भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
MASTER CIRCULAR
CDMRD/DMP/CIR/P/2018/126 September 07, 2018
To,
All Stock Exchanges and Clearing Corporation with Commodity Derivatives
Trading
Dear Sir / Madam,
Sub: Master Circular for Commodity Derivatives Market
1. Securities and Exchange Board of India (SEBI) has been issuing various
circulars/directions from time to time for commodity derivatives market.
2. This Master Circular is a compilation of the circulars issued by Commodity
Derivatives Market Regulation Department (CDMRD) pertaining to domestic
commodity derivatives segment, which are issued till the date of this circular.
3. In case of any inconsistency between the Master Circular and the original
applicable circular, the content of the original circular shall prevail.
4. This circular is available on SEBI Website at www.sebi.gov.in .
Yours faithfully,
Vikas Sukhwal
Deputy General Manager
Division of Market Policy
Commodity Derivatives Market Regulation Department
vikass@sebi.gov.in
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Contents
Chapter 1. Governance and Administration of Exchanges and Clearing
Corporations ....................................................................................................... 6
1.1. Timelines for Compliance with various provisions of Securities Laws by
Commodity Derivatives Exchanges ........................................................................ 6
1.2. Monthly Development Report for Commodity Derivative Exchanges ......... 9
1.3. Mandatory requirements / exit policy for Commodity Derivatives
Exchanges ............................................................................................................... 10
Chapter 2. Trading ........................................................................................ 13
2.1. Trading Hours/Trading Holidays on Commodity Derivatives Exchanges . 13
2.2. Transaction Charges by Commodity Derivatives Exchanges .................... 14
2.3. Spot Price Polling Mechanism ..................................................................... 15
2.4. Criteria for Eligibility, Retention and re-introduction of derivative contracts
on Commodities....................................................................................................... 17
2.5. Unique Client Code (UCC) and Mandatory Requirement of Permanent
Account Number (PAN) ........................................................................................... 20
2.6. Modification of Client Codes Post Execution of Trades on National and
Regional Commodity Derivatives Exchanges ....................................................... 21
2.7. Daily Price Limit for Agricultural and Non-Agricultural Commodity
Derivatives ............................................................................................................... 24
2.8. Suspension of Forward Segment ................................................................ 26
2.9. Options on Commodity Futures- Product Design ...................................... 26
2.10. Position Limits for Agricultural and Non- Agricultural Commodity
Derivatives/Hedgers ................................................................................................ 29
2.11. Requirements for Commodity Derivative Exchanges on their Websites .. 36
2.12. Disclosure of Proprietary Trading by Commodity Derivatives Broker to
Client 37
2.13. “Pro – account” Trading Terminals ............................................................. 38
2.14. Participation of category III Alternative funds (AIFs) in Commodity
Derivatives Market ................................................................................................... 38
2.15. Role of Independent Oversight Committee for Product design ................ 39
2.16. Sharing of Information in Case of declaration of Member as defaulter in
case of Multiple Membership .................................................................................. 40
2.17. Broad guidelines on Algorithmic Trading for National Commodity
Derivatives Exchanges ............................................................................................ 41
2.18. Guidelines for Liquidity Enhancement Scheme (LES) in Commodity
Derivatives Contracts .............................................................................................. 46
2.19. Price Dissemination through SMS/Electronic Communication Facility .... 49
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
2.20. Programmes sponsored by the Exchanges through media channels ...... 49
2.21. Maintenance and Preservation of Records ................................................. 50
2.22. Portfolio Management Services in Commodity Derivatives Market .......... 50
2.23. Applicability of Principles of Financial Market Infrastructures (PFMIs) on
Commodity Derivatives Exchanges ....................................................................... 51
2.24. List of Commodities Notified under SCRA .................................................. 51
Chapter 3. Warehousing Norms for Agriculture and Agri-processed
Commodities 53
3.1. Accreditation of WSP .................................................................................... 53
3.2. Eligibility and Experience of WSP/Promoters/Promoter Group of WSP ... 54
3.3. Financial Norms for the WSP ....................................................................... 54
3.4. Fit and Proper Criteria .................................................................................. 57
3.5. Corporate Governance norms for WSP ....................................................... 57
3.6. Know Your Depositor.................................................................................... 59
3.7. PAN requirement ........................................................................................... 60
3.8. Facilities & Infrastructure Requirement for WSP ........................................ 60
3.9. Accreditation of Assayers ............................................................................ 63
3.10. Warehouses at delivery centres ................................................................... 64
3.11. Insurance ....................................................................................................... 64
3.12. Monitoring/Inspection/Audit of warehouses by WSPs and Exchanges .... 64
3.13. Review of WSPs/Warehouses ...................................................................... 66
3.14. Code of Conduct ........................................................................................... 67
3.15. Grievance Cell ............................................................................................... 67
3.16. MIS System .................................................................................................... 67
3.17. Surrender/Cancellation of accreditation...................................................... 68
3.18. Business Continuity Plan ............................................................................. 69
3.19. Actions against WSPs .................................................................................. 69
3.20. Cold Storages ................................................................................................ 70
3.21. Status report .................................................................................................. 70
Chapter 4. Risk Management ...................................................................... 71
4.1. Comprehensive Risk Management Framework for National Commodity
Derivatives Exchanges ............................................................................................ 71
Chapter 5. Contract Approval and Modification ........................................ 90
5.1. Permission for trading in futures contracts and modification in contract
specifications at exchange level ............................................................................ 90
Chapter 6. Delivery and Settlement ............................................................ 93
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
6.1. Staggered delivery, early delivery system, early pay-in facility, penalty on
delivery default, fixation on FSP and changes in expiry dates ............................ 93
6.2. Criteria for Settlement Mode of Commodity Derivative Contracts ............ 96
6.3. Disclosure of disablement of member terminals ........................................ 97
6.4. Timelines for marking delivery intention ..................................................... 97
6.5. Location premium/discount ......................................................................... 97
Chapter 7. Investor Protection Fund & Investor service Fund and its
related matters .................................................................................................. 98
7.1. Investor Protection Fund (IPF) ..................................................................... 98
7.2. Investor Service Fund (ISF) ........................................................................ 103
Chapter 8. Investor Grievance Redressal System and Arbitration
Mechanism 106
8.1. Investor Grievance Redressal System ...................................................... 106
8.2. Arbitration Mechanism at Commodity Derivatives Exchanges ............... 111
Chapter 9. Trading Software and Technology ......................................... 124
9.1. Annual System Audit .................................................................................. 124
9.2. Business Continuity Plan (BCP) and Disaster Recovery (DR) ................. 129
9.3. Annual System Audit of Stock Brokers / Trading Members of National
Commodity Derivatives Exchanges ..................................................................... 131
9.4. Testing of software used in or related to Trading and Risk
Management ........................................................................................................... 132
9.5. Cyber Security and Cyber Resilience framework ..................................... 137
Annexures ....................................................................................................... 139
Annexure A ............................................................................................................ 140
Annexure B ............................................................................................................ 144
Annexure C ............................................................................................................ 154
Annexure D ............................................................................................................ 157
Annexure E ............................................................................................................. 158
Annexure F ............................................................................................................. 159
Annexure G ............................................................................................................ 161
Annexure H ............................................................................................................ 162
Annexure I .............................................................................................................. 163
Annexure J ............................................................................................................. 164
Annexure K ............................................................................................................ 166
Annexure L ............................................................................................................. 175
Annexure M ............................................................................................................ 179
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure N ............................................................................................................ 180
Annexure O ............................................................................................................ 181
Annexure P ............................................................................................................. 182
Annexure Q ............................................................................................................ 183
List of Circulars ............................................................................................... 215
Page 5 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Chapter 1. Governance and Administration of Exchanges and Clearing
Corporations
1.1. Timelines for Compliance with various provisions of Securities Laws
by Commodity Derivatives Exchanges 1
1.1.1. Commodity derivatives exchanges shall comply with the provisions
of SCRA, applicable provisions of Securities Contracts (Regulation)
(Stock Exchanges and Clearing Corporations) Regulations, 2012,
(‘SECC Regulations’) and SEBI circular CIR/MRD/DSA/33/2012
dated December 13, 2012, on procedural norms on recognition,
ownership and Governance for Stock Exchanges and Clearing
Corporation (‘SECC Circular’).
1.1.2. The timelines prescribed herein, for compliance with various
provisions of Securities Laws shall be reckoned from September
28, 2015.
1.1.3. Clearing and Settlement: Commodity derivatives exchanges shall
transfer the functions of clearing and settlement of trade to a
separate clearing corporation within three years. Till then, the
exchanges may continue with the existing arrangement for clearing
and settlement of trades.
1.1.4. Validity of recognition of Commodity Derivative Exchanges:
Validity of recognition of commodity derivatives exchanges under
SCRA shall be taken to be the same as the validity of their
recognition under FCRA. Further, the renewal of recognition, if any,
will be as per SCRA and SECC Regulations.
The conditions required to be continuously complied with by
recognized stock exchanges as given in Regulation 7(3) of SECC
Regulations shall be complied with by national commodity
derivative exchanges.
However, commodity derivatives exchanges shall immediately put
in place adequate surveillance system to monitor positions, prices
and volumes etc. so as to ensure market integrity till online real-
time surveillance systems are set up and operationalized.
Conditions required to be continuously complied with by recognized
clearing corporations given in Regulation 7(4) of SECC
Regulations, to the extent applicable, shall be complied with by
national commodity derivatives exchanges.
1 SEBI Circular No CIR/CDMRD/DEA/03/2015, dated November 26, 2015
Page 6 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
1.1.5. Regulatory Fee: Commodity derivatives exchanges shall pay the
regulatory fee in terms of Securities and Exchange Board of India
(Regulatory Fee on Stock Exchanges) Regulations, 2006.
1.1.6. Networth Requirements: Commodity derivatives exchanges shall
comply with Regulation 14(1) of SECC Regulations as specified
below:
I. Commodity derivative exchanges shall not distribute profits
in any manner to its shareholders until the requisite net worth
of INR 100 crores is achieved in terms of Regulation 14(4)
of SECC Regulations.
II. Commodity derivatives exchanges shall submit audited net
worth certificate from the statutory auditor on an yearly basis
by the thirtieth day of September every year for the
preceding financial year in terms of Regulation 14(5) of
SECC Regulations.
1.1.7. Ownership
I. National commodity derivatives exchanges shall comply
with the shareholdings limits specified under SECC
Regulations, 2012 by May 5, 2019. As per clause 5 of SECC
Circular, they shall put in place a monitoring mechanism to
ensure compliance with the shareholding restrictions
specified in SECC Regulations.
II. Regulations 20 to 22 of SECC Regulations shall be
applicable to national commodity derivative exchange. The
format for submitting shareholding pattern to SEBI is given
in Annexure A.
1.1.8. Governance
I. Provisions of Regulations 23 to 26 shall be applicable to
national commodity derivatives exchanges, subject to the
following:
A. Existing Independent Directors on the boards of
national commodity derivatives exchanges shall be
deemed to be Public Interest Directors (PIDs) under
SECC Regulations,
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
B. All new appointments on the governing boards of
national commodity derivatives exchanges shall be
governed by the provisions of SECC Regulations and
SECC Circular.
II. National Commodity Derivatives Exchanges shall comply
with the provisions of Regulation 27 of SECC Regulations
1.1.9. Segregation of Regulatory Departments: Commodity derivatives
exchanges shall segregate their regulatory departments (as
indicated in SECC Circular) from other departments in the manner
specified in Part C of Schedule II of SECC Regulations.
1.1.10. Oversight Committees: Commodity derivative exchanges shall
comply with the requirements of Regulation 29 read with Regulation
44D (1) (b) of SECC Regulations. National commodity derivatives
exchanges shall constitute an oversight committee for 'Product
design', chaired by a Public Interest Director.
1.1.11. Advisory Committee and other Statutory Committees: National
commodity derivatives exchanges shall constitute Advisory
committees in line with Regulation 30 of SECC Regulations, 2012
and statutory committees as specified in SECC Circular.
1.1.12. Risk Management Committee: Till the functions of clearing and
settlement are transferred to a separate clearing corporation,
commodity derivatives exchanges shall comply with provisions of
Regulation 31 of SECC Regulations relating to risk management
committee. This committee shall be constituted.
1.1.13. Appointment of Compliance Officer: All commodity derivative
exchanges shall appoint a compliance officer in terms of Regulation
32 of SECC Regulations.
