TaxTMI 
TaxTMI 
Master Circular on Matters relating to Exchange Traded Derivatives
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....i.gov.in MASTER CIRCULAR ON EXCHANGE-TRADED DERIVATIVES JANUARY 2012 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 Availa....
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.............................................. 21 1.3.4 Surveillance System ...................................................................................... 22 1.4 Eligibility Criteria for Derivative Exchange / Derivative Segment of the Exchange, Trading Members, Clearing Corporation/House for Equity Derivatives ....... 24 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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.....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 Quotation.....................................
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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 ................................................................................................ 44 4.1.4 Size of the ....
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............................................... 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......................................................................................... 49 ....
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....rt ..................................................................... 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 5.4.4 Regulatory and legal aspects ......................................................................... 62 6 Currency options .................................
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................................................................................ 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 ......................................................................................... 66 6.3.2 Position limits ................................................................................................ 66 ....
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.................... 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 Determining Standard Deviation ............................................. 72 7.1.22 Position Limits ..............................................................................
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............................. 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 ................................................................................... 82 8.1.8 Contract value ................................................................................................ 82 8.1.9 Daily Contract Sett....
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................................................ 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................................................ 87 9.1.16 Position Limits ............................................................................................. 88 9.1.17 Settlement Mechanism ................................................................................ 90 9.1.18 Worked out Example of Settlement price calc....
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.....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 ....................................................................................................... 100 11.2 Eligibility Criteria ......................................................................................... 100 11.3 Failure to meet Eligibility Criteria ............................................................... 101 11.4 Currency Denomination ............................................................................... 101 ....
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....ts) .................................................................. 112 12.8.1 Modification of Client Codes..................................................................... 112 12.8.2 Penalty Structure ....................................................................................... 113 12.9 Short-collection/Non-collection of client margins .......................................... 113 12.10 Liquidity Enhancement Schemes for Illiquid Securities in Equity Derivatives Segment ............................................................................... 115 13 ANNEXURES ........................................................................................................... 117 13.1 ANNEXURE I ................................................................................................. 117 13.2 ANNEXURE II................................................................................................ 120 13.3 ANNEXURE III .............................................................................................. 121 13.3.1 ANNEXURE III(A) ..................................................................................
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....1.1.8 Settlement Mechanism The index futures contract shall be settled in Indian Rupees. 1.1.9 Settlement Price The settlement price shall be the closing price 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 s....
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....60,00,000 * 331/3 = (20,00,00,000) > 2,00,00,000. 2. Initiation of spread trade on day one Suppose that the member does a calendar spread trade by buying 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, governmen....
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....ding and mean impact cost on the 15^th of each month. When a security is dropped from the list of acceptable equity securities, the existing 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 ....
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....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 disclosed by the clearing corporation to the clearing members, so as to enable them to report the value of the margins collected from FIIs. The sovereign securities tendered as collateral shall be treated as part of the cash component of the liquid assets of the clearing member, and shall be subject to the condition that the value of the sovereign for acceptance and release of collateral tendered by domestic investors in the case of domestic securities shall be adopted mutatis mutand....
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....e value. c. Move forward through the year, one day at a time, using the formula above to get the estimated volatility at the end of that day using cash index prices. d. The estimated volatility by this method at the end of the day preceding the first day of index futures trading would be the value of σ t-1 to be used in the formula given above at the end of the first day of futures trading. Thereafter each day's estimate σ t becomes the σ t-1 for the next day. For the first six months of index futures trading, a parallel estimation of volatility would be done using the cash index prices and the index futures prices and the higher of the two volatility measures would be used to set margins, however, during the first six months, in no case shall the initial margin be less than 5%. The volatility estimated at the end of the day's trading would be used in calculating the initial margin calls at the end of the same day. The volatility estimation and margin fixation methodology should be clearly made known to all market participants so that they can compute what the margin would be for any given closing level of the index. Further, the trading so....
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....ll be considered for the purpose of cross margining as per the following priority: a. Index futures position and constituent stock futures position in derivatives segment, b. Index futures position in derivatives segment and constituent stock position in cash segment, and c. Stock futures position in derivatives segment and the position in the corresponding underlying in cash segment A basket of positions in index constituent stock/stock futures, which is a complete replica of the index in the ratio specified by the Exchange/Clearing Corporation, shall be eligible for cross margining benefit. The positions in the derivatives segment for the stock futures and index futures shall be in the same expiry month to be eligible for cross margining benefit. A spread margin of 25% of the total applicable margin on the eligible off-setting positions, as mentioned above, shall be levied in the respective cash and derivative segments. Cross margining benefit shall be computed at client level on an online real time basis and provided to the trading member/clearing member/custodian, as the case may be, who, in turn, shall pass on the benefit to the client. For ins....
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....The clearing corporation/clearing house should lay down operational guidelines for collection of margin and standard guidelines for back office accounting at the level of clearing member and trading member to facilitate the detection of non-compliance at each level. The accounting guidelines shall be in conformity with the guidelines, if any, issued by SEBI from time to time. The initial margin (or the worst scenario loss) plus the calendar spread charge shall be adjusted against the available Liquid Net worth of the member who, in turn, shall collect the initial margin from their clients. 1.2.10 Reporting and Disclosure The derivatives exchange and clearing corporation shall submit quarterly reports to SEBI regarding the functioning of the risk estimation methodology highlighting the specific instances where price moves have been beyond the estimated 99% VaR limits. The clearing corporation / clearing house shall disclose the details of incidences of failures in collection of margin and/or the settlement dues on a quarterly basis. Failure for this purpose means a shortfall for three consecutive trading days of 50% or more of the liquid net worth of the member. Any proposa....
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....ing of stocks. b. Long positions in index derivatives (long futures, long calls and short puts) shall not exceed (in notional value) the Mutual Fund's/FIIs holding of cash, government securities, T-Bills and similar instruments. 1.3.3 Monitoring of Position Limits 1.3.3.1 NRI/Clients The Exchange shall monitor the NRI position limits. The NRI would be required to notify the names of the Clearing Member/s through whom it would clear its derivative trades to the Exchange. The Exchange would then assign a unique client code to the NRI. The Exchange shall monitor the NRI position limits in the manner similar to that specified for FIIs and sub-accounts. 1.3.3.2 FII /Sub Accounts The FII shall report to the Clearing Member (Custodian) the extent of FII's holding of stocks, cash, government securities, T-Bills and similar instruments before the end of the day. The Clearing Member (Custodian) in turn shall report the same to the Exchange. The Exchange shall then monitor the FII and sub accounts position limits in equity index derivative contracts in the manner specified below: a. The FII would be required to notify the names of the Clea....
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....ition. The exchanges may assign unique sub-account codes on the lines of unique client codes to each sub-account of a FII, which would enable the derivative segment of the exchange and their Clearing House/Clearing Corporation to monitor the position limits specified for sub-accounts. The position limits would be computed on a gross basis at the level of a FII and on a net basis at the level of sub-accounts and proprietary positions. The open position for all derivative contracts would be valued as the open interest multiplied with the closing price of the respective underlying in the cash market. 1.3.3.3 Mutual Funds The Mutual Fund shall notify the names of the Clearing Member/s for each scheme through whom it would clear its derivative contracts to the Stock Exchange. The Stock Exchange would then assign a unique client code to each scheme of the Mutual Fund. The Stock Exchange shall monitor the scheme-wise position limits in the manner similar to that prescribed for FIIs and their sub-accounts as mentioned above. The Mutual Funds will be considered as trading members like registered FIIs and the schemes of Mutual Funds will be treated as c....
