TaxTMI 
TaxTMI 
Master Circular on Matters relating to Exchange Traded Derivatives
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....LAR ON EXCHANGE-TRADED DERIVATIVES APRIL 2013 SECURITIES AND EXCHANGE BOARD OF INDIA Table of Contents 1 Index Futures ............................................................................................................. 11 1.1 Product Design ...................................................................................................... 11 1.1.1 Underlying ..................................................................................................... 11 1.1.2 Eligibility Criteria .......................................................................................... 11 1.1.3 Trading Hours ................................................................................................ 11 1.1.4 Size of the Contract ........................................................................................ 11 1.1.5 Quotation........................................................................................................ 11 1.1.6 Tenor of the contract ...................................................................................... 11 1.1.7 Available Contracts ..............
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............................................................. 21 1.3.4 Surveillance System ....................................................................................... 23 1.4 Eligibility Criteria for Derivative Exchange / Derivative Segment of the Exchange, Trading Members, Clearing Corporation/House for Equity Derivatives ....... 25 2 Index Options ............................................................................................................. 27 2.1 Product Design ...................................................................................................... 27 2.1.1 Underlying ..................................................................................................... 27 2.1.2 Eligibility Criteria .......................................................................................... 27 2.1.3 Trading Hours ................................................................................................ 27 2.1.4 Size of the Contract ........................................................................................ 27 2.1.5 Quotation............................................
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....................... 31 2.3.2 Position Limits ............................................................................................... 31 2.3.3 Monitoring of Position Limits ....................................................................... 32 2.3.4 Surveillance System ....................................................................................... 32 3 Stock Futures .............................................................................................................. 33 3.1 Product Design ...................................................................................................... 33 3.1.1 Underlying ..................................................................................................... 33 3.1.2 Eligibility Criteria .......................................................................................... 33 3.1.3 Trading Hours ................................................................................................ 35 3.1.4 Size of the Contract ........................................................................................ 35 3.1.5 Quotati....
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....................................................................... 41 3.3.1 Unique client code ......................................................................................... 41 3.3.2 Position Limits ............................................................................................... 41 3.3.3 Monitoring of Position Limits ....................................................................... 43 3.3.4 Surveillance System ....................................................................................... 43 4 Stock Option ............................................................................................................... 44 4.1 Product Design ...................................................................................................... 44 4.1.1 Underlying ..................................................................................................... 44 4.1.2 Eligibility Criteria .......................................................................................... 44 4.1.3 Trading Hours ...............................................................................
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....Surveillance and Disclosures ................................................................................ 48 4.3.1 Unique client code ......................................................................................... 48 4.3.2 Position Limits ............................................................................................... 48 4.3.3 Monitoring of Position Limits ....................................................................... 48 4.3.4 Surveillance System ....................................................................................... 48 5 Currency Futures ....................................................................................................... 49 5.1 Product Design ...................................................................................................... 49 5.1.1 Underlying ..................................................................................................... 49 5.1.2 Trading Hours ................................................................................................ 49 5.1.3 Size of the contract ...................................
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..................................... 53 5.2.12 Periodic risk evaluation report ....................................................................... 54 5.3 Surveillance and Disclosures ................................................................................ 55 5.3.1 Unique client code ......................................................................................... 55 5.3.2 Position limits ................................................................................................ 55 5.3.3 Surveillance system ....................................................................................... 57 5.4 Eligibility Criteria of the Segment, Exchanges and Trading Members ................ 59 5.4.1 Eligibility criteria of currency futures segment ............................................. 59 5.4.2 Eligibility criteria for the Clearing Corporation of the currency futures segment ........................................................................................................................ 60 5.4.3 Eligibility criteria for members in the currency futures segment .................. 61 ....
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.......... 65 6.2.5 Settlement of Premium .................................................................................. 65 6.2.6 Extreme Loss margin ..................................................................................... 66 6.2.7 Net Option Value ........................................................................................... 66 6.2.8 Liquid net worth ............................................................................................. 66 6.2.9 Liquid assets................................................................................................... 66 6.2.10 Margin collection and enforcement ............................................................... 66 6.2.11 Safeguarding client's money .......................................................................... 66 6.2.12 Periodic risk evaluation report ....................................................................... 66 6.3 Surveillance and Disclosures ................................................................................ 66 6.3.1 Unique client code ............................................
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................................................... 69 7.1.12 Conversion Factor .......................................................................................... 70 7.1.13 Invoice Price .................................................................................................. 70 7.1.14 Delivery Schedule and Delivery Process/Mechanism ................................... 70 7.1.15 Last Trading Day ........................................................................................... 71 7.1.16 Last Delivery Day .......................................................................................... 71 7.1.17 Initial Margin ................................................................................................. 71 7.1.18 Extreme Loss Margin ..................................................................................... 72 7.1.19 Calendar Spread Margin ................................................................................ 72 7.1.20 Model for Determining Standard Deviation .................................................. 72 7.1.21 Formula for Determinin....
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.................................................................................................. 79 8 Interest Rate Futures on 91-Day Government of India (GoI) Treasury-Bill (TBill)................................................................................. 82 8.1 Product Design, Margins and Position Limits ...................................................... 82 8.1.1 Underlying ..................................................................................................... 82 8.1.2 Trading hours ................................................................................................. 82 8.1.3 Size of the contract ......................................................................................... 82 8.1.4 Quotation...................................................................................................... 82 8.1.5 Tenor of the contract .................................................................................... 82 8.1.6 Contract months ........................................................................................... 82 8.1.7 Settlement mechanism .....................
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.... 9.1.6 Contract months ............................................................................................. 86 9.1.7 Settlement mechanism ................................................................................... 86 9.1.8 Contract Value ............................................................................................... 86 9.1.9 Daily Contract Settlement Value ................................................................... 86 9.1.10 Expiry/Last trading day .................................................................................. 87 9.1.11 Final Contract Settlement Value .................................................................... 87 9.1.12 Initial Margin ................................................................................................. 87 9.1.13 Extreme Loss margin ..................................................................................... 87 9.1.14 Calendar spread margin ................................................................................. 87 9.1.15 Formula for determining standard deviation ...................
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............... 94 10.1.13 Extreme Loss margin ................................................................................. 94 10.1.14 Calendar spread margin .............................................................................. 94 10.1.15 Formula for determining standard deviation .............................................. 94 10.1.16 Position Limits ........................................................................................... 95 10.1.17 Settlement Mechanism ............................................................................... 97 10.1.18 Worked out Example of Settlement price calculation ................................ 98 10.2 Regulatory and Legal aspects ............................................................................ 99 10.2.1 Exchange ........................................................................................................ 99 11 Derivative Contracts on Foreign Indices ............................................................... 100 11.1 Underlying ...................................................................................................
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............................ 111 12.6 Modification of Client Codes of Non-institutional Trades Executed on Stock Exchanges (All Segments) .............................. 111 12.6.1 Modification of Client Codes ....................................................................... 111 12.6.2 Penalty Structure .......................................................................................... 112 12.7 Short-collection/Non-collection of client margins .......................................... 113 12.8 Liquidity Enhancement Schemes for Illiquid Securities in Equity Derivatives Segment ..................................................... 114 12.9 Requirement of Base Minimum Capital for Trading Member ........................ 115 13 ANNEXURES ........................................................................................................... 117 13.1 ANNEXURE I ................................................................................................. 117 13.2 ANNEXURE II................................................................................................ 118 13.2.1 ANNEXURE II(A) ...................................
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....rice of the underlying index on the day of expiry. The closing price of the underlying index shall be based on last half an hour VWAP(Volume Weighted Average Price) of the constituents of the underlying index. 1.1.10 Final Settlement Day The Stock Exchanges have the flexibility to set the expiry date/day for index futures. While doing so, the Stock Exchanges shall have to ensure that there is no change in the contract specifications or the risk management framework and the integrity of the market is not affected in any manner. 1.1.11 Application The Derivative Exchange/Segment shall submit their proposal for approval of the index futures contract to SEBI which shall include: a. the details of proposed derivative contract to be traded on the exchange b. the economic purpose it is intended to serve, c. likely contribution to market development, d. the safeguards and the risk protection mechanism adopted by the exchange to ensure market integrity, protection of investors and smooth and orderly trading, e. the infrastructure of the exchange and the surveillance system to effectively monitor trading in such contracts, ....
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....g 300 contracts of 3 months futures and selling 300 contracts of 1 month futures. Since the near month contract of the spread is five days to expiry, the member will have the full benefit of spread margining: Margin on spread = 1% * 300 * 1,00,000 = 3,00,000 Spread open position 300 * 1,00,000 * 1/ 3 = 1,00,00,000 Adding the figures for the earlier long position we get: Total open position = 2,00,00,000 + 1,00,00,000 = 3,00,00,000 Liquid net worth = 70,00,000 - 10,00,000 - 3,00,000 = 57,00,000 Both conditions in para 4(ii) of the circular are satisfied as shown below: Condition 1. 57,00,000 > 50,00,000 Condition 2. 57,00,000 * 331/3= 19,00,00,000 > 300,00,000 1.2.1 Liquid Assets At least 50% of the total liquid assets shall be in the form of cash equivalents viz. cash, bank guarantee, fixed deposits, T-bills and dated government securities. Liquid Assets for the purposes of initial margins as well as liquid net worth would include cash, fixed deposits, bank guarantees, Treasury bills, government securities or dematerialized securities (with prescribed haircuts) pledged in favour of the exchange / clearing corporation or bank guarantees as defi....
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....sting deposits of that security shall continue to be counted towards liquid assets till the end of the month. Equity securities shall be in dematerialized form. Units of all mutual funds may also be accepted as the securities component of liquid assets. The unit shall be valued on the basis of its Net Asset Value (NAV) after applying a hair cut equivalent to the VaR of the units NAV and any exit load charged by the mutual fund. The valuation or the marking to market of such units shall be carried out on a daily basis. The valuation / marking to market of all securities, including debt securities, dated government securities and T-bills, shall be carried out daily, with appropriate haircuts. Debt securities shall be acceptable only if they are investment grade. Haircuts shall be at least 10% with daily mark to market. The total exposure of the clearing corporation to the debt or equity securities of any company shall not exceed 75% of the trade guarantee fund or 15% of the total liquid assets of the clearing corporation / house whichever is lower. Exposure for this purpose means the mark to market value of the securities less the applicable haircuts. All s....
