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TMI BlogGuidelines for warehousing norms for agricultural/agri-processed goods and non-agricultural goods (only base/industrial metals) underlying a commodity derivatives contract having the feature of physical deliveryX X X X Extracts X X X X X X X X Extracts X X X X ..... ations, 2018 ("SECC Regulations") provides, inter-alia, that every recognized Clearing Corporation (hereinafter referred to as "CCs") providing clearing and settlement services for commodity derivatives shall ensure guarantee for settlement of trades including good delivery. To fulfil this obligation, it is imperative on the part of the Clearing Corporations to ensure that their accredited storage facilities exercise due diligence for safety and quality of the goods deposited with them for the purpose of delivery on exchange platform. 2. It is, therefore, incumbent upon the Clearing Corporations to put in place a comprehensive framework of norms for adherence by the Warehouse Service Providers (hereinafter referred to as "WSP/s"), assayers and other allied service providers engaged by them for ensuring good delivery as mandated under the SECC Regulations. 3. At the outset, it is clarified that the norms prescribed in this Circular are the minimum requirements/standards which the Clearing Corporation will set out for compliance by its accredited WSPs and assayers and are to be complied with in conjunction with the applicable norms laid down by Warehousing the warehousing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 11. This circular is available on SEBI website at www.sebi.gov.in under the category "Circulars" and "Info for Commodity Derivatives". Yours faithfully, Naveen Sharma General Manager Division of Market Policy Commodity Derivatives Market Regulation Department Email: [email protected] Annexure 1. Accreditation of Warehouse Service Provider (WSP) 1.1. For accreditation of WSPs, the Clearing Corporation shall publish open advertisements in leading newspapers and/or put up the same on their website and follow transparent selection process thereafter. The selection process to be followed for such accreditation shall be displayed on the website of the Clearing Corporation before the process begins. The Clearing Corporation shall ensure that the applications of the WSPs are processed within a stipulated time frame. Note: For the purpose of this Circular, a WSP is an entity which provides a storage facility for storing underlying goods related to a commodity derivatives contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criteria 2.4.2. Submit an undertaking that they shall comply with any additional norm that may be specified by the Clearing Corporations within the time frame as may be specified by the Clearing Corporations or meet 3 years' criterion whichever is earlier. 2.5. WSP / Promoters / Promoter Group of WSP shall have no record of serious violation of law of land including that of laws governing warehousing / securities markets; or being expelled by any Clearing Corporation/stock exchange in last three years. The Clearing Corporation can take an appropriate undertaking from the WSP in this regard. 3. Financial Soundness of the WSP 3.1. Share Capital 3.1.1. The Clearing Corporation shall ensure that an accredited WSP shall have subscribed and paid-up share capital of at least ₹ 10 crores. 3.2. Net-worth 3.2.1. An accredited WSP shall meet the following net-worth criteria: - Table 1: Net worth Requirement Type of Goods Number of Goods Minimum net worth A Agricultural / Agri-processed 1 ₹ 10 crores More than 1 ₹ 25 crores B Base / Industrial Metals 1 ₹ 10 crores More than 1 ₹ 25 crores C Composite* NA ₹ 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accreditation of the WSP or until after satisfaction of every claim against the deposit, whichever is later. 3.4. Financial Security Deposits (FSD) 3.4.1. The WSP shall furnish refundable FSD for all goods on incremental basis in addition to the security deposit as under: - Table 2: FSD Requirement Type of Goods Value of Goods stored Minimum FSD Agricultural/Agriprocessed Up to ₹250 crores 2% of the aggregate value of stored commodities Between ₹ 250 crores and ₹500 crores ₹ 5 crores + 3% of aggregate value of stored commodities exceeding ₹ 250 crores Above ₹ 500 crores ₹ 12.5 crores + 4% of the aggregate value of stored commodities exceeding ₹ 500 crores Base / Industrial Metals NA 0.5% of the aggregate value of stored commodities 3.4.2. The Clearing Corporation, based on its risk assessment, can decide on restricting the amount of FSD to ₹ 100 Crores from each WSP. 3.4.3. The FSD shall be in the form of liquid assets with applicable haircuts and concentration limits as listed below: - Table 3: Composition of FSD Type Minimum haircut Limits Cash 0 No limit but minimum 10% Bank Fixe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Claim Date (DD/MM /YYYY) Amount Table 6: Details of Fixed Deposit Receipt Sr. No. Name of WSP FDR Number Bank Name Branch Name Date of Issuance (DD/MM/Y YYY) Maturity Date (DD/MM/Y YYY) Amount 3.6.2. Clearing Corporations shall continue to compute FSD requirement as stipulated in Para 3.4 above. The deposits placed by WSPs with WDRA for Exchange/Clearing Corporation specific outstanding eNWRs shall be considered by the Clearing Corporation in the calculation of available FSD for the WSP. 3.6.3. The Clearing Corporation shall compensate the aggrieved client, in accordance with its rules, regulations etc., by debiting the FSD of WSP held with it, in the following situations: 3.6.3.1. for any such losses that have been appropriately established against the WSP 3.6.3.2. in case of loss arising from any action or inaction of its WSP or on the part of its warehouses that prevents the buyer or seller from exercising, in whole or in part, their rights. 