1.1.14. Transfer of Penalties: National commodity derivative exchanges
shall credit all settlement related penalties to their settlement
guarantee fund (SGF) and other penalties to Investor Protection
Fund (IPF).
1.1.15. Disclosure and Corporate Governance Norms: Regulation 35 of
SECC Regulations shall be applicable to national commodity
derivative exchanges.
1.1.16. General Obligations
I. Till the functions of clearing and settlement are transferred
to a separate clearing corporation, commodity derivative
Page 8 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
exchanges shall comply with the provisions of Regulation 39
of SECC Regulations on Fund to guarantee settlement of
trades.
II. The provisions of Regulations 41, 42, 43, 44 and 44A of
SECC Regulations to a recognized stock exchange shall be
applicable to commodity derivatives exchanges.
Additionally, the provisions of Regulations 41, 42, 43, 44 and
44A of SECC Regulations in so far as they pertain to a
recognized clearing corporation shall be applicable to
commodity derivatives exchanges till the functions of
clearing and settlement are transferred to a separate
clearing corporation
III. Till the functions of clearing and settlement are transferred
to a separate clearing corporation, commodity derivative
exchanges shall have right to recover dues from its
trading/clearing members arising from the discharge of their
clearing and settlement functions from the collaterals,
deposits and the assets of the trading/clearing members in
line with Regulation 44B of SECC Regulations.
IV. Regulation 44C and 44D of SECC Regulations shall be
applicable to commodity derivatives exchanges.
1.1.17. Listing: Regulation 45 of SECC Regulations shall be applicable to
commodity derivatives exchanges.
1.1.18. Dematerialization of Securities: National commodity derivative
exchanges shall comply with Regulation 46 of SECC Regulations
with respect to holding securities in dematerialized form.
1.2. Monthly Development Report for Commodity Derivative Exchanges2
1.2.1. The Commodity Derivative Exchanges are advised to submit a
Monthly Development Report as per the prescribed format to SEBI
by 7th of the succeeding month.
1.2.2. The format for the Monthly Report is provided at Annexure B.
2 SEBI Circular No CIR/CDMRD/DEA/4/2015, dated December 9, 2015
Page 9 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
1.3. Mandatory requirements / exit policy for Commodity Derivatives
Exchanges 3
1.3.1. If there is no trading operation on the platform of any commodity
derivatives exchanges for more than twelve months then such
exchange shall be liable to exit.
1.3.2. In addition to the above, henceforth, all National Commodity
Derivative Exchanges shall continuously meet the turnover criteria
of Rs. 1000 crores per annum. The Regional Commodity
Exchanges shall ensure that they have at least 5% of the nation-
wide market share of the commodity, which is principally traded on
their platform. In case the National and Regional Commodity
Exchanges fail to meet the above criteria for 2 consecutive years,
they shall be liable to exit.
1.3.3. In the event a recognized commodity derivatives exchange, for any
reason suspends its trading operations, it shall resume its trading
only after ensuring that adequate and effective trading systems,
clearing and settlement systems, monitoring and surveillance
mechanisms, risk management systems are put in place and only
after complying with all other regulatory requirements stipulated by
SEBI from time to time. Further, such recognized commodity
derivatives exchanges shall resume trading operations only after
obtaining prior approval from SEBI.
1.3.4. In case any commodity derivatives exchange proposes to
surrender its recognition voluntarily or whose recognition is
proposed to be withdrawn by SEBI, the concerned Exchange shall
be directed to comply with the following:
I. The concerned commodity derivatives exchange shall not
alienate any assets of the exchange without taking prior
approval of SEBI.
II. Treatment of the assets of de-recognized exchange:
A. The concerned commodity derivatives exchange shall be
permitted to distribute its assets subject to certain
conditions as laid down in this circular as well as other
guidelines that may be issued by SEBI, Government, or
any other statutory authority, from time to time.
3 SEBI Circular No. CIR/CDMRD/DEA/01/2016, dated January 11, 2016
Page 10 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
B. For the purpose of valuation of the assets of the commodity
derivative exchange, a valuation agency shall be
appointed by SEBI. All the valuation charges shall be paid
by the concerned exchange.
C. The quantum of assets for distribution will be available
after payment of statutory dues including income tax,
transfer of funds as specified in para III below, payment of
dues as specified in para IV below, refund of deposit
(refundable) to the stock brokers / clearing members
including their initial contribution / deposit to Settlement
Guarantee Fund/ Trade Guarantee Fund (SGF/TGF) and
contribution to SEBI as specified in para V (D) below.
III. The concerned exchange shall transfer the Investor Protection
Fund or any such fund to the SEBI Investor Protection and
Education Fund.
IV. The concerned exchange shall pay following dues to SEBI:
A. The dues outstanding to SEBI and the annual regulatory
fee.
B. The outstanding registration fees of brokers/trading
members of such de-recognised stock exchanges as
specified in the SEBI (Stock Brokers and Sub Brokers)
Regulations, 1992 till the date of such de-recognition.
C. Dues of the brokers to SEBI shall be recovered by the
exchange out of the brokers’ deposits / capital / share of
sale proceeds / winding up proceeds dividend payable,
etc. available with the exchange.
D. The exchange will be liable to make good any shortfall in
collection of dues of the brokers to SEBI.
V. Other Conditions
A. In case any commodity derivatives exchange, after de-
recognition, continues as corporate entity under the
Companies Act, 2013, it shall not use the expression ‘stock
exchange’, ‘commodity derivative exchange’ or ‘exchange’
or any variant in its name or in its subsidiaries name so as
to avoid any representation of present or past affiliation
with the exchange.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
B. The Sale / distribution / transfer of assets / winding up of
such exchanges / companies shall be subject to the
applicable laws in force.
C. The concerned commodity derivatives exchange shall set
aside sufficient funds in order to provide for settlement of
any claims, pertaining to pending arbitration cases,
arbitration awards, not implemented, if any,
liabilities/claims of contingent nature, if any, and
unresolved investors complaints/ grievances lying with the
exchange.
D. In case of de-recognition and exit, the stock exchange shall
contribute up to 20% of its assets (after tax) towards SEBI
Investor Protection and Education Fund (IPEF) for investor
protection and in order to cover future liabilities, if any. The
contribution may be decided by SEBI taking into account,
inter alia, the governance standards of the commodity
derivatives exchange and estimation of future liabilities.
VI. SEBI may impose additional conditions as deemed fit in the
interest of trade or in the public interest including securities
market.
Page 12 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Chapter 2. Trading
2.1. Trading Hours/Trading Holidays on Commodity Derivatives
Exchanges4
2.1.1. Trading Hours
I. All Commodity Derivatives Exchanges shall permit trading only
from Monday to Friday.
II. Trading hours shall be fixed by the Exchange within the time
limits as mentioned in the table below:
S. Commodity Trade Trade End time
No Category Start
After Start of After End of US
Time
US Day light Day light Savings
Savings in in Fall Season
Spring Season
1 Internationally 10:00 AM 11:30 PM 11:55 PM
Referenceable Non-
Agri Commodities
2 Internationally 10:00 AM 09:00 PM 09:30 PM
Referenceable Agri
Commodities*
3 All Other 10:00 AM 05:00 PM
Commodities
*Presently traded internationally referenceable Agri commodities are Crude
Palm Oil, Cotton, Kapas Soya Oil and Sugar.
III. With regard to Muhurat Trading on Diwali (Lakshmi Poojan) day,
all National Commodity Derivatives Exchanges shall jointly
decide the common trade timing and notify the same to the
market under prior intimation to SEBI.
IV. Exchanges shall ensure that they have necessary risk
management system and infrastructure in place commensurate
to their trading hours.
2.1.2. Trading Holidays
I. With regard to Trading holidays of National Commodity
Derivatives Exchanges, all such Exchanges shall jointly decide
4 SEBI Circular No. SEBI/HO/CDMRD/DMP/CIR/P/2016/75 dated August 30, 2016
Page 13 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
upon the common holiday list within the broad framework of the
Negotiable Instruments Act, 1881 and also taking into
consideration Central/State/Local holidays and notify the same
to the market well in advance under prior intimation to SEBI.
On such trading holidays, National Exchanges may permit
trading of internationally referenceable commodities in evening
session i.e. post 5:00 PM, in case corresponding international
markets are open.
II. While finalizing Trading Holidays list, Exchanges shall suitably
take into account the views of market participants. Frequent
changes in holiday List shall be avoided i.e. once decided, same
holidays should be followed every year irrespective of the
holidays falling on a working day or a non-working day in that
year.
2.2. Transaction Charges by Commodity Derivatives Exchanges5
2.2.1. The Commodity Derivatives Exchanges are collecting transaction
charges from the members for the trades executed on their trading
platform. In order to promote competition in the market and bring in
greater efficiencies and lower transaction costs to market
participants, it has been decided that the following norms shall be
continued to be applicable to the Commodity Derivatives
Exchanges while levying transaction charges-
I. The Exchanges can levy different transaction charges for
different commodities' contracts and even in the case of
contracts of the same commodity.
II. The Exchanges will ensure that the ratio between highest to
lowest transaction charges in the turnover slab of any
contract is not more than 2:1.6
III. In the slab system the concessional transactional charges
shall be charged only on the incremental volume/turnover
and not on the entire volume/turnover.
IV. The transaction charges are to be charged-on post-facto
basis that is after the trades are executed.
2.2.2. It is also emphasized that, while revising the transaction charges,
the Commodity Derivatives Exchanges shall also comply with the
following guidelines:
5 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/82 dated September 07, 2016
6 Revised via SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2018/1 dated January 03, 2018
Page 14 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
I. The stock exchange system is capable of handling
additional load.
II. It does not affect the existing risk management system.
III. It does not favour selective trades or selective category of
investor.
IV. It does not encourage generation of artificial demand.
V. It does not result in any market irregularities.
VI. It is uniformly applied to trades of similar nature.
VII. It is imposed in fair and transparent manner
2.3. Spot Price Polling Mechanism7
2.3.1. The Commodity Derivatives Exchanges have been using a ‘Spot
Price Polling Mechanism’ to arrive at the prevailing spot prices.
Transparent discovery of spot prices is a critical factor in smooth
running of futures market as the same are used as reference prices
for settlement of contracts traded on the exchange platform. To
arrive at the prevailing spot prices, the exchanges are polling the
spot prices from various spot price polling participants. Some
exchanges undertake this activity themselves whereas some have
outsourced this work to an external agency.
2.3.2. In order to maintain the transparency of spot price polling process
and dissemination of spot prices arrived at through spot price
polling process, the commodity derivatives exchanges are directed
to:
I. have a well laid down and documented policy for the spot
price polling mechanism.
II. display the spot price polling mechanism adopted for
every contract on its website along with following details:
S. No. Particulars Details
1. Details of the contract
2. Mechanism of spot price polling
3. How spot prices are arrived at
4. Whether these prices include or exclude
taxes and other levies / costs
5. Whether spot prices polling has been
outsourced to any external agency and if
so, the details thereof.
7 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/78 dated September 02, 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
S. No. Particulars Details
6. Criteria for selection of these polling
participants
7. Any other information that the Exchange
may consider
III. disclose, for every contract, following details with respect
to individual spot price polling participants on its website:
Participants Location Profession Price Time,
quoted Date
A
1
A
2
A. The Exchanges may assign a code such A1, A2,
A3…etc. for poling participants of a particular
contract and reveal his location and price (s) for the
day.
B. This information shall be updated on Exchange
website every day for every contract traded on the
exchange platform.
C. The information shall continue to be displayed even
after the expiry of the contract for a period of 3
years.
IV. endeavour in increasing the sample size used for fixing the
daily spot prices during the last 15 days of the contract.
V. review on a monthly basis the prices polled by the
participants to identify participants habitually polling
unrealistic prices. These participants could be put under
watch and subsequently removed from the panel if such
instances reoccur despite appropriate communications.
VI. provide a separate feedback window for receiving
complaints in this regard. The exchanges shall address
such complaints in a time-bound manner. Further the
exchanges shall keep the audit trail of all such complaints
received and the steps taken for rederssal.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
2.4. Criteria for Eligibility, Retention and re-introduction of derivative
contracts on Commodities8
2.4.1. The Commodity Derivatives Advisory Committee (CDAC),
constituted for advising SEBI on matters concerning effective
regulation and development of the commodity derivatives market,
on the above aspects had inter alia, recommended that:
I. The commodities which are to be recommended by SEBI for
notification by the Government or on which the exchange
proposes to launch a contract should pass through some test
based upon the objective parameters and upon satisfaction,
should be allowed for trading.
