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General
Manager
Secondary Market Department
e-mail : pkb@sebi.gov.in
SEBI/SMD/SE/
21 /2003/05/06
June
5, 2003
The Managing Directors and
Executive Directors
Of all the Stock Exchanges
Dear Sir/Madam,
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
utilisation 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of the member shall be withdrawn and the pay-out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 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
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member shall be withdrawn and the securities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withdrawn and the securities pay-out due to the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::
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Cumulative Funds Shortage
Exposure
limit allowed
(%of
current exposure limit)
20% of BMC – 50% of BMC
80%
50% of BMC – 100% of BMC
60%
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This reduced gross exposure
level shall be maintained for the member for ten
rolling settlements. If the cumulative funds
shortages 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 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.
1. The
undersigned has been authorized to direct the
exchanges to
a. make
necessary amendments to the relevant bye-laws,
rules and regulations for the implementation of
the above decision immediately.
b. bring
the provisions of this circular to the notice of
the member brokers/clearing members of the
Exchange and also to disseminate the same on the
website.
c. communicate
to SEBI, the status of the implementation of the
provisions of this circular in Section II, item
no. 13 of the Monthly Development Report for the
month of June 2003.
This circular is being issued
in exercise of powers conferred by section 11
(1) of the Securities and Exchange Board of
India Act, 1992, read with section 10 of the
Securities Contracts(regulation) Act 1956, to
protect the interests of investors in securities
and to promote the development of, and to
regulate the securities market.
Yours faithfully,
P K Bindlish
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