3.6.4. In case the FSD available with Clearing Corporation is not sufficient to compensate for the loss the FSD and the SD maintained by such WSP with WDRA shall be made available to Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es directly or indirectly or persons 'acting in concert' 5.1.4. However, based on risk assessment, the stock exchanges may provide exemptions to requirement stated in Para 5.1.3 above in the following manner: 5.1.4.1. entities stated in Para 5.1.3 above shall not trade in that specific commodity/commodities at that particular stock exchange where concerned WSP is accredited, in their proprietary account. 5.1.4.2. entities which are associated with an accredited WSP, either directly or indirectly, and are providing broking services will be permitted to trade in that commodity on that stock exchange only for their clients (i.e. non-proprietary) subject to stock exchange ensuring that the particular entity does not extend direct/indirect funding to its clients for trading in those commodities. 5.1.5. If the stock exchange is providing exemptions as mentioned in Para 5.1.4 above, then it should put in place appropriate controls so that the WSPs do not exercise preferential treatment to such entities which may act as disadvantage to other market participants. 5.1.6. The Clearing Corporation may obtain, and share with Stock Exchanges, an annual declaration from the compliance off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WSPs are under obligation to provide to it the details including PAN numbers of its Promoters, Promoter group entities, its holding/subsidiaries/associates and other related entities, persons 'acting in concert', Key Management Personnel, at the time of accreditation and update the same on periodical basis as mandated by the Clearing Corporations and whenever any change is noted by WSP, in this regard. 8. Facilities & Infrastructure Requirement for WSP 8.1. General requirements applicable to all goods 8.1.1. The Clearing Corporation shall ensure that the storage facilities provided by the WSP are under absolute control of the WSP. In case a storage facility is a leased property it should be ensured by Clearing Corporation that no third party including the owner / lessor of the storage facility, has any role to play in the operations and managing the concerned storage facilities operated by the WSP. 8.1.2. The Clearing Corporation shall ensure that the accredited WSPs have reasonable facility and infrastructure for proper handling and storage of commodity as specified under: 8.1.2.1. All its storage facilities are well connected with rail and/or road networks and have sufficie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and retrieval of data/records/books of accounts. 8.1.3. Clearing Corporations shall ensure that the WSP have adequate infrastructure and shall take utmost care in storing commodities in accordance with the climatic conditions and the nature of commodity stored. 8.1.4. Clearing Corporations shall ensure that the WSP has put in place necessary infrastructure for accurate and efficient weighing, sampling, inspection and grading of the commodities deposited in its storage facility and WSP has deployed personnel who have knowledge and experience in sampling, weighing, inspecting and/or grading of commodities. 8.1.5. Clearing Corporations shall ensure that the WSPs always gives priority to commodities meant for derivatives contracts delivery while receiving, storing and dispatching goods, in case its warehouse is also permitted to store goods not meant for delivery on exchange platform. The Clearing Corporation shall ensure that WSP should have internal process that enables it to physically verify, by deputing its officials or through any agencies / experts engaged by it, the goods deposited, the facilities available in such warehouse, or to inspect the level of compliance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the warehouse are sound and whether there are any pools of water around the facility, which can increase the danger of water seepage into it, and take appropriate remedial steps. 8.3. Requirements applicable for Base Metals/Industrial Metals 8.3.1. The Clearing Corporation shall ensure that each storage facility of accredited WSP meant for storing Base Metals/Industrial Metals shall meet the following conditions in addition to requirements stated in Para 8.1 above: 8.3.1.1. The storage facilities must have a fully fenced perimeter/boundary. Loading and unloading shall always take place within the perimeter/boundary of the warehouse and not in a public area. 8.3.1.2. All its storage facilities are of sound construction and in a state of good repair and floor properly levelled and can bear the load of the weight of the stored metals. The walls, the floor and the roof do not permit water seepage. 8.3.2. The Clearing Corporation shall ensure that the ferrous metals are stored by WSP in a manner so as to prevent distortion, corrosion, scaling and rusting. They shall be stacked/piled adequately above the ground level. 8.3.3. The Clearing Corporation shall ensure that the WSP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oundings, infrastructure etc. 9.2.3. The Clearing Corporation shall ensure that the WSP has good internal systems and controls which should meet the operating guidelines, if any, issued by the Clearing Corporation from time to time. The WSP shall have clear delegation of powers to meet operational requirement. 9.2.4. The Clearing Corporation shall ensure that WSP intimates / notifies in writing to the Clearing Corporation, if there is any material change in it SOP, prior to making such change. 9.2.5. The Clearing Corporation shall ensure that WSP reports to the Clearing Corporation within three days of initiation of any civil and criminal proceedings by or against it and shall also intimate the Clearing Corporation if there is probability of any such legal proceedings being initiated involving it, as soon as the same comes to the knowledge of the WSP. 10. Sampling Procedure 10.1. The Clearing Corporations shall ensure that, wherever assaying is carried out by WSPs, adequate samples of goods are collected/retained from the goods deposited and are sealed in the presence of the depositor or his authorized representative. 