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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 ..... es and Clearing Corporations) Regulations, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular is 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. 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, may relax the norm of 3 years stated in Para 2.3 above, provided that the WSP or its promoter/promoter group: 2.4.1. Meets all other 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited Annual Financial Statements along with audited net worth certificate to the Clearing Corporation within six months of the end of Financial Year. 3.3. Security Deposit (SD) 3.3.1. The Clearing Corporation shall ensure that the accredited WSP has furnished a refundable security deposit wherein: 3.3.1.1. Such security deposit shall be a minimum amount of ₹ 50 lakhs. 3.3.1.2. Such security deposit shall be in the form of Cash / Bank Fixed Deposits / Bank Guarantee. 3.3.2. Security deposit shall not be released until six months after cancellation or surrender of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or equivalent, by a recognized credit rating agency or by a reputed foreign credit rating agency. 3.6. Coordination between Clearing Corporation and WDRA in respect of SD / FSD maintained by the WSPs 3.6.1. The Clearing Corporations shall immediately after accreditation of WSP/s, provide the details of WDRA registered warehouses with full details of warehouseman registration, warehouse registration, WSP, address, etc. to WDRA. WDRA will in turn, share the details of security deposit received from these accredited warehouses / WSPs to the respective Clearing Corporations as per the following formats. Clearing Corporations shall inform the changes, if any, with respect to accreditation status of these warehouses, to enable WDRA to provide the required information as above. WDRA shall also inform Clearing Corporations of any changes, if any, in the security deposit placed by such warehouses/WSPs with WDRA. Table 5: Details of Bank Guarantee Sr. No. Name of WSP BG Number Bank Name Branch Name Date of Issuance (DD/MM/YYYY) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure that: 4.1.1. the WSP, assayers, Promoters of WSP / assayers, Key Management Personnel (KMPs) of WSPs / assayers responsible for business operation relating to the exchanges / Clearing Corporations shall always be 'fit and proper' to carry out business of warehousing. 4.1.2. such persons have adequate knowledge of, and experience in generally accepted warehousing and handling practices for the goods concerned, and are competent and willing to operate such a warehouse for which the WSP has a valid license/expertise under the appropriate state warehousing laws in respect of the warehouses concerned. 5. Corporate Governance norms for WSP 5.1. Management and Employees 5.1.1. The Clearing Corporations shall ensure that the accredited WSP has a professional management team to oversee its functioning and operations. 5.1.2. The Clearing Corporation shall ensure that the Key Management Personnel (KMPs) of WSP taking care of business operations and warehousing in general have adequate knowledge of, and experience in generally accepted warehousing and handling practices for goods for which they are accredited. The Clearing Corporation shall also ensure tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest. 5.1.8. The Clearing Corporation shall ensure that the WSP and its KMPs, shall not disseminate any information that is false or misleading or disclose any confidential information obtained during the course of their dealings with the Clearing Corporation or their positions on the market or any information received during the course of performance of their duties. 5.1.9. The Clearing Corporation shall ensure that the staff / employees of the WSP who are managing the day-to-day affairs of the warehouses, deployed both in the office of the WSP and in its warehouses, are duly trained on their expected tasks through relevant training programmes or are deputed to attend the certification programme conducted by National Institute of Securities market (NISM). 5.2. Compliance officer 5.2.1. The Clearing Corporation shall ensure that its WSP appoints a compliance officer who would be responsible for monitoring the compliance with relevant Act, byelaws, rules and regulations, notifications, guidelines and instructions issued by relevant authorities from time to time. 5.2.2. The compliance officer would be responsible for ensuring that all applicable norms are follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in a state of good repair. 8.1.2.4. All its storage facilities provide for a safe work environment; 8.1.2.5. All storage facilities shall have adequate security personnel with required facilities to immediately communicate to Clearing Corporation regarding any unlawful entry, burglary, theft or damage or potential loss to the goods deposited with it. 8.1.2.6. All its storage facilities have adequate lighting arrangement as may be prescribed by the Clearing Corporation. 