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....of insolvency of the FII or any intermediary or any other person located overseas through whom the securities are held. iii. The clearing corporation shall also take due care to ensure that sovereign securities tendered as collateral are available for liquidation in the event of insolvency of the clearing member or any intermediary or other person located overseas through whom the securities are held. iv. The clearing corporation shall take adequate care to ensure that the sovereign securities accepted by it as margin are tendered under a mechanism which does not unduly hinder timely liquidation in the event of default by the clearing member. The clearing corporation shall value the collateral tendered by applying due haircuts. The haircut may either be a fixed percentage or VaR based. A higher haircut may be considered to cover the expected time frame for liquidation. A market determined price as obtained from an internationally recognized data vendor shall be considered for valuation. The prices shall be converted into rupee terms on a daily basis. The rupee value so used for conversion shall be the "RBI Reference rate". The RBI reference rate shall be ....
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....nder: where λ is a parameter which determines how rapidly volatility estimates changes. The value of λ is fixed at 0.94. σ (sigma) means the standard deviation of daily returns in the index futures market. The margins for 99% VaR should be based on three sigma limits (three times the standard deviation). The "return" is defined as the logarithmic return: rt = ln (It/It-1) where It is the index futures price at time t. The plus/minus three sigma limits for a 99% VaR based on logarithmic returns would have to be converted into percentage price changes by reversing the logarithmic transformation. The percentage margin on short positions would be equal to 100(exp (3σ t)-1) and the percentage margin on long positions would be equal to 100(1- exp (-3σ t)). This implies slightly larger margins on short positions than on long positions. The derivatives exchange / clearing corporation may apply the higher margin on both the buy and sell side. On the first day of index futures trading the formula given above would require a value of σ t-1, i.e. the estimated volatility at the end of the day preceding the first day of index futures tradi....
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....rth of a member. Therefore, the exchanges would be required to ensure that 3% of the notional value of gross open position in index futures is collected/adjusted from the liquid networth of a member on a real time basis. Exposure limits are in addition to the initial margin requirements. 1.2.7 Real Time Computation The computation of Worst Scenario Loss has two components. The first is the valuation of the portfolio under sixteen scenarios. At the second stage, these Scenario Contract Values are applied to the actual portfolio positions to compute the portfolio values and the initial margin (Worst Scenario Loss). For computational ease, exchanges are permitted to update the Scenario Contract Values only at discrete time points each day and the latest available Scenario Contract Values would is applied to member/client portfolios on a real time basis. However, in order to ensure that the most recent scenario are applied for computation of the portfolio values and the initial margin, the scenario contract values shall be updated at least 5 times in the day, which may be carried out by taking the closing price of the previous day at the start of trading and the prices at 11:0....
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.... is a member in both the segments. In the event of default by a trading member/clearing member/custodian, as the case may be, whose clients have availed cross margining benefit, the Stock Exchange/Clearing Corporation shall have the option to: a. Hold the positions in the cross margin account till expiry in its own name. b. Liquidate the positions/collateral in either segment and use the proceeds to meet the default obligation in the other segment. The Exchange/Clearing Corporation shall enter into agreement with client/clearing member/trading member/custodian, as the case may be, clearly laying down the inter-se distribution of liability / responsibility in the event of default. The exchange shall also specify the legal agreements between the clearing entities for the purpose of margin utilization in case of liquidation/default etc. 1.2.9 Margin Collection and Enforcement The Exchange may offer a choice to the members to opt for payment of Mark to Market Margin (MTM) - a. either before the start of trading the next day, i.e., T+0, or b. on the next day, i.e., T+1. If the member opts for payment of MTM by T+1, then correspondingly ....
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.... assigned a client code which is unique across all members. The unique client code shall be assigned with the use of PAN number. 1.3.2 Position Limits 1.3.2.1 Market Level There are no market wide position limits specified for index futures contracts. Page 21 of 156 1.3.2.2 Client Level/ NRI/Sub Accounts A self-disclosure requirement similar to that in the take-over regulations is prescribed as under: Any person or persons acting in concert who together own 15% or more of the open interest shall be required to report this fact to the exchange and failure to do so shall attract a penalty as laid down by the exchange / clearing corporation / SEBI. 1.3.2.3 Trading Member/FII/Mutual Fund The trading member/FII/mutual fund position limits in equity index futures contracts shall be higher of: * Rs. 500 Crore or * 15% of the total open interest in the market in equity index futures contracts. This limit would be applicable on open positions in all futures contracts on a particular underlying index. In addition to the position limits above, Mutual Funds/FIIs may take exposure in equity index derivatives subject to the following limits: a. Sho....
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.... f. In the event of an FII breaching the position limits on any derivative contract on an underlying, the FII would not be permitted by the exchanges and their Clearing House / Clearing Corporation / Clearing Member/s to take any fresh positions in any derivative contracts in that underlying. However, they would be permitted to execute off-setting transactions so as to reduce their open position. g. The FIIs while trading for each sub-account would also assign a unique client code with a prefix or suffix of the code assigned by the exchange and their Clearing House / Clearing Corporation to the FII. The FII would be required to enter the unique sub-account code before executing a trade on behalf of the sub-account. The sub-account position limits would be monitored by the FII itself, on the same lines as the trading member monitors the position limits of its client / customer. The FIIs would report any breach on position limits by the sub-account, to the derivative segment of the exchange and their Clearing House / Clearing Corporation and the FII / Custodian / Clearing Member/s would ensure that the sub-account does not take any fresh positions in any derivat....
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....ry. V. Strike prices with large open positions should be monitored as this could influence the prices of the contract at the time of introduction and expiry. VI. Strike prices with large open positions should be monitored, as such strike prices could be a target price to be achieved in the cash market to derive maximum benefit from the derivative position. c. The surveillance systems and processes should be able to I. capture and process client level details. II. develop databases of trading activity by brokers as well as clients. III. generate trading pattern in individual products or group of products by a broker over a period of time or by a client / group of clients over a period of time. IV. generate the pattern of trading in a product over a period of time giving such details as the purchases/sales/positions/open interest held by different brokers or clients/group of clients. V. Monitor proportion of trading in derivatives market vis-à-vis trading in the underlying in the cash market and aberrations as compared to historical data and as compared to market average VI. Monitor large trades, ....
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....s, the system should be designed to provide online access to relevant historical data on derivatives trading for at least a year. k. The underlying securities in the derivatives market may be listed on more than one exchange and brokers dealing in such securities/derivatives may have membership in more than one exchange. In the interest of better surveillance, it is therefore necessary that relevant information obtained through surveillance at one exchange should be shared with other exchanges. Exchanges are, therefore, advised to share information on positions in underlying stocks and their derivatives and any extraordinary movement in price/volume or concentration periodically or upon specific request by any stock exchange. l. Exchanges should study surveillance practices in various Global Equity Derivative Markets. Surveillance practices in commodities and bullion markets could also be studied where appropriate. Case studies on some market manipulations in various derivatives markets could be looked at in order to see what lessons could be drawn. Compliance with the above requirements may be indicated in the monthly reports on surveillance and investigations....
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....nt with separate membership. The derivative segment of an exchange and its Clearing House/Corporation shall be separate from the cash segment in the following areas - a. The legal framework governing trading, clearing and settlement of the derivative segment should be separate from the cash market segment. In other words, the Regulations and / or Bye-laws of derivative segment, as the case may be for specific exchanges, shall be separate from the cash market. b. Trade Guarantee Fund (TGF)/Settlement Guarantee Fund (SGF) of the derivative segment shall be separate from the TGF/SGF of cash market segment. c. Membership of the derivative segment shall be separate from the cash market segment. d. The Governing Council/Clearing Council/Executive Committees of the derivative segments shall be separate from the cash market segment. The separation, if any, as regard the functional, operational and administrative modalities shall be at the discretion of the Exchange. The cash and derivative segment of an Exchange may have common personnel, trading terminal and infrastructure. The quantum of members to be inspected may be linked to the cost and be....
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....tive contract to be traded on the exchange which would include: i. Symbol ii. Underlying iii. Multiplier iv. Strike Price Intervals v. Premium Quotation vi. Last Trading Day vii. Expiration day/month viii. Exercise Style ix. Settlement of Option Exercise x. Position and Exercise Limits xi. Margin xii. Trading Hours h. the economic purpose it is intended to serve, i. likely contribution to market development, j. the safeguards and the risk protection mechanism adopted by the exchange to ensure market integrity, protection of investors and smooth and orderly trading, k. the infrastructure of the exchange and the surveillance system to effectively monitor trading in such contracts, and l. details of settlement procedures & systems with regard to Index Options. 2.2 Risk Management 2.2.1 Initial Margin Computation The Initial Margin requirements shall be based on worst case loss of a portfolio of an individual client to cover a 99% VaR over a one day horizon. For Index products, the price scan range is specified at three standard deviation (3 sigma) and the....
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....adjustments mentioned below, the Worst Scenario Loss is the margin requirement for the portfolio. 2. Real Time Computation The computation of Worst Scenario Loss has two components. The first is the valuation of each option contract under sixteen scenarios using an appropriate option pricing model. The second is the application of these Scenario Contract Values to the actual positions in a portfolio to compute the portfolio values and the Worst Scenario Loss. For computational ease, exchanges are permitted to update the Scenario Contract Values only at discrete time points each day. However, the latest available Scenario Contract Values would be applied to member/client portfolios on a real time basis. 3. Calendar Spread The margin for calendar spread would be the same as specified for the index futures contracts. However, the margin shall be calculated on the basis of delta of the portfolio in each month. Thus, a portfolio consisting of a near month option with a delta of 100 and a far month option with a delta of -100 would bear a spread charge equal to the spread charge for a portfolio which is long 100 near month futures and short 100 far month futures. The Calendar....
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.... Disclosure: Same as that for index future contracts as specified in Section 1.2.9. 2.3 Surveillance and Disclosures 2.3.1 Unique client code Same as that for index future contracts as specified in Section 1.3.1. 2.3.2 Position Limits 2.3.2.1 Market Level There are no market wide position limits specified for index option contracts. 2.3.2.2 Customer Level/ NRI/Sub Accounts Same as that for index future contracts as specified in Section 1.3.2.2. 2.3.2.3 Trading Member/FII/Mutual Fund Same as that for index future contracts as specified in Section 1.3.2.2. This limit would be applicable on open positions in all option contracts on a particular underlying index. 2.3.3 Monitoring of Position Limits 2.3.3.1 NRI Same as that for index future contracts as specified in section 1.3.3.1. 2.3.3.2 FII /Sub Accounts Same as that for index future contracts as specified in section 1.3.3.2. 2.3.3.3 Mutual Funds Same as that for index future contracts as specified in section 1.3.3.3. 2.3.4 Surveillance System Same as that of index future contracts as specified in section 1.3.4. 3 STOCK FUTURES 3.1 Product Design 3.1.1 ....
