Comprehensive Risk Management Framework for the cash market - SEBI - MRD/DoP/SE/Cir-10/2008

Chief General Manager Market Regulation Department-Division of Policy E-mail: [email protected] MRD/DoP/SE/Cir-10/2008 April 17, 2008 The Executive Directors/Managing Directors of all Stock Exchanges Dear Sir / Madam, Sub: Comprehensive Risk Management Framework for the cash market 1. Please refer to our circular Nos. MRD/DoP/SE/Cir-07/2005 and MRD/DoP/SE/Cir-06/2008 dated February 23, 2005 and March 19, 2008 on the comprehensive risk management for the cash market and margining of institutional trades in the cash market respectively. 2. In continuation of the above, the stock exchanges are advised to implement the following:- 1. As regards the transactions executed on behalf of institutional clients in the cash market, it shall be permissible to maintain their entire margin in the form of approved securities with appropriate haircuts as specified in the aforesaid SEBI circular dated February 23, 2005. 2. Necessary systems shall be put in place to enable early pay-in of funds. In cases where early pay-in of funds is made by the members, the outstanding position to that extent of early pay-in shall not be considered for computing the margin obligations. 3. Necessary systems shall be put in place so as to enable adjustment of the pay-in obligations of the members from the cash component of the liquid assets deposited by them. 3. The Stock Exchanges shall issue the necessary guidelines in this regard and shall put in place the necessary systems to ensure the operationalization of the above. 4. The Stock Exchanges are also advised to: 1. test the software and remove any glitches in its operation well before the commencement date to avoid any problems in the live environment. 2. make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision. 3. 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. 4. communicate to SEBI, the status of the implementation of the provisions of this circular in the Monthly Development Report. 5. 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, S V Murali Dhar Rao