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Part II · Markets and Market Institutions

47. Right of relevant office holder to recover certain amounts arising from certain transactions

Official English translation. Where it differs from the Sinhala or Tamil text, the Act itself says which text prevails.

(1)

If a clearing member (“the first clearing member”)

sells securities at an overvalue to, or purchases securities at an undervalue from, another clearing member (“the second clearing member”) in circumstances as described in subsection (3) and thereafter a relevant office holder acts for-

(a)

the second clearing member;

(b)

the principal of the second clearing member in the sale or purchase; or

(c)

the estate of the second clearing member or the person referred to in paragraph (b), the relevant office holder may recover, from the first clearing member, or the principal of the first clearing member, an amount equal to the identified gain obtained by the sale or purchase by the first clearing member, or the principal of the first clearing member unless a court orders otherwise.

(2)

The amount equal to the identified gain is recoverable even if the sale or purchase may have been discharged according to the rules of the clearing house and replaced by a market contract.

(3)

The circumstances referred to in subsection (1) for a sale or purchase shall be where-

(a)

an identified event has occurred in relation to the second clearing member or the principal of the second clearing member; and

(b)

either-

(i)

the first clearing member knew, or could reasonably have known that an identified event was likely to occur in relation to the second clearing member or the principal of the second clearing member; or

(ii)

the principal of the first clearing member knew or could reasonably have known that an identified event was likely to occur to the second clearing member or the principal of the second clearing member, and the identified event occurs within the period of six months immediately following the date on which the sale or purchase was entered into.

(4)

In this section-

(a)

“identified event”, in relation to a second clearing member or a person who is or was in respect of a sale or purchase referred to in subsection (1) means-

(i)

an act of bankruptcy committed by the second clearing member or the principal of the second clearing member, as the case may be;

(ii)

a meeting of creditors summoned in relation to the second clearing member or the principal of the second clearing member, as the case may be, pursuant to the Companies

Act, No.7 of 2007; or

(iii)

the presentation of a petition for the winding up of the second clearing member or the principal of the second clearing member, as the case may be, to a court;

(b)

“identified gain” in relation to a sale or purchase referred to in subsection (1), means the difference between –

(i)

the market value of the securities which is the subject of the sale or purchase; and

(ii)

the value of the consideration for the sale or purchase, as at the time the sale or purchase was entered into.

Read on from s 48

Part III

Issue of Securities

Read on from Part III

Part IV

Trade In Unlisted Securities

Read on from Part IV

Part V

Market Misconduct

Read on from Part V

Part VI

Finance

Read on from Part VI

Part VII

General

Read on from Part VII