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....t monitoring/analysis in the derivatives market should have access to data of the underlying security in cash market and vice versa. The co-ordination between surveillance and derivatives segment should ensure monitoring of positions at broker/client level across cash and derivatives market with a view to identifying possible fraudulent or manipulative activity. e. Examination of derivatives trading details should be taken up on the basis of cash market surveillance also, and vice versa. f. While the surveillance system may be able to generate a large amount of information, it is only the first step towards analysing market behaviour to identify potential problems. The exchange surveillance staff should be able to carry out quick and effective analysis of information generated by the surveillance system, and should document this analysis properly. The documentation should be properly authenticated and verified by a designated authority of the stock exchange. g. The information and feedback received from broker inspections is vital input for effective surveillance. For this it is necessary that broker inspections are taken up in a rational manner keeping i....
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....Clearing Corporation/House for Equity Derivatives The exchanges fulfilling the eligibility criteria as prescribed in the Dr. L.C. Gupta Committee Report (Chapter 3 of the suggestive Byelaws) may apply to SEBI for grant of recognition under Section 4 of the Securities Contract Regulation Act, 1956. The derivatives exchange/segment should have a separate governing council and representation of trading/clearing members shall be limited to maximum of 40% of the total members of the Governing Council. The exchange shall regulate the sales practices of its members and will obtain prior approval of SEBI before start of trading in any derivatives contract. The Clearing and settlement of derivatives trades shall be through a SEBI approved Clearing Corporation/House. Clearing Corporations / Houses complying with the eligibility conditions as laid down by the Dr. L.C. Gupta Committee (Chapter 5 of the Suggestive Bye- laws) may apply to SEBI for approval. Derivative Brokers/Dealers and clearing members are required to seek registration from SEBI. This shall be in addition to their registration as brokers of existing stock exchanges. Derivative brokers/dealers shall be granted registra....
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....members. The Derivative Exchange/Segment shall work out an appropriate policy and plan for selecting members to be inspected. The inspection strategy should lay down: a. The criteria for identifying the top members (in terms of level of activity) to be taken up for compulsory inspection. b. The percentage of remaining members to be inspected selected on a sampling basis. c. Mechanisms should ensure that active members do not go un-inspected for several years in succession. The inspection policy and plan for the year shall be submitted to SEBI for approval. 2 INDEX OPTIONS 2.1 Product Design 2.1.1 Underlying The benchmark indices and the various sectoral indices are permitted as per the eligibility criteria. 2.1.2 Eligibility Criteria The eligibility criteria for an index to qualify for introduction of options, as specified in Section 1.1.2. 2.1.3 Trading Hours Same as that for index future contracts as specified in Section 1.1.3. 2.1.4 Size of the Contract Same as that for index future contracts as specified in Section 1.1.4. 2.1.5 Quotation Same as that for index future contracts ....
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....an range is specified at three standard deviation (3 sigma) and the volatility scan range is specified at 4%. There is also a minimum margin requirement. For index options a short option minimum charge (as explained below) of 3% of the notional value of all short index option has been prescribed. The Initial Margin requirement shall be netted at level of individual client and it shall be on gross basis at the level of Trading/Clearing Member. The Initial margin requirement for the proprietary position of Trading/Clearing member shall also be on net basis. 2.2.2 Portfolio Based Margining A portfolio based margining approach shall be adopted which will takes an integrated view of the risk involved in the portfolio of each individual client comprising of his positions in index futures and index options contracts. The parameters for such a model should include- 1. Worst Scenario Loss The worst case loss of a portfolio would be calculated by valuing the portfolio under several scenarios of changes in the index and changes in the volatility of the index. The scenarios to be used for this purpose would be: Risk Scenario Number Price Move in Mul....
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....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 Spread Margin would be charged in addition to the Worst Scenario Loss of the portfolio. 4. Short Option Minimum Margin The Short Option Minimum Margin equal to 3% of the Notional Value of all short index options shall be charged, if sum of the Worst Scenario Loss and the Calendar Spread Margin is lower than the Short Option Minimum Margin. In this circular, Notional Value of option positions is calculated by applying the last closing price of the index futures contract. 5. Net Option Value The Net Option Value shall be calculated as the current market value of the option times the number of options (positive for long options and negative for short options) in the portfolio. This Net Option Value shall be added to the Liquid Net Worth of the clearing member. This means that the current market value of short options will be deducted from the Liquid Net Worth and the market value of long options will be added thereto. Thus, market to market gains and losses on option positions will get adjusted against the avail....
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....cts 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 Underlying The stocks listed on exchanges which conform to the eligibility criteria are permitted. 3.1.2 Eligibility Criteria A stock on which stock option and single stock future contracts are proposed to be introduced shall conform to the following broad eligibility criteria:- a. The stock shall be chosen from amongst the top 500 stock in terms of average daily market capitalization and average daily traded value in the previous six months on a rolling basis. b. The stock's median quarter-sigma order size over the last six months shall be not less than Rs. 5 Lakh (Rupees Five Lakh). For this purpose, a stock's quarter-sigma order size shall mean the order size (in value terms) required to cause a change in the stock price equal to one-quarter of a standard deviation. c. The market wide position limit (explained later in the circula....
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....rder 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 15th 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 daily market capitalization & average daily traded value calculated every month on a rolling basis for the past six months. Options and futures may be introduced on new stocks when they meet the eligibility criteria subject to SEBI approval. Exit criteria for stocks in equity derivatives The criteria for retention of stock in equity derivatives segment are as under: a. The stock's median quarter-sigma order size over last six months shall not be less than Rs. 2 lakh. b. MWPL of the stock shall not be less than Rs. 60 crore. If a stock fails to meet these retention criteria for three months consecutively, then no fresh month contract shall be issued on that stock. However, the existing unexpired contracts may be permitted to trade till expiry and new strikes may also ....
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....n, 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 contract Same as that for index future contracts as specified in section 1.1.6. 3.1.7 Available Contracts Single Stock Futures contract shall have maturity of three months and three contracts of maturity of one-month, two-month and three-month would be introduced simultaneously. Therefore, at any point in time at least three Single Stock Futures contracts on a particular underlying would be available for trading. 3.1.8 Settlement Mechanism The Stock Exchanges have the flexibility to offer: a. Cash settlement (settlement by payment of differences) for both stock options and stock futures; or b. Physical settlement (settlement by delivery of underlying stock) for both stock options and stock futures; or c. Cash settlement for stock options and physical settlement for stock futures; or d. Phys....
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....kely 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 of settlement procedures & systems with regard to Single Stock Futures. 3.2 Risk Management 3.2.1 Initial margin or worst scenario loss The Initial Margin requirements are based on worst scenario loss of a portfolio of an individual client to cover 99% VaR over one day horizon across various scenarios of price changes and volatility shifts. In the case of Single Stock Futures, the initial margin would be computed as the worst scenario loss of a portfolio comprising of all the positions of a client in all the futures and options contracts. For Single Stock Futures, the price scan range would be 3.5 Standard Deviation (3.5 sigma) and in no case the initial margin for Single Stock Futures contract shall be less than 7.5% of the value of the Single Stock Futures contract. The SPAN margining system,....
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....e 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 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 11:00 a.m., 12:30 p.m., 2:00 p.m., and at the end of the trading session. For the purpose of computing worst scenario loss on a portfolio, the price scan range for stock option and single stock future contracts shall be linked to ....
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....n 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 price at the time of expiry. 3.2.7 Liquid Net Worth and Exposure Limits of a Clearing Member Same as that for index future contracts as specified in section 1.2.1. 3.2.8 Liquid Assets: Same as that for index future contracts as specified in section 1.2.2. 3.2.9 Bank Guarantees: Same as that for index future contracts as specified in section 1.2.3. 3.2.10 Securities Same as that for index future contracts as specified in section 1.2.4. 3.2.11 Reporting and Disclosure: Same as that for index future contracts as specified in section 1.2.11. 3.3 Surveillance and Disclosures 3.3.1 Unique client code Same as that for index future contracts as specified in Sect....
