Trade Guarantee Fund (TGF)/ Settlement Guarantee Fund(SGF) – reduced exposure for ten rolling settlement - SEBI - SEBI/SMD/SE/21/2003/05/06

Circulars General Manager Secondary Market Department e-mail : [email protected] SEBI/SMD/SE/21/2003/05/06 June 5, 2003 The Managing Directors and Executive Directors of all the Stock Exchanges Dear Sir/Madam, Sub - Trade Guarantee Fund (TGF)/ Settlement Guarantee Fund(SGF) reduced exposure for ten rolling settlement 1. SEBI has specified in circular no.SMDRP/Policy/Cir-16/2001, dated March 09, 2001 the norms for the utilisation of the settlement/trade guarantee funds at the exchanges. 2. The para number 1 of the circular specified that in cases where shortages are in excess of the base minimum capital prescribed, the trading facility of the member shall be withdrawn and the pay-out due to the member shall be withheld. It was further stipulated in the circular that on recovery of the complete shortages, the member shall be permitted to trade on a reduced exposure for four settlements. 3. The above circular was issued under conditions of account period settlement. Since then rolling settlement has been introduced and settlement cycle in now on T+2 basis. This change in settlement cycle requires consequential changes in the procedures for utilization of the SGF/TGF, wherever shortages occur. 4. This issue was considered by the Advisory Committee on Derivatives and Market Risk Management and pursuant to the recommendations of the Committee it has been decided that the reduced exposure shall apply to atleast ten rolling settlements instead of four settlement as specified in the circular no.SMDRP/Policy/Cir-16/2001, dated March 09, 2001. Thus the para 1 of the said circular shall now read as follows:- 1. In cases where amount shortages in a settlement for a trading member are in excess of the base minimum capital (BMC) prescribed, the trading facility of the member shall be withdrawn and the securities pay-out due to the member shall be withheld. The trading facility of the member shall be withdrawn and the securities pay-out due to the member shall be withheld, even in cases where the amount of shortages exceed 20% of the BMC and is less than the BMC on six occasions within a period of three months. On recovery of the complete shortages, the member shall be permitted to trade with a reduced gross exposure as follows:: Cumulative Funds Shortage Exposure limit allowed (%of current exposure limit) 20% of BMC 50% of BMC 80% 50% of BMC 100% of BMC 60% This reduced gross exposure level shall be maintained for the member for ten rolling settlements. If the cumulative funds shortages for the next ten rolling settlements is less than 20% of BMC, the exposure limits shall be restored. However, if a member provides a deposit equivalent to his cumulative fund shortages as the 'funds shortage collateral' in his clearing account the exposure limit may be restored immediately upon meeting the shortage. Such deposit shall be kept with the Exchange for a period of ten rolling settlements and shall be released only if no further funds shortages are reported for the member in next ten rolling settlements. The member shall not be given any exposure benefit or any interest payment on the amount so deposited as 'funds shortage collateral'. Members may deposit the 'funds shortage collateral' by way of cash, fixed deposit receipts or bank guarantee. Para 2 of the circular no.SMDRP/Policy/Cir-16/2001, dated March 09, 2001, specifies that the outstanding amount would carry a penal interest of not less than 0.09% per day. Since then the interest rates have generally declined and hence the outstanding amount can now attract a lower penal interest which shall not be less than 0.07% per day. The undersigned has been authorized to direct the exchanges to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision immediately. 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. 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