8.1.2.7. All its storage facilities have adequate firefighting equipment installed within its premises, have fire escapes and fire hydrant points (in case of goods which are inflammable) clearly marked. Further, the employees of the WSP shall undergo training in fire safety and use of firefighting equipment. 8.1.2.8. All its storage facilities have required ventilation, installed and maintained in good working order, as may be prescribed by the Clearing Corporation, for the proper storage and preservation of quality of goods; 8.1.2.9. Each storage facility has adequate infrastructure for storing the deliverable commodities of commodity derivative contracts which needs to be piled properly in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions/parameters (for maintaining the quality) as laid down by the exchanges for each of such commodity. 8.1.7. Further, the Clearing Corporation shall ensure that it has put in place appropriate procedure and controls in place so that there is minimal queuing of deposits/withdrawal at a storage facility. 8.1.8. Clearing Corporations shall ensure that its WSPs have in place, necessary policies, control and system in place for dealing with the risk that may be arising due to the warehouses being used for purposes other than commodity derivatives market. 8.2. Requirements applicable for Agricultural agri-processed commodities 8.2.1. The Clearing Corporation shall ensure that each storage facility of accredited WSP meant for storing the Agricultural and agri-processed commodities shall meet the following conditions in addition to requirements stated in Para 8.1 above: 8.2.1.1. The walls, the floor and the roof do not permit water seepage and there is no source of any insect infestation. 8.2.1.2. has a fully fenced perimeter/boundary. 8.2.1.3. are free from materials and substances that may adversely affect the quality of stored commodities; 8.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Standards 9.1.1. In case the Clearing Corporations prescribes relevant ISO standards and/or its equivalent, then the Clearing Corporation shall ensure that the WSPs comply with relevant ISO standards and/or its equivalent within the timelines prescribed by it. 9.2. SOPs 9.2.1. The Clearing Corporation shall ensure that the WSP has a Standard Operating Procedure (SOP) which is process-dependent and not person-dependent. The Clearing Corporation shall examine the SOPs in respect of all the concerned storage facilities before granting accreditation to such storage facilities. 9.2.2. The SOP of a storage facility may cover the following but not restricted to: 9.2.2.1. Procedures for acceptance of goods to be deposited 9.2.2.2. Weigh bridge empanelment 9.2.2.3. Procedures for weighing, sampling of goods to be deposited as per industry standards, Procedure for verification of commodity and communication to depositors, 9.2.2.4. Procedure for depositing and identifying the Exchange related goods, 9.2.2.5. Procedure for maintaining the quality of the goods stored as per the exchange contract specification, 9.2.2.6. Procedure for Know your depositor re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Corporations shall follow a transparent process for accreditation of assayers by issue of open advertisement in leading newspapers and/or by putting up the same on the website of the Clearing Corporation. The process to be followed for such accreditation shall be displayed on the website of the Clearing Corporation before the beginning of the selection process. The accreditation shall be done with the approval of the relevant Committee of the Board of Directors of the Clearing Corporation in terms of the SECC Regulations, 2018. 11.2. The Clearing Corporation shall conduct independent pre-empanelment due diligence of Assayers by visiting the laboratories and assessing the testing and certification facilities. The Clearing Corporation shall give preference to the government assayers or to those Assayers who are having testing and certification facilities at various locations across India. In addition to the empanelment of assayers for deployment by the WSPs at their warehouses, the Clearing Corporation shall also identify and empanel separate independent assayer(s) where the market participants can get their goods/commodities assayed independently, at the time of depositing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.1.2. The Clearing Corporation shall ensure that the staff of the WSP conducting inspection is independent of the employees / staff deputed at the registered storage facility. 15.1.3. The Clearing Corporation shall ensure that the inspection/audit report is submitted to the Clearing Corporation within 15 days of the completion of such inspection/audit. 15.2. Periodic inspection / audit of warehouses by the Clearing Corporations 15.2.1. The Clearing Corporation shall ensure that independent audit of the goods and other facilities in the storage facilities is carried out by engaging expert agencies, at regular intervals. 