Posts Tagged ‘Clearing Houses/Corporations’


CIR/MRD/DP/03/2013 dated January 24, 2013

To

All Stock Exchanges and Clearing Corporations

1. The market for debt securities differs from equity markets in several ways such as risk, returns, liquidity, type of participants and method of trading. While publicly issued debt securities are listed, traded and settled in a manner similar to equity, privately placed debt is usually traded between institutional investors on ‘Over the Counter’ (OTC) basis. Such OTC transactions are mandatorily reported on reporting platforms at FIMMDA, BSE and NSE. The settlement for such transactions is different from that in equity markets or publicly issued debt securities.

2. Whereas the equity markets in India offer trading infrastructure comparable to the best available globally, the debt markets lack such infrastructure. In order to cater to the unique characteristics of debt markets, it has been decided to provide dedicated a debt segment on the stock exchanges.

3. The debt segment shall offer separate trading, clearing, settlement, reporting facilities and membership to deal in:

(i) “debt securities” as defined in Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;

(ii) Government Securities, Treasury Bills, State Government loans, SLR and Non-SLR Bonds issued by Financial Institutions, municipal bonds, single bond repos, basket repos and CBLO kind of products subject to RBI approval, where required;

(iii) Securitized debt instruments as defined in SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008;

(iv) any other debt instruments as may be specified from time to time by the competent authority.

4. An existing stock exchange or new stock exchange desirous of setting up debt segment may make an application to SEBI, providing operational, regulatory and any other necessary details.

5. The broad framework /features for debt segment shall be as under-

(A) Listing:

This segment shall list all the securities and debt instruments mentioned at para 3 above.

(B) Trading:

(i) The debt segment shall offer electronic, screen based trading providing for order matching, request for quote, negotiated trades etc.

(ii) The trading facility may be provided using exchange network including using access methods such as internet trading, mobile trading or any other methods specified by SEBI.

(iii) The debt segment shall provide separate platforms for the markets described below-

a. Retail market – which shall be a market for listing of and trading in publicly-issued debt instruments and where participation by registered trading members can be on their own account or for execution of orders placed their clients.

b. Institutional market – which shall be a market for non-publicly-issued debt instruments with a market lot size of minimum Rs 1 crore.

(iv) In addition to institutional investors, Direct Market Access (DMA) facility shall be extended to other investors to participate in Institutional market of debt segment. In this regard, the provisions as stipulated in SEBI circular MRD/ DoP/SE/Cir- 7 /2008 dated April 03, 2008, MRD/DoP/SE/Cir- 03 /2009 dated February 20, 2009 and CIR/MRD/DP/ 20 /2012 August 02, 2012 and modifications thereto shall be applicable.

(C) Trading Rules:

(i) The trading hours shall be from 9:00 hours to 17:00 hours to be in alignment with trading hours of government securities as issued by RBI.

(ii) The day count convention of Actual/Actual shall be followed for calculating interest rates.

(iii) The stock exchange shall facilitate availability of price quotes on clean price, dirty price and yield.

(iv) There shall be no shut period during which trades/ transfers are restricted for payment of interest or part redemptions. For other corporate actions such as redemptions/ put-call options, issuers may choose to specify a shut period.

(v) The record date shall be fixed not more than 15 days prior to date of corporate action which shall be displayed on trading terminal by stock exchanges.

(vi) In case of negotiated trades by members of the debt segment, the trades shall be reported to stock exchange within 30 minutes of the trade.

(D) Clearing and Settlement:

(i) All trades shall be cleared and settled through a clearing corporation. For this purpose, all trading members shall be self clearing members or may clear through a clearing member.

(ii) The settlement shall depend on the market type, as given below:

a) For institutional market: All trades shall be settled on T+1 rolling settlement on DVP-I basis using RBI RTGS account. Stock exchanges/clearing corporation may opt to provide clearing and settlement on DVP-II or DVP-III basis for this market in future and shall put in place appropriate risk management framework for the same.

b) For retail market: The trades shall be settled on T+2 rolling settlement on DVP-III basis with settlement guarantee.