II. It is also important that the contracts available for trading in
the commodity derivatives market are liquid enough for the
contracts to trade smoothly.
2.4.2. Though it may not be practicable to keep a strict objective criteria
which may be uniformly applied across all commodities for inclusion
under derivatives, a broad framework can certainly be laid down.
Thus, based on the recommendation of CDAC and in consultation
with the stakeholders, it has been decided that the following criteria
for eligibility, retention and re-introduction of derivative contracts on
commodities shall be followed by all national commodity derivatives
exchanges ('exchange').
2.4.3. Eligibility criteria for allowing derivative contracts on commodities
I. Exchanges shall examine following basic parameters and
the commodity may be permitted to be included under
derivatives if such commodity satisfies these parameters.
A. Commodity Fundamentals
i. Size of the market / Volume of the market: The total
supply value of the commodity in each year is taken
as a measure of the physical market size of that
commodity in that year. A higher physical market size
could create higher futures trading volume by
attracting more hedgers and speculators into the
futures market.
ii. Homogeneity/Standardization: The commodity
should be either Homogeneous or should be
conducive to standardization. This is required so that
participants trading the commodity on exchange
8 SEBI Circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/6 Dated January 20, 2017
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platform should be able to unambiguously understand
exactly what they are trading as on exchange only
standardized contracts can be traded.
iii. Durable / Storable: The commodity should be durable
and storable for better price discovery. Durability i.e.
higher shelf life makes commodity conducive for
storage, which creates opportunity for cash and carry
and hence would attract arbitragers thus make it more
suitable for derivatives trading.
B. Trade Factors
i. Global: Global market in a commodity could be a
positive indicator as internationally linked commodity
prices are influenced by various global factors and
thus create multiple reference points for price
discovery which may make it conducive for
derivatives trading.
ii. Value chain: The term ‘’value chain’’ describes the full
range of value adding activities required to bring a
product or service through the different phases of
production, including procurement of raw materials
and other inputs”, connected along a chain of
producing, transforming and bringing goods and
services to end-consumers through a sequenced set
of activities and a strategic network among a number
of business organizations”. Larger is the value chain
larger would be the number of participants interested
in derivatives trading of such commodity.
iii. Geographical coverage: The commodity should
ideally have a vast distribution across the country. The
coverage can be in the form of production of
commodity or the distribution of the commodity across
the country. Higher coverage would attract higher
number of participants to the derivatives.
C. Ease-of- doing-business
i. Price Control: Price controls are government
mandated minimum or maximum prices that can be
charged for specified goods. Government sometimes
implements price controls when prices on essential
items, such as food grain or oil are rising rapidly. Such
goods which are prone to price control may be less
conducive for derivatives markets
ii. Applicability of other laws: The Food control
Regulation Act, Essential commodities Act, APMC Act
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etc., may have an impact on the commodities to be
introduced for derivatives trading. Commodities which
have excessive restrictions may be less conducive for
derivatives markets.
D. Risk management
i. Correlation with International Market: Commodities
which have a strong correlation with the global market
have higher need for price risk management. Such
commodities are conducive for derivatives trading.
ii. Seasonality: The Indian commodity sphere is
characterized by seasonality. The prices fluctuate
with the supply season and the off season. The
derivatives market is necessary to even out this
fluctuation and facilitate better price discovery. Thus
the commodities with higher seasonality are
conducive for derivatives trading.
iii. Price Volatility: Commodities with high volatility of
prices have high need for hedging. Such commodities
are conducive for Derivatives trading.
II. In order to bring in uniformity among the commodity
derivatives exchanges, the indicative template as enclosed
at Annexure C shall be adopted by the exchanges. In this
regard the exchanges shall decide upon the specific
numerical weight ages as approved by their oversight
committee for 'Product Design'.
III. The exchanges shall also analyze all the proposed
commodities/ commodity derivatives contracts on the afore-
said parameters comprised in the template and submit the
same to SEBI while applying for the approvals along with
necessary supporting documentary evidence.
2.4.4. Applicability of the template on the commodities presently being
traded
I. As regards the commodities which are presently being
traded on the exchange platforms, the exchanges shall apply
the afore-said parameters comprised in the template on each
of the commodities.
II. The results of such exercise is to be submitted to SEBI within
a period of 3 months.
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2.4.5. Criteria for retention and reintroduction of derivative contracts on
commodities
I. For any commodity to continue to be eligible for Futures
trading on Exchange, it should have annual turnover of more
than Rs.500 Crore across all National Commodity
Derivatives Exchanges in at least one of the last three
financial years. For validating this criteria, gestation period of
three years is provided for commodities from the launch
date/re-launch date, as may be applicable.
II. Once, a commodity becomes ineligible for derivatives trading
due to not satisfying the retention criteria, the exchanges
shall not reconsider such commodity for re-launching
contract for a minimum period of one year.
III. Further, a commodity which is discontinued/suspended by
the exchange from derivatives trading on its platform, shall
not be re-considered by the concerned exchange for re-
launching of derivatives contract on such commodity at least
for a minimum period of one year.
2.5. Unique Client Code (UCC) and Mandatory Requirement of Permanent
Account Number (PAN)9
2.5.1. It shall be mandatory for the members of the commodity derivatives
exchanges to use Unique Client Code (UCC) for all clients
transacting on the commodity derivatives exchanges. The
commodity derivatives exchanges shall not allow execution of
trades without uploading of the UCC details by the members of the
exchange. For this purpose, members shall collect after verifying
the authenticity and maintain in their back office the copies of
Permanent Account Number (PAN) issued by the Income Tax
Department, to all their clients.
2.5.2. PAN would be the sole identification number and mandatory for all
entities/persons who are desirous of transacting on the commodity
derivatives exchanges.
However, the investors residing in the State of Sikkim are exempted
from the mandatory requirement of PAN. The exchanges should,
however, ensure a system of proper verification to verify that such
members / investors are residents of the State of Sikkim.
Further, PAN may not be insisted in the case of Central
Government, State Government, and the officials appointed by the
9 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/87 dated September 16, 2016
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courts e.g. Official liquidator, Court receiver etc. (under the
category of Government) for transacting in the securities market.
The intermediary shall verify the veracity of the claim of the
specified organizations, by collecting sufficient documentary
evidence in support of their claim for such an exemption.
2.5.3. The commodity derivatives exchanges shall ensure that the
members of their exchanges shall:
I. collect copies of PAN cards issued to their existing as well
as new clients after verifying with the original.
II. cross-check the aforesaid details collected from their clients
with the details on the website of the Income Tax
Department.
III. upload details of PAN so collected to the Exchanges as part
of Unique Client Code.
IV. verify the documents with respect to the unique code and
retain a copy of the document.
2.5.4. The Member shall also be required to furnish the above particulars
of their clients to the commodity derivatives exchanges and the
same would be updated on a monthly basis. Such information for a
specific month should reach the exchange within 7 working days of
the following month.
2.5.5. The commodity derivatives exchanges shall impose penalty on the
member at the rate of 1% of the value of every trade that has been
carried out by the member without uploading the UCC details of the
clients. The penalty so collected by the Commodity Derivatives
Exchanges shall be transferred to the Investor protection Fund
(IPF).Further, if the client details are not uploaded within a month
of the trade, the member is liable to be suspended.
2.5.6. The commodity exchanges shall be required to maintain a
database of client details submitted by members. Historical records
of all such submissions shall be maintained for a period of 7 years
by the Exchanges.
2.6. Modification of Client Codes Post Execution of Trades on National
and Regional Commodity Derivatives Exchanges10
2.6.1. 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
10 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/73 dated August 19, 2016
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segments. It is also re-emphasized here that this facility is expected
to be used more as an exception rather than a routine.11
2.6.2. For this purpose the following shall be classified as genuine errors:
I. Error due to communication and / or punching or typing such
that the original client code / name and the modified client code
/ name are similar to each other
II. Modification within relatives (‘Relative’ for this purpose would
mean as defined under Companies Act, 2013)
2.6.3. Error Account
I. Shifting of trades to the ‘Error account’ of broker would not be
treated as modification of client code, provided that trades in
‘Error account’ are subsequently liquidated in the market and
not shifted to some other code.
II. Further, broker shall disclose the codes of accounts which are
classified as ‘Error accounts’ to the Exchanges. Each broker
should have a well-documented error policy approved by the
management of the broker. Exchanges shall periodically review
the trades flowing to the error accounts of the brokers.
2.6.4. If Exchange wishes to allow trading members to modify client codes
of non-institutional trades, it shall
I. lay down strict objective criteria (in line with the Para ‘2.6.2’
above), with the approval of its Governing Board, for
identification of genuine errors in client codes which may be
modified, and disclose the same to market in advance,
II. set up a mechanism to monitor that the trading members
modify client codes only as per the strict objective criteria,
and
III. ensure that modification of client codes is covered in the
internal audit of trading members.
IV. shall not allow proprietary trades to be modified as client
trades and vice versa.
11 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/43 dated March 29, 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
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V. shall levy a penalty and collect from trading members and
credit the same to its Investor Protection Fund as under:
‘a’ as % of ‘b’ Penalty as % of ‘a’
≤ 5 1
> 5 2
Where
a = Value (turnover) of non-institutional trades where
client codes have been modified by a trading member
in a segment during a month.
b = Value (turnover) of non-institutional trades of the
trading member in the segment during the month
VI. shall undertake stringent disciplinary actions against brokers
who undertake frequent client code modifications. If ‘a’ as %
of ‘b’, as defined above, exceeds 1% during a month, then
the Stock Exchange shall conduct a special inspection of the
trading member to ascertain whether the modifications of
client codes are being carried on as per the strict objective
criteria set by the Stock Exchange. Appropriate disciplinary
action shall be taken by the Exchange, if any deficiency is
observed.
2.6.5. Waiver of Penalty
I. Exchanges may waive penalty for a client code modification
where broker is able to produce evidence to the satisfaction
of the exchange to establish that the modification was on
account of a genuine error. However, not more than one
such waiver per quarter may be given to a broker for
modification in a client code
Explanation: If penalty wavier has been given with regard to
a genuine client code modification from client code AB to
client code BA, no more penalty waivers shall be allowed to
the stock broker in the quarter for modifications related to
client codes AB and BA
II. Exchanges shall submit a report to SEBI every quarter
regarding all such client code modifications where penalties
have been waived.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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2.6.6. SEBI shall examine the implementation of above mentioned norms
during the inspection of stock Exchange.12
2.7. Daily Price Limit for Agricultural and Non-Agricultural Commodity
Derivatives
2.7.1. Agricultural commodity derivatives13
I. The following daily price limits have been decided upon:
Commodity Initial Enhanced Total
Slab Slab DPL
Barley, Chilli, Jeera, Turmeric 2% 2% 4%
Other Agricultural Commodities 3% 1% 4%
II. DPL shall have two slabs- Initial and Enhanced Slab. Once the
initial slab limit is reached in any contract, then after a period of
15 minutes this limit shall be increased further by enhanced
slab, only in that contract. The trading shall be permitted during
the 15 minutes period within the initial slab limit. After the DPL
is enhanced, trades shall be permitted throughout the day within
the enhanced total DPL of 4%.
III. The above slab-wise DPL norm shall be applicable uniformly on
all trading days.
2.7.2. Non- Agricultural Commodity Derivatives14
I. Following slabs shall be applied for DPL of all non-agricultural
commodity derivatives:
Name of Initial 1st 2nd Aggregate
Commodity Slab of Enhanced Enhanced DPL
DPL Slab of DPL Slab of DPL
Steel 4% 2% Not 6%
Applicable
Gold 3% 3% 3% 9%
Other Non-Agri 4% 2% 3% 9%
Commodities
12 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/43 dated March 29, 2016
13 SEBI circular no CIR/CDMRD/DMP/2/2016 dated January 15, 2016
14 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/83 dated September 07, 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
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II. DPL for Gold and other non-agri commodities (excluding steel):
A. DPL shall have three slabs as mentioned in table above.
Once the trade hits the prescribed Initial slab, the DPL shall
be relaxed further by‘1st Enhanced Slab’ without any cooling
off period in the trading. In case, ‘1st Enhanced Slab’ is also
breached, then after a cooling off period of 15 minutes, the
DPL shall be further relaxed by ‘2nd Enhanced Slab’.