15.2.2. Such inspections shall be carried out in each accredited storage facility, at least twice in a calendar year, with a gap of not more than six months between two inspections/audits of same storage facility. However, in case there are NIL stocks in an accredited storage facility during preceding six months, the Clearing Corporations would be exempted from requirement of inspection by independent agency. 15.2.3. Additionally, the audit may also be conducted on risk profiling, as identified by the Clearing Corporations. For this purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ED is the date after which the goods cannot be delivered for settlement of derivatives contracts on the exchange platform. 15.3.5. To further strengthen the process of monitoring, the Clearing Corporations shall mandate their WSPs to submit the report of the inspections carried out by the statutory authorities like WDRA to the Clearing Corporations within 2 weeks from the receipt of report by WSPs of such inspection along with their comments. 15.4. Physical inspections of goods by beneficiary owner of goods 15.4.1. The Clearing Corporations shall ensure that the beneficiary owner of the goods is allowed by the concerned WSPs to physically inspect their goods as and when requested by the holders. 15.4.2. The request for such physical inspection shall be submitted to the Clearing Corporations and the Clearing Corporations after verification and satisfaction of need for such request, shall forward the same to the concerned WSP for allowing such inspection to be completed within a stipulated timeframe. 15.4.3. Upon receipt of such advice from the Clearing Corporations, the WSP shall allow the holder/its authorized representatives holding eNWRs or any other electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the WSP to report the details of complaints received, resolved by it, pending and action taken on the complaints, once in very fortnight. 18. Monthly Information System (MIS) 18.1. It is desirable that there should be electronic record of information at the WSP and a MIS system with an arrangement for flow of real time information from the storage facility location to the central MIS and onwards to the Clearing Corporations electronically. The MIS should have the capability to capture and disseminate information regarding goods being held either storage facility -wise or location-wise, and the availability of space in the storage facilities. 18.2. The Clearing Corporation shall display on its website, the list of accredited warehouses for the deposit of goods for delivery on the exchange platform along with the policy for deposit of such goods. The market participants willing to deposit goods in accredited warehouses shall submit a request to the WSP in accordance with the policy put in place by the Clearing Corporation for deposit of goods. The WSP shall intimate the depositing participant about the logistic details such as the time, place and storage facility where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation through widely published newspapers and website etc. before accepting the surrender of WSP or cancellation of the WSP. 20.Business Continuity Plan 20.1. The Clearing Corporations shall ensure that the WSP shall put in place, a business continuity plan and submits such plan to the Clearing Corporation. 21. Actions against WSPs 21.1. The Clearing Corporation may frame norms for its accredited WSPs to rectify or correct their misconduct or misconduct on the part of any of its approved warehouses used for storing goods for delivery on exchange platform. The Clearing Corporation may also direct the WSPs to indemnify an entity aggrieved by the delivery process of its warehouse or, in serious cases of misconduct/malfeasance, revoke the accreditation of the concerned warehouse or/and hold the WSP accountable for any legal liabilities, if the concerned erring WSP/ warehouse engages in any of the following offences: 21.1.1. refuses to accept delivery without any bonafide reasons or, issues a falsified certificate of delivery; 21.1.2. violates any of the Clearing Corporation s rules or limits the movement of a deliverable commodity into or out of the ware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commodity C Commodity D and so on Top 3 Top 5 Top 10 Others 23.2. Monthly disclosures on the following: 23.2.1. A summary of number of complaints with status as per the following format: Table 8: Summary of WSP wise status of complaints WSP wise status of complaints for Month ended WSP Name No. of complaints received during month No. of resolved month complaints during No. of complaints pending for month with reasons for pendency 23.2.2. A summary of nature of complaints received as per the following ..... X X X X Extracts X X X X X X X X Extracts X X X X
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