Regulatory Framework for Commodity Derivatives Brokers - SEBI - SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/92

CIRCULAR SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/92 September 23, 2016 To, The Managing Directors / Chief Executive Officers All Commodity Derivatives Exchanges Dear Sir / Madam, Sub: Regulatory Framework for Commodity Derivatives Brokers 1. As per Section 131(B) of Finance Act, 2015 all rules, directions, guidelines, instructions, circulars, or any like instruments, made by the erstwhile Forward Markets Commission (FMC) or the Central Government applicable to recognized associations under the Forward Contracts (Regulation) Act, 1952 shall continue to remain in force for a period of one year from the date on which the FCRA is repealed (September 29, 2015), or till such time as notified by SEBI, whichever is earlier, as if the FCRA had not been repealed. 2. Erstwhile FMC issued various circulars/letters/ directions to exchanges dealing in commodity derivatives for compliance by their members from time to time. Consequent to merger of FMC with SEBI, it is important that regulatory provisions for brokers across equity and commodity derivatives markets be harmonized. Accordingly, regulatory provisions have been divided into three parts as described below. i. Part A contains details of FMC circulars which shall stand repealed and relevant SEBI circulars which shall be applicable. ii. Part B contains details of FMC circulars contents/norms of which shall continue as they are specific to commodity derivative markets. iii. Part C contains details of FMC circulars which shall stand repealed. 3. Part A: Following FMC circulars shall stand repealed and relevant SEBI circulars shall be applicable to all commodity derivatives exchanges including regional commodity derivative exchanges for compliance by their members. Sr No Subject FMC Circular being repealed SEBI circulars being made applicable i. Segregation of Client and Own Funds and Securities No circular issued by FMC a) SMD/SED/CIR/93/23321 dated Nov 18, 1993 b) MRD/DoP/SE/Cir- 11/2008 dated Apr 17, 2008 ii. Running Account Settlement a) FMC/4/2012/C/14 No. 1/2/2012/IR-I/Client-Protect/ dated Feb 02, 2012 b) FMC/4/2013/C/59 No. 1/2/2012/IR-I/Client-Protect dated May 20, 2013 c) No. 1/2/2012/IR-I/Client-Protect dated Jun 25, 2013 d) FMC/4/2014/C/121 FMC/2014/04/23-Quarterly Settlement dated Oct 17, 2014 a) Clause 12 of Annexure A to MIRSD/ SE /Cir-19/2009 dated Dec 3, 2009 b) MIRSD /Cir/ 01/ 2011 dated May 13, 2011 iii. Requirements with respect to Financial Documents, PAN, Inactive Clients etc. a) No.IRD/Div/(1)FMCR/1/2005 dated Feb 14, 2006 b) Div. III/I/(53)/06/PAN No. dated Nov 28, 2006 c) 9/3/2008-MKT-II dated Jan 12, 2009 d) No. 18/1/2007/MKT-III dated Feb 11, 2008 e) No. 9/1/2009-MKT-I dated Dec 07, 2009 f) No. 9/12009-MKT-I dated Aug 10, 2010 a) Clauses 1 to 11 and Clauses 14 to 19 of Annexure A to MIRSD/ SE /Cir-19/2009 dated Dec 03, 2009 b) CIR/MIRSD/01 /2013 dated Jan 04, 2013 c) CIR/MIRSD/64/2016 dated Jul 12, 2016 For new client accounts. iv. In-Person Verification Part C of FMC/4/2015/C/0015No. FMC/COMPL/IV/KRA-05/11/14 dated Mar 13, 2015 a) Para 3 of MIRSD/Cir- 26 /2011 Dec 23, 2011 b) Point 4 of Part 'Instructions/Check List' of Annexure 3 of Circular CIR/MIRSD/16/2011 dated Aug 22, 2011 v. KRA FMC/4/2015/C/0015 No. FMC/COMPL/IV/KRA-05/11/14 dated Mar 13, 2015 a) MIRSD/Cir-23/2011 dated Dec 2, 2011 b) Para 1 of MIRSD/Cir- 26 /2011 dated Dec 23, 2011 vi. Anti-Money Laundering and Maintenance