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.... shall be applied to the day's order book snapshots to compute quarter sigma order size. c. The quarter sigma percentage shall be applied to the average of the best bid and offer price in the order book snapshot to compute the order size to move price of the stock by quarter sigma. a. The median order size to cause quarter sigma price movement shall be determined separately for the buy side and the sell side. The average of the median order size for the buy and the sell side shall be taken as the median quarter sigma order size. The details of calculation methodology and relevant data shall be made available to the public at large on the website of the exchange. The quarter sigma order size in a stock shall be calculated on the 15^th of each month, on a rolling basis, considering the order book snapshots in the previous six months. Similarly, the average daily market capitalization and the average daily traded value shall also be computed on the 15^th of each month, on a rolling basis, to arrive at the list of top 500 stocks. The number of eligible stocks may vary from month to month depending upon the changes in quarter sigma order sizes, average d....
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....s given under: Price Bands (Rs.) Contract Size Lot Size/ Multiplier Value (in Rs. lakh) 1,601 and above 125 Greater than 2 lakhs 801 to 1600 250 Between 2 lakhs and 4 lakhs 401 to 800 500 201 to 400 1,000 101 to 200 2,000 51 to 100 4,000 25 to 50 8,000 Less than 25 A multiple of 1000 Explanation: The lot size for an underlying with a price of Rs. 250, i.e., in the price band of Rs. 201-400, shall be 1000 units. The Stock Exchanges shall review the lot size once in every 6 months based on the average of the closing price of the underlying for last one month and wherever warranted, revise the lot size by giving an advance notice of at least 2 weeks to the market. If the revised lot size is higher than the existing one, it will be effective for only new contracts. In case of corporate action, the revision in lot size of existing contracts shall be carried out as given in the Chapter 8. The Stock Exchanges shall ensure that the lot size is same for an underlying traded across Exchanges. 3.1.5 Quotation Same as that for index future contracts as specified in section 1.1.5. 3.1.6 Tenor of the co....
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....ce Same as that for index future contracts as specified in section 1.1.9. 3.1.10 Final Settlement Day Same as that for index future contracts as specified in section 1.1.10. 3.1.11 Application The Derivative Exchange/Segment shall submit their proposal for approval of the Single Stock Futures Contracts to SEBI which shall include: a. the details of proposed derivative contract to be traded on the exchange which would include: 1. Symbol 2. Underlying 3. Multiplier 4. Last Trading Day 5. Margins 6. Methodology for calculating closing price for mark to market settlement. 7. Methodology for calculating closing price at time of expiry 8. Trading Hours b. the economic purpose it is intended to serve, c. likely contribution to market development, d. the safeguards and the risk protection mechanism adopted by the exchange to ensure market integrity, protection of investors and smooth and orderly trading, e. the infrastructure of the exchange and the surveillance system to effectively monitor trading in Single Stock Futures contracts, f. details ....
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....t any point in time in all the Single Stock Futures contracts shall not exceed 20 (twenty) times the available liquid net worth of a member. Therefore, the exchanges would be required to ensure that higher of 5% or 1.5 (standard deviation) of the notional value of gross open position in Single Stock Futures contracts is collected /adjusted from the liquid net worth of a member on a real time basis. Exposure limits are in addition to the initial margin requirements. For the purpose of computing 1.5 standard deviations, the standard deviation of daily logarithmic returns of prices in the underlying stock in the cash market in the last six months shall be computed. This value shall be applicable for a month and shall be re-calculated at the end of the month by once again taking the price data on a rolling basis for the past six months. 3.2.4 Real Time Computation The computation of Worst Scenario Loss has two components. The first is the valuation of the portfolio under sixteen scenarios. At the second stage, these Scenario Contract Values are applied to the actual portfolio positions to compute the portfolio values and the initial margin (Worst Scenario Loss). For computational....
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....stock should be scaled up by square root of three and the scaling should be dropped when the impact cost drops to 1% or less. Such changes will be applicable on all existing open position within three days from the 15^th of each month. 3.2.5 Cross Margining Same as that for index future contracts as specified in section 1.2.9. 3.2.6 Margin Collection and Enforcement Same as that for index future contracts as specified in section 1.2.10. It is clarified that for stocks which have a mean value of impact cost greater than 1%, in addition to the price scanning range, the minimum initial margin for single stock futures contracts shall also be scaled up by square root of three. In the absence of trading in the last half an hour the theoretical price would be taken for the collection of MTM margin. The Derivative Exchanges/Segment shall define the methodology of calculating the 'theoretical price' at the time of making an application for approval of the stock futures contract to SEBI and methodology for calculating the 'theoretical price' would also be disclosed to the market. In addition, the exchange shall also specify the methodology for arriving at the closing pri....
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.... points, which shall be set high enough to deter violations of the ban on increasing positions. c. The normal trading in the scrip shall be resumed after the open outstanding position comes down to 80% or below of the market wide position limit. With a view to operationalise implementation of monitoring of Market Wide Position Limits across Exchanges, the following procedure shall be followed: At the latest on the Trading Day Activity 6.30 PM Each Exchange to disseminate on web the following for every security: a. ISIN of the security, b. Name and symbol of the security, c. MWPL (in terms of no. of shares) of the security, and d. Open Interest (in terms of no. of shares) of the security. 7.00 PM Each Exchange to disseminate on web the following for every security, after aggregating across Exchanges: a. ISIN of the security, b. Name and symbol of the security, c. MWPL (in terms of no. of shares) of the security, d. Open Interest (in terms of no. of shares) of the security, and e. Permissible limits for next day in terms of SEBI Circular SEBI/DNPD/Cir-26/2004/07/16 dated July 16, 2004. 7.15 PM Each Exchange to report any discrepancy in the above da....
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....iteria Same as that for stock future contracts as specified in 3.1.2. 4.1.3 Trading Hours Same as that for index future contracts as specified in 1.1.3. 4.1.4 Size of the Contract Same as that for stock future contracts as specified in 3.1.4. 4.1.5 Quotation Same as that for index future contracts as specified in 1.1.5. 4.1.6 Tenor of the contract Same as that for stock future contracts as specified in 3.1.6. 4.1.7 Available Contracts Same as that for stock future contracts as specified in 3.1.7. Each maturity shall have minimum of three strikes (in the money, at the money and out of the money) 4.1.8 Settlement Mechanism Same as that for index future contracts as specified in 1.1.8. The Exchanges shall introduce Premium Settled American / European Style Stock Options. 4.1.9 Settlement Price Same as that for index future contracts as specified in 1.1.9. 4.1.10 Final Settlement Day Same as that for index future contracts as specified in 1.1.10. 4.1.11 Application The Derivative Exchange/Segment shall submit their proposal for approval of the stock option contract to SEBI which shall include: a. the details of proposed ....
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....changes are required to ensure that 5% of the notional value of gross open position in the case of stock option contracts is collected /adjusted from the liquid net worth of a member on a real time basis. It is further clarified that the notional value of the options contract would be calculated on the basis of the previous day's closing value of the underlying. 4.2.4 Real Time Computation Same as that for stock future contracts as specified in 3.2.3. 4.2.5 Margin Collection and Enforcement Same as that for index future contracts as specified in section 1.2.10. It is clarified that for stocks which have a mean value of impact cost greater than 1%, in addition to the price scanning range, the short option minimum charge for stock option contracts shall also be scaled up by square root of three. 4.2.6 Liquid Net Worth and Exposure Limits of a Clearing Member Same as that for index future contracts as specified in section 1.2.1. 4.2.7 Liquid Assets: Same as that for index future contracts as specified in section 1.2.2. 4.2.8 Bank Guarantees: Same as that for index future contracts as specified in section 1.2.3. 4.2.9 Securities Same as that for inde....
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....rities from 1 to 12 months would be made available. 5.1.7 Settlement mechanism The currency futures contract shall be settled in cash in Indian Rupee. 5.1.8 Settlement price The settlement price would be the Reserve Bank Reference Rate on the date of expiry for US$ and Euro and Exchange rate published by the Reserve Bank in its Press Release captioned - RBI Reference Rate for US$ and Euro for Pound Sterling and Japanese Yen. The methodology of computation and dissemination of the Reference Rate may be publicly disclosed by RBI. 5.1.9 Final settlement day The last day for trading of the contract shall be two working days prior to the final settlement day. The currency futures contract would expire on the last working day (excluding Saturdays) of the month. The last working day would be taken to be the same as that for Interbank Settlements in Mumbai. The rules for Interbank Settlements, including those for 'known holidays' and 'subsequently declared holiday' would be those as laid down by FEDAI. 5.1.10 Participants To begin with, FIIs and NRIs would not be permitted to participate in currency futures market. To enable Banks to become Clearing Member and/or Tr....
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....deducted from the liquid net worth of the clearing member on an online, real time basis. 5.2.2 Formula for determining standard deviation The empirical tests of different risk management models in the Value at Risk (VaR) framework in the Re/$ exchange rate were examined. Data for the period January 2, 1998 to April 7, 2008 was analyzed. GARCH-GED (Generalized Auto-Regressive Conditional Heteroscedasticity with Generalized Error Distribution residuals), GARCH-normal and GARCH-t at 3 and 3.5 sigma levels were found to perform well even at 1% risk level, while the EWMA(Exponentially Weighted Moving Average) model used in J.P. Morgan's Risk Metrics(r) methodology was found to work well at 1 % risk level only at 3.5 sigma levels. Given the computational ease of the EWMA model and given the familiarity of the Exchanges with this particular model (it is currently being used in the equity derivatives market), the Committee, after considering the various aspects of the different models, recommends the following:- The exponential moving average method would be used to obtain the volatility estimate every day. The estimate at the end of time period t (σt) is estimated ....
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....ctual portfolio positions to compute the portfolio values and the initial margin. The exchanges shall update the scenario contract values at least 5 times in the day, which may be carried out by taking the closing price of the previous day at the start of trading and the prices at 11:00 a.m., 12:30 p.m., 2:00 p.m. and at the end of the trading session. The latest available scenario contract values would be applied to member/client portfolios on a real time basis. 5.2.5 Calendar spread margins A currency futures position at one maturity which is hedged by an offsetting position at a different maturity would be treated as a calendar spread. The calendar spread margin shall be at a value of Rs. 400 for a spread of 1 month; Rs. 500 for a spread of 2 months, Rs. 800 for a spread of 3 months and Rs. 1000 for a spread or 4 months or more for the US Dollar - Indian Rupee (US$-INR) contract; the calendar spread margin shall be at a value of Rs. 700 for a spread of 1 month; Rs. 1000 for a spread of 2 months and Rs. 1500 for a spread of 3 months or more for the Euro- Indian Rupee (EUR-INR) contract; the calendar spread margin shall be at a value of Rs. 1500 for a spread of 1 month; Rs. ....