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.... 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 data to other Exchanges and after correction, disseminate the final data on the web. The above data shall be in a machine readable, open format (preferably XML format). Further, the Exchange shall check on a monthly basis, whether a stock has remained subject to the ban on new position for a significant part of the month consistently for three months. If so, then the Exchange shall phase out derivative contracts on that underlying. 3.3.2.2 Customer Level/ NRI/Sub Accounts The gross open position across all derivative contracts on a particular underlying stock should not exceed the higher of:....
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.... 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 derivative contract to be traded on the exchange which would include: 1. Symbol 2. Underlying - giving details of the calculations mentioned above and ensuring that the stock fulfills the eligibility criterion specified. 3. Lot Size / Multiplier 4. Strike Price Intervals 5. Premium Quotation 6. Last Trading Day 7. Expiration day/month 8. Exercise Style 9. Mode of Assignment 10. Time period of settlement of ....
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....ent 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 index future contracts as specified in section 1.2.4. 4.2.10 Reporting and Disclosure: Same as that for index future contracts as specified in section 1.2.11. 4.3 Surveillance and Disclosures 4.3.1 Unique client code Same as that for index future contracts as specified in Section 1.3.1. 4.3.2 Position Limits 4.3.2.1 Market Level Same as that for stock future contracts as specified in 3.3.2.1. 4.3.2.2 Customer Level....
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....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 Trading Member of the Currency Derivatives Segment of an Exchange, an Exchange shall amend its bye-laws, as under: "Any bank, -included in the Second Schedule to the Reserve Bank of India Act, 1934, and specifically authorized by RBI for this purpose, a. is eligible to become Clearing Member and/o....
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....d 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 using the volatility estimate at the end of the previous time period. i.e. as at the end of t-1 time period (σt-1), and the return (rt) observed in the futures market during the time period t. The formula would be as under: (σt)^2 = λ (σt-1)^2 + (1 - &lamb....
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....art 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. 1800 for a spread of 2 months and Rs. 2000 for a spread of 3 months or more for the Pound Sterling - Indian Rupee (GBP-INR) contract; the calendar spread margin shall be at a value of Rs. 600 for a spread of 1 month; Rs. 1000 for a spread of 2 ....
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....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 held in trust for client purpose only. The following process is to be adopted for segregating the client's money vis-à-vis the clearing member's money: i At the time of openin....
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....rket 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 real-time 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, positions in the underlying market, the positions of related entities (concept of persons acting in concert would be applied), etc. d. The violators of position lim....
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.... 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 member shall ensure that his own trading position and the positions of each trading member clearing ....
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.... 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 or concentration periodically or upon specific request by any stock exchan....
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....all 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 also being traded may set up a separate currency ....
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....s 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 c....
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....d. The safeguards and the risk protection mechanisms adopted by the 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 6.1.5. 6.1.6 Available c....
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.... 1 100% 14 -1 -1 100% 15 2 0 35% 16 -2 0 35% The price range for generating 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 t....
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....s that for currency future contracts as specified in Section 5.2.7. 6.2.9 Liquid assets Same as that for currency future contracts as specified in Section 5.2.8. 6.2.10 Margin collection 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 dissemin....
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....on for interest payments would be on the basis of a 360-day year, consisting of 12 months of 30 days each and half yearly coupon payment. 7.1.6 Tenor of the Contract The maximum maturity of the contract would be 12 months. 7.1.7 Available Contracts The Contract Cycle would consist of four fixed quarterly 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: ....
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....itories (NSDL and CDSL) and Public Debt Office (PDO) of the RBI. The delivery of the deliverable grade securities shall take place from the first business day of the delivery month till the last business day of the delivery month. The owner of a short position in an expiring futures contract shall hold the right to decide when to initiate delivery. However, the short 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....
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....e highest vintage till the allocation is over. Vintage data shall be computed and maintained at client level for every contract and shall be tracked by the CC on end of day basis. For a given vintage, if the contracts to be allocated (Short) are less than the total long positions, the allocation to such long position holders shall be done on a 'random' basis. Based on the client level allocations as above, CC shall 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 a....
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....of the near month contract. 7.1.20 Model for Determining Standard Deviation The Committee examined the results of empirical tests carried out using different risk management models in the Value at Risk (VaR) framework in the 10-year GoI security yields. Data for the period January 3, 2000 to September 16, 2008 was analyzed. GARCH (1,1)-normal and GARCH (1,1)-GED (Generalized Auto-Regressive Conditional Heteroskedasticity) at 3 and 3.5 sigma levels were not found to perform well at 1% risk level, as the actual number of violations were found to be statistically much higher than 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 rang....
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....equency of coupon payments and C is the coupon payment per period. t is the yield of 10-year Notional Coupon-bearing GoI security futures at time t; and σyt (sigma) is the standard deviation of daily logarithmic returns of yield of 10- year Notional Coupon-bearing GoI security futures at time t. The percentage margin on long position would be equal to 100 (D*3.5σyt* Yt) and the percentage margin on short position would be equal to 100 (D*(-3.5σyt)* Yt). The Modified Duration for 10-Year Notional Coupon-bearing GoI security futures shall be 10. Methodology B. The potential price change corresponding to 99% VAR can be computed by multiplying the appropriate yield change by the modified duration. That is, Yt =Yield of 10-year Notional Coupon-bearing GoI security futures at time t; and σ y = Annualized yield volatility ^Annualized yield volatility is obtained by multiplying the standard deviation of daily logarithmic return by square root of the number of trading days, usually taken as 252. of 10-year Notional Coupon-bearing GoI security futures z = One-tailed standard normal variate (value 3.5 as mentioned i....
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..... Also, since derivatives are leveraged instruments, margins also act as a cost and discourage excessive speculation. A robust risk management system should therefore, not only impose margins on the members of the Clearing Corporation but also enforce collection of margins from the clients. 7.2.2 Portfolio Based Margining The Standard Portfolio Analysis of Risk (SPAN) methodology shall be adopted to take an integrated view of the risk involved in the portfolio of each individual client comprising his positions in futures contracts across different maturities. The client-wise margins would be grossed across various clients at the Trading / Clearing Member level. The proprietary positions of the Trading / Clearing Member would be treated as that of a client. 7.2.3 Real-Time Computation The computation of worst scenario loss would have two components. The first is the valuation of the portfolio under the various scenarios of price changes. At the second stage, these scenario contract values would be applied to the actual portfolio positions to compute the portfolio values and the initial margin. The exchanges shall update the scenario contract values at least 6....
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....r clients. The Exchange shall also conduct regular inspections to ensure margin collection from clients. 7.2.8 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 held in trust for client purpose only. The following process is to be adopted for segregating the client's money vis-à-vis the clearing member's money: i At the time of opening a position, the member should indicate whether it is a client or proprietary position. ii Margins across the various clients of a member should be collected on a gross basis and should not be netted off. iii When a position is closed, the member should indicate whether it was a client or his own position which is being closed. iv In the case of default, the margins paid on the proprietary position would only be used by the Clearin....