B. During cooling off periods trading shall continue to be
permitted within the previous slab of DPL.
C. In case price movement in referenceable international
market is more than the aggregate DPL, the same may be
further relaxed in steps of 3% by Exchanges. Exchanges
shall immediately inform Integrated Surveillance
Department (ISD) of SEBI about any such relaxation of
DPLs beyond Aggregate DPL, along with all the relevant
details and justification.
III. DPL for Steel shall have two slabs as mentioned in table above.
Once the trade hits the prescribed initial slab, the DPL shall be
relaxed further by ‘1st Enhanced Slab’ (i.e. 2%) after a cooling
off period of 15 minutes. During cooling off periods trading shall
continue to be permitted within the previous slab of DPL. There
shall not be further relaxation of DPL during that day.
2.7.3. DPL on First Trading Day of the Contract (For Agri/Non-Agri
Commodity Derivatives)15
I. For fixing DPL slabs, base price shall be taken as previous day’s
closing price of the contract, however for the first trading day
(launch day) of each contract, Exchange shall determine base
price as under :
A. Volume Weighted Average Price (VWAP) of the first half an
hour, subject to minimum of ten trades
B. If sufficient No. of trades are not executed during the first half
an hour, then the VWAP of first one hour trade subject to
minimum of ten trades.
C. If sufficient No. of trades are not executed even during the
first hour of the day then VWAP of the first ten trades during
the day
15 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/83 dated September 07, 2016
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Securities and Exchange Board of India
D. The base price arrived as per (A) or (B) or (C) above, as the
case may be, shall be calculated by the Exchange and shall
be used to determine DPL for the remaining part of the day
2.7.4. For any commodity derivatives, exchanges at their discretion may
prescribe DPL narrower than the slabs prescribed by SEBI in case
they require so based upon their analysis of price movements and
their surveillance findings.
2.8. Suspension of Forward Segment16
2.8.1. It has been decided that participants in Forward Segment shall not
be allowed to enter into fresh contracts till further orders.
2.9. Options on Commodity Futures- Product Design17
2.9.1. Eligibility criteria for selection of underlying Commodity
Futures for Options: Options would be permitted for trading on a
commodity derivatives exchange only on those commodity futures
as underlying, which are traded on its platform and satisfy both the
criteria specified below on the respective exchange:
I. The underlying 'Futures contracts' on the corresponding
commodity shall be amongst the top five futures contracts in
terms of total trading turnover value of previous twelve months;
II. The average daily turnover of underlying futures contracts of the
corresponding commodity during the previous twelve months,
shall be at least :
A. INR 200 crore for agricultural and agri-processed
commodities
B. INR 1000 crore for other commodities.
2.9.2. Product Design for Options on Commodity Futures: The
product design framework would be in conformity with the
guidelines prescribed below:
I. Underlying: Commodity futures contract (of a specified month)
traded on the corresponding exchange.
16 SEBI circular no CIR/CDMRD/DMP/2/2016 dated January 15, 2016
17 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2017/55 dated June 13, 2017
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II. Settlement Method: On exercise, option position shall devolve
into underlying futures position as follows:-
A. long call position shall devolve into long position in the
underlying futures contract
B. long put position shall devolve into short position in the
underlying futures contract
C. short call position shall devolve into short position in the
underlying futures contract
D. short put position shall devolve into long position in the
underlying futures contract
All such devolved futures positions shall be opened at the strike
price of the exercised options.
III. Exercise Style: To begin with European Style options are
permitted.
IV. Minimum Strikes: Each option expiry shall have minimum
three strikes available viz., one each for In the Money (ITM), Out
of the Money (OTM) and At the Money (ATM).
V. Exercise Mechanism:
On expiry, following mechanism shall be adopted by Exchanges
for exercise of the options contracts:
A. Option series having strike price closest to the Daily
Settlement Price (DSP) of Futures shall be termed as At the
Money (ATM) option series.
This ATM option series and two option series having strike
prices immediately above this ATM strike and two option
series having strike prices immediately below this ATM strike
shall be referred as ‘Close to the money’ (CTM) option
series.
In case the DSP is exactly midway between two strike
prices, then immediate two option series having strike prices
just above DSP and immediate two option series having
strike prices just below DSP shall be referred as ‘Close to
the money’ (CTM) option series.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
B. All option contracts belonging to ‘CTM’ option series shall be
exercised only on ‘explicit instruction’ for exercise by the
long position holders of such contracts.
C. All In the money (ITM) option contracts, except those
belonging to ‘CTM’ option series, shall be exercised
automatically, unless ‘contrary instruction’ has been given by
long position holders of such contracts for not doing so.
D. All Out of the money (OTM) option contracts, except those
belonging to ‘CTM’ option series, shall expire worthless.
E. All exercised contracts within an option series shall be
assigned to short positions in that series in a fair and non-
preferential manner.
VI. Trading Hours: Trading hours shall be same as those of
corresponding futures contract.
VII. Expiry Day: Expiry day of options contracts shall be decided by
Exchange based upon period of high liquidity of underlying
futures contract and shall be part of option contract
specifications.
VIII. Position Limits:
A. Position limits for options shall follow the same norms as
provided for futures.
B. Position limits of options would be separate from position
limits of futures contracts and numerical value for client
level/member level limits shall be twice of corresponding
numbers applicable for futures contracts.
C. Due to separate position limits for options, there is a
possibility that post exercise of options i.e. after devolvement
of options into corresponding futures positions open
positions for clients/members may exceed their permissible
position limits for future contracts. For such clients/members
Exchanges may permit maximum up to two trading days
post option expiry day to reduce their futures positions to
bring them within the permissible position limits.
2.9.3. It is decided that initially, on a pilot basis each exchange shall be
allowed to launch options on futures of only one commodity that
meets the criteria prescribed above.
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2.9.4. The Commodity derivatives exchanges willing to start trading in
options contracts shall take prior approval of SEBI for launching
such contracts
2.10. Position Limits for Agricultural and Non- Agricultural Commodity
Derivatives/Hedgers
2.10.1. General Norms For Position Limits18
The following norms shall be applicable to the Agricultural as well
as Non- Agricultural commodity derivatives at commodity level:
I. Numerical value of overall client level open position
limits, shall be applicable for each commodity as
explained subsequently.
II. The Exchanges, however, in their own judgment, may
prescribe limits lower than what is prescribed by SEBI by
giving advance notice to the market under intimation to
SEBI.
III. For the purpose of position limits, norms applicable on
client level positions shall also be applicable to the
proprietary positions of trading members and while
calculating member’s open positions, his proprietary
positions shall be treated and computed like a client’s
positions.
IV. For the purpose of calculating overall position of a
member, the overall position of its all clients (as
determined in Clause ‘2.10.2(I) or 2.10.3 (I)’below) shall
be added without netting off among themselves as also
against proprietary positions of the member. Thus, all
long clients and all short clients shall be added up
separately and higher of the two shall be reckoned as
Member’s open position in a commodity derivative.
2.10.2. Agricultural Commodity Derivatives19
Following norms shall be applicable on Agricultural commodity
derivatives at commodity level:
I. For the purpose of calculating positions of a client, all long
and short positions of the client across all contracts shall be
18 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
19 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
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Securities and Exchange Board of India
added up separately and higher of the two shall be
considered as his overall open position.
II. For determination of numerical value of overall client level
open position limits, following framework is prescribed for
agricultural commodities20:
A. Categorization of commodities: In any given year, based
on the average of production data and import data of past
five years on a rolling basis and keeping in view various
extraneous factors that affect the trading in derivatives, the
agricultural commodities shall be classified into three
categories viz., sensitive, broad and narrow as below:-
i. Sensitive commodity: An agricultural commodity
shall be classified as a sensitive commodity if it:
a. is prone to frequent Government/External
interventions. These interventions may be in the
nature of stock limits, import/export restrictions
or any other trade related barriers; or
b. has observed frequent instances of price
manipulation in past five years of derivatives
trading
ii. Broad Commodity: An agricultural commodity shall
be classified as ‘Broad Commodity’ if it is not
‘Sensitive Commodity’ and satisfies following
criteria;
a. Average deliverable supply for past five year is
at least 10 lakh Metric Ton (MT) in quantitative
term and is at least INR 5,000 Crore in monetary
term.
iii. Narrow Commodity: An agricultural commodity
which is not falling in either of the above two
categories, viz ‘Sensitive’ or ‘Broad’ commodity,
shall be classified as ‘Narrow Commodity’
B. Deliverable Supply: The deliverable supply for an
agricultural commodity would be “Production + Imports”
C. Client Level Numeric Position Limits: Numerical Value
of overall client level open position limits for each
commodity shall be calculated from 'deliverable supply'
20 Revised via SEBI circular SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July 25, 2017
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Securities and Exchange Board of India
available in a particular year, as per its category as given
below:
Category of Commodity Position limits
Broad 1% of the deliverable supply
Narrow 0.5% of the deliverable supply
Sensitive 0.25% of the deliverable supply
The numbers arrived based upon above formula should be
rounded off downward to appropriate number of zeroes.
D. Yearly Categorization of commodities and
computation of position limits:
i. All the national commodity derivatives exchanges shall
jointly classify agricultural commodities into the afore-
stated three categories on annual basis as per the
principles indicated at para No. II(A) above.
ii. Whenever an agricultural commodity of 'narrow' category
is required to be re-categorized to 'broad' in subsequent
years, such re-categorization may be possible only if
both, average deliverable supply of such commodity for
the past five years and monetary value thereof as
mentioned at Para ‘II(A)(ii)(a)’ exceeds by more than 5%.
iii. For determination of 'deliverable supply' of various
agricultural commodities for each year, the national
commodity derivatives exchanges shall take into account
the latest production figures of such commodities as
annually declared by relevant government sources or
from the latest ‘third advance estimates’ of agricultural
commodities published by the Ministry of agriculture or
any other yearly estimates/assessments of production
and imports made by any governmental agencies such
as Ministry of Agriculture, Ministry of Textiles, Ministry of
Commerce, different statutory boards/associations etc.,
concerned with different agricultural commodities. The
national commodity derivatives exchanges shall indicate
the sources from which the production and import / export
data have been obtained for the purpose of determination
of 'deliverable supply’ of different agricultural
commodities.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
iv. Every year, for each agricultural commodity that is being
traded in the derivatives market, all national commodity
derivatives exchanges shall jointly complete the exercise
of determination of ‘deliverable supply, categorization/re-
categorization of commodities and computation of
numerical value of position limits. Numerical values of
position limits for any agricultural commodity shall be
revised only if the computation results in a revision in the
value by at least 5% compared to previous year's limits.
Exchanges shall, after prior intimation to SEBI, notify
such details to the market through their respective
websites sufficiently in advance and latest by 31st of July
(unless extended by SEBI under exceptional
circumstances) of every year and revised limits shall
become applicable for all running contracts with effect
from 1st of September of every year
v. Dissemination of Information on Website: In order to
provide necessary information to the stakeholders the
Exchanges shall prominently disseminate on their
websites the details of five year average deliverable
supply, current year deliverable supply, source of data,
categorization of the commodity, position limits etc. for
each of the commodity traded on their exchange, as per
the format given in Annexure D.21
vi. In the interest of trade and public, SEBI may exercise its
due discretion in modifying the aforesaid position limits at
any time during the year.
III. The overall member level position limits across all contracts
shall be 10 times the numerical value of client level position
limit or 15% of the market-wide open interest, whichever is
higher.
IV. Near Month Position Limits : In case of near month
contracts:
A. Client level position limits shall be equivalent to the one
fourth of the overall Client level position limit as prescribed
in II under 2.10.2 above.
B. Member level position limits shall also be equivalent to the
one fourth of the overall member level position limit.