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....alf an hour the theoretical price would be taken. The eligible exchanges shall define the methodology for calculating the 'theoretical price' at the time of making an application for approval of the currency futures contract to SEBI. The methodology for calculating the 'theoretical price' would also be disclosed to the market. 5.2.10 Margin collection and enforcement The client margins (initial margin, extreme loss margin, calendar spread margin and mark to market settlements) have to be compulsorily collected and reported to the Exchange by the members. The Exchange shall impose stringent penalty on members who do not collect margins from their clients. The Exchange shall also conduct regular inspections to ensure margin collection from clients. 5.2.11 Safeguarding client's money The Clearing Corporation should segregate the margins deposited by the Clearing Members for trades on their own account from the margins deposited with it on client account. The margins deposited on client account shall not be utilized for fulfilling the dues which a Clearing Member may owe the Clearing Corporation in respect of trades on the member's own account. The client's money is to be h....
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.... with every executed trade. Further, the objective of the position limits in the currency futures market would be more to detect market manipulation in the futures market rather than to address the threat of short squeeze in the underlying. Therefore, the following is being proposed with respect to monitoring and enforcement of position limits in the currency futures market: a. Ideally, position limits have to be monitored on an online, real-time basis. However, the exchanges have represented that open interest of both the participant and the market are dynamic and therefore, monitoring on a realtime basis would be difficult. Therefore, to begin with, positions during the day shall be monitored based on the total open interest at the end of the previous day's trade. b. The above monitoring should be for both client level positions (based on the unique client code) and for trading member level positions. c. The exchange shall treat violation of position limits as an input for further surveillance action. Upon detecting large open positions, the exchange shall conduct detailed analysis based on the overall nature of positions, the trading strategy, position....
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.... total open interest or EUR 50 million, whichever is higher. Clearing Member Level: No separate position limit is prescribed at the level of clearing member. However, the clearing member shall ensure that his own trading position and the positions of each trading member clearing through him is within the limits specified above. Pound Sterling - Indian Rupee (GBP-INR) Contract Client Level: The gross open positions of the client across all contracts shall not exceed 6% of the total open interest or GBP 5 million whichever is higher. The Exchange will disseminate alerts whenever the gross open position of the client exceeds 3% of the total open interest at the end of the previous day's trade. Trading Member Level: The gross open positions of the trading member across all contracts shall not exceed 15% of the total open interest or GBP 25 million whichever is higher. However, the gross open position of a Trading Member, which is a bank, across all contracts, shall not exceed 15% of the total open interest or GBP 50 million, whichever is higher. Clearing Member Level: No separate position limit is prescribed at the level of clearing member. However, the clearing me....
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....ments of stock exchanges. d. The information gathered by the risk management departments/clearing corporations while enforcing the risk management measures and settlement processes are critical inputs. Such information could include pattern of defaults related to specified contracts and special risk management measures taken keeping in view the market conditions. e. The exchanges should call for information from members in a standard form, and preferably in electronic form, to facilitate faster analysis as well as building up of databases. It may also be ensured that duly authenticated information is submitted by the member or his designated agent. f. While implementing a stock watch type of system for currency futures, the system should be designed to provide online access to relevant historical data on derivatives trading for at least a year. g. In the interest of better surveillance, it is necessary that relevant information obtained through surveillance at one exchange should be shared with other exchanges. Exchanges are, therefore, advised to share information on positions in currency futures and any extraordinary movement in price / volume ....
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....o deter market manipulation. d. The exchange shall have a balance sheet net worth of at least Rs. 100 crores. e. Information about trades, quantities, and quotes should be disseminated by the exchange in real time to at least two information vending networks which are accessible to investors in the country. f. The per-half-hour capacity of the computers and the network should be at least 4 to 5 times of the anticipated peak load in any half hour, or of the actual peak load seen in any half-hour during the preceding six months, whichever is higher. This shall be reviewed from time to time on the basis of experience. g. The segment should have at least 50 members to start currency derivatives trading. h. The exchange should have arbitration and investor grievances redressal mechanism operative from all the four areas/regions of the country. i. The exchange should have adequate inspection capability. j. If already existing, the exchange should have a satisfactory record of monitoring its members, handling investor complaints and preventing irregularities in trading. A recognized stock exchange where other securities are....
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.... facilities for electronic funds transfer (EFT) for swift movement of margin payments. In situations where EFT is unavailable, the clearing corporation should collect correspondingly larger initial margin to cover the potential for losses over the time elapsed in collection of mark to market margin. For example, if two days lapse in moving funds, then the value at risk should be calculated based on the prospective two-day loss. f. In the event of a member's default in meeting his liabilities, the Clearing Corporation should have processing capability to require either the prompt transfer of client positions and assets to another member or to close-out all open positions. The currency futures segment of the Clearing Corporation should be governed by a separate Clearing Council which should not have any member representation. A separate settlement guarantee fund should be created and maintained for meeting the obligations arising out of the currency futures segment. A separate investor protection fund should also be created and maintained for the currency futures market. 5.4.3 Eligibility criteria for members in the currency futures segment The membership of the currency fut....
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....he exchange to ensure market integrity, protection of investors and smooth and orderly trading; e. The infrastructure of the exchange and surveillance system to effectively monitor trading in such contracts. The trading members and clearing members of the currency futures segment should be registered as such with SEBI. This would be in addition to their registration as members of a segment of a stock exchange. A SEBI-RBI constituted committee would meet periodically to sort out issues, if any, arising out of overlapping jurisdiction of the currency futures market. 6 CURRENCY OPTIONS 6.1 Product Design 6.1.1 Underlying US Dollar - Indian Rupee (US$-INR) spot rate. 6.1.2 Trading Hours Same as that for currency future contracts as specified in Section 5.1.2. 6.1.3 Size of the contract US$ 1000 6.1.4 Quotation The premium would be quoted in rupee terms. However, the outstanding positions would be in USD terms. 6.1.5 Tenor of the contract Same as that for currency future contracts as specified in Section 5.1.5. 6.1.6 Available contracts Three serial monthly contracts followed by three quarterly contracts of the cycle March/June/Se....
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....ng the scenarios would be 3.5 standard deviation and volatility range for generating the scenarios would be 3%. While computing the worst scenario loss, it shall be assumed that the prices of futures of all maturities on the underlying move up or down by the same amount. The maximum loss under any of the scenario (considering only 35% of the loss in case of scenarios 15 and 16) is referred to in this circular as the Worst Scenario Loss. The sigma would be calculated using the methodology specified for currency futures in Para 5.2.2 and would be the standard deviation of daily logarithmic returns of USD-INR futures price. For the purpose of calculation of option values, the following standard option pricing models - Black-Scholes, Binomial, Merton - would be used. The initial margin would be deducted from the liquid networth of the clearing member on an online, real time basis. 6.2.2 Portfolio based margining A portfolio based margining approach shall be adopted to take an integrated view of the risk involved in the portfolio of each individual client comprising his positions in options and futures contracts across different maturities. The client-wise margins woul....
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....and enforcement Same as that for currency future contracts as specified in Section 5.2.10. 6.2.11 Safeguarding client's money Same as that for currency future contracts as specified in Section 5.2.11. 6.2.12 Periodic risk evaluation report Same as that for currency future contracts as specified in Section 5.2.12. 6.3 Surveillance and Disclosures Same as that for currency future contracts as specified in Section 5.3 6.3.1 Unique client code Same as that for currency future contracts as specified in Section 5.3.1 6.3.2 Position limits Same as that for currency future contracts as specified in Section 5.3.2 The following position limits would be applicable in the currency options market: Client Level: The gross open positions of the client across all contracts (both futures and options contracts) shall not exceed 6% of the total open interest or USD 10 million whichever is higher. The Exchange will disseminate alerts whenever the gross open position of the client exceeds 3% of the total open interest at the end of the previous day's trade. Trading Member Level: The gross open positions of the trading member across all contracts (both fut....
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....y contracts for entire year, expiring in March, June, September and December. 7.1.8 Delivery Month and Delivery Period The delivery month shall be the last month of the expiring contract, i.e., March, June, September and December Exchanges to set any period of time during the delivery month as the delivery period for the deliverable grade securities. 7.1.9 Daily Settlement Price The Daily Settlement Price would be the closing price of the 10-year Notional Coupon-bearing GoI security futures contract on the trading day. (Closing price = Weighted Average price of the futures for last half an hour). In the absence of last half an hour trading the theoretical price, to be determined by the exchanges, would be considered as Daily Settlement Price. The daily settlement price (DSP) shall be determined in the following manner: Step 1: The DSP is the volume weighted average price (VWAP) of the trades in the last 30 minute of trading, provided there are at least 5 trades for a minimum aggregate notional value of Rs. 10 crore. Failing which, trades during the last 60 minutes shall be used for the calculation of VWAP, subject to at least 5 trades for Rs. 10 crore. Failing which ....
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....position holder shall have to give intimation, to the Clearing Corporation, of his intention to deliver two business days prior to the actual delivery date. 7.1.11 Deliverable Grade Securities Exchanges shall select their own basket of securities from the eligible Deliverable Grade Securities, viz., GoI securities maturing at least 7.5 years but not more than 15 years from the first day of the delivery month with a minimum total outstanding stock of Rs. 10,000 crore. Exchanges shall disclose upfront to the market participants the composition of the basket of deliverable grade securities and the associated conversion factors for each of the quarterly contracts. To the basket of deliverable grade securities disclosed upfront by the Exchange for each of the quarterly contracts, additions, if any, shall be made not later than 10 business days before the first business day of the delivery month. 7.1.12 Conversion Factor The Conversion Factor for deliverable grade security would be equal to the price of the deliverable security (per rupee of the principal), on the first day (calendar day) of the delivery month, to yield 7% with semiannual compounding. For deliveries into 1....
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....all compute CM level deliverable/receivable obligations using multilateral netting and intimate the identified long position holders, by 8 pm IST on the date of receipt of notice, the details of the securities that they would be receiving and the invoice price. The seller CM shall not be permitted to fulfill an individual futures contract by delivering a mixed portfolio of deliverable security (for example, Rs. 1,20,000 face value of one issue and Rs. 80,000 face value of another issue is not permissible). However, a selling CM making delivery for more than one futures contract, say two contracts, may deliver two deliverable securities for two different contracts (Rs.2,00,000 face value of one issue for one contract and Rs. 2,00,000 face value of another issue for the other contract). T + 2 day On the second business day following the receipt of the delivery notice, the CMs shall discharge their obligations and the CC shall complete the settlement accordingly. 7.1.15 Last Trading Day Exchange to set any day of the delivery month as last trading day. 7.1.16 Last Delivery Day Last business day of the delivery month. 7.1.17 Initial Margin Initial Margin requ....