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....jurisdiction of the interest rate futures market. 7.4 Miscellaneous Issues 7.4.1 Banks Participation in Interest Rate Futures It is stated in the RBI Report on Interest Rate Futures that "...the current approval for banks' participation in IRF for hedging risk in their underlying investment portfolio of government securities classified under the Available for Sale (AFS) and Held for Trading (HFT) categories should be extended to the interest rate risk inherent in their entire balance sheet - including both on, and off, balance sheet items - synchronously with the re-introduction of the IRF." 7.4.2 Extending the Tenor of Short Sales In the RBI Report on Interest Rate Futures, it has been recommended that the time limit on short selling be extended so that term / tenor / maturity of the short sale is co-terminus with that of the futures contract and a system of transparent and rule-based pecuniary penalty for SGL bouncing be put in place, in lieu of the regulatory penalty currently in force. 7.4.3 Penalties In case there is a failure to honour the settlement obligation by the CM, the following action shall be followed: 7.4.3.1 Selling C....
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....ility of all the trading members clearing through the CM shall be withdrawn for 7 days. 7.4.3.3 Margins and action on deliverable positions i Margins on physical delivery positions: For positions marked for delivery, a margin equal to VaR of the futures on the invoice price plus 5% of face value along with mark to market adjustments shall be charged both to the buying client and selling client. The margins shall be levied from the intention day and shall be released on the completion of the settlement. ii Margins from last trading day to last intention day: For positions from last trading date till date of intention in cases where no intention is provided, a margin amount equal to VaR of the futures on the invoice price of the costliest security from the deliverable basket plus 5% of face value along with mark to market adjustments based on the underlying closing prices of the costliest security from the deliverable basket shall be charged on both buying client and selling client. The margins shall be levied from the last trading day till the day of receipt of intention to deliver. Action in case no intent to deliver is provided: In case no inten....
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....argin 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 0.1 % of the notional value of the contract on the first day of trading in 91-day T-bill futures and 0.05 % of the notional value of the contract thereafter (the notional value of the contract shall be Rs. 2,00,000). The initial margin shall be deducted from the liquid net worth of the clearing member on an online, real time basis. 8.1.13 Extreme Loss margin Extreme loss margin of 0.03 % 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. 8.1.14 Calendar spread margin Interest rate futures position at one maturity hedged by an offsetting position at a different maturity would be treated as a calendar spread. The calendar spread margin shall be at a va....
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....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. viii. During the first time-period on the first day of trading in 91-day T-bill futures, the sigma would be equal to 2.7 %. 8.1.16 Position limits 8.1.16.1 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. 8.1.16.2 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. 8.1.16.3 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. 8.1.16.4 FIIs: In ....
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....00 * Pw (Here Pw is weighted average futures quote of last half an hour). In the absence of last half an hour trading, theoretical futures price would be considered for computation of Daily Contract Settlement Value. Exchanges would be required to disclose the model/methodology used for arriving at the theoretical price. 9.1.10 Expiry/Last trading day The expiry / last trading day for the contract would be the last Thursday of the expiry month. If any expiry day is a trading holiday, then the expiry/ last trading day would be the previous trading day. 9.1.11 Final Contract Settlement Value The Final Contract Settlement Value would be = 2000 * Pf where Pf is the settlement price of the notional bond. 9.1.12 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 ....
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....ng positions would be equal to 100(1-exp(-3.5σ)). 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. xi. 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. xii. During the first time-period on the first day of trading in 2 Year Notional Coupon Bearing Government of India (GoI) Security futures, the sigma would be equal to 0.10 %. 9.1.16 Position Limits 9.1.16.1 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. 9.1.16.2 Trading Member Level ....
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....en given in Para 9.1.18 9.1.18 Worked out Example of Settlement price calculation: Yield Figures Obtained by Polling of Dealers 11:00 AM Bond 1 Bond 2 Bond 3 Dealer Buy Yields Sell Yields Buy Yields Sell Yields Buy Yields Sell Yields Dealer 1 5.9600 5.9500 (6.0100) (6.0000) (6.0250) (6.0425) Dealer 2 5.9625 5.9500 6.0025 5.9925 6.0450 6.0300 Dealer 3 5.9650 (5.9550) 6.0050 5.9950 6.0450 6.0350 Dealer 4 (5.9600) (5.9550) (6.0025) 5.9975 (6.0425) 6.0375 Dealer 5 5.9625 5.9500 (6.0025) 5.9900 (6.0550) (6.0275) Dealer 6 (5.9725) 5.9525 (6.0175) 5.9975 (6.0575) 6.0375 Dealer 7 (5.9700) 5.9500 6.0100 (5.9900) 6.0475 (6.0275) Dealer 8 (5.9600) 5.9500 6.0100 (6.0000) 6.0500 (6.0400) Dealer 9 5.9625 (5.9475) 6.0050 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....
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....proval from SEBI. 10 INTEREST RATE FUTURES ON 5 YEAR NOTIONAL COUPON BEARING GOVERNMENT OF INDIA (GOI) SECURITY 10.1 Product Design, Margins and Position Limits 10.1.1 Underlying Notional coupon bearing 5-year GoI security with a notional coupon of 7% paid semi-annually and face value of Rs. 100. 10.1.2 Trading hours The trading hours would be from 9 a.m. to 5.00 p.m. 10.1.3 Size of the contract Rs. 2 lakh. 10.1.4 Quotation The quotation would be similar to the quoted price of the GoI security. 10.1.5 Tenor of the contract The maximum maturity of the contract would be 12 months. 10.1.6 Contract months To begin with, three serial monthly contracts can be introduced. 10.1.7 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 Pa....
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....utures 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 spread of one month and Rs. 600 for spread of two months. The benefit for a calendar spread would continue till expiry of the near month contract. 10.1.15 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. i. σt (sigma) means the standard deviation of daily logarithmic returns of futures price of 5 Year Notional Coupon Bearing Government of India (GoI) Security at time t. ii. The "return" is defined as the logarithmic return: rt = ln(Pt/Pt-1) wher....
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....y, should not exceed their long position in the government securities and in Interest Rate Futures, at any point in time. 10.1.17 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 calculat....
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.... Sell Yields Buy Yields Sell Yields Buy Yields Sell Yields Dealer 1 5.9750 (5.9650) 6.0200 (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 Futures Settlement Price = ....
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....he absolute numerical value of the underlying foreign stock index shall be denominated in Indian Rupees (INR). The derivatives contracts on that foreign stock index would be denominated traded and settled in Indian rupees. 11.5 Risk Management Framework The stock exchange shall submit the risk management framework along with its application for introduction of derivatives on foreign stock indices. 11.6 Position Limits The Trading Member/Mutual Funds position limits (higher of Rs. 500 crore or 15% of the total open interest in Index derivatives) as well as the disclosure requirement for clients whose position exceed 15% of the open interest of the market, as applicable to domestic stock index derivatives, shall be applicable to derivatives on foreign stock indices. 11.7 Information Sharing The stock exchange shall ensure that material price sensitive information and information relating to regulatory actions and corporate actions relating to constituent stocks of the foreign stock index, as available in public domain, are available to Indian investors. 11.8 Legal Compliance The stock exchange shall ensure compliance with any other lega....
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.... broadly classified under stock benefits and cash benefits. The various stock benefits declared by the issuer of capital are: • Bonus • Rights • Merger/De-merger • Amalgamation • Splits • Consolidations \ • Hive-off • Warrants, and • Secured Premium Notes (SPNs) among others. • Extraordinary dividends The methodology proposed to be followed for adjustment of various corporate actions to be carried out are as follows : Bonus, Stock Splits and Consolidations Strike Price: The new strike price shall be arrived at by dividing the old strike price by the adjustment factor as under. Market Lot / Multiplier: The new market lot/multiplier shall be arrived at by multiplying the old market lot by the adjustment factor as under. Position: The new position shall be arrived at by multiplying the old position by the adjustment factor as under. The adjustment factor for Bonus, Stock Splits and Consolidations is arrived at as follows: Bonus Ratio - A: B Adjustment factor: (A+B)/B Stock Splits and Consolidations Ratio - A: B Adjustment facto....