C. For calculating near month open position of a client, higher
of long and short positions of the client in near month
21 Added via SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2018/96 dated June 11, 2018
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Securities and Exchange Board of India
contracts to be considered. Thus, netting out near month
contract with off-setting positions in far months contracts
shall not be permitted for the purpose of computation of
near month position of any client.22
D. For calculating near month open position of a member, the
position of the clients as determined in IV (C) above will be
added without netting off among themselves as also
against proprietary position of the member (which will also
be treated like a client position). All longs and shorts will
be added up separately and higher of the two will be
reckoned.23
V. Exchange-wide Position Limit for Agricultural
Commodities: The overall Exchange-wide gross position
limit on open interests shall be 50% of its ‘deliverable supply’
determined for the relevant year, which shall also be jointly
notified by Exchanges along with client level numerical
limits.24
2.10.3. Non-Agricultural Commodity Derivatives25
The following norms shall be applicable to Non- Agricultural
commodity derivatives at commodity level:-
I. For the purpose of calculating overall position of a client,
all long and short positions of the client across all contracts
shall be netted out.
II. Client level position limits shall be equivalent to the
numerical level limit as given in table in Annexure E or 5%
of market-wide open interest, whichever is higher.
III. Member level position limits shall be 10 times of the
numerical value of client level position limits or 20% of the
market-wide open interest, whichever is higher.
2.10.4. Clubbing of Open Positions26
I. While calculating open positions for the purpose of position limits,
Exchanges shall take suitable measures for clubbing of open
positions of clients/members who may be acting in concert to
circumvent the norms of position limits. The broad guidelines for
clubbing of open positions are provided in Annexure F to the
circular.
22 SEBI circular no. CDMRD/DMP/CIR/32/2016 dated January 29, 2016
23 SEBI circular no. CDMRD/DMP/CIR/32/2016 dated January 29, 2016
24 Revised via SEBI circular SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July 25, 2017
25 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
26 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
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II. In this regard all national commodity derivatives exchanges are
directed to jointly formulate a uniform guidelines and disclose the
same to the market.
2.10.5. Monitoring of Position Limits27
Exchanges shall monitor the open position on a real time basis, and shall
endeavor that no client or member breaches the open position limits 'at end
of the day' as well as 'during intra-day trading'. Penalty shall be levied on
those breaching the position limits at end of the day as well as during intra-
day trading as provided in Annexure G.
2.10.6. Position Limit For Hedgers28
I. In order to facilitate larger participation by genuine hedgers by
providing them with necessary incentives with a view to deepen the
commodity derivatives market, the exchanges shall stipulate a
Hedge Policy for granting hedge limits to their members and clients.
The Exchanges shall widely publicize their respective hedge policy
by holding awareness programmes for the target participants and
making it publicly available on their website.
II. In this regard, the Exchanges shall adhere to the following broad
guidelines while granting hedge limit Exemptions to their members
and clients:
A. The hedge limit to be granted by the Exchanges to the bona fide
hedgers shall be in addition to the normal position limit allowed
to it. Such hedge limit is non-transferrable and shall be utilized
only by the Hedger to whom the limit has been granted and not
by anyone else
B. This hedge limit granted for a commodity derivative shall not be
available for the near month contracts of the said commodity
from the date of applicability of near month limit
C. Hedge limits for a commodity shall be determined on a case to
case basis, depending on applicant’s hedging requirement in the
underlying physical market based upon his/its Export or import
commitments/ Stocks held/ Past track record of Production or
Purchase or Sales/Processing capacity and other factors as the
Exchanges may deem appropriate.
27 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
28 SEBI Circular NO. SEBI/HO/CDMRD/DMP/CIR/P/2016/71 dated August 19, 2016
Page 34 of 217
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D. The Exchanges shall undertake proper due diligence by
verifying documentary evidence of the underlying exposure and
ensuring that the hedge limit granted is genuine and does not
have the potential to disturb the equilibrium of the market of that
particular derivative contracts.
E. The hedge limit may also be made available in respect of the
short open position acquired by an entity for the purpose of
hedging against the stocks of commodities owned by it and,
i. pledged with the Scheduled Commercial Banks/Co-
operative Banks
ii. lying in any Government Entity’s warehouse/ WDRA
Approved warehouses or
iii. lying in any other premises (warehouse, factory
etc.),provided the premises is either owned by the hedger
or taken on lease by the hedger in its name and
Exchange has ascertained that such premises are well
equipped with quality control safeguards for storage of
the relevant commodity
and shall be subject to the production of the relevant Bank
Certificate/Warehouse Receipt, as the case may be, and also
shall be subject to verification regarding ownership of the
stocks etc., by the Exchange in accordance with the procedure
laid down by the Exchange in this regard.
F. At any point of time during the hedge period, hedging positions
taken in derivatives contracts by hedger, across multiple
Exchanges/ Contracts, shall not exceed his/its
actual/anticipated exposure in the physical market, even if there
is a usable hedge limit available as per allocation made by the
Exchanges to the hedger.
G. If under any circumstances a hedger is found availing hedge
limit in contrary to the guideline framed by the SEBI/Exchanges
or submits false document or fails to inform Exchange timely
about reduction of underlying exposure based upon which it has
been allocated hedge limit by Exchange, it shall be liable for
expulsion from membership/prohibition from trading as the case
may be. Such action shall be without prejudice to other
disciplinary actions including penalties prescribed by
Exchanges.
H. A Hedger having availed of benefit of hedge limits, shall
preserve relevant records for a period of minimum three years
for inspection by SEBI/Exchange.
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I. The hedge limit approved by an exchange shall be valid for a
period as mentioned in the approval letter and such hedge limit
shall stand cancelled automatically upon expiry of such period
without any notice.
J. The Exchanges shall disclose on their website the hedge
position allocated to various hedgers, indicating the period for
which approval is valid, in an anonymous manner. The
disclosure shall be made in the following format:
Sr. Name of Hedge Long Short Date of Applicati Approv Date till
the r Hedg Hedg making on al Start Approv
Commod e e applicati Approval Date al is
ity Limit Limit on Date valid
s s
1. Hedger
1
2. Hedger
2
2.11. Requirements for Commodity Derivative Exchanges on their
Websites29
2.11.1. To promote transparency in the markets, Exchanges shall
disclose following info their website:
I. Position of top 10 trading clients in buy side as well as sell
side in order of maximum open interest in anonymous
manner every day after the end of trading session
II. The delivery intent of the hedgers on a daily basis in an
anonymous manner
III. The pay-in and pay-out of commodities made by top 10
clients including hedgers 10 days after completion of
settlement, for the information of the market
IV. Their members’ proprietary position on monthly basis. The
disclosure shall include average daily proprietary position
(during the month) as a percentage of member’s average
daily total position (including clients) and average daily
margin on proprietary position (during the month) as a
percentage of margins on member’s average daily total
position (including clients)
29 SEBI circular no SEBI/HO/CDMRD/DMP/2016/101 dated September 27, 2016
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V. The percentage of proprietary trade and client trade done
and also specify as to what percentage of this trade is by
algorithmic trading/HFT. This information shall be
displayed before opening of the markets on the next day.
VI. Members’ data as mentioned in Annexure H.
VII. List of the members whose request of surrender has been
approved by the Exchange, along with date of approval
VIII. Break up of funds contributed into Settlement Guarantee
Funds and will be updated on quarterly basis
IX. Disclosure of information regarding trading activity during
life cycle of contract as mentioned in Annexure I.
2.11.2. The Exchanges which are suspending/expelling/declaring defaulter
their members for irregularities/violation of regulatory measures
and other various reasons, shall disclose following information on
their website-
I. The details of member (Name, Address, Names of
Promoters/Owners/Partners/Directors of Company,
Registration No. etc.)
II. The details of disciplinary action taken by the Exchange
2.11.3. These disclosure requirements are in addition to those disclosure
mandated in various circular issued by SEBI wherein the
exchanges are required to make requisite disclosures
2.12. Disclosure of Proprietary Trading by Commodity Derivatives
Broker to Client30
2.12.1. With a view to increase the transparency in the dealings between
the broker and the client, it has been decided that every broker shall
disclose to his client whether he does client based business or
proprietary trading as well.
2.12.2. The broker shall disclose the aforesaid information to his existing
clients within a period of one month from the date of this circular.
2.12.3. Further, the broker shall disclose this information upfront to his new
clients at the time of entering into the Know Your Client agreement.
30 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/49 dated April 25, 2016
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2.12.4. In case of a broker who at present does not trade on proprietary
account, chooses to do so at a later date, he shall be required to
disclose this to his clients before carrying out any proprietary
trading
2.13. “Pro – account” Trading Terminals31
2.13.1. Facility of placing orders on “pro-account” through trading terminals
shall be extended only at one location of the members as specified
/ required by the members
2.13.2. Trading terminals located at places other than the above location
shall have a facility to place orders only for and on behalf of a client
by entering client code details as required / specified by the
Exchange / SEBI.
2.13.3. In case any member requires the facility of using “pro-account”
through trading terminals from more than one location, such
member shall be required to submit an undertaking to the exchange
stating the reason for using the “pro-account” at multiple locations
and the exchange may, on case to case basis after due diligence,
consider extending the facility of allowing use of “pro-account” from
more than one location.
2.13.4. Exchanges are directed to take necessary disciplinary action
wherever such facility is being misused by any member.
2.14. Participation of category III Alternative funds (AIFs) in Commodity
Derivatives Market32
2.14.1. Category-III Alternative Investment Funds (AIFs) are allowed to
participate in the commodity derivatives market subject to the
following conditions:
i. Category III AIFs may participate in all commodity derivatives
products that are being traded on the commodity derivatives
exchanges as ‘clients’ and shall be subjected to all the rules,
regulations and instructions, position limit norms as may be
applicable to clients, issued by SEBI and Exchanges from time
to time.
ii. Category III AIFs shall invest not more than ten percent of the
investable funds in one underlying commodity.
31 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/49 dated April 25, 2016
32 SEBI Circular No SEBI/HO.CDMRD/DMP/CIR/P/2017/61 dated June 21, 2017
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Securities and Exchange Board of India
iii. Category III AIFs may engage in leverage or borrow subject to
consent from the investors in the fund and subject to a
maximum limit, as specified by the Board from time to time.
iv. Category III AIFs shall make disclosure in private placement
memorandum issued to the investors about investment in
commodity derivatives. Consent of existing investor(s) shall
be taken by AIFs if they intend to invest in commodity
derivatives and exit opportunity should be provided to
dissenting investor(s).
v. If applicable, AIF shall also comply with RBI notification No.
FEMA. 355/2015-RB dated November 16, 2015 and all other
guidelines issued by the RBI under Foreign Exchange
Management Act, 1999 from time to time.
vi. Category III AIF shall be subject to the reporting requirements
as may be specified by SEBI.
vii. The participation of Category III AIF in the commodity
derivatives market shall be subject to the compliance of the
provisions of SEBI (Alternative Investment Funds)
Regulations, 2012 and circulars issued thereunder.
2.15. Role of Independent Oversight Committee for Product design 33
2.15.1. In order to bring uniformity with respect to the role of the oversight
committee on product design, and after having discussions with
commodity derivatives exchanges on this issue, it is decided that
the functions of the oversight committee for ‘Product Design’ in all
the commodity exchanges shall be as under-
I. To oversee matters related to product design such as
introduction of new products/contracts, modifications of
existing product/contract designs etc. and review the design
of the already approved and running contracts.
II. To oversee SEBI inspection observation on Product Design
related issues.
III. To estimate the adequacy of resources dedicated to Product
design related function.
33 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2018/12 dated January 22, 2018
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2.15.2. The head(s) of department(s) handling the above matters shall
report directly to the committee and also to the Managing Director.
Any action of the Exchange against the aforesaid head(s) shall be
subject to an appeal to the committee, within such period as may
be determined by the governing board.
2.16. Sharing of Information in Case of declaration of Member as
defaulter in case of Multiple Membership34
2.16.1. Whenever a member of any segment is declared defaulter, the
concerned Stock Exchange/Clearing Corporation shall immediately
declare it a defaulter in all its segments. It shall also immediately
inform all other Stock Exchanges/Clearing Corporations the details
of the defaulter member such as name of the member, the names
of the proprietors/ partners/ promoters/ dominant shareholders, as
applicable.
2.16.2. Immediately on receipt of the information about default of a
member, the other Stock Exchange / Clearing Corporation shall
declare the said member defaulter on all its segments.
2.16.3. The Stock Exchanges / Clearing Corporations shall take
appropriate action against the associates of defaulter member. For
this purpose, the term ‘associate’ shall include a person:
I. who, directly or indirectly, by itself, or in combination with
other persons, exercises control over the member, whether
individual, body corporate or firm or holds substantial share
of not less than 15% in the capital of such entities;
or
II. in respect of whom the member, individual or body corporate
or firm, directly or indirectly, by itself or in combination with
other persons, exercises control;
or
III. whose director or partner is also a director or partner of the
member, body corporate or the firm, as the case may be.