of Records a) No.7/1/2008- MKT-II dated Oct 30, 2009 b) No.7/1/2008-MKT-II dated Jan 25, 2010 c) No. 7/1/2008-MKT-II dated Aug 25, 2010 d) FMC/4/2013/C/163 ; Div. III / I/ 89 / 07 dated Dec 18, 2013 e) No. 7/1/2013-MKT-1(A) dated Feb 04, 2015 a) CIR/ISD/AML/3/2010 dated Dec 31, 2010 b) CIR/MIRSD/2/2013 dated Jan 24, 2013 c) CIR/MIRSD/1/2014 dated Mar 12, 2014 vii. Dealing in Cash FMC/2/2014/C/23 No. 9/1/2014 -MKT-I dated Mar 12, 2014 MRD/SE/Cir- 33/2003/27/08 dated Aug 27, 2003 viii. Guidelines on Pre-funded Instruments FMC/4/2011/G/0010FMC/Complt/Circular dated Sep 27, 2011 CIR/MIRSD/03/2011 dated Jun 9, 2011 ix. SMS and Email alerts facility to clients a) FMC/4/2012/C/13 No. FMC/IR-I/Client protection/2012 dated Feb 02, 2012 b) FMC/Complt/Circular dated Jun 04, 2012 c) No:IR (2)/5/2012/SMS-Email dated Dec 07,2012 d) No.IR(2)/5/2012/SMS-Email dated Jan 21, 2013 e) No.IR(2)/5/2012/SMS/Email dated Mar 01, 2013 f) No.IR(2)/5/2012/SMS/Email dated Mar 06, 2013 g) No.IR(2)/5/2012/SMS/Email dated May 15, 2013 h) No.IR(2)/5/2012/SMS/E-mail dated Jun 21, 2013 CIR/MIRSD/15/2011 dated Aug 02, 2011 x. Contract Note a) No. 07/2008/COMP/LAD-ENF/AD(SN)/6609 dated Oct 27, 2009 b) FMC/COMPL/IV/2010/03/05/00011 dated Apr 19, 2011 c) Div.III/I/89/07 dated Mar 13, 2014 d) Div.III/I/89/07 dated Dec 24, 2014 a) SMDRP/Policy/Cir-56/2000 dated Dec 15, 2000 b) SMD/SE/15/2003/29/04 dated Apr 29, 2003 c) MRD/DoP/SE/Cir-20/2005 dated Sep 8, 2005 d) Clause 13 of Annexure A to MIRSD/ SE /Cir-19/2009 dated Dec 3, 2009 xi. Exclusive e-mail ID for redressel of Investor Complaints No circular issued by FMC MRD/DoP/Dep/SE/Cir-22/06 dated Dec 18, 2006 xii. Display of information such as logo, registration number on notice board and contract note and investor grievance redressal mechanism on notice board No circular issued by FMC a) Cir/MIRSD/ 9 /2010 dated Nov 4, 2010 b) CIR/MIRSD/3/2014 dated Aug 28, 2014 xiii. Internal Audit No circular issued by FMC Para 7 to 11 of circular MIRSD/Master Cir-04/2010 dated Mar 17, 2010 xiv. Inspection of brokers a) No. Div./III/I/301/2011-12/Audit dated Dec 23, 2011 b) No. Div./III/I/104/2008-09/Audit dated Feb 02, 2012 c) FMC/1/2014/C/50No.Div.III/I/300/2011-12/Audit dated Apr 23, 2014 d) FMC/1/2014/C/47 No. FMC/1/2014/Audit/C Dated Apr 23, 2014 a) Para 2 to 6 of circular MIRSD/Master Cir-04/2010 dated Mar 17, 2010 b) CIR/MIRSD/13/2012 dated Dec 07, 2012 xv. Change in control/ constitution a) No.IRD-Div-III/1/143/10-MR dated Aug 14, 2010 b) Div:III/I/120/MR-2011/2 dated Apr 07, 2011 c) FMC/6/2011/C/0018 No. Div.III/I/68/MR/General dated Sep 22, 2011 d) FMC/6/2011/C/0019 No. Div. III/I/157/10-MRDated Sep 27, 2011 e) FMC/4/2012/C/41 No. Div. III/I/157/10-MR dated Apr 04, 2012 f) Div. III/I/10/MR dated Apr 30, 2015 a) MIRSD/MSS/Cir- 30/ 13289/03 dated Jul 09, 2003 b) CIR/MIRSD/2/2011 dated Jun 3, 2011 c) CIR/MIRSD/14/2011 dated Aug 02, 2011 xvi. Procedure for surrender of membership a) FMC/6/2011/C/0018 No. Div.III/I/68/MR/General dated Sep 22, 2011 b) FMC/1/2014/C/146 dated Dec 31, 2014 c) No.Div.II/I/112/2015/Refund of Deposit dated Jan 19, 2015 d) No. III/I/10/MR dated Jul 08, 2015 MIRSD/MSS/Cir- 30/ 13289/03 dated Jul 09, 2003 xvii. Guidelines on Outsourcing of Activities by Intermediaries No circular issued by FMC CIR/MIRSD/24/2011 dated Dec 15, 2011 xviii. BPO/KPO services - Segregation thereof from Commodity Derivatives Market No. S/1/2009/MD-I dated Mar 28, 2011 a) Rule 8(1)(f) and 8(3)(f) of SCRR, 1957 b) SMD/POLICY/CIR-6//97 dated May 07, 1997 xix. Authorized Persons No.6/3/2008-MKT