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.... 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 were traded on any exchange prior to its restructuring; b. the pre restructured company had a market capitalisation of at least Rs. 1000 crores prior to its restructuring; c. the post restructured company would be treated like a new stock and if it is, in the opinion of the exchange, likely to be at least one-third the size of the pre restructuring company in terms of revenues, or assets, or (where appropriate) analyst valuations; and d. in the opinion of the exchange, the scheme of restructuring does not suggest that the post restructured company would have any characteristic (for example extremely low free float) that would render the company ineligible for derivatives trading, If the above conditions are satisfied, then the exchange shall take the following course of action in dealing with the existing derivative contracts on the pre-restructured company and introduction of fresh contracts on the post restructured company: a. In the contract month in which the post restructured company beg....
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....dition to the above, the Exchanges are also advised to send complete bio-data of members of the respective committees highlighting necessary professional competence and experience in the areas related to securities / derivatives markets. 12.3 Reporting and Disclosure 12.3.1 Monthly Activity Report The exchange is requested to submit information to SEBI on a monthly basis in the format as prescribed by SEBI from time to time. 12.3.2 Reporting of derivative 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) 12.4 Straight through Processing Straight Through Processing (STP) is gener....
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.... is not with the same STP service provider. In such a case the STP service provider would be required to prepare a message as per the STP centralized hub prescribed message format, enclose the user's message, digitally sign the message and then send it to the STP centralized hub c. On receipt of the message by the STP centralized hub, the STP centralized hub would i) verify the signature of the sending STP service provider only. ii) send an acknowledgment 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 t....
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.... of a stock broker). However it has been observed that that there has been some confusion in certain sections of the market with respect to the intended use of the messaging format on account of the messaging descriptors. Accordingly it is clarified that the descriptors shall mean the following: a. IFN 540: settlement instruction for a buy trade free of payment b. IFN 541: settlement instruction for a buy trade against payment c. IFN 542: settlement 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 ....
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....sed to modify/amend their bye-laws, rules and regulations to; a. Permit issuance of electronic contract note including all the standard pre-printed terms and conditions as given in the physical contract note. b. Permit signing of the electronic contract note with a digital signature so as to make the modified format of the electronic contract note a valid legal document like the physical contract note. c. Prescribe a standard format for the issuance 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. 12.5 Certification The guidelines for conduct of certification examination for broker/dealers and salespersons in the derivative market are given as Annexure V. 12.6 Client Registration Form The Dr. L. C. Gupta Committee Report requires strict enforcement of "Know Your Customer " rule and requires that every client shall be registered with the deriv....
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....nd actual value of the underlying 12.7.3 Bond Index It has been decided that, to begin with, Exchanges shall construct a Bond Index (both corporate & GOI) and disseminate the same. The Exchanges are free to decide whether they want to adopt any of the Bond Index computation models available globally or may like to develop their own model for computation of Bond Index. The detailed methodology for computing the Bond Index shall be disseminated by the Exchange for the benefit of the market participants and investors. Based on experience gained and awareness generated, derivatives on Bond Index shall be considered for introduction in due course of time. 12.8 Modification of Client Codes of Non-institutional Trades Executed on Stock Exchanges (All Segments) 12.8.1 Modification of Client Codes Stock Exchanges may allow modifications of client codes of non-institutional trades only to rectify a genuine error in entry of client code at the time of placing / modifying the related order in all segments (derivatives as well as cash). The following shall be classified as genuine errors for the purpose of client code modification: a. Error due to co....
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....g members for short-collection/non-collection of margins from clients in Equity and Currency Derivatives segments: For each member 'a' Per day Penalty as %age of 'a' (< Rs. 1 lakh) And (< 10% of applicable margin) 0.5 (≥ Rs. 1 lakh) Or (≥ 10% of applicable margin) 1.0 Where a = Short-collection/non-collection of margins per client per segment per day b. If short/non-collection of margins for a client continues for more than 3 consecutive days, then penalty of 5% of the shortfall amount shall be levied for each day of continued shortfall beyond the 3rd day of shortfall. c. If short/non-collection of margins for a client takes place for more than 5 days in a month, then penalty of 5% of the shortfall amount shall be levied for each day, during the month, beyond the 5th day of shortfall. d. Notwithstanding the above, if short collection of margin from clients in equity derivatives segment is caused due to movement of 3% or more in the index (close to close value of Nifty/Sensex for all equity derivatives) on a given day, (day T), then, the penalty for short collection shall be imposed only if the shortfall continues to T+2 day. Further, in cur....
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....riminatory; e. does not compromise market integrity or risk management; f. complies with all the relevant laws; and g. is disclosed to market at least 15 days in advance and its outcome (incentives granted and volume achieved - liquidity enhancer wise and security wise) is disseminated monthly within a week of the close of the month. 2. The LES can be introduced in any of the following securities: a. New securities permitted on the Stock Exchange after the date of this circular, b. Securities in case of a new Stock Exchange / new Segment, and c. Securities where the average trading volume for the last 60 trading days on the Stock Exchange is less than 0.1% of market capitalization of the underlying. 3. The LES can be discontinued at any time with an advance notice of 15 days. It shall, however, be discontinued as soon as the average trading volume on the Stock Exchange, during the last 60 trading days, reaches 1% of market capitalization of the underlying, or six months from introduction of the scheme, whichever is earlier. 4. If a Stock Exchange introduces LES on securities eligible under Para 2 above, other Stock Exch....
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....clearing house / corporation. • Statutory Committees means the Disciplinary Action Committee, Arbitration Committee and Defaulters Committee for the derivatives trading and settlement. Board means the Securities and Exchange Board of India(SEBI). The exchanges / clearing house shall within a period of two months from the date of final approval for trading and settlement granted by the Board shall constitute the Governing Board, Clearing Council and Statutory Committees in the manner prescribed hereunder:- 1) Unless otherwise agreed to by the Board, the Governing Board of the Derivative Exchange/ Segment shall be constituted as follows: i. The Derivative Exchange/Segment should have a separate Governing Board which shall not have representation of Trading/Clearing Members of the Derivative Exchange/Segment/Clearing House/Clearing Corporation beyond 40% of the total members on the Governing Board provided that no Trading Member/Clearing Member shall be allowed to simultaneously be on the Governing Board of the Derivative Exchange/Segment and any of the underlying securities market. ii. The members of the Governing Board of the Derivative Exchan....
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....n the clearing council shall not be subject to retirement by rotation and shall hold office at the pleasure of the Board or as per the provisions of the Act and the Rules under which the clearing house / corporation is constituted. 3) For the purpose of appointment of the non-elected members on the governing board of the derivatives exchange / segment or on the clearing council, the derivatives exchange /segment and the clearing council may forward the names of persons to the Board for approval of such appointments. The Board shall, however have the right to appoint any other persons, whose names have not been forwarded by the governing board of the derivatives exchange/segment and / or clearing council. 5) The Rules or Article of Association, as the case may be, of the stock exchange shall provide that besides the governing board / clearing council, it shall be the duty of the Chief Executive Officer to give effect to the directives, guidelines and orders issued by the Board in order to implement the applicable provisions of law, rules, regulations as also the Rules or the Articles of Association, Regulations and Bye-laws of the stock exchange. Any failure in this regard wil....