Explanation: The expression “control" shall have the same meaning
as defined under clause (e) of Regulation 2 of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 2011.
34 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/102 dated September 27, 2016
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2.17. Broad guidelines on Algorithmic Trading for National Commodity
Derivatives Exchanges35
2.17.1. Any order that is generated using automated execution logic shall
be known as algorithmic trading.
2.17.2. The commodity exchanges shall have arrangements, procedures
and system capability to manage the load on their systems in such
a manner so as to achieve consistent response time to all
members. The capacity of the trading system of the Exchange
should be at least four times the peak order load encountered and
the Exchange system should be upgraded on a regular basis. The
exchange shall continuously study the performance of its systems
and, if necessary, undertake system upgrade, including periodic
upgrade of its surveillance system, in order to keep pace with the
speed of trade and volume of data that may arise through
algorithmic trading.
2.17.3. While approving the algorithmic trading, the Exchanges shall
ensure that:
I. There is clear classification of algorithmic orders in terms of
CTCL terminal code/ATS User ID approved by the Exchange
for algorithmic trading.
II. The orders of clients are routed through member server only
and client orders are not placed directly to the Exchange
System.
III. The Exchanges shall not approve algorithms that may not be
conducive to efficient price discovery or fair play.
IV. The Exchange shall subject the systems of the members to
initial conformance tests and ensure that the checks
mentioned in these guidelines are in place.
V. Immediate Or Cancel (IOC) orders shall not be allowed to be
placed using algorithmic trading.
VI. The algorithms which will ‘take liquidity’ away from the market
shall not be approved. While approving algorithmic strategies,
Exchanges shall record the reason as to why such strategy is
allowed and how it will induct more liquidity in the contract
system. Exchanges shall also make half yearly review of effect
35 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/97 dated September 27, 2016
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of the approved strategies on liquidity and would discontinue /
disapprove any strategy which fails to induct liquidity.
2.17.4. As mini and micro contracts are targeted towards small
participants, while allowing algorithmic trading in mini and micro
contracts Exchange should exercise caution and permit algorithmic
trading only after taking into account liquidity in the contract and
ascertaining that it will not put small participants in disadvantage.
2.17.5. Co-Location, Co–Hosting or any other facility or arrangement which
puts some members in disadvantageous position vis-à-vis other
members shall not be allowed. Algorithmic trading shall not be
permitted from Exchange hosted CTCL terminals.
2.17.6. In order to ensure orderly trading in the market and fair usage of
the trading platform by all the members, Exchanges shall put in
place the following economic disincentives for daily algorithmic
order–to–trade ratio:
Member-wise Daily Order-to-Trade Ratio Charges
(X) (Per order)
Up to 50 NIL
50 to less than 250 (on incremental basis) 1 paise
250 to less than 500 (on incremental basis) 5 paise
500 or more than 500 (on incremental basis) 5 paise
I. In case the ratio is 500 or more than 500 during a trading day,
the concerned member shall not be permitted to place any
order for the first 15 minutes on the next trading day (in the
continuous trading session) as a cooling off action . However,
the trading member shall be permitted to enter transaction
in risk reducing mode during such a cooling off period.
II. For the purpose of calculation of daily Order-to-trade ratio, all
algorithmic orders, i.e. order entry, order modifications and
order cancellation shall be considered.
III. The algorithmic orders entered and /or modified within 1 %
of the last traded price (LTP) of the respective contract shall
not be included in the calculation of the Order-to-Trade ratio
for the purpose of arriving at the penalty for higher order-to-
trade ratio.
IV. The penalty structure will be applicable for only those
members who have placed 10,000 orders or more in a day.
V. The exchange shall put in place monitoring systems to identify
and initiate measures to impede any possible instances of
order flooding by algorithmic trading.
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2.17.7. The exchanges shall place a limit (X) on the numbers of orders per
second from a particular CTCL ID/ATS User-ID not exceeding
hundred orders per second. Compliance with the limit “X” so set by
a particular CTCL ID/ATS User-ID shall be measured over a
rolling period of five seconds (i.e., 5X orders for 0th–5thsecond,
5X orders for 1st-6th second, 5X orders for 2nd to 7th second and
so on).
2.17.8. For number of orders exceeding the limit (X) set by the exchange,
the exchange shall prescribe economic disincentives and shall
inform the same to SEBI.36
2.17.9. The exchanges shall ensure that all algorithmic orders are
necessarily routed through members servers located in India and
through specified CTCL ID/ATS User–ID approved by exchange for
algorithmic trading. The exchanges shall also ensure that these
have no interlink with any system or ID located/ linked outside India.
2.17.10. The exchange shall have appropriate multi-layer risk control
mechanism to address the risk emanating from algorithmic orders
and trades. The minimum order –level risk controls shall include the
following.
I. Market orders shall not be allowed to be placed using
algorithmic trading, only limit orders shall be allowed.
II. Daily Price Limit check: The price quoted by the order shall
not violate the daily price limit specified for the contract.
III. Maximum order size check: The quantity quoted in the
order shall not violate the maximum order size limit defined
in the contract specifications.
IV. Net open position check: The quantity quoted in the order
shall not violate the position limits at member level and
client level.
V. Market Price Protection: Within the daily price limit, the
exchanges may prescribe any other limit which may be a
pre – set percentage of LTP.
2.17.11. In the interest of orderly trading and market integrity, the
exchanges shall put in place a system to identify dysfunctional
algorithms (i.e. algorithms leading to loop or runaway situation) and
take suitable measures , including advising the member, to shut
down such algorithms and remove any outstanding orders in the
system that have emanated from such dysfunctional algorithms.
Further, in exigencies, the exchange should be in a position to shut
down the member’s terminal.
36 Revised via SEBI circular no SEBI/HO/CDMRD/DRMP/CIR/P/2018/60 dated April 03, 2018
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2.17.12. The exchange may seek details of algorithmic strategies to be used
by the members for purposes of inquiry, surveillance, investigation
etc.
2.17.13. Any event leading to slow down or trading halt or any other
abnormal development shall be immediately reported to Integrated
Surveillance Department of SEBI with full details.
2.17.14. The Exchanges shall ensure that the member shall provide the
facility of algorithmic trading only upon the prior written permission
of the exchange. While considering such approval, the exchanges
shall ensure that the controls specified in these guidelines are fully
implemented by the member.
2.17.15. The other risk management checks already put in place by the
exchange shall continue and the exchange may re-evaluate such
checks if deemed necessary in view of algorithmic trading.
2.17.16. Exchange shall have an effective surveillance mechanism to
ensure that only approved algorithmic strategies are used.
2.17.17. The Exchanges shall further ensure that their members providing
the facility of algorithmic trading comply with the provisions of these
guidelines. The exchange shall specifically ensure that.
I. The members maintain sufficient deposits / funds for margin/
settlement obligations, in respect of the trades effected through
algorithmic facility, whether on own account or client’s account
and that algorithmic trading does not result in shortages in
margin deposit or settlement obligation.
II. The member’s trades routed through algorithmic trading are not
in the nature of abnormal / manipulative trades.
III. The annual compliance report as submitted by member to the
exchange includes a specific system audit report of the
algorithmic trading ensuring that the checks are in place.
System Audit of algorithmic trading shall be undertaken by a
system auditor who possess any of the following certifications37
:
A. CISA (Certified Information System Auditors)from
ISACA (Information Systems Audit and Control
Association)
37 Revised via SEBI circular no SEBI/HO/CDMRD/DRMP/CIR/P/2018/60 dated April 03, 2018
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B. DISA (Post Qualification Certification in Information
System Audit ) from Institute of Chartered
Accountants of India (ICAI);
C. CISM (Certified Information Securities Manager)
from ISACA:
D. CISSP ( Certified Information System Security
Professional) from International Information
Systems Security Certification Consortium ,
commonly known as (ISC).
IV. Further, the exchange shall subject the member systems to
more frequent system audits, as required.
V. The members have the capability to set up and apply the
necessary risk control checks at the individual order level and
client level before each order generated by the algorithmic
trading is released to the trading system and implements the
following minimum level of checks:
A. Daily Price Limit: Orders are not released in violation
of the daily price limit defined in the contract
specification or any other limit which may be
prescribed by the Exchange.
B. Maximum Order Size: Order are not released in
violation of the maximum order size limit defined in
the contract specification.
C. Position limit: The net position of the client / member
are not in violation of the position limits prescribed for
the respective commodity.
D. An algorithmic trading shall account for all executed,
unexecuted and unconfirmed orders, placed by it
before releasing further order(s). Further, the
algorithmic system shall have pre-defined
parameters for an automatic stoppage in the event of
algorithmic execution leading to a loop or a runaway
situation. The member shall have system to identify
dysfunctional algorithms.
E. All algorithmic orders are tagged with a unique
identifier provided by the exchange in order to
establish audit trail.
VI. The Exchange shall ensure that the member, desirous of
placing orders using algorithms, submit to the exchange an
undertaking that-
A. The member has proper procedures, systems and
technical capability to carry out trading through the use
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of algorithms and to safeguard algorithms from misuse
or unauthorized access.
B. The member has real-time monitoring systems to
identify algorithms that may not behave as expected.
Member shall keep exchange informed of such
incidents immediately.
C. The member shall maintain logs of all trading activities
to facilitate audit trail.
D. The member shall maintain record of control
parameters, orders, trades and data points emanating
from trades executed through algorithm trading.
E. The member shall obtain prior approval of the
exchange on any modification or change to the
approved algorithms or systems used for algorithms.
The Exchange shall ensure conformance of such
modified algorithms or systems also to the
requirements specified in these guidelines.
2.17.18. The Exchange shall report details regarding algorithmic trading to
SEBI in in its Monthly Development Report inter-alia incorporating
turnover details of algorithmic trading , algorithmic trading as
percentage of total trading, number of members/ clients using
algorithmic trading, action taken in respect of dysfunctional algos,
status of grievances if any, received and processed, etc.
2.18. Guidelines for Liquidity Enhancement Scheme (LES) in Commodity
Derivatives Contracts38
2.18.1. The exchanges may introduce liquidity enhancement schemes in
commodity derivatives segments subject to the following:
I. The scheme shall have the prior approval of the Exchange’s
Board and its implementation and outcome shall be monitored
by the Board at quarterly intervals.
II. The scheme shall be objective, transparent, non-discretionary
and nondiscriminatory.
III. The scheme shall specify the incentives available to the market
makers / liquidity providers and such incentives may include
discount in fees, adjustment in fees in other segments, cash
payment or issue of shares, including options and warrants.
38 SEBI circular no SEBI/HO/CDMRD/DRMP/CIR/P/2018/55 dated March 26, 2018
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IV. The scheme shall not compromise market integrity or risk
management.
V. The effectiveness of the scheme shall be reviewed by the
exchange every six months and the exchange shall submit half-
yearly reports to SEBI.
VI. The scheme, including any modification therein or its
discontinuation, shall be disclosed to the market at least 15 days
in advance.
VII. Outcome of the scheme (incentives granted and volume
achieved – market maker wise and security wise) shall be
disseminated monthly.
VIII. The scheme shall comply with all the relevant laws.
2.18.2. Commodity derivative product eligible for liquidity enhancement
schemes - The exchange shall formulate its own benchmarks for
selecting the commodity derivative product for liquidity
enhancement with the broad objective of enhancing liquidity in
illiquid securities.
I. The exchanges shall introduce liquidity enhancement schemes
on any commodity derivative product for a maximum period of
three years. Once the scheme is discontinued, the scheme can
be re-introduced on the same commodity derivative product
provided it is less than the three year period since the
introduction of scheme on that security.
II. Further, an exchange may introduce liquidity enhancement
schemes in commodity derivative product where liquidity
enhancement scheme has been introduced in another
exchange. Such schemes cannot be continued beyond the
period of liquidity enhancement schemes of the initiating
exchange.
III. The list of commodity derivative product eligible for liquidity
enhancement shall be disseminated to the market.
IV. Any commodity that is classified as ‘Sensitive Commodity’ by
the Exchange, shall not be eligible for LES.
