Margin Trading Facility and Securities Lending and Borrowing - SEBI - MRD/DoP/SE/Cir-08/2005

Deputy General Manager Market Regulation Department E-mail: [email protected] MRD/DoP/SE/Cir-08/2005 March 4, 2005 The Executive Directors/Managing Directors/Administrators of All Stock Exchanges Dear Sir / Madam, Sub: Margin Trading Facility and Securities Lending and Borrowing 1. Please refer to circulars No. 15/2004 and 16/2004 dated March 19, 2004 and March 31, 2004 respectively on the captioned subject. Pursuant to the recommendations of the Secondary Market Advisory Committee (SMAC) and the approval of the SEBI Board, the regulatory framework for Margin Trading Facility and Securities Lending and Borrowing is modified as under:- 1.1 Margin Trading Facility 1.1.1 Securities eligible for Margin Trading Facility In addition to the Group 1 securities as specified vide para 1.2.1 of the circular dated March 19, 2004, all the securities which are offered in the Initial Public Offerings (IPOs) and which meet the conditions for inclusion in the derivatives segment of the Stock Exchanges would be eligible for Margin Trading Facility. 1.1.2 Margin requirements Fixed deposits with banks and Bank Guarantees shall be treated as cash equivalent and shall be considered as acceptable form of initial and maintenance margins for the purpose of availing the Margin Trading Facility. 1.1.3 No-objection certificate Before providing Margin Trading Facility to a client who has already availed of Margin Trading Facility from another broker, the broker is required to obtain a no-objection certificate in writing from the other broker. The other broker shall be required to convey his objection, if any, in writing, within a period of 21 days from the date of receipt of query from the broker, failing which the broker would be free to proceed with providing Margin Trading Facility to the client. 1.1.4 The other provisions pertaining to Margin Trading Facility as provided in circulars dated March 19, 2004 and March 31, 2004 shall remain unchanged. 1.2 Securities Lending and Borrowing 1.2.1 Only the Clearing Corporation/House of the Stock Exchanges shall be permitted to act as Approved Intermediaries (AIs) under the Securities Lending Scheme (SLS) to borrow and lend securities to meet the settlement shortages. 1.2.2 In addition to the conditions specified in para 2.3 of the SEBI circular dated March 19, 2004, the Clearing Corporation/House of the Stock Exchanges would be required to comply with the following:- a. In order to enable lending of idle securities by investors, the Clearing Corporation/House may borrow securities from any person through his account with the depository participant and select the borrower on a random basis. b. The Clearing Corporation/House of the Stock Exchanges shall work out a mechanism to borrow securities at a market determined rate. 2. The Stock Exchanges are also advised to: 2.1 make necessary amendments to the relevant bye-laws, rules, regulations and listing agreement for the implementation of the above decision immediately. 2.2 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. 2.3 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. 3. 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, V S SUNDARESAN