OTC EXCHANGE OF INDIA

CIRCULAR

CLEARING & SETTLEMENT

 Circular No. OTC/NSCC-OPS/061                                              Date: June 16, 2003

To,

All Members / Dealers and Custodians

 Sub: Composition of Capital and Margins

Dear Sirs,

As directed by Securities and Exchange Board of India (SEBI) vide its Circular No. SEBI/SMD/SE/CIR-22/2003/11/06 dated June 11, 2003, 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.

 1.1   The minimum cash component of the additional capital and margins shall be increased from the existing level of 30% to 50%.

 1.2   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.

 1.3   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.

 1.4   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 Guarantees 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 the members for additional capital or margins.

2. Eligible Securities and its Valuation.

2.1  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 

1. Equity shares classified in Group 1 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.

2. 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.

3. 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 1 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 1 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 stipulated in SEBI circular No. SMD/POLICY/CIR-19/1999 dated July 2, 1999, stands revised.

 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