10.2. In order to resolve potential disputes arising wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in the contract specification) at the time of launch of contract itself and address of such storage facility shall be disclosed along with the contract specifications by the Clearing Corporation on their website / by issuance of relevant Circular to market participants. 12.2. The Clearing Corporation may accredit warehouses of a WSP within 100 kms radius of the delivery centers depending on the feasibility and market requirements in respect of all commodities. 13. Insurance 13.1. The Clearing Corporation shall ensure that its WSPs, whether presently registered with the WDRA or not, comply with the insurance guidelines/norms issued by the WDRA. 14. Embracing new technology 14.1. The Clearing Corporations shall strive to adopt the latest technology for routine and surprise inspections/audits, monitoring and surveillance of the warehouses etc. 14.2. The Clearing Corporation shall ensure that to the extent possible the WSP to be accredited by them has adopted or shall adopt the latest technology with respect to the operations of the warehousing business. The Clearing Corporation may identify the areas where use of latest technology can be mandated by it and provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise inspections of storage facilities as and when such exigencies arise. 15.2.9. The Clearing Corporations shall have a detailed manual for carrying out the audits and inspections of the WSP/ storage facilities concerned. 15.3. Monitoring of goods stored at accredited storage facilities by the Clearing Corporations 15.3.1. The Clearing Corporation shall be responsible for monitoring the storage facilities of their accredited WSPs. 15.3.2. Norms relating to the monitoring of storage facilities shall be placed in public domain by the Clearing Corporation. 15.3.3. A deliberation on the continuous functioning, monitoring and compliance of norms by WSPs, storage facilities and assayers may be one of the agenda items in all Board meetings as well as other relevant committee of Board of the Clearing Corporation in terms of the SECC Regulations, 2018. 15.3.4. The Clearing Corporations and WSPs shall ensure that the goods whose final expiry date (FED) is over, are removed from the concerned warehouse immediately, but not later than 3 months from the date of the final expiry date. However, it is clarified that WSP shall ensure proper demarcation of goods which have crossed FED and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rage facilities of the concerned WSP in accordance with the results of such performance evaluation and appraisal. 15.6.2. Additionally, the Clearing Corporation may carry out quarterly performance review of all warehouses accredited by it, taking into account various performance parameters such as storage facilities, the capacity and appearance of the warehouse, business capabilities, business performance, accounting, the satisfaction level of members/clients, redressal of client grievances, and other factors as the Clearing Corporation may deem necessary for its review. 15.6.3. The Clearing Corporation may take necessary action against WSPs as mentioned in Para 21 of the Circular, if the storage facility is unable to meet the requirements of an accredited storage facility and fails to improve the standard within the stipulated timeframe. 16.Code of conduct 16.1. The Clearing Corporation shall frame code of conduct for the WSPs, storage facilities and assayers which shall be disclosed on the website of the Clearing Corporation. 17. Grievance Cell 17.1. The Clearing Corporation shall ensure that it has a Grievance Cell to handle the investor complaints. 17.2. The Clearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end to the following matters urgently: 19.3.1. All commodities for delivery towards settlement of derivatives contract shall be dispatched out of the warehouse; 19.3.2. All liabilities and debts vis-a-vis the Exchange/Clearing Corporation, Member and Clients shall be settled; 19.3.3. There is no obligation on its part to deliver goods to the clients pertaining to their trades on the exchange platform, and 19.3.4. No client/customer complaints pertaining to any of its registered warehouses are pending for redressal. 19.4. FSD shall be returned in accordance with the rules framed by the Clearing Corporations, keeping aside 10% of such deposits with the Clearing Corporations, which shall not be released until six months after cancellation or surrender of accreditation of the WSP or until satisfaction of all claims against the deposits made in its warehouses, whichever is later. 19.5. A WSP which surrenders its accreditation with the Clearing Corporations shall not be eligible to provide its services to the same Clearing Corporations for a period of 3 years. 19.6. Once the accreditation of a WSP is cancelled by a Clearing Corporation then it shall not be eligible to provide it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rejection of goods 22.1. The Clearing Corporations shall frame a policy for rejection of goods deposited by the depositors. 23. Disclosures by Clearing Corporations 23.1. Daily disclosure on the following: 23.1.1. Details about the storage facility including available and utilized capacity, type of commodity allowed to be stored, location of storage facility etc. 23.1.2. Details about storage facility-wise and / or commodity wise details of opening stock, goods deposited and held in transit (inbound and outbound), rejected stock, closing stock, encumbered/pledged stock and stock eligible for delivery on Clearing Corporation, name of the warehouse service provider, particulars of acceptance/rejection of goods by the storage facility concerned, details of empaneled assayers and independent assayers, if any, attached to the storage facility etc., on their websites. 23.1.3. FED wise stock position in approved warehouses. 23.1.4. Quantum of goods physically withdrawn by the holders. 23.1.5. Commodity wise %age of deposits held by top 3, 5 & 10 beneficiary owners for commodity as under: Table 7: Commodity wise percentage of overall deposits held in various warehouses C ..... 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