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.... the expected number of violations. The EWMA (Exponentially weighted moving average) model used by J.P.Morgan's Risk Metrics methodology was found to work well at 3 and 3.5 sigma levels at 5% risk level and not at 1% risk level. Given the computational ease of the EWMA model and given the familiarity of the Exchanges with this particular model (it is currently being used in the equity derivatives market), the Committee, after considering the various aspects of the different models, decided that EWMA method would be used to obtain the volatility estimate every day fixing the price scan range at 3.5 standard deviation. During the first time-period on the first day of trading in 10-year Notional Coupon-bearing GoI security futures, the sigma would be equal to 0.8 %. 7.1.21 Formula for Determining Standard Deviation The EWMA method would be used to obtain the volatility estimate every day. The estimate at the end of time period t (σyt) is arrived at using the volatility estimate at the end of the previous time period i.e. as at the end of t-1 time period (σyt-1), and the return (ryt) observed in the futures market during the time period t. The formula would be as u....
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....m margins for both short and long positions, equivalent to the higher of the two values derived above. An illustration of the two methodologies discussed above is enclosed at Annex A. iii. The volatility estimation and margin fixation methodology should be clearly made known to all market participants so that they can compute the margin for any given closing level of the interest rate futures price. Further, the trading software itself should provide this information on a real time basis on the trading workstation screen. 7.1.22 Position Limits i. Client level: The gross open positions of the client across all contracts should not exceed 6% of the total open interest or Rs. 300 crores whichever is higher. The Exchange will disseminate alerts whenever the gross open position of the client exceeds 3% of the total open interest at the end of the previous day's trade. ii. Trading Member level: The gross open positions of the trading member across all contracts should not exceed 15% of the total open interest or Rs. 1000 crores whichever is higher. iii. Clearing Member level: No separate position limit is prescribed at the level of clearing member. However, the clearin....
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....s would be applied to member/client portfolios on a real time basis. 7.2.4 Liquid Networth The initial margin and the extreme loss margin shall be deducted from the liquid assets of the clearing member. The clearing member's liquid net worth after adjusting for the initial margin and extreme loss margin requirements must be at least Rs. 50 Lakhs at all points in time. The minimum liquid networth shall be treated as a capital cushion for days of unforeseen market volatility. 7.2.5 Liquid Assets The liquid assets for trading in Interest Rate Futures would have to be provided separately and maintained with the Clearing Corporation. However, the permissible liquid assets, the applicable haircuts and minimum cash equivalent norms would be mutatis mutandis applicable from the equity/currency derivatives segment. 7.2.6 Mark-to-Market (MTM) Settlement The MTM gains and losses shall be settled in cash before the start of trading on T+1 day. If MTM obligations are not collected before start of the next day's trading, the Clearing Corporation shall collect correspondingly higher initial margin to cover the potential for losses over the time elapsed in the collection of margi....
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....e study shall be submitted to SEBI along with suggestions on changes to the risk containment measures, if any. 7.3 Regulatory and Legal aspects 7.3.1 Exchange: The Interest Rate Derivative contracts shall be traded on the Currency Derivative Segment of a recognized Stock Exchange. The members registered by SEBI for trading in Currency/Equity Derivative Segment shall be eligible to trade in Interest Rate Derivatives also, subject to meeting the Balance Sheet networth requirement of Rs. 1 crore for a trading member and Rs. 10 crores for a clearing member. Before the start of trading, the Exchange shall submit the proposal for approval of the contract to SEBI giving: i. The details of the proposed interest rate futures contract to be traded in the exchange; ii. The economic purposes it is intended to serve; iii. Its likely contribution to market development; iv. The safeguards and the risk protection mechanisms adopted by the exchange to ensure market integrity, protection of investors and smooth and orderly trading; v. The infrastructure of the exchange and surveillance system to effectively monitor trading in such contracts. ....
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.... difference in invoice price and auction price, if the auction price is less than the invoice price, and a penalty of 2% of the face value of security short delivered. In case of unsuccessful auction, transaction shall be closed out wherein the defaulting CM shall be debited by: invoice price, and a penalty of 5% of the face value of security short delivered. In respect of the seller in an auction failing to honour the auction obligations, he shall be debited by: invoice price, and a penalty of 3% of the face value of security short delivered These penalties shall be passed on to the buying CM, who shall pass it on to the buying client. 7.4.3.2 Buying CM fails to pay-in funds T +0 day: Selling CM gives intention to deliver the securities T+2 day: Selling CM delivers securities and the buying CM fails to pay-in funds. The CC shall pay-out funds to the selling CM on T+2 day Further, • In case of a settlement shortage of Rs. 5 lakh or more, the trading facility of all trading members clearing through the buying CM shall be withdrawn in the Currency Derivatives Segment and the securities pay-out to the buying CM shall be withheld. ....
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.... 8.1.2 Trading hours 9 a.m. to 5 p.m. 8.1.3 Size of the contract Rs. 2 lakh. 8.1.4 Quotation 100 minus futures discount yield (i.e. for a yield of 5% the quote would be 100- 5=95). The value of 1 basis point change in the futures discount yield would be Rs. 5. 8.1.5 Tenor of the contract The maximum maturity of the contract would be 12 months. 8.1.6 Contract months Three serial monthly contracts followed by three quarterly contracts of the cycle March/June/September/December. 8.1.7 Settlement mechanism The 91-day T-Bill future would be settled in cash in Indian Rupees. 8.1.8 Contract value Rs. 2000 * (100 - 0.25 * y) where y is the futures discount yield. For example, for a futures discount yield of 5%, the contract value would be - 2000 * (100 - 0.25*5) = Rs. 197,500 8.1.9 Daily Contract Settlement value Rs. 2000 * (100 - 0.25 * yw) (Here yw is weighted average futures yield of last half an hour). In the absence of last half an hour trading, theoretical futures yield would be considered for computation of Daily Contract Settlement Value. 8.1.10 Expiry/Last trading day/Final settlement day The expiry / last tra....
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....f the previous time period. i.e. as at the end of t-1 time period (σydt-1), and the return (rydt) observed in the futures market during the time period t. The formula would be as under: (σydt)^2 = λ (σydt-1)^2 + (1 - λ ) (rydt)^2 where λ is a parameter which determines how rapidly volatility estimates change. The value of λ is fixed at 0.94. v. σydt (sigma) means the standard deviation of daily logarithmic returns of discount yield of 91-day T-Bill futures at time t. vi. The "return" is defined as the logarithmic return: rydt = ln(Ydt/Ydt-1) where Ydt is the discount yield of 91-day T-Bill futures at time t. The plus/minus 3.5 sigma limits for a 99% VAR based on logarithmic returns on discount yield of 91-day T-Bill futures would have to be converted into price changes through the following formula : σpt=D*σydt* Ydt where σpt means the standard deviation of percentage change in price at time t D means Modified Duration Ydt =Discount Yield for 91-day T-Bill futures at time t σydt (sigma) means the standard deviation of daily logarithmic returns of discount yield a....
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....er obtaining prior approval from SEBI. 9 INTEREST RATE FUTURES ON 2 YEAR NOTIONAL COUPON BEARING GOVERNMENT OF INDIA (GOI) SECURITY 9.1 Product Design, Margins and Position Limits 9.1.1 Underlying Notional coupon bearing 2-year GoI security with a notional coupon of 7% paid semi-annually and face value of Rs. 100. 9.1.2 Trading hours The trading hours would be from 9 a.m. to 5.00 p.m. 9.1.3 Size of the contract Rs. 2 lakh. 9.1.4 Quotation The quotation would be similar to the quoted price of the GoI security. 9.1.5 Tenor of the contract The maximum maturity of the contract would be 12 months. 9.1.6 Contract months To begin with, three serial monthly contracts can be introduced. 9.1.7 Settlement mechanism The futures on notional GoI security would be settled in cash in Indian Rupees. The settlement price of the notional bond would be determined on the basis of the yields of a basket of eligible bond(s) selected by the exchange with the yields of the bonds in the basket to be determined through a polling process carried out by Fixed Income, Money Market and Derivatives Association (FIMMDA) as detailed in Para 9.1.17. Exchanges shall ....
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.... maturity would be treated as a calendar spread. The calendar spread margin shall be at a value of Rs. 300 for spread of one month and Rs. 450 for spread of two months. The benefit for a calendar spread would continue till expiry of the near month contract. 9.1.15 Formula for determining standard deviation The exponential moving average method would be used to obtain the volatility estimate every day. The estimate of volatility (σt) for the time period t is estimated using the volatility estimate (σt-1) for the previous time period and the return (rt-1) observed in the futures market during the previous time period. The formula would be as under: (σt)^2 = λ (σt-1)^2 + (1 - λ ) (rt-1)^2 where λ is a parameter which determines how rapidly volatility estimates change. The value of λ is fixed at 0.94. ix. σt (sigma) means the standard deviation of daily logarithmic returns of futures price of 2 Year Notional Coupon Bearing Government of India (GoI) Security at time t. x. The "return" is defined as the logarithmic return: rt = ln(Pt/Pt-1) where Pt is the futures price of 2 Year Notional Coup....
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.... and in Interest Rate Futures, at any point in time. 9.1.17 Settlement Mechanism a. Polling shall be carried out by the Fixed Income, Money Market and Derivatives Association, i.e., FIMMDA; b. The yields (Bid and Ask) of the GoI securities shall be polled from Primary Dealers (PDs) registered with the Reserve Bank of India; c. Each poll shall involve ten PDs who would be selected at random from the universe of PDs; d. Polling would be conducted at three instances, i.e., 11.00 am, 11.30 am and 12.00 pm daily; e. At each instance of polling, for each bond, out of the ten buy yields, two highest and two lowest yields would be treated as outliers and would be ignored. Similarly outliers from ten sell yields would be identified and ignored. f. After rejecting the outliers in above step, there will be [6 * 2 * 3 * Number of Bonds in Basket] number of remaining yields. g. Average settlement yield (Ys) is the simple average of the remaining yields. Ys will be rounded off to 4 decimal digits. h. Ys determined in above step would be used to calculate present value of notional underlying bond on the basis of formula given below. This will be the final settlement pri....
