OTC EXCHANGE OF INDIA

CLEARING & SETTLEMENT

Circular No. OTC/NSCC-OPS/063                                              Date: July 1, 2003

To,

All Members / Custodians

Sub - Trade Guarantee Fund (TGF)/ Settlement Guarantee Fund (SGF) – reduced exposure for ten rolling settlement

1.         SEBI has specified in circular no. SMDRP/Policy/Cir-16/2001 dated March 09, 2001 the norms for the utilization of the settlement/trade guarantee funds at the exchanges.

 2.         The para number 1 of the circular specified that in cases where shortages are in excess of the base minimum capital prescribed, the trading facility of the member shall be withdrawn and the pay-out due to the member shall be withheld. It was further stipulated in the circular that on recovery of the complete shortages, the member shall be permitted to trade on a reduced exposure for four settlements.

 3.         The above circular was issued under conditions of account period settlement. Since then rolling settlement has been introduced and settlement cycle in now on T+2 basis. This change in settlement cycle requires consequential changes in the procedures for utilization of the SGF/TGF, wherever shortages occur.

 4.         This issue was considered by the Advisory Committee on Derivatives and Market Risk Management of SEBI and pursuant to the recommendations of the Committee it has been decided that the reduced exposure shall apply to atleast ten rolling settlements instead of four settlement as specified in the SEBI circular no. SMDRP/Policy/Cir-16/2001 dated March 09, 2001. Thus the para 1 of the said circular shall now read as follows: -

"1. In cases where amount shortages in a settlement for a trading member are in excess of the base minimum capital (BMC) prescribed, the trading facility of the member shall be withdrawn and the securities pay-out due to the member shall be withheld. The trading facility of the member shall be withdrawn and the securities pay-out due to the member shall be withheld, even in cases where the amount of shortages exceed 20% of the BMC and is less than the BMC on six occasions within a period of three months.

 On recovery of the complete shortages, the member shall be permitted to trade with a reduced gross exposure as follows:

 This reduced gross exposure level shall be maintained for the member for ten rolling settlements. If the cumulative funds shortage for the next ten rolling settlements is less than 20% of BMC, the exposure limits shall be restored. However, if a member provides a deposit equivalent to his cumulative fund shortages as the 'funds shortage collateral' in his clearing account the exposure limit may be restored immediately upon meeting the shortage. Such deposit shall be kept with the Exchange for a period of ten rolling settlements and shall be released only if no further funds shortages are reported for the member in next ten rolling settlements. The member shall not be given any exposure benefit or any interest payment on the amount so deposited as 'funds shortage collateral'. Members may deposit the 'funds shortage collateral' by way of cash, fixed deposit receipts or bank guarantee."

 1.         Para 2 of the SEBI circular no. SMDRP/Policy/Cir-16/2001, dated March 09, 2001, specifies that the outstanding amount would carry a penal interest of not less than 0.09% per day. Since then the interest rates have generally declined and hence the outstanding amount can now attract a lower penal interest which shall not be less than 0.07% per day.

 In case of any clarification in respect of the above, you may please contact Mr. Sanjay Patil / Mr. Ashish Bansal or the undersigned on 26598388 / 22188608.

 Yours faithfully,

For OTC Exchange of India

R. Anand

Astt Vice President