(E) Risk management framework:

(i) For retail market, a uniform margin rate of 10% shall be applicable on debt instruments with rating of AA or above (or with similar rating nomenclature) by recognised credit rating agencies and 25% for all other debt instruments. Further, in case of shortages, there shall be compulsory close-out with a mark up of 5% in case of debt instruments which are assigned a credit rating of AA and above and 10% in case of other debt instruments.

(ii) For institutional market, as and when settlement is done on DVP-II or DVP-III basis, appropriate margins may be prescribed after approval by SEBI.

(iii) The clearing corporation shall specify appropriate risk management framework for each market, wherein it shall, inter-alia, provide for computation and collection of margins, capital adequacy norms and collateral requirements for the clearing members, settlement guarantee fund as applicable. This shall be approved by SEBI.

(F) Trade repository:

With an objective to have centralised repository for trades in debt instruments, the stock exchanges shall report trade information to a common trade repository as may be specified by SEBI.

(G) Membership:

(i) Any entity desirous of becoming trading member, self clearing member and/or clearing member of debt segment shall seek registration under SEBI (Stock Broker and Sub-Broker) Regulations, 1992.

(ii) Institutions such as scheduled commercial banks, primary dealers, pension funds, provident funds, insurance companies, mutual funds and any other investors as may be specified by sectoral regulators from time to time, can trade on the debt segment either as clients of registered trading members or directly as trading member on proprietary basis only (i.e own-account trades only). Such institutions desirous of trading on own account only shall be given trading membership under SEBI (Stock Broker and Sub-Broker) Regulations, 1992 as proprietary trading member.

(iii) For an interim period of six months from the date of this circular or till the application for registration as per amended SEBI (Stock Broker and Sub-Broker) Regulations,1992 is refused by the Board or till cessation of membership, whichever is earlier, the transitional provisions shall be –

a. Institutional market of debt segment: Any existing registered trading member and/or clearing member/self clearing member in derivative segment or currency derivatives segment desirous of trading or clearing trades in debt segment shall be permitted to trade or clear trades.

b. Retail market of debt segment: Any existing registered stock broker/trading member and /or clearing member/self clearing desirous of trading or clearing trades in debt segment shall be permitted to trade or clear trades.

(iv) The trading member, proprietary trading member, clearing member and self clearing member of debt segment shall have net worth and deposit as prescribed in SEBI (Stock Broker and Sub-broker) Regulations, 1992.

(v) The Base Minimum Capital for stock broker/trading member shall be in line with SEBI circular dated December 19, 2012.

(vi) The stock exchanges and clearing corporation may specify additional membership criteria for trading member/proprietary trading member and clearing member/self clearing member respectively.

(H) Market Making:

With the view to infuse liquidity in the market, market makers shall be permitted in the debt segment. Market making may be provided by merchant bankers, issuers through brokers or any other entity as may be specified. The rules for market making shall be specified by the stock exchanges with approval of SEBI.

6. The stock exchanges and clearing corporations desirous of introducing debt segment are advised to –

(i) Incorporate /frame separate Bye Laws, Rules and Regulations on debt segment in consonance with aforesaid guidelines

(ii) Make necessary amendment to their existing byelaws, rules and/or regulations , if required

(iii) Send duly completed application for introducing debt segment to SEBI, along with necessary byelaws and rules.

7. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Click here to download the above Circular in PDF Format.

Source: Securities and Exchange Board of India.


Procedural norms on Recognitions, Ownership and Governance for Stock Exchanges and Clearing Corporations

CIR/MRD/DSA/33/2012 dated December 13, 2012 

To

The Managing Director/Executive Director

of all Stock Exchanges and Clearing Corporations. 

The Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (henceforth referred to as ‘SECC Regulations’) were notified on June 20, 2012. In terms of the powers under regulation 51 of the SECC Regulations, the Board hereby issues the following instructions for the effective implementation of the SECC Regulations. This circular shall be read in conjunction with the Securities Contracts (Regulation) Act, 1956 (SCRA), Securities Contracts (Regulation) Rules, 1957 (SCRR), SECC Regulations and other applicable laws.

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Click here to download the complete text of the above Circular in PDF Format.

Source: Securities and Exchange Board of India.