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....(6.0100) (6.0650) (6.0550) Dealer 2 5.9750 5.9600 6.0175 6.0025 6.0575 6.0450 Dealer 3 5.9750 (5.9650) 6.0175 (6.0075) 6.0575 (6.0475) Dealer 4 (5.9700) (5.9500) 6.0150 (5.9950) 6.0600 6.0400 Dealer 5 (5.9800) 5.9600 (6.0225) 6.0025 (6.0625) 6.0425 Dealer 6 (5.9750) (5.9550) 6.0200 6.0000 6.0600 (6.0400) Dealer 7 (5.9800) 5.9600 6.0200 (6.0000) 6.0600 (6.0400) Dealer 8 5.9800 5.9600 (6.0250) 6.0050 6.0625 6.0425 Dealer 9 5.9750 5.9650 (6.0150) 6.0050 (6.0550) 6.0450 Dealer 10 (5.9750) 5.9650 (6.0150) 6.0050 (6.0575) 6.0475 • () : Outlier yields, which are two highest and two lowest values on sell and buy side for individual bond at a particular instant of polling • Average of all the yields except those in parentheses () = 6.005787 • Settlement Yield = Average yield rounded off to 4 decimal digits = 6.0058 = Rs. 101.8476 9.2 Regulatory and Legal aspects 9.2.1 Exchange The Interest Rate Futures on 2-year GoI Securities shall ....
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....ement Value would be = 2000 * Pf where Pf is the settlement price of the notional bond. 10.1.12 Initial Margin The Initial Margin requirement shall be based on a worst case loss of a portfolio of an individual client across various scenarios of price changes. The various scenarios of price changes would be so computed so as to cover a 99% VaR over a one day horizon. In order to achieve this, the price scan range may initially be fixed at 3.5 standard deviation. The initial margin so computed would be subject to a minimum of 0.7 % of the notional value of the contract on the first day of trading in Futures on 5 Year Notional Coupon Bearing GoI Security and 0.6 % of the notional value of the contract thereafter. The initial margin shall be deducted from the liquid net worth of the clearing member on an online, real time basis. 10.1.13 Extreme Loss margin Extreme loss margin of 0.15 % of the notional value of the contract for all gross open positions shall be deducted from the liquid assets of the clearing member on an on line, real time basis. 10.1.14 Calendar spread margin 5 Year Notional Coupon GoI Security futures position at one maturity hedged by an offsetti....
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.... The gross open positions of the client across all contracts should not exceed 6% of the total open interest or Rs. 300 crores whichever is higher. The Exchange will disseminate alerts whenever the gross open position of the client exceeds 3% of the total open interest at the end of the previous day's trade. 10.1.16.2 Trading Member Level The gross open positions of the trading member across all contracts should not exceed 15% of the total open interest or Rs. 1000 crores whichever is higher. 10.1.16.3 Clearing Member Level No separate position limit is prescribed at the level of clearing member. However, the clearing member shall ensure that his own trading position and the positions of each trading member clearing through him is within the limits specified above. 10.1.16.4 FIIs In case of Foreign Institutional Investors registered with Securities and Exchange Board of India the total gross long (bought) position in cash and Interest Rate Futures markets taken together should not exceed their individual permissible limit for investment in government securities and the total gross short (sold) position, for the purpose of hedging only, should not exceed their lo....
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.... 5.9950 6.0450 6.0350 Dealer 10 5.9700 (5.9500) 6.0100 (5.9900) 6.0450 6.0350 11:30 AM Bond 1 Bond 2 Bond 3 Dealer Buy Yields Sell Yields Buy Yields Sell Yields Buy Yields Sell Yields Dealer 1 5.9700 5.9600 6.0150 6.0050 (6.0600) (6.0500) Dealer 2 (5.9750) 5.9600 6.0150 6.0000 6.0550 6.0375 Dealer 3 5.9750 (5.9650) 6.0175 (6.0075) 6.0575 (6.0475) Dealer 4 5.9700 (5.9650) 6.0125 (6.0075) 6.0525 6.0475 Dealer 5 (5.9700) (5.9500) (6.0100) (5.9900) (6.0450) (6.0250) Dealer 6 5.9725 5.9600 6.0125 6.0000 6.0550 6.0400 Dealer 7 (5.9775) 5.9575 (6.0200) 6.0000 (6.0600) 6.0400 Dealer 8 5.9750 5.9550 (6.0200) 6.0000 6.0550 (6.0350) Dealer 9 5.9750 (5.9550) 6.0150 6.0050 6.0600 6.0400 Dealer 10 (5.9700) 5.9600 (6.0050) (5.9950) (6.0500) 6.0400 12:00 PM Bond 1 Bond 2 Bond 3 Dealer Buy Yields Sell Yields Buy Yields Sell Yields Buy Yields Sell Yields Dealer 1 5.9750 (5.....
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....4. MEFF 5. NASDAQ OMX Nordic Exchange 6. NYSE Liffe (European markets) 7. Oslo Børs 8. Tel Aviv SE ii. In terms of trading volumes (number of contracts), derivatives on that Index figure among the top 15 Index derivatives globally. OR That Index has a market capitalization of at least USD 100 billion. iii. That index is "broad based". An Index is broad based if : a.The Index consists of a minimum of 10 constituent stocks and b.No single constituent stock has more than 25% of the weight, computed in terms of free float market capitalization, in the Index. 11.3 Failure to meet Eligibility Criteria After introduction of derivatives on a particular stock index, if that stock index fails to meet any of the eligibility criteria for three months consecutively, no fresh contract shall be introduced on that Index. However, the existing unexpired contracts would be traded till expiry and new strikes may be introduced on those contracts. 11.4 Currency Denomination The absolute numerical value of the underlying foreign stock index shall be denominated in Indian Rupees (INR). The derivatives cont....
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....that the value of the position of the market participants on cum and ex-date for corporate action shall continue to remain the same as far as possible. This will facilitate in retaining the relative status of positions viz. in-the-money, at-the-money and out-of-money. This will also address issues related to exercise and assignments. b. Any adjustment for corporate actions shall be carried out on the last day on which a security is traded on a cum basis in the underlying cash market. c. Adjustments shall mean modifications to positions and/or contract specifications as listed below such that the basic premise of adjustment laid down in para a. above is satisfied : 1. Strike Price 2. Position 3. Market Lot/Multiplier The adjustments shall be carried out on any or all of the above based on the nature of the corporate action. The adjustments for corporate actions shall be carried out on all open, exercised as well as assigned positions. The corporate actions may be broadly classified under stock benefits and cash benefits. The various stock benefits declared by the issuer of capital are: • Bonus • Rights • M....
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....underlying stock, the Strike Price would be adjusted. The Exchange may on a case to case basis carry out adjustments for other corporate actions as decided by the group in conformity with the above guidelines. Stock Exchanges to give notice of four weeks to the market for any change in the contract specifications and also in case of change in a constituent of an Index on which derivatives are available. Clause 16 of the Equity Listing Agreement includes that the company on whose stocks, derivatives are available or whose stocks form part of an index on which derivatives are available, shall give a notice period of 30 days to stock exchanges for corporate actions like mergers, de-mergers, splits and bonus shares. All the following conditions shall be met in the case of shares of a company undergoing restructuring through any means for eligibility to re-introduce derivative contracts on that company from the first day of listing of the post restructured company/(s) 's (as the case may be) stock (herein referred to as post restructured company) in the underlying market, a. the futures and options contracts on the stock of the original (pre restructure) company wer....
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....ve transactions to the media and the newspapers The Derivative Exchanges/Segments and their Clearing House/Corporation are required to report the following details for the transactions in derivative contracts, to the media/newspapers, on a daily basis: a. Contracts Description b. Number of contracts traded c. Notional Value (for option contracts, notional value would be calculated as [strike + Premium] * lot size * number of contracts traded). d. Open e. High f. Low g. Value of premium traded (for option contracts) h. Open Interest (in number of contracts) 12.3 Straight through Processing Straight Through Processing (STP) is generally understood to be a mechanism that automates the end to end processing of transactions of financial instruments. It involves use of a system to process or control all elements of the work flow of a financial transaction, what are commonly known as the Front, Middle, Back office and General Ledger. In other words, STP allows electronic capturing and processing of transactions in one pass from the point of order origination to final settlement. STP thus streamlines the process of ....
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....to the sending STP service provider. d. The STP centralized hub would forward the message to the recipient STP service provider after digitally signing on the message. e. The recipient STP service provider on receipt of the message from the STP centralized hub shall verify the signature of the STP centralized hub, verify if the recipient STP user is associated with itself and send an appropriate acknowledgment with digital signature to the STP centralized hub. The STP centralized hub would in turn forward the acknowledgment (received from the recipient STP service provider) duly signed to the sending STP service provider. f. The recipient STP service provider shall forward the message to the recipient STP user. The recipient STP user would receive the message and verify the signature of the recipient STP service provider and sending STP user. To enable inter-operation, the STP centralized hub would provide a utility / client software to the STP service provider. The STP service provider's point of interface with the STP centralized hub would be through this utility / client software. The PKI (Public key infrastructure) system for the interface shall be....
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....ent instruction for a sell trade free of payment d. IFN 543: settlement instruction for a sell trade against payment e. IFN 544: confirmation of a settlement instruction for a buy trade free of payment (response to IFN 540) f. IFN 545: confirmation of a settlement instruction for a buy trade against payment (response to IFN 541) g. IFN 546: confirmation of a settlement instruction for a sell trade free of payment (response to IFN 542). h. IFN 547: confirmation of a settlement instruction for a sell trade against payment (response to IFN 543) It is also clarified that in the IFN 515 message, if the trade is intended to be settled by the custodian with the Clearing Corporation (by accepting the settlement obligation), then it shall be termed as "FREE" and if the trade is intended to be settled by the broker with the Clearing Corporation then it shall be termed as "APMT" (meaning against payment) in the tag 22H of the IFN 515 message. In order to integrate the Securities Transaction Tax (STT) in the STP system, it would be necessary to provide for necessary fields in the appropriate messaging standards. After deliberation with the STP....
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....uance of the electronic contract note. The standard terms of contract as are required to be mentioned in the Contract Notes as per the Bye-laws and Regulations of exchanges, which are not contained in ECNs, shall be incorporated in the Client Broker Agreement or where applicable, the Tripartite Agreement between the stock broker, sub-broker and the client. 12.4 Certification The guidelines for conduct of certification examination for broker/dealers and salespersons in the derivative market are given as Annexure IV. 12.5 Introduction of Volatility and Bond Index 12.5.1 Volatility Index Exchanges shall construct a Volatility Index and disseminate the same. The Exchanges are free to decide whether they want to adopt any of the Volatility Index computation models available globally or may like to develop their own model for computation of Volatility Index. The detailed methodology for computing the Volatility Index shall be disseminated by the Exchange for the benefit of the market participants and investors. 12.5.2 Derivatives on Volatility Index Stock Exchanges are permitted to introduce derivative contracts on Volatility Index, subject to the conditions that: ....