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....standard as may be defined by SEBI from time to time; (g) "STP service" means the setting up and maintaining of infrastructure to create an electronic communication network to facilitate information exchange with respect to securities market transactions between various market participants from the stage of trade initiation to final settlement through a STP system flow as may be determined by SEBI from time to time; (h) "STP service provider" means a person or entity providing STP service to STP users to the extent of conveying messages between a STP user and the STP centralised hub and/or between two STP users; (i) "STP user" means all the users of the STP service and includes such users as are stipulated by SEBI; and, (j) "TRAI" means the Telecom Regulatory Authority of India established under the Telecom Regulatory Authority of India Act, 1997. (2) Words and expressions used and not defined in these Guidelines, but defined in the Act or in the Securities Contracts (Regulation) Act, 1956 or in any rules or regulations made thereunder, shall have the meanings respectively assigned to them in such Acts, rules or regulations. 3) ELIGIBILITY ....
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..... The STP centralised hub shall promptly deliver the messages to the recipient STP service provider and shall ensure that only the intended STP Service Provider receives the message. x. The STP centralised hub shall digitally sign all messages sent to the STP service provider. xi. The STP centralised hub shall maintain a directory of all STP service providers and STP users. xii. The STP centralised hub shall maintain a complete record of the flow of messages processed. The records of the STP centralised hub shall be open for inspection by SEBI or any other person duly authorised by SEBI for this purpose. xiii. The STP centralised hub shall not modify / amend the communication protocol without consulting all the approved STP service providers. xiv. The STP centralised hub shall ensure that the message is not misused or tampered with while in its possession. xv. The STP centralised hub shall maintain confidentiality of information about its users and shall not divulge the same to other clients, the press or any other person except in accordance with law or as per the directions of any court of law or of SEBI. xvi. The STP....
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....cumstances due to which the connectivity of the STP centralised hub is not available, the STP service providers after mutual discussion may exchange messages directly among themselves for such period. xiv. The STP service providers shall digitally sign all messages sent from it to the STP centralised hub. xv. The STP service provider shall enter into an agreement with all its STP users which shall also specify the fees payable by the STP user for the services. xvi. The STP service provider shall maintain a directory of the STP users connected to it. xvii. The STP service provider shall maintain a complete record of the flow of messages handled. The records of the STP service provider shall be open for inspection by SEBI or any other person duly authorised by SEBI for this purpose. xviii. The STP Service Provider shall verify the Digital signature on the message of the STP user connected to the STP Service Provider xix. The STP service provider shall ensure that the message from the STP user is in the specified messaging format. xx. The STP service provider shall promptly deliver messages to and from the STP user. ....
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..... the STP users ii. the messages exchanged within the same STP service provider iii. the messages exchanged with other STP service providers through the STP centralised hub f. The STP service provider shall ensure that the message is not misused or tampered with while in its possession. g. The STP service provider shall maintain confidentiality of information about its users and shall not divulge the same to other clients, the press or any other interested party except in accordance with law or as per the directions of any court of law. h. The STP service provider 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 / Telecom Regulatory Authority of India / Department of Telecommunications and Securities and Exchange Board of India from time to time as may be applicable to the STP service provider. SCHEDULE II MODEL AGREEMENT BETWEEN STP CENTRALISED HUB AND STP SERVICE PROVIDER (Clause 8 of the Guidelines) THIS AGREEMENT is made at _______ on this the___ day of ______________ between _______________________ having its ....
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....ablished by law. 6. "TRAI" - shall mean the Telecom Regulatory Authority of India established under the TRAI Act, 1997. B. FEES PAYABLE BY STP SERVICE PROVIDER - The STP Service Provider agrees to pay Fees as listed in the Annexure III(A) in consideration for the services provided by STP centralised hub hereof. The said fees may be revised by STP centralised hub as may be mutually agreed upon with the STP Service Providers. The STP service provider shall also be liable to pay interest @___% p.a. in case of delay in payments on the amount due till the actual date of payment. C. STP SERVICE PROVIDER OBLIGATION 1. The STP Service Provider shall obtain a digital signature certificate from a Certifying Authority, which has been issued a license by the Controller of Certifying Authorities appointed under the Information Technology Act, 2000. A copy of the Certificate shall be submitted to STP centralised hub. 2. The STP Service Provider shall verify the Digital signature on the message of the STP User connected to the STP Service Provider before sending the message to the STP Centralized hub. 3. The STP Service Provider agrees to comply with the minimum specification....
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....STP service provider is the legal property of STP service provider. The permission given by STP service provider to STP centralised hub's STP hub client software to co-locate on STP infrastructure will not convey any proprietary or ownership rights in the STP infrastructure. 3. STP centralised hub may subcontract and employ agents to carry out any of its obligations under such terms and conditions as may be mutually agreed. 4. STP centralised hub shall be solely responsible for installation, networking and operation of applicable systems. STP centralised hub shall clearly display and publicise specifications of STP Service Providers terminal equipment at Service Provider premises which are necessary for interfacing to network. 5. STP centralised hub shall abide by the guidelines issued by SEBI from time to time on the STP framework. 6. STP centralised hub shall confirm authenticity, integrity and non-repudiability of all messages submitted by the STP Service Provider. 7. The STP Centralized Hub would keep complete track of the flow of messages for record and audit. 8. STP centralised hub shall ensure that only the intended STP Service Provider receives the mess....
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....ledge and understanding of the physical, environmental and technical standards required for the provision and operation of the Equipment, software and services within India. The monetary obligations, if any, devolving on either of the parties due to statutory changes subsequent to the conclusion of the Agreement, shall be borne by the respective party, if applicable. F. SERVICE CHANGES AND DISCONTINUATION STP centralised hub shall if directed by regulatory authorities, suspend the STP Service Provider's access to the STP Centralized Hub at any time without notice. The STP Service Provider agrees that STP centralised hub will not be liable to any third party for any modification or discontinuance of the STP Centralized Hub. If STP centralised hub receives prior notice of such direction it shall be communicated to the service provider immediately. In order to maintain the security and integrity of the service STP centralised hub may also suspend the STP Service Provider's access to the STP Centralized Hub. The STP Service Provider agrees that STP centralised hub will not be liable to or any third party for any modification or discontinuance of the STP Centralized Hub. The Pa....
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....ds valid approval as STP Centralised Hub from SEBI. This Agreement shall be valid for an initial period of _____ years (hereinafter referred to as the „Term'). After the term, the arrangement may be extended on mutually acceptable terms. H. TERMINATION Without prejudice to the rights, liabilities, interests and obligations that have accrued to the parties prior to the date of terminations 1. Either party may terminate this agreement upon material breach by the other of any provision of this agreement, and (if such breach is remediable) that other fails to remedy such breach within a mutually agreed time frame in writing. 2. This agreement may, at any time during its Term, be terminated by either party by a written 90 days notice to the other party without prejudice to the rights, liabilities, interests and obligations that have accrued to the parties prior to the date of such termination. The grounds upon which this agreement may be terminated pursuant to this clause are as under: i) In case a Receiver has been appointed with respect to all or substantially all the assets of the parties. Provided that this clause shall not be applicable when winding up proceedi....
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....be resolved by mutual discussion. If the parties fail to settle the dispute or difference mutually, then the same shall be resolved in accordance with and subject to the provisions of the Arbitration and Conciliation Act, 1996 or any modifications or amendments thereto, or any enactment for the time being in force subject to the stipulation that only courts at Mumbai shall have exclusive jurisdiction in all such matters. The provisions of this clause shall survive the termination of this agreement. L. GOVERNING LAW 1. This agreement shall be governed by and construed and interpreted in accordance with the laws of India, SEBI Act, Regulations, Rules and SEBI (STP centralised hub and STP service providers) Guidelines, 2004. 2. If any term or provision of this agreement should be declared invalid by a court of competent jurisdiction, the remaining terms and provisions of this agreement shall remain unimpaired and in full force and effect. M. DISCLAIMER STP centralised hub shall use its best endeavor only to ensure that the services provided shall be in conformity with the terms of this agreement. STP centralised hub shall not be liable for bad/slow connection or any tec....