V. If any commodity derivative product is 'liquid' on any of the
exchanges i.e. there is at least one exchange where the
average daily turnover in Options or/and Futures on similar
underlying commodity is more than or equal to INR 200 crore
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
for agricultural and agri-processed commodity, and INR 1000
crore for non-agricultural commodity during the last six months,
then no other exchange is eligible to launch LES on the same
derivative product, unless the exchange where the product is
liquid, has itself also launched a LES on said product.
VI. For the present, schemes which incentivise brokers based on
activation of new UCC (Unique Client Codes), number of trades
or open interest shall not be permissible under LES.
2.18.3. The incentives under liquidity enhancement schemes shall be
transparent and measurable, and may take either of the following
two forms:
I. Discount in fees, adjustment in fees in other segments or cash
payment - The incentives during a financial year shall not exceed
25% of the net profits or 25% of the free reserves of the exchange,
whichever is higher, as per the audited financial statements of the
preceding financial year.
II. Shares, including options and warrants, of the exchange - The
shares that may accrue on exercise of warrants or options, given
as incentives under all liquidity enhancement scheme, during a
financial year, shall not exceed 25% of the issued and outstanding
shares of the stock exchange as on the last day of the preceding
financial year. Further, the exchange shall ensure that this is in
compliance with the Securities Contracts (Regulation) (Stock
Exchanges and Clearing Corporations) Regulations, 2012 at all
times.
2.18.4. Market integrity - The exchange shall ensure the following:
I. Exchanges shall put in place a mechanism to ensure that the LES
does not create artificial volumes, does not take away liquidity
form the market, is not manipulative in nature and shall not lead
to misselling of the product in the market.
II. The exchange shall have systems and defined procedures in
place to monitor collusion between brokers indulging in trades
solely for seeking incentives and prevent payment of incentives
in such cases.
III. Incentives shall not be provided for the trades where the
counterparty is self, i.e., same Unique Client Code (UCC) is on
both sides of the transaction.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
IV. Any violations of clauses in this para shall be viewed most
seriously.
2.18.5. Market maker / liquidity enhancer - The exchange shall prescribe
and monitor the obligations of liquidity enhancers (liquidity provider,
market-maker, maker-taker or by whatever name called)
I. All market maker / liquidity enhancer orders / trades should be
identifiable by the exchange.
II. A conflict of interest framework shall be put in place by the
exchange for the liquidity enhancement scheme. Such a
framework shall provide for obligation on the part of the market
maker / liquidity enhancer to disclose any conflict of interest while
participating in the scheme. The same shall be disclosed by the
exchange on their website.
2.19. Price Dissemination through SMS/Electronic Communication
Facility39
2.19.1. Exchanges shall make efforts for registration of subscribers of Price
Dissemination services and disseminate derivatives prices to them
on a daily basis. Such direct price dissemination service would
provide information to subscribers instantly in an efficient and
transparent manner and thus shall be of great benefit to market
participants.
2.19.2. The Exchanges may provide price dissemination through SMS or
any other electronic communication facility (instant messengers,
email etc.) for all commodities.
2.19.3. The service is to be provided free of cost to the subscribers.
However, the expenditure incurred for such price dissemination
may be reimbursed from the interest accrued on the Investor
Protection Fund (IPF).
2.20. Programmes sponsored by the Exchanges through media
channels40
2.20.1. The Exchanges being neutral platforms, either as an institution or
through their functionaries, shall not sponsor or associate
39 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/76 dated August 30, 2016
40 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/72 dated August 19, 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
themselves in any manner with
programmes/seminars/workshops/activities etc. at various fora
including but not limited to TV/Radio/Social Networks/Websites or
any other media in which the discussions/suggestions are related
to the price behaviour, price outlook, trading strategy, buy/sell
recommendations, or similar subjects related to commodity
derivatives.
2.20.2. Exchanges shall also ensure that the staff members of the
Exchanges are not associated with such activities as mentioned
above. The Exchanges shall lay down a suitable code of conduct
for their executives and other staff members in this regard.
2.21. Maintenance and Preservation of Records41
2.21.1. In terms of Rules 14 and 15 of SCRR (Securities Contract
(Regulation) Rules, 1957), every recognized stock exchange and
its members are required to maintain and preserve the specified
books of account and documents for a period ranging from two
years to five years. Further, as per regulation 18 of Broker
Regulations, every stock broker shall preserve the specified books
of account and other records for a minimum period of five years. In
case such documents are maintained in electronic form, provisions
of Information Technology Act, 2000 in this regard shall be
complied with.
2.21.2. Further, it has been noticed that enforcement agencies like CBI,
Police, Crime Branch etc. have been collecting copies of the
various records/documents during the course of their investigation.
The originals of such documents maintained either in physical or in
electronic form or in both would be required by such enforcement
agencies during trial of the case also.
2.21.3. In view of the above it is clarified that if a copy is taken by such
enforcement agency either from physical or electronic record then
the respective original is to be maintained till the trial or
investigation proceedings have concluded.
2.22. Portfolio Management Services in Commodity Derivatives Market42
2.22.1. Portfolio management services are not permissible in commodity
derivatives Market.
41 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/74 dated August 30, 2016
42 SEBI Circular No SEBI/HO/CDMRD/DMP/P/CIR/2016/100 dated September 27, 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
2.23. Applicability of Principles of Financial Market Infrastructures (PFMIs)
on Commodity Derivatives Exchanges43
2.23.1. All CPSS and IOSCO members are required to strive to adopt
the PFMIs and implement them in their respective jurisdictions.
2.23.2. SEBI as a member of IOSCO is committed to the adoption and
implementation of the new CPSS-IOSCO standards of PFMIs
in its regulatory functions of oversight, supervision and
governance of the key financial market infrastructures
under its purview.
2.23.3. Currently, all Commodity Derivatives Exchanges themselves are
clearing and settling trade executed on their platform, i.e. they are
acting as Central Counterparties (CCP) in these markets.
Therefore, it has been decided that Commodity Derivatives
Exchanges (currently providing in-house clearing services) having
annual turnover of more than INR 5 Lac Crore in previous financial
year shall be deemed to be systemically important FMIs. The
criteria may be reviewed by SEBI from time to time.
2.23.4. The below-mentioned Commodity Derivatives Exchanges shall be
required to comply with the PFMIs specified by CPSS-IOSCO as
applicable to CCPs until their clearing and settlement functions are
transferred to recognised clearing corporations.
I. National Commodity & Derivatives Exchange Ltd. (NCDEX)
II. Multi Commodity Exchange of India Ltd (MCX)
2.23.5. All FMIs in the securities market shall be monitored and
assessed against the PFMIs on a periodic basis.
2.24. List of Commodities Notified under SCRA44
2.24.1. Pursuant to the repeal of the Forward Contracts (Regulation)
Act, 1952 (FCRA) and amendment to the Securities Contracts
(Regulation) Act, 1956 (SCRA), the Central Government, in
exercise of the powers conferred by clause (bc) of section 2 of
the SCRA and in consultation with the SEBI, have vide Notification
No. S.O. 3068(E) dated September 27, 2016 notified the goods
43 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/137 dated December 16, 2016
44 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P 2016/105 dated September 28, 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
specified therein, for the purpose of clause (bc) of section 2 of the
SCRA with effect from the date of the said notification.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Chapter 3. Warehousing Norms for Agriculture and Agri-processed
Commodities45
Warehousing infrastructure and its ancillary services play a critical role in the
delivery mechanism of the Commodity Derivatives Market. A robust & credible
warehousing infrastructure is sine qua non for an effective Commodity Derivatives
Market that can inspire confidence amongst the market participants and other
stakeholders. It is therefore, incumbent upon the commodity derivatives exchanges
to have in place comprehensive framework of norms for adherence by the
Warehouse Service Providers (WSP), warehouse, assayers and other allied
service providers engaged by them so as to exercise a robust mechanism, for
ensuring good delivery as mandated under the SECC Regulations. The national
commodity derivatives exchanges shall frame guidelines in accordance with the
following norms for their accredited WSPs, warehouses, assayers etc.
At the outset, it is clarified that the norms prescribed herein are the minimum
requirements/standards for compliance by the exchange accredited WSPs,
warehouses and assayers and are to be complied with in addition to those laid
down by Warehousing Development and Regulatory Authority (WDRA), any other
government authority from time to time. The Exchanges are at liberty to prescribe
additional norms/guidelines for compliance by their accredited WSPs, warehouses
and assayers, if they deem so fit, in addition to the norms laid down hereunder, for
ensuring good delivery of commodities by them. Provided that such additional
norms specified by the exchanges are not in contravention with the instruction
issued herein.
3.1. Accreditation of WSP
3.1.1. The exchanges shall follow a transparent process for accreditation
of WSP by issuing open advertisements in leading newspapers
and/or putting the same up on the exchange website and through
a transparent selection process thereafter. The selection process
being/to be followed for such accreditation shall be displayed on the
website of the Exchange in advance. The accreditation of the WSP
shall be done with the approval of the Risk Management Committee
of the Board of Directors of the Exchange. The exchange shall
ensure that the application of the WSP/warehouses are processed
within a stipulated time frame.
3.1.2. A WSP can be accredited with more than one exchange. In such
case, no exchange shall mandate that its WSP cannot provide
services to another exchange. However, it shall be ensured that
same warehouse may not be shared by more than one Exchange.
45 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/103 dated September 27, 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
3.1.3. The accreditation of a WSP shall, unless any expulsion
proceedings pending against it, be subject to renewal after a period
of 3 years considering WSP’s performance during accreditation,
quality of services and number of client complaints and effective
resolutions thereof etc.. The renewal shall be approved by the Risk
Management Committee of the Exchange. During the renewal
process, the Exchange and the WSP shall continue to be
responsible for the commodities stored till their Final Expiry date.
3.2. Eligibility and Experience of WSP/Promoters/Promoter Group of
WSP
3.2.1. A WSP shall be a corporate body and is in public warehousing
business.
3.2.2. The Promoters/ Promoter Groups of the WSP should be
responsible persons/entities of repute with a good business
reputation and credibility, and who are in the business of public
warehousing for at least 3 years as on the date of their operation
and have knowledge of, and experience in, generally accepted
warehousing and handling practices for Commodities.
3.2.3. The exchange in its discretion, may relax the above norm of 3 years
provided that the WSP or its promoter/promoter group:
I. Meets all other criteria
II. Submit an undertaking that they shall meet any additional
norm specified by exchanges within the time frame as
specified by it or 3 years whichever is earlier
3.2.4. WSP and Promoters/ Promoter Group of WSP shall have no record
of serious violation of laws or being expelled by any Exchange in
last three years. The Exchange can take an appropriate
undertaking from the WSP in this regard.
3.3. Financial Norms for the WSP
3.3.1. Capital and Net worth: A WSP shall be a corporate body with the
minimum net worth requirement as under:
a) An accredited WSP shall have at least, subscribed and paid-
up share capital of `10 crore.
b) An accredited WSP providing warehousing services shall
meet the following net worth criteria:-
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Number of commodities Minimum Networth
1 ₹10 crores
More than 1 ₹25 crores
c) Further, the exchanges shall ensure that the value of the
goods stored in the accredited warehouses of WSP shall not,
at any point of time, exceed 33 times of the net worth of the
WSP.
d) The exchanges may calculate the networth of WSP in the
following manner.
"the aggregate value of paid up equity share capital
plus free reserves (excluding statutory funds, benefit
funds and reserves created out of revaluation) reduced
by the investments in businesses, whether related or
unrelated, aggregate value of accumulated losses and
deferred expenditure not written off, including
miscellaneous expenses not written off."
e) In case of reduction in net worth below the stipulated amount,
a time period of six month may be allowed to the WSP to
augment its net worth. In the event the WSP is unable to
augment the net worth to the requisite level within the allowed
time frame, the WSP shall not carry out any new business i.e.
can not include any new warehouse for new
contracts/commodity/location. The exchange may take
suitable measures, which are disclosed on its website for
public information, with respect to the existing goods handled
by such WSP.
f) The WSP shall submit an audited net worth certificate to the
exchange every six months i.e. at the end of every March and
September, within 45 calendar days.
g) The Annual Financial Statements of the WSPs should be
audited and submitted to the Exchange within six months of
the end of Financial Year. Further, each WSP shall also be
required to file its unaudited quarterly financial statements for
all the quarters of a financial years to the exchange, within 45
calendar days of the date of a quarterly statement.