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....odification within relatives ('Relative' for this purpose would mean as defined under Companies Act, 1956). If a Stock Exchange wishes to allow trading members to modify client codes of non-institutional trades, it shall: a. Set up a mechanism to monitor that the trading members modify client codes only to rectify a genuine error. b. Ensure that modification of client codes is covered in the internal audit of trading members prescribed by SEBI through its circular No. MRD/DMSCir-29/2008 dated October 21, 2008. 12.6.2 Penalty Structure i. The Stock Exchanges shall levy a penalty from trading members and credit the same to its Investor Protection Fund as under: 'a' as % of 'b' Penalty as % of 'a' ≤ 5 1 > 5 2 Where, a = Value (turnover) of non-institutional trades where client codes have been modified by a trading member in a segment during a month. b = Value (turnover) of non-institutional trades of the trading member in the segment during the month. ii. The Stock Exchange shall conduct a special inspection of the trading member to ascertain whether the modifications of client codes are being carried out on....
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....y futures) on a given day then the penalty for short collection shall be imposed only if shortfall continues to T+2 day. The currency pair being considered for this movement would be only the USD-INR and the condition of two days of continued shortfall shall be applicable for all currencies. e. All instances of non-reporting shall amount to 100% short collection and the penalty as applicable shall be charged on these instances in respect of short collection. f. If during inspection it is found that a member has reported falsely the margin collected from clients, the member shall be penalized 100% of the falsely reported amount along with suspension of trading for 1 day in that segment. g. The penalty shall be collected by the Stock Exchange within five days of the last working day of the trading month and credited to its Investor Protection Fund. h. The margin statement which is forwarded on a daily basis by the broker to the clients shall include a column stating the margin charged by the Exchange/Clearing Corporation. i. When penalty is being collected by a broker for short collection / noncollection from a client, then the broker shall provide the relevant support....
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....change. 5. The incentives under LES shall be transparent and measurable. These may take either of the two forms: a. Discount in fees, adjustment in fees in other segments, cash payment; b. Shares, including options and warrants, of the Stock Exchange. 6. If a Stock Exchange chooses the form specified in Para '5a' above, the incentives under all LES, during a financial year, shall not exceed 25% of the net profits or 25% of the free reserves of the Stock Exchange, whichever is higher, as per the audited financial statements of the preceding financial year. If, however, a Stock Exchange chooses the form specified in Para '5b' above, the shares, including the shares that may accrue on exercise of warrants or options, given as incentives under all LES, during a financial year, shall not exceed 25% of the issued and outstanding shares of the Stock Exchange as on the last day of the preceding financial year. 7. The Stock Exchange shall submit half-yearly reports on the working of its LES for review of SEBI. Implementation of LES shall be covered in the inspection of the Stock Exchange conducted by SEBI. 12.9 Requirement of Base Minimum Capital for Trading Me....
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....ock Exchanges shall be permitted to prescribe suitable deposit requirements, over and above the SEBI prescribed norms, based on their perception and evaluation of risks involved. f. Minimum 50% of the deposit shall be in the form of cash and cash equivalents. The existing guidelines on collateral composition shall continue to remain applicable. 13 ANNEXURES 13.1 ANNEXURE I 13.2 ANNEXURE II SECURITIES AND EXCHANGE BOARD OF INDIA (STP CENTRALISED HUB AND STP SERVICE PROVIDERS) GUIDELINES, 2004 1) PRELIMINARY (1) These Guidelines shall be called the Securities and Exchange Board of India (STP Centralised Hub and STP Service Providers) Guidelines, 2004. (2) These Guidelines are being issued under section 11 of the Securities and Exchange Board of India Act, 1992 to promote the development of the securities market. (3) They shall come into force on 26th day of May, 2004 2) DEFINITIONS (1) In these Guidelines, unless the context otherwise requires:- (a) "Act" means the Securities and Exchange Board of India Act, 1992; (b) "Certifying Authority" means a certifying authority who has been granted a license under section 24 of the Information Tech....
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....) The STP centralised hub shall comply with the following:- i. The STP centralised hub shall at all times comply with the requirement of eligibility criteria, specified by SEBI. ii. The STP centralised hub shall abide by all the provisions of the Act, Rules, Regulations, Guidelines, Resolutions, Notifications, Directions, Circular, etc. as may be issued by the Government of India / TRAI / Department of Telecommunications and SEBI from time to time as may be applicable to the STP centralised hub. iii. The STP centralised hub shall obtain such approval/s from such authorities as may be necessary to function as a centralised hub. iv. The STP centralised hub shall obtain a digital signature certificate from a Certifying Authority and shall ensure that such digital signature certificate is valid and in force at all times. A copy of the certificate shall be submitted to all the recognized STP service providers. v. The STP centralised hub shall deliver a consistent and secure communication platform and shall establish continuous connectivity with all the recognized STP service providers to the best of its ability. vi. The STP centralised hub shall verify the digital sign....
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....reed upon. v. The STP service provider shall abide by the service standards as may be specified by SEBI and / or the STP centralised hub in consultation with the STP service providers. vi. The STP Service Provider shall obtain a digital signature certificate from a Certifying Authority and submit a copy of the Certificate to the STP centralised hub. vii. The STP Service Provider shall ensure that the digital signature certificate is valid and in force. viii. The STP service providers shall deliver a consistent and secure communication platform and shall establish continuous connectivity with the STP centralised hub to the best of its ability. ix. The STP service provider shall ensure that the message sent to the STP centralised hub is in the prescribed messaging standard. x. The STP service provider shall verify the digital signature certificate furnished by the STP centralised hub before connecting itself to the STP centralised hub. xi. The STP service provider shall confirm authenticity, integrity and nonrepudiability of all messages submitted to the STP centralised hub. The STP service provider shall keep complete track of the flow of messages for record and....
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.... STP centralised hub and/or STP service provider in case of violation of the terms of the guidelines. 7) CODE OF CONDUCT FOR STP SERVICE PROVIDERS Every STP service provider shall abide by the Code of Conduct as specified in Schedule I. 8) MODEL AGREEMENT The STP centralised hub shall enter into an agreement with every STP service provider on the lines of the Model Agreement given in Schedule II. SCHEDULE I CODE OF CONDUCT FOR STP SERVICE PROVIDERS (Clause 7 of the Guidelines) a. The STP service provider shall render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgment. b. The STP service provider shall disclose to the clients its possible sources or potential areas of conflict of duties and interest and provide unbiased services. c. The STP service provider herein agrees and undertakes to perform its duties as a STP service provider with the highest standards of int egrity and fairness in all its dealings. d. The STP service provider shall abide by the obligation as specified under these Guidelines and the terms of the agreement entered into by the STP service provider with t....
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....vice Providers) Guidelines, 2004 an agreement has to be entered into between the STP Centralised Hub and the STP Service Provider. 3. The STP centralised hub has obtained such approval/s as may be necessary to function as a centralised hub. NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN _____________ AND ______________ AS UNDER: A. DEFINITIONS 1. DoT means Department of Telecommunications, India, Government of India and /or its successors. 2. EFFECTIVE DATE: The date on which this Agreement is entered into. 3. EMERGENCY means an emergency of any kind, including any circumstances whatever resulting from major accidents and natural disasters. 4. INTERNET: Internet is a global information system that: • is logically linked together by a globally unique address, based on Internet Protocol (IP) or its subsequent enhancements / upgradations; • is able to support communications using the Transmission Control Protocol / Internet Protocol (TCP/IP) suite or its subsequent enhancements / upgradations, and all other IP compatible protocols; and 5. "TELECOM AUTHORITY" shall mean The Director General, DoT, Government of I....
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....ware. This right is not transferable under any circumstances and shall be used by the STP Service Provider itself or by its authorized agent as may be mutually agreed. 8. The STP Service Provider shall not use the infrastructure or the facilities provided by STP centralised hub for any other purpose other than those mentioned in this Agreement. 9. The STP Service Provider shall indemnify STP centralised hub against any damage, loss, expenses, costs etc incurred by it due to negligence (intentional or unintentional) of the STP Service Provider. 10. The STP Service Provider shall ensure that by using the Hub client software provided by STP centralised hub a. No damage will be caused to the STP Centralized hub, and that it does not propagate virus infected information b. It will pass on only relevant information to be exchanged with the other STP service provider. c. It will not try to probe any other information available on the STP Centralized Hub D. STP CENTRALISED HUB OBLIGATIONS 1. STP centralised hub shall obtain a digital signature certificate from a Certifying Authority, which has been issued a license by the Controller of Certifying Authorities appoint....
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....b will ensure that : a. No damage will be caused to the service providers system. b. It will not propagate virus infected information c. It will pass on only relevant information to be exchanged with the other STP service provider. d. It will not try to probe any other information available on the STP Service Providers setup e. It will not try to modify, translate, disassemble, de-compile or reverse engineer the software to gain access to restricted information or create any derivative product based on STP service provider's system. E. COMPLIANCE WITH LAWS 1. Both the parties represent that they have taken all necessary corporate action to authorise the execution and consummation of this agreement and shall furnish satisfactory evidence of the same upon request to other party. 2. Both the parties hereto agree that they shall comply with all applicable Central, state and local laws, ordinances, regulations and codes in performing their obligations hereunder, including the procurement of licenses, permits and certificates and payment of taxes where required. 3. The parties shall fully inform themselves of all necessary obligations and statutes under Indian ....
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....reason of force majeure then notwithstanding anything hereinbefore contained, the party affected shall be excused from its performance to the extent such performance relates to such prevention, restriction, delay or interference and provided the party so affected uses its best efforts to remove such cause of nonperformance and when removed the party shall continue performance with utmost urgency.For the purpose of this clause "Force Majeure" means & includes fire, explosion, cyclone, floods, war, revolution, blockage or embargo, any law, order, demands or requirements of any Government or statutory authority, strikes, which are not instigated for the purpose of avoiding obligations herein or anyother circumstances beyond the control of the party affected. G. AMENDMENT TO THE AGREEMENT The rights and obligations of the parties are governed only by this agreement. This agreement may be amended, altered, modified, varied or added to from time to time only by a written instrument duly signed by both the parties to this agreement. All previous communications, both oral and written between the parties and related to this agreement, but inconsistent with the terms and conditions of ....