II ; FMC/2/2012/G/3 dated Jan 11, 2012 a) MIRSD/ DR-1/ Cir- 16 /09 dated Nov 06, 2009 b) Cir/MIRSD/AP/8/2010 dated Jul 23, 2010 4. Part B : Following FMC circulars are specific to commodity derivatives market. It has been decided that contents/norms specified in following circulars shall continue to be in force beyond September 28, 2016. Provisions of these circulars shall be applicable to all commodity derivatives exchanges including regional commodity derivatives exchanges for compliance by their members. Sr No Subject FMC Circular No. and Date i. Account Opening Process a) No.-FMC/4/2011/G/30 Ref. No.: Div. III/I/89/07 dated Dec 16, 2011* b) Div.III/I/89/07 dated Aug 23, 2013 c) F.No.FMC/COMPL/2013/10/30-FSLRC/FSDC dated Mar 28, 2014 d) Div.III/2/89/VOL IV dated Apr 23, 2014 e) No. FMC/COMPL/IV/KRA-05/11/14 dated Feb 26, 2015 ii. Customer Protection such as keeping evidence of client placing order No.FMC/Comp/VI/2009/04/06/114/5787 dated Sep 16, 2009 iii. Nomenclature of Stock brokers a) 4/5/2005- M S/MCX/Unit-II dated Apr 25, 2006 b) No.IRD-DIV-III/I/FCR-I/2009 dated Dec 21, 2009 c) No. DIV-III/I/122/10/MR dated Jun 25, 2010 d) 6/3/2008-MKT II dated Feb 18, 2011 iv. Surrender of membership F.No.1/4/2009/MD-I dated Jul 20, 2009 *All clauses to remain except to the extent as modified as described below. Annexure - 3 (Rights And Obligations Of Members, Authorized Persons And Clients) of Circular No.-FMC/4/2011/G/30 Ref. No.: Div. III/I/89/07 dated Dec 16, 2011 is hereby modified as follows: i. in Clause 30, for the words in the Statement immediately but not later than 30 calendar days of receipt thereof, to the Member. A detailed statement of accounts must be sent every month to all the clients in physical form. The proof of delivery of the same should be preserved by the Member the words in the Statement within such time as may be prescribed by the relevant Exchange from time to time where the trade was executed, from the receipt thereof to the Stock broker shall be substituted. ii. in Clause 31, for the words monthly the words daily shall be substituted. 5. Part C: Following FMC circulars shall stand repealed. Sr No Subject FMC Circular No. and Date i. Segregation of Client Accounts in Commodity Futures Exchange and Spot Exchanges FMC/2/2011/C/0008; No.9/1/2011-MKT/I dated Sep 26, 2011 ii. Member to obtain FMC Unique Code No. IRD/Div./III/(1)/FMCR/1/2005 dated Oct 28, 2005 iii. Submission of networth certificate from the members No. Div-III/I/122/10/MR dated Nov 22, 2010 6. All commodity derivatives exchanges shall continue to levy penalties they are currently levying and any revision thereof shall be decided in consultation with SEBI. Accordingly, FMC circulars dealing with penalties including Uniform Penalty Circular dated Mar 05, 2010 shall stand repealed. 7. The Stock Exchanges, who regulate and control buying, selling and dealing in commodity derivatives are directed to: a. Bring the provisions of this circular to the notice of the said stock brokers and also disseminate thesame on their websites; b. Make amendments to the relevant bye-laws, rules and regulations for the implementation of the above as considered necessary; c. Monitor the compliance of this circular through half-yearly internal audit and inspections of stock brokers; d. Communicate the implementation thereof to SEBI by Oct 15, 2016. 8. 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. Yours faithfully, Debashis Bandyopadhyay General Manager Market Intermediaries Regulation and Supervision Department