3.3.2. Security Deposit: The WSP seeking accreditation with an
exchange is required to furnish a refundable security deposit along
with the application form.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
a) Such security deposit shall be a minimum amount of `50 lakhs.
b) Security deposit shall not be released until six months after
cancellation or revocation or surrender of the accreditation of
the WSP or until after satisfaction of every claim against the
deposit, whichever is later.
c) Such security deposit shall be in form of cash or cash
equivalent like Bank Fixed Deposits, Bank Guarantees etc.
3.3.3. Financial Security Deposits (FSD)
a) The WSP shall furnish FSD in addition to the security deposit
as under:-
Value of Goods stored FSD
Up to ₹250 crores 3% of the aggregate value of
stored commodities
Above ₹250 crores and upto- 4% of the aggregate value of
₹500 crores stored commodities
Above ₹500 crores 5% of the aggregate value of
stored commodities
b) The FSD shall be in form of liquid assets with applicable
haircuts and concentration limits as listed below:-
Item Minimum haircut Limits
Cash 0 No Limit but
minimum 25%
Bank Fixed Deposit 0
Bank Guarantees 0
Securities of the 10%
Central Government
c) The exchanges shall lay down exposure limits either in rupee
terms or as percentage of the total assets to be received as
FSD/SD that can be exposed to a single bank directly or
indirectly. The total exposure towards any bank would include
Bank Fixed Deposit and Bank Guarantees issued by the bank
which have been deposited by WSPs.
d) Not more than 1% of such assets deposited with the
exchange, shall be exposed to any single bank which has a
net worth of less than INR 500 crores and is not rated P1 (or
P1+) or equivalent, by a recognized credit rating agency or by
a reputed foreign credit rating agency, and not more than 10%
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
of such deposit deposited with the exchanges shall be
exposed to all such banks put together.
e) A daily monitoring of the FSD vis-à-vis the value of the
commodities stored needs to be done so as to ensure that the
minimum stipulated FSD are always maintained with the
Exchange. The exchange may ask for additional FSD over
that stipulated above, if considered necessary.
f) The FSD vis-a-vis the value of goods stored should be marked
to market on replacement value on ongoing basis.
g) The exchanges may specify the liquidity ratio (i.e. Liquidity
Ratio= Current Assets/Current Liabilities) for WSPs, however
it is desirable that such ratio is greater than 1. The Exchanges
may, however, keep higher ratio.
3.4. Fit and Proper Criteria
3.4.1. The exchange shall ensure that the WSP, Promoters of WSP,
assayers, Key Management Personnel (KMPs) of WSPs,
warehouses and Assayers shall always be 'fit and proper' to carry
out business of warehousing, have adequate knowledge of, and
experience in generally accepted warehousing and handling
practices for Commodities, and are competent and willing to
operate such a warehouse for which the WSP has a valid
license/expertise under the appropriate state warehousing laws in
respect of the warehouses concerned.
3.5. Corporate Governance norms for WSP
3.5.1. Management and Employees: The exchange shall ensure that the
accredited WSP has a professional management team to oversee
its functioning and operations.
I. The exchange shall ensure that the Key Management
Personnel (KMPs) of WSP have adequate knowledge of,
and experience in generally accepted warehousing and
handling practices for Commodities, and are competent and
willing to operate such a warehouse, and do not have any
conflict of interest in discharge of their functions.
II. The exchanges shall ensure that the WSP/Management of
WSP (defined as ‘key managerial personnel’ including whole
time directors of WSP and their ‘relatives’ as per Companies
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Act, 2013) or entities owned or controlled by
promoters/management of WSP/Group
concerns/associates directly or indirectly or persons ‘acting
in concert’ are not allowed, either directly or indirectly, to
trade on the commodity derivatives exchange in the
commodity for which it is accredited by Exchange. The
exchange shall not provide for any exemption in this regard.
III. The Exchange may obtain an annual declaration from the
compliance officer of WSP to the effect that the
WSP/Management of WSP or entities owned or controlled
by management of WSP/Group concerns directly or
indirectly or persons ‘acting in concert’ have not traded on
exchange.
IV. The exchange shall ensure that the WSP has adequate
number of competent employees at all times who have the
experience, capacity and ability of operating the business
without any conflict of interest.
V. The exchange shall ensure that the staff/employees of the
WSP including the assayers, who are managing the day-
today affairs of the warehouses, deployed both in the office
of the WSP and in its warehouses, are duly trained on their
expected tasks through the Exchange’s delivery business
related training programmes or are deputed to attend the
certification programme on commodity derivatives and
warehousing conducted by National Institute of Securities
market (NISM).
3.5.2. Compliance officer: The WSP shall appoint a compliance officer
who shall be responsible for monitoring the compliance with
relevant Act, rules and regulations, notifications, guidelines and
instructions issued by relevant authorities from time to time. The
Compliance officer of the WSP shall ensure that all norms
mentioned are followed by the WSP and should issue a declaration
to that effect to the Exchange, at regular intervals as directed by
the exchange.
3.5.3. Standard Operating Procedure (SOP): The WSP shall have a
SOP and the exchange shall obtain a standard operating procedure
in respect of all the concerned warehouses from the WSP before
granting accreditation to such warehouses. The SOP of a
warehouse may cover the following but not restricted to:
I. Procedures for acceptance of goods to be deposited
II. Weigh bridge empanelment
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
III. Procedures for weighing, sampling of goods to be deposited
as per industry standards, Procedure for verification of
commodity and communication to depositors,
IV. Procedure for depositing and identifying the Exchange
related goods,
V. Procedure for maintaining the quality of the goods stored as
per the exchange contract specification,
VI. Procedure for Know your depositor requirements,
VII. g) Security policy for ensuring the safety of the goods from
theft, burglary etc.,
VIII. Procedure and guidelines for scientific storage of goods,
including stacking etc.
IX. Procedure for losses caused due to theft, fire, burglary,
fraud, negligence and force majeure events,
X. Procedure for internal verification of stock,
XI. Preservations of Stock – maintenance of godown hygiene,
maintenance of warehouse structure, aeration, periodical
examination of goods, classification of presence of insects,
pre-monsoon precautions etc.
XII. Selection of Location for offering warehousing services
XIII. Grievance redressal procedures
XIV. Role and responsibilities of employees (including
outsourced employees)
XV. Model warehouse agreement format
XVI. Maintenance of surroundings, infrastructure etc.
3.5.4. The WSP shall have good internal systems and controls which
should meet the operating guidelines, if any, issued by the
Exchange from time to time. The WSP shall have clear delegation
of powers to meet operational requirement.
3.5.5. A WSP shall intimate /notify in writing to the Exchange, if there is
any material change, prior to making such change.
3.5.6. WSP shall report to the Exchange within three business days of
initiation of any civil and criminal proceedings by or against it and
shall also intimate the exchange if there is probability of any such
legal proceedings being initiated involving it ,as soon as the same
comes to the knowledge of the WSP.
3.6. Know Your Depositor
3.6.1. The WSP shall comply with Know Your Depositor (KYD) Policy as
prescribed by the Exchange from time to time.
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Securities and Exchange Board of India
3.6.2. The Exchange and WSP shall at any point of time be able to identify
the depositor of the goods deposited in registered warehouses, the
owner of the deposited goods (in case the depositor is an agent of
the actual owner), and also the actual beneficiary (in case the
depositor and the beneficiary are different) of the deposited/stored
commodities.
3.7. PAN requirement
3.7.1. The exchanges shall ensure that the WSPs are under obligation to
provide to the exchanges the details including PAN numbers of its
Promoters, Promoter group entities, its holding / subsidiaries /
associates and other related entities, persons ‘acting in concert’,
Key Management Personnel at the time of accreditation and update
the same on periodical basis as mandated by the exchanges and
whenever any change is noted by WSP, in this regard.
3.8. Facilities & Infrastructure Requirement for WSP
The Exchanges shall ensure that the WSPs to be eligible for accreditation
have reasonable facility and infrastructure for proper handling and storage
of commodity such as:
3.8.1. All its warehouses are well connected with rail and/or road networks
and have sufficient space for parking and movement of large
vehicle;
3.8.2. The warehouses are physically and operationally suitable for the
proper storage of Commodities and:
I. are of sound construction and in a state of good repair. The
walls, the floor and the roof do not permit water seepage or are
source of any insect infestation;
II. have adequate equipment, installed and maintained in good
working order, as may be prescribed by the Exchange, for the
movement of commodities into, out of and within the
warehouse. Further, the employees employed at the
warehouses shall undergo training in fire safety and use of
firefighting equipments;
III. have adequate firefighting equipment installed within its
premises and have fire escapes and fire hydrant points clearly
marked;
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
IV. have required ventilation, installed and maintained in good
working order, as may be prescribed by the Exchange, for the
proper storage and preservation of quality of goods;
V. have adequate lighting arrangement as may be prescribed by
the Exchange;
VI. are free from materials and substances that may adversely
affect the quality of stored commodities;
VII. have a safe work environment;
VIII. have ensured adequate security as prescribed by the Exchange
for protection of stored or handled commodities to prevent from
tampering or adulteration;
IX. have facilities for storing the deliverable commodities of futures
contracts which need to be and piled properly in a separate
storage area as specified by the Exchange thereby providing
clear-cut demarcation between Exchange / non- Exchange
commodities.
3.8.3. WSP shall take utmost care in storing commodities for futures
contract in accordance with the climatic conditions and the nature
of commodity stored.
3.8.4. WSP shall have adequate security personnel for each of its
registered warehouse with required facilities to immediately
communicate any unlawful entry, burglary, theft or damage or
potential loss to the deposited goods to the WSP.
3.8.5. Each warehouse of an accredited WSP shall assign a special place
to store the samples used for inspection and testing for purpose of
further examination and testing.
3.8.6. WSPs shall take utmost care on daily basis for keeping
surroundings for their respective warehouses under vegetation
control and for disposal of waste which can otherwise create a
favourable habitat for rodents and other pests. WSP should
regularly inspect and verify whether rodent control structures in the
warehouse are sound and whether there are any pools of water
around the facility, which can increase the danger of water seepage
into it, and take appropriate remedial steps.
3.8.7. The exchanges shall ensure that the warehouses provided by the
WSPs are under absolute control of the WSPs. In case a
warehouse is a leased property it should be ensured that no third
party including the owner/ lessor of the warehouse, has any role to
play in the operations and managing the concerned warehouses
operated by the WSP.
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3.8.8. The exchanges shall develop the SOP with respect to the
maintenance, preservation and retrieval of data/records/books of
accounts which shall be uniformly adopted by each of their
accredited WSP/warehouse.
3.8.9. WSP shall always give priority to commodities meant for futures
contracts delivery while receiving, storing and dispatching goods. It
should have internal process that enable the Exchange to
physically verify by deputing its officials or through any agencies /
experts engaged by it, the goods deposited, the facilities available
in such warehouse, or to inspect the level of compliance g of the
warehousing norms stipulated by the exchange/regulator from time
to time.
3.8.10. The WSP shall undertake to have assaying/testing facilities for the
commodities it intends to render warehousing facility, or shall
undertake to be associated with an assaying/testing agency which
may preferably be certified by one or more national/international
agencies like NABL (National Accreditation Board for calibration
and testing Laboratories), BIS etc., as specified by the exchange.
3.8.11. The WSP shall provide for accurate and efficient weighing,
sampling, inspection and grading of the Commodities deposited in
its warehouses. The Exchange shall ensure that the WSP has
deployed personnel who have knowledge and experience in
sampling, weighing, inspecting and/or grading of commodities.
3.8.12. The WSP shall have its own or access to fumigation
facilities/agencies for pest control activities.
3.8.13. Exchanges shall ensure that the WSPs have in place, necessary
policies, control and system in place for dealing with the risk that
may be arising due to the warehouses being used for purposes
other than commodity derivatives market.
3.8.14. The exchange and WSP shall be responsible to accept the
goods/commodities in warehouses which meets the quantity and
quality parameters as per the exchange contract specifications.
The WSP shall take necessary steps to maintain the quality and
quantity of goods stored in the warehouse, in accordance with the
conditions/parameters (for maintaining the quality) as laid down by
the exchanges for each of such commodity.
3.8.15. The WSP shall display on a daily basis warehouse wise/commodity
wise details of the space available, goods deposited and held in
transit, details of location of the warehouse, particulars of rejection
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of the goods etc. on its website and the archives of such reports
shall be available on its website.
3.8.16. The WSP shall not disseminate any information that is false or
misleading or disclose any confidential information obtained during
the course of their dealings