pkb@sebi.gov.in
SEBI/SMD/SE/Cir-22/2003/11/06
June 11, 2003
Managing Directors and Executive Directors
Of all the Stock Exchanges
Dear Sir/Madam,
Sub :- Composition of Capital and Margins
The SEBI circular no SMDRP/Policy/Cir-19/99 dated
July 02, 1999 specifies the additional capital required to be
deposited in the form of cash, fixed deposit receipts (FDRs), bank
guarantees and securities. Presently the cash component of
additional capital and margins is specified as 30%. The issue of
composition of additional capital and margins has been discussed by
the Advisory Committee on Derivatives and Market Risk Management and
based on the deliberations of the Committee, it has been decided
that the revised composition of additional capital and margins and
the eligibility criteria for securities shall be as follows:-
1. Cash and non-cash component of
additional capital and margins
1.
The
minimum cash component of the additional capital and margins shall
be increased from the existing level of 30% to 50 %.
2.
The cash
component of additional capital and margins shall be increased to
50% in a manner so that this is complied with by the member brokers
of the exchange by the end of June 2003.
3.
The mark
to market margin shall continue to be collected by the exchanges
only in the form of cash, bank guarantee and FDRs as prescribed
earlier by SEBI circular no SMDRP/Policy/Cir-19/99 dated July 02,
1999
4.
The cash
component may be in the form of cash or cash equivalents. Cash
equivalents would be as follows.
1.5 Cash equivalent
a. Cash equivalent shall include FDRs, bank
guarantees (as specified below), Government securities and units of
the schemes of liquid mutual funds or government securities mutual
funds (by whatever name called which invest in government
securities).
b. The haircut for Government securities shall be
10%.
c. The hair cut for units of the schemes of
liquid mutual funds or government securities mutual funds (by
whatever name called which invest in government securities) shall be
atleast 10% of Net Asset Value (NAV).
d. The bank guarantees shall be considered as
cash equivalent only if the guarantees have been provided by the
banks whose networth is more than Rs 500 crores.
i) The exchanges shall lay down exposure limits
either in rupee terms or as percentage of the Trade Guarantee Fund (TGF)/Settlement
Guarantee Fund (SGF) that can be exposed to a single bank directly
or indirectly and in any case the exposure of the TGF/SGF to any
single bank shall not be more than 15% of the total liquid assets
forming part of TGF/SGF of the exchange.
ii) The exposure as mentioned above would include
guarantees provided by the bank for itself or for others as well as
debt or equity securities of the bank which have been deposited by
members for additional capital or margins.
2.
Eligible
Securities and its Valuation
1.
While
Section 1 specifies the cash and non-cash component of additional
capital and margin and clause 1.5 in particular specifies the
securities including the units of certain types of mutual fund
schemes which could be considered as cash equivalent, this section
specifies the type of securities, including equity shares, units of
mutual funds which could be considered as eligible securities and
hair cut for the purpose of non-cash component of base minimum
capital, additional capital and margin.
Additional Capital
a.
Equity
shares classified in Group I at the stock exchange in accordance
with the parameters of volatility and liquidity as prescribed in
SEBI circular no. SMD/POLICY/CIR-9/2003 dated March 11, 2003 shall
be eligible as security for the non-cash component of the additional
capital and margin subject to haircut equivalent to the respective
VaR of the equity shares.
b.
Units of
all mutual funds shall also be eligible security for the purpose of
non-cash component of additional capital and margin subject to a
haircut equivalent to the VaR of the unit’s NAV plus any exit load
charged by the mutual fund.
c.
The
valuation of a & b above shall be done on a daily basis.
Base Minimum Capital
d.
The
eligible shares for the purpose of the securities portion of the
base minimum capital shall only be those which are classified as
Group I in terms of the parameters of volatility and liquidity as
stipulated in SEBI circular No. SMD/Policy/Cir-9/2003 dated March
11, 2003, subject to a standard haircut of 15%. However, the smaller
stock exchanges can also accept the shares that are in the Group I
of the BSE or the NSE for the purpose of base minimum capital. The
valuation for these shares would be done atleast once a week. Thus
the type of eligible securities for base minimum capital specified
in SEBI circular No. SMDRP/Policy/Cir-19/1999 dated July 2, 1999,
stands revised.
3. The undersigned has been authorised to
direct the stock exchanges to
a.
make
necessary amendments to the 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 for easy access to the investors; and
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
