elsewhere;(e) Has been convicted whether in Bahrain or elsewhere, of an offence involving fraud or dishonesty or the conviction for which involved a finding that he had acted fraudulently or dishonestly;the CBB may if it thinks it is necessary in the interests of or for the protection of investors, by notice in writing direct that a
licensee remove theapproved person from his office or employment, and thatlicensee shall comply with such notice.Added: April 2013CSD-5.3.24
Without prejudice to any other matter that the CBB may consider relevant, the CBB may in determining whether an
approved person has failed to discharge the duties or functions of his office or employment for the purposes of Subparagraph CSD-5.3.23 (c), have regard to such criteria as the CBB may prescribe or specify in directions issued by notice in writing, after consultation with thelicensed clearing house or orlicensed central depository , as the case may be.Amended: April 2016
Added: April 2013CSD-5.3.25
Subject to Paragraph CSD-5.3.26, the CBB shall not direct a
licensee to remove anapproved person from his office or employment without giving theapproved person an opportunity to be heard.Added: April 2013CSD-5.3.26
The CBB may direct a
licensee to remove anapproved person from his office or employment under Paragraph CSD-5.3.23 on any of the following grounds, without giving theapproved person an opportunity to be heard:(a) Theapproved person is an undischarged bankrupt whether in Bahrain or elsewhere;(b) Theapproved person has been convicted whether in Bahrain or elsewhere, of an offence:1. Involving fraud or dishonesty, or the conviction for which involved a finding that he had acted fraudulently or dishonestly; and2. Punishable with imprisonment for a term of 3 months or more.Added: April 2013Criteria to Determine Failure to Discharge Duties or Functions by Approved Persons
CSD-5.3.27
The CBB may, in determining whether
approved persons have taken reasonable steps to discharge their duties, have regard to whether or not theapproved person :(a) Ensured the proper functioning of thelicensed clearing house orcentral depository ;(b) Ensured the compliance of thelicensed clearing house orcentral depository with any relevant laws or regulations of any jurisdiction in which it is incorporated, or in which it provides itsregulated activities ;(c) Set out and ensured compliance with written policies on all operational areas of thelicensed clearing house orcentral depository , including its financial policies, accounting and internal controls, internal auditing and compliance with all laws and rules governing the operations of thelicensed clearing house orcentral depository in general;(d) Identified, monitored and addressed the risks associated with the business of thelicensed clearing house orcentral depository ;(e) Ensured that theregulated activities of thelicensed clearing house orcentral depository were subject to adequate internal audit;(f) Oversaw the financial undertakings or exposure of thelicensed clearing house orcentral depository to risks of any nature by setting out proper delegation limits and risk management controls; and(g) Ensured:1. That the licensed clearing house orcentral depository maintained written records of the steps taken by it to monitor compliance with its policies, the limits on discretionary powers and its accounting and provided relevant procedures; and2. That every report, return or statement submitted by thelicensed clearing house orcentral depository to the CBB was complete and accurate.Added: April 2013CSD-5.4 CSD-5.4 Listing of Licensed Clearing House and Licensed Central Depository on Securities Market
CSD-5.4.1
The
securities of alicensed clearing house or alicensed central depository shall not be listed for quotation on asecurities market that is operated by any of its related corporations, unless thelicensed clearing house orlicensed central depository and the operator of thesecurities market have entered into such arrangements as the CBB may require:(a) For dealing with possible conflicts of interest that may arise from such listing; and(b) For the purpose of ensuring the integrity of the trading of thesecurities of thelicensed clearing house orlicensed central depository .Amended: April 2016CSD-5.4.2
Where the
securities of alicensed clearing house orlicensed central depository are listed for quotation on asecurities market operated by any of its related corporations, the listing rules of thesecurities market shall be deemed to allow the CBB to act in place of the operator of thesecurities market in making decisions and taking action, or to require the operator of thesecurities market to make decisions and to take action on behalf of the CBB, on:(a) The admission or removal of thelicensed clearing house orlicensed central depository , to or from the official list of thesecurities market; and(b) Granting approval for thesecurities of alicensed clearing house orlicensed central depository to be, or stopping or suspending thesecurities of thelicensed clearing house orlicensed central depository from being listed for quotation or quoted on thesecurities market.Amended: April 2016CSD-5.4.3
The CBB may, by notice in writing to the operator of the
securities market:(a) Modify the listing rules of thesecurities market for the purpose of their application to the listing of thesecurities of thelicensed clearing house orlicensed central depository for quotation or trading; or(b) Waive the application of any listing rule of thesecurities market to thelicensed clearing house orlicensed central depository .Amended: April 2016