Oversight of Members (Stock Brokers/Trading Members/Clearing Members of any segment of Stock Exchanges/Clearing Corporations)

CIRCULAR, CIR/MIRSD/13/2012, dated December 07, 2012

To

All Recognized Stock Exchanges


1. Please refer to SEBI Circular no. MIRSD/Master Cir-04/2010 dated March 17, 2010 on the captioned subject.

2. It has been decided, in consultation with Stock Exchanges and the associations of stock brokers, to modify the provisions of Para 2 & 3, Part I of the above mentioned Circular as below:

a. Para 2, Part I: The Stock Exchange or the Clearing Corporation, as the case may be, shall, in consultation with SEBI, formulate a policy for annual inspection of their members in various segments and follow up action thereon. The policy shall also cover various kinds of risks posed to the investors and market at large on account of the activities/business conduct of their members.

b. Para 3, Part I: The Stock Exchange or the Clearing Corporation, as the case may be, shall conduct inspection of their members in various segments in terms of the above policy and in case of members who hold multiple memberships of the exchanges, the Stock Exchanges shall establish an information sharing mechanism with one another on the important outcome of inspection in order to improve the effectiveness of supervision.

3. The other provisions specified in SEBI Circular no. MIRSD/Master Cir-04/2010 dated March 17, 2010 shall remain applicable.

4. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

5. This circular is available on SEBI website at www.sebi.gov.in.

Click here to download the complete text of the above Circular in PDF Format.

Source: Securities and Exchange Board of India.


CIRCULAR, CIR/MRD/DSA/31/2012, dated November 27, 2012

To

The Managing Director/Executive Director

of all Stock Exchanges, Clearing Houses/Corporations

1. SEBI vide circular dated April 26, 2010 has issued guidelines for market makers on stock exchange/trading platform by a recognized stock exchange having nationwide trading terminals for Small and Medium Enterprises (SMEs).

2. Further, SEBI vide circular dated May 18, 2010 prescribed the framework for setting up of a stock exchange/trading platform by a recognized stock exchange having nationwide trading terminals for Small and Medium Enterprises (SMEs).

3. In this regard it has been decided to make applicable, limits on the upper side for market makers during market making process taking into consideration the issue size in the following manner –

Issue Size

Buy quote exemption

threshold (including

Mandatory

initial inventory of

5% of issue size)

Re-entry threshold

for buy quotes

(including mandatory

initial inventory

of 5% of issue size)

Upto Rs. 20 Crore

25%

24%

Rs. 20 Crore to Rs. 50 Crore

20%

19%

Rs. 50 Crore to Rs. 80 Crore

15%

14%

Above Rs. 80 Crore

12%

11%

4. Further, the following shall apply to market makers while managing their inventory during the process of market making:

i. The exemption from threshold shall not be applicable for the first three months of market making and the market maker shall be required to provide two way quotes during this period irrespective of the level of holding.

ii. Threshold for market making as prescribed will be inclusive of mandatory inventory of 5% of issue size at the time of allotment in the issue.

iii. Any initial holdings over and above such 5% of issue size would not be counted towards the inventory levels prescribed.

iv. Apart from the above mandatory inventory, only those shares which have been acquired on the platform of the exchange during market making process shall be counted towards the Market Maker’s threshold.

v. Threshold limit will take into consideration, the inventory level across market makers.

vi. The market maker shall give two way quotes till he reaches the upper limit threshold, thereafter he has the option to give only sell quotes.

vii. Two way quotes shall be resumed the moment inventory reaches the prescribed re-entry threshold.

viii. In view of the market maker obligation, there shall be no exemption/threshold on downside. However, in the event the market maker exhausts his inventory through market making process on the platform of the exchange, the concerned stock exchange may intimate the same to SEBI after due verification.

5. All stock exchanges are advised to:

i. make necessary amendments, if any to the relevant bye laws, rules and regulations for the implementation of the above decision.

ii. disseminate the same on their website for easy access to the market makers and other market participants.

iii. communicate to SEBI, the status of implementation of the provisions of this circular in the monthly development report.

6. This circular is issued in exercise of the powers conferred under 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. This circular shall come into effect immediately.

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Click here to download the complete text of the above Circular in PDF Format- CIRCULAR, CIR/MRD/DSA/31/2012, dated November 27, 2012.

Source: Securities and Exchange Board of India.