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.... - Uptime on best effort basis between 1930 hrs to 0930 hrs - Resolution time: 4 hours for called logged between 0930 to 1800 hrs • Trouble Ticketing - Business Hrs - Telephonic reporting of Fault on STP centralised hub Helpdesk - Non-Business Hrs - Telephonic reporting of Fault on STP centralised hub Operations - Call closure confirmation - STP service Provider to give respective telephone numbers 13.4 ANNEXURE- IV Message IFN 515: Mandatory Block A (General Information) Status Field Field Name Content and Options Remarks Rules M 16R GENL Start of block M 20C Reference :4!c//16x Type of CN, Exchange number and CN No. Format: (Qualifier)/ (References) Qualifier: "SEME" (4 Uppercase Characters) References: (Contract Type/ Exchange No. / Contract Number) Contract Type: A or B (1 Character Set) Exchange number (2 digits - e.g. Calcutta Stock Exchange will be 03 ) Contract Number: xxxxxxxxxx (13Characters) The reference should not start or end with slash „/‟ and must not contain two consecutive slashes ....
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....t Type Code)/ (Currency Code) (Price) Qualifier: "CORA" (4 Uppercase Characters) Sign (-/+) Price: 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 94B Place :4!c//4!c/30x To identify the exchange Format:(Qualifier)/ /(Place Code)/(MAPIN code / Narrative) Qualifier: "TRAD" (4 Uppercase Characters) Place Code: "EXCH" (4 Uppercase Characters) M 22H Indicator :4!c//4!c To indicate whether the trade is Buy [BUYI] / Sell [SELL] Format: (Qualifier)//(Indicator) Qualifier: "BUSE" (4 Uppercase Characters) Indicator: "BUYI" or "SELL" (4 Uppercase Characters) M 22H Indicator :4!c//4!c To indicate where the trades is against payment [APMT] or free of payment [FREE] Format: (Qualifier) //(Indicator) Qualifier: "PAYM" (4 Uppercase Characters) Indicator: "FREE" for clearing house trades or "APMT" for DVP trades(4 Uppercase Characters) Mandatory Sub Block C1 (Confirmation Parties) ....
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....aracters) Narrative: Line 1: "DR" or "DI" or "AR" or "TT" or "OT"/ Settlement Number as mentioned on Stock Exchange system (35 Character Sets) O 98C Date/Time :4!c//8!n6!n To Identify order time Format: (Qualifier) /(Date)/ (Time) Qualifier: "PROC" (4 Upper Characters) Date: YYYYMMDD Time : HHMMSS M 16S CONFDET End of block End of Sequence C (Confirmation Details) Mandatory Sequence D (Settlement Details) M 16R SETDET Start of block M 22F Indicator :4!c//4!c Dummy (since mandatory) Format: (Qualifier) //(Indicator) Qualifier: "SETR" (4 Upper Characters) Indicator: "TRAD" (4 Upper Characters) Mandatory Subsequence D1 (Settlement Parties) M 16R SETPRTY Start of block M 95P Party :4!c//4!a2!a2!c[3!c] ....
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....bsequence D3 (Amounts) M 16R AMT Start of block M 19A Amount :4!c//3!a15d To identify the Deal Amount Format: (Qualifier) //(Currency Code) (Amount) For: Deal Amount Qualifier: "DEAL" (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. Deal amount = trade quantity * trade rate M 16S AMT End of block M 16R AMT Start of block M 19A Amount :4!c//3!a15d To identify the brokerage For Brokerage: Qualifier: "EXEC" (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....
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.... End of Sequence D Settlement Details Optional Sequence E (Other Parties) M 16R OTHRPRTY Start of block M 95Q Party :4!c//4*35x Dummy (since mandatory) Format: (Qualifier) //(Narrative) Qualifier: "EXCH" ( 4 Upper case Characters) Narrative: "ORDER DETAILS" O 70D Party :4!c//6*35x To identify the trade Ref. Number. The same field can be repeated multiple times to identify different order numbers Format: (Qualifier) //(Narrative) Qualifier: "PART" ( 4 Upper case Characters) Narrative: Trade Ref. No (15Digits) Trade Ref. Qty (15 Digits) Trade Ref. Rate (15 Digits comma at appropriate place) Date: YYYYMMDD HHMMSS (15 Character Sets) O 20C Reference :4!c//16x To identify the Order number Format: (Qualifier) //(Reference) Qualifier: "PROC" (4 Character) Reference : Order number (16 Character Sets) &....
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....nstruction 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//NMAT: The contract note has not been matched Optional Subsequence A2a Reason M 16R REAS Start of Block M 24B Reason. :4!c//4!c To display the reason for the status of the contract note [in case the contract note is not matched]. Format:(Qualifier)//(Reason Code) This block is optional and can be omitted in case the status codes is match. CADE - Disagreement Repurchase Call Delay The instruction has not been matched because the repurchase call delay does not match. CLAT - Counterparty too late for Matching The instruction has not been matched. Counterparty's instruction was too late for matching. CMIS- Matching Instruction Not Found The instruction has not been matched; the matching instruction from your counterparty could not be found. CPCA- Counterparty ....
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....en 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 settlement, your instruction is not, or vice versa. PLCE- Disagreement Place of Trade Place of trade does not match. PODU- Possible Duplicate Instruction The instruction has not been matched. It is a possible duplicate instruction. REGD- Disagreement Registration Details The instruction has not been matched; there are discrepancies in the registrations details linked to the transaction. REPA- Disagreement Repurchase Amount Repurchase amount does not match. REPO- Disagreement Repurchase Rate Repurchase rate does not match. REPP- Disagreement Repurchase Premium Amount Repurchase premium amount does not match. RERT- Disagreement Repurchase Rate Type Repurchase rate type does not match. RSPR- Disagreement Repurchase Spread Rate Repurchase spread rate does not match. RTGS- Disagreement RTGS System The instruction has not been matched. The counterparty is for RTGS settlement system, you are fo....
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....y Type Code: "UNIT" or "FAMT" (4 Uppercase Characters) Quantity: 15 digits (including decimal comma) FAMT indicates Quantity into Face Value. O 19A Amount :4!c//3!a15d To indicate the settlement amount as was displayed in the contract note Format: (Qualifier) //(Currency Code) (Amount) Qualifier: "SETT" (4 Upper case Characters) Narrative: "INR" (3 Upper Letters) Amount: 15 digits (including decimal comma) M 97A Account :4!c//35x To indicate the custodian participant code that will be displayed in the contract note Format: (Qualifier) //(Custodian Participant Code) Qualifier: "SAFE" (4 Upper Characters) Custodian Participant Code: (35 Characters) M 22F Dummy Indicator :4!c//4!c Dummy (since mandatory according to ISO) Format: (Qualifier) //(Indicator) Qualifier: "SETR" (4 Upper Characters) Indicator: "TRAD" (4 Upper Characters) M 22H Receive/Deliver Indicator :4!c//4!c To indicate is the trade was a buy or a sell Format: (Qualifier) //(Indicator) Qualifier: "REDE" (4 Upper Characters) Indicato....
