June 25, 2003
To
The Managing Directors and Executive
Directors
Of All Stock Exchanges
Dear Sir,
Sub :- Close out mark up in
respect of debentures and bonds traded on the Stock Exchanges
The SEBI circular No.SMD/Policy/IECG/5548/96
dated December 09, 1996, stipulates in para no. 1 that the mark up
for the close out shall be 20% above the official closing price.
This mark up was applicable to close out of equities as well as
debentures and bonds.
SEBI has received representations from the
exchanges that the debentures and bond issued by the companies and
traded at the exchanges do not experience daily price variation in
fashion similar to the equities and that the presently applicable
20% close out mark up is almost equal to the interest due on bonds
and debentures in most cases and thus is unduly high. The matter was
discussed in the Advisory Committee on Derivatives and Market Risk
Management.
Pursuant to the discussions of the Advisory
Committee on Derivatives and Market Risk Management, it has been
decided that close out mark up of 5% would be applied in case of
debentures and bonds which are assigned a credit rating of triple A
and above. However, for the other debentures and the bonds without
the triple A credit rating, the existing close out mark up of 20%
shall be applicable as is applicable in the case of equities.
The undersigned has been authorised to
direct 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.
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