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....ce provider may also suspend the STP hub client software access to its system at any time without notice. I. NOTICE Any notice to be given by one party to the other pursuant to this agreement shall be sent by registered post A.D., speed post or facsimile transmission to the address mentioned below: 1. _________________ (NAME OF THE STP CENTRALISED HUB) ____________________(ADDRESS) 2. __________________________(NAME OF STP SERVICE PROVIDER) ________________________________(ADDRESS) J. WAIVER OF RIGHTS No forbearance, delay or indulgence by any party in enforcing any of the provisions of this agreement shall prejudice or restrict the rights of that party nor shall any waiver of its rights operate as a waiver of any subsequent breach and no rights, powers, remedies herein conferred upon or reserved for the parties is exclusive of any other right, power or remedy available to that party and each right, power or remedy shall be cumulative. K. ARBITRATION AND JURISDICTION In the case of any dispute or any difference between the parties arising out of or in relation to this agreement including dispute or difference as to the validity of this agreement or interpret....
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....idual representing such authority ) has the authority, under the laws in force, to compel such disclosure. Notwithstanding the foregoing, before making any use or disclosure on any of the foregoing exceptions, the Party disclosing such information shall intimate the Other Party as soon as practicable the applicable exceptions (s) and circumstances giving rise thereto. 13.2.1 ANNEXURE II(A) STP centralised hub shall charge a fee of Rs. -----------------. The fees shall be charged to the sending service provider. The billing shall be on a -------------------- basis. • One message shall mean and include the following - One ISO message sent by a service provider to the STP centralised hub • Acknowledgement message sent by the STP centralised hub to the Sending service provider • The message forwarded to the receiving service provider • Acknowledgement received from the receiving service provider for the message • Forwarding the acknowledgement received from the receiving service provider to the sending service provider In consideration of the fees STP centralised hub shall endeavour to provide the following se....
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....t is being cancelled. (16 Characters) [In case of NEWM, the field should contain "DUMMY"] M 16S LINK End of Block End of Mandatory Subsequence A1 Linkages M 16S GENL End of block Mandatory Block C (Confirmation details) M 16R CONFDET Start of block M 98A Trade Date :4!c//8!n To give details of the trade date. Format: (Qualifier)//(Date) Qualifier: "TRAD" (4 Uppercase Characters) Date: "YYYYMMDD" (8 Digits) M 98A Settlement Date :4!c//8!n To give details of the settlement date. Format: (Qualifier) / (Date) Qualifier: "SETT" (4 Uppercase Characters) Date: "YYYYMMDD" (8 Digits) M 90B Price :4!c//4!c/3! a15d To indicate the trade rate Format: (Qualifier)/ /(Amount Type Code)/ (Currency Code) (Price) Qualifier: "DEAL" (4 Uppercase Characte....
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....) Qualifier: "SAFE" (4 Upper Characters) Code as specified in the circular (35 characters) M 16S CONFPRT Y End of block End of Mandatory Subsequence C1 (Confirmation Parties) M 36B Quantity of Financial Instrument :4!c//4!c/1 5d To define the trade quantity Format: (Qualifier)//(Quantity Type Code) /(Quantity)Qualifier: "CONF" (4 Uppercase Characters)Quantity Type Code: "UNIT" (4 Uppercase Characters)Quantity: upto 15 digits (including decimal places and decimal sign) comma has to be used as decimal sign and is mandatory. Integer part of amount must contain atleast one digit. M 35B Identification of Security [ISIN1!e1 2!c] [4*35x] To identify the ISIN of the Scrip and company name. Format: (Identification of Security)(Description of Security)Identification of Security: "ISIN" which will always be present. (ISIN of the security). Additionally, the first line (35 characters) of the description may be used if requir....
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....es of 35 char each) Line 1:This contract is subject to Rules, Line 2:Byelaws and Regulations and Line 3:usages of (name of the exchange). In event Line4: of any claim (whether admitted or Line 5:not), difference or dispute arising Line 6:between you and me/us out of these Line 7:transactions, the matter shall be Line 8:referred to arbitration as provided Line 9:in the Rules, Byelaws and Line 10:Regulations of (name of the exchange). Line 11: Consolidated Stamp Duty paid M 16S SETPRTY End of block M 16R SETPRTY Start of block M 95Q Party :4!c//4*35x Indicates the Delivery Type. The name of the clearing corporation is to be used in case of a clearing house trade. In case of a hand delivery trade, the brokers name is to be used. Format: (Qualifier)//( Name of Clearing House) Qualifier: "REAG" in case of a Sale "DEAG" in case of a Purchase - "BOISL" for BSE trades, or -....
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....lock M 16R AMT Start of block M 19A Amount :4!c//3!a15d To identify the settlement amount For Settlement Amount Qualifier: "SETT" (4 Upper case Characters) Narrative: "INR" (3 Upper Letters) Amount: upto 15 digits (including decimal places and decimal sign) comma has to be used as decimal sign and is mandatory. Integer part of amount must contain atleast one digit. M 16S AMT End of block End of Mandatory Subsequence D3 (Amounts) M 16S SETDET End of block End of Sequence D Settlement Details Optional Sequence E (Other Parties) &n....
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....ptional, the tag should be made mandatory requirement for Indian Market. Value = 515 Will contain the corresponding message type of client received from client. Should be 515 M 20C Reference :4!c//16x To indicate the reference number of the related contract note. Format: (Qualifier)//(Reference) Qualifier: "RELA" (4 Uppercase Characters) Reference: The reference no. as given in field SEME of the contract note that is being updated. (16 Characters) M 16S LINK End of Block End of Subsequence A1 Linkages Mandatory Subsequence A2 Status M 16 R STAT Start of Block M 25 D Status :4!c//4! c To display the status of the contract note (vis a vis Trade Instruction received from client) Format:(Qualifier)//(Status Code) Within the scope of this module, the status updates of matched / unmatched contract notes are being defined. The possible options are MTCH//MACH: The contract note matches with the trade instruction received from client MTCH//....
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.... your instruction is free, counterparty is against payment or vice versa. ICAG- Incorrect Agent The instruction has not been matched; incorrect delivering or receiving agent. (counterparty is incorrect). ICUS- Disagreement receiving or delivering custodian The instruction has not been matched; incorrect delivering or receiving custodian. IEXE- Incorrect Buyer or Seller The instruction has not been matched; incorrect buyer (receiver) or seller (deliverer). IIND- Disagreement common reference The instruction has not been matched; the counterparty disagrees with the common reference (for markets where a common reference is used as a matching criterion). LATE- Your Instruction Too Late for Matching The instruction has not been matched. Your instruction was too late for matching. NARR- Narrative Other (see narrative reason). NCRR- Disagreement Currency Settlement Amount The instruction has not been matched; the counterparty disagrees with the currency of the settlement amount. NMAS- No Matching Started The instruction has not been matched; the matching process did not yet start. PHYS- Disagreement Physical settlement The instruction has not been matched. The counterparty is for physical....
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.... Optional Sequence B Settlement Transaction Details M 16 R SETTR AN Start of Block Note: This sequence is to be used only in case of the contract being against payment. M 35 B Security [ISIN1! e12!c] [4*35x] Identification of the Financial Instrument Format: (Identification of Security)(Description of Security)Identification of Security: "ISIN" which will always be present. (ISIN of the security). Additionally, the first line (35 characters) of the description may be used if required and may contain the scrip code (4 lines of 35 Characters) . The contract descriptor shall be provided in the first line of 35 characters. M 36 B Quantity of Financial Instrument :4!c//4! c/15d Quantity of Financial Instrument to be Settled Format: (Qualifier)//(Quantity Type Code) /(Quantity) Qualifier: "SETT" (4 Uppercase Characters) Quantity Type Code: "UNIT" or "FAMT" (4 Uppercase Characters) Quantity: 15 digits (including decimal comma) FAMT indicates Quantity into Face Value. O 19 A Amoun....
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.... M 16 S SETPRTY End of block Mandatory Subsequence B1 (Settlement Parties)* M 16 R SETP RTY Start of block M 95 Q Party :4!c//4* 35x Indicates the party with whom trade has to be settled. SEBI reg. Number / MAP-IN id of broker / custodian / seller / clearing house This tag should contain the same information as was uploaded in the corresponding contract note message Format: (Qualifier)//( SEBI reg. No. / MAP-IN of settling party) Qualifier: "REAG" in case of a Sale "DEAG" in case of a Purchase M 16 S SETPRTY End of Block M 16 S SETTRAN End of Block 13.4 ANNEXURE-IV GUIDELINES FOR CONDUCT OF CERTIFICATION EXAMINATION 1. Objective: The examination should attempt to test the practical knowledge and skills required to operate in the derivatives market ensuring that the caliber of persons entering the market is kept high so that investors' interests are best served. 2. Curriculum: ....
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.... questions from each level for each candidate. Thus the level of difficulty of a particular test for a particular candidate should be the same as that for any other candidate. 7. Administrative monitoring: The certifying institute should have adequate administrative capability to efficiently run the certification programme. Procedures for enquiries and registration for the certification test should be clearly laid down. The certificate to be issued to successful candidates should carry the photograph of the candidate. The examination should be undertaken on a "no profit" basis. The institution applying for recognition to SEBI shall mention the procedure it expects to follow for sending the candidate's scores to prospective employers. At present the examination should be kept at a 'Basic Entry Level' and later with the development of the market more advanced courses/modules may be added. 13.5 ANNEXURE V List of Circulars issued on Exchange Traded Derivatives 1. March 20, 2013 - Acceptance of Corporate bonds and Government securities as collateral from FIIs 2. Dec 19, 2012 - Requirement of Base Minimum Capital for Stock Broker and Trading Member 3. No....
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.... Extending calendar spread treatment till expiry of the near month contract 33. Aug 06, 2008- Exchange Traded Currency Derivatives 34. Jan 15, 2008- Introduction of Volatility Index 35. Jan 11, 2008- Introduction of Index options with longer tenure 36. Dec 27, 2007- Introduction of mini derivative (Futures and Options) contract on Index -Sensex and Nifty 37. Sep 11, 2007- Circular on acceptance of Foreign Sovereign Securities as collateral from Foreign Institutional Investors (FIIs) for Exchange Traded Derivative Transactions 38. Feb 15, 2006- Clarification to Circular No. DNPD/Cir-31/2006 dated January 20, 2006 39. Jan 20, 2006- Modification of the Trading Member/FII/Mutual Fund position limits for stock based exchange traded derivative contracts 40. Jan 20, 2006- Review of the eligibility criteria of stocks for derivatives trading especially on account of corporate restructuring 41. Sep 14, 2005- Trading by Mutual Funds in Exchange Traded Derivative Contracts Page 155 of 156 42. Nov 22, 2004- Clarification on the definition of institutional trades and use of physical contract note 43. Sep 28, 2004- Modifications in the STP messaging formats on acc....