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....ket ensuring that the caliber of persons entering the market is kept high so that investors' interests are best served. 2. Curriculum: Any certification programme to be approved by SEBI should ensure that candidates have a basic knowledge of financial derivatives and an understanding of various Acts and Rules, Regulations and Byelaws of the Exchange. The certification programme should at least cover the following: • Characteristics of financial derivatives including futures and options. • Principals of trading, hedging and investment strategies. • Principles of clearing, margining, delivery and settlement and exercise. Risk management systems and procedures. • Basics of Stock Index composition and calculation, including contract specifications. • Existing regulatory and legal structure in the securities and futures market (including SCRA, SEBI Act, SEBI (Stock Broker and Sub-Broker) Regulations, 1992, Dr. L.C. Gupta Committee Report, Suggestive Byelaws and any other special regulatory requirements of the Derivatives market). • Rules, Regulations and Byelaws of the Exchange (cash segment and derivati....
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....scribe any additional disclosure requirement.) TRADING MEMBER'S CLEARING MEMBER'S Name, Address, Telephone No. Name, Address, Telephone No. SEBI Registration No. SEBI Registration No. (if clearing member other than trading member) Client Details • Name of Account Holder : __________ • Sex : Male/Female : __________ • Date of Birth : __________ • Address Telephone, Fax Number (Residence) : __________ • Occupation : __________ • Name of Employer : __________ • Address, Telephone, Fax Number (Office) : __________ • Type of account : Individual/ HUF/ Partnership/ Corporate/ FI/ MF/ NBFC/ FII/Other • Purpose : Speculative/Hedge • Educational Qualification : __________ • Investment Experience : • _____ years in Stocks • _____ years in Derivatives • _____ years in any other investment related field • Particulars of the Bank Account • Name of the Bank : __________ • Branch ( Address & Tel No ) : __________ • Bank Account Number : ______....
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....s all issues that clearly define the relationship and the extent of liabilities between the client and trading/clearing member. The following areas are to be included in the agreement; however, the broker/exchange may prescribe additional clauses as considered necessary by them: 1. Change in information: In case there is any change in the information provided by the client to the member at the time of opening the account, the client shall immediately notify the member of such change in writing. 2. Client's understanding of risks involved in derivatives trading: The agreement shall clearly specify the client's responsibility for all investment decisions and his complete understanding of the risks involved in trading of various derivatives contracts. The member shall ensure that the client has read and signed the Risk Disclosure Document. Even if the client has failed to understand the risk involved or the member has failed to explain the risk to the client, the trading contract will not be void or voidable and the client shall be responsible for all the risk and consequences for entering into derivatives trading. 3. Types of services offered: The agreement shall specify the....
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....osition could be closed-out and money, if any, available with the trading/clearing member/clearing corporation could be adjusted against his liabilities/ obligation. 10. Sharing of information: The client agrees to furnish information immediately if any winding up petition or insolvency petition has been filed against him or any gashnishee order has been served by a bank, etc. Similarly, trading member agrees to inform client immediately about the contract specifications and associated obligations, daily settlement position, etc. The member should also inform the client if the price of the index has moved against the client. 11. Abiding by SEBI/ Stock Exchange /Clearing Corporation Rules and Regulations : A client agrees to be bound by all the rules and regulations of SEBI and the Bye-laws, rules and regulations of the exchange and clearing corporation. Further, the client and member should agree to refer the dispute to the arbitration as per the bye-laws of the exchange. 12. Any other clauses: The agreement may contain any other additional provisions as considered necessary by the broker/ exchanges. RISK DISCLOSURE DOCUMENT (This document should be read by each and ....
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....curred due to such close-outs. E. Under certain market conditions, you may find it difficult or impossible to execute transactions or close your open positions. This may happen due to various factors such as illiquidity i.e. when there are insufficient bids or offers or suspension of trading due to price limits or circuit breakers etc. F. You should familiarise yourself with the protections accorded to the money or other property you deposit with the broker member, particularly in case of insolvency or bankruptcy of the member. The extent to which you may recover your money or property may be governed by specific legislation or local rules. Such details should be clarified before commencement of trading in futures. In case of any dispute with the member, the same shall be subject to arbitration as per the bye-laws/ regulations of the exchange. G. You are required to provide all the details as mentioned in the Client application from. You must read the customer agreement in detail before signing this document. The relationship between the client and the broker member shall also be subject to the bye-laws of the exchange/clearing corporation relating to the relationship betw....
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.... it will not be open to the client to take the plea that no adequate disclosure was made or he was not explained the full risk involved by the member. The client will be solely responsible for the consequences and no contract can be rescinded on that account. I hereby acknowledge that I have received and understood this risk disclosure statement. _______________ __________ Customer Signature &n....
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.... member as prescribed by the relevant authority from time to time. However, if the clearing member finds it necessary, he shall be authorized to levy and collect additional margin over and above those imposed by the exchange/ clearing corporation and the trading member shall be liable to pay the margins within the stipulated time. Also, the clearing member shall ensure that the trading member collects margins from his clients on a gross basis. 6. Liquidation/close-out of positions: The clearing member shall have the authority to liquidate/close-out positions of the trading member for non-payment of margins, outstanding dues etc. 7. Liability to reimburse losses: The agreement shall specify the liability of the trading member to reimburse any losses or financial charges arising from liquidation/close-out of positions by the clearing member as mentioned above. 8. Client Registration by the trading member - The clearing member shall ensure that the trading member undertakes registration of all his clients and that the requirements of Know Your Client and Risk Disclosure Document are complied with. The trading member shall provide such details to the clearing member. 9. Seg....
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.... Government of India Security 2. Aug 10, 2011-Short-collection/Non-collection of client margins (Derivatives Segments) 3. Jul 05, 2011-Modification of Client Codes of Non-institutional Trades Executed on Stock Exchanges (All Segments) 4. Jun 02, 2011-Liquidity enhancement schemes for illiquid securities in equity derivatives segment 5. May 13, 2011-Self Clearing Member in the Currency Derivatives Segment 6. March 7, 2011-Futures on 91-day Government of India Treasury-Bill (T- Bill) 7. Jan 11, 2011-Introduction of Derivative Contracts on Foreign Stock Indices 8. Oct 27, 2010- European Style Stock Options 9. Jul 30, 2010- Options on USD-INR Spot Rate 10. Jul 15, 2010- Physical Settlement of Stock Derivatives 11. Jul 07, 2010- Revised Exposure Margin for Exchange Traded Equity Derivatives 12. May 04, 2010- Introduction of Index options with tenure up to 5 years 13. Apr 27, 2010- Introduction of derivative contracts on Volatility Index 14. Jan 19, 2010- Currency Futures on Additional Currency pairs 15. Jan 11, 2010- Market Wide Position Limits across Stock Exchanges 16. Jan 08, 2010- Standardized lot size for derivative contracts on individu....
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....traight Through Processing in the Indian Securities Market and standardisation of the messaging formats 42. May 26, 2004- Straight Through Processing Service in the Indian Securities Market 43. Apr 01, 2004- Mandatory use of STP system for all institutional trades executed on the stock exchanges 44. Mar 09, 2004- Trading by FIIs and NRIs in Exchange Traded Interest Rate Derivative Contracts 45. Feb 25, 2004- Issuance of Electronic Contract Notes - Debt Market 46. Feb 23, 2004- Minimum contract size for Exchange traded derivative contracts 47. Feb 06, 2004- Recognition of credit ratings given by reputed foreign credit rating agencies 48. Feb 03, 2004- Issuance of Electronic Contract Notes 49. Jan 05, 2004- Scheme for introduction of Exchange Traded Interest Rate Derivative Contracts on a basket of Government Securities 50. Oct 29, 2003- Trading by FIIs and NRIs in Exchange Traded Derivative Contracts 51. Apr 29, 2003- Issuance of Contract Notes in electronic form 52. Apr 19, 2003 -Circular-Scheme for introduction of Exchange Traded Interest Rate Derivative Contracts 53. Mar 13, 2003- Monthly Reporting Format-Circular 54. Dec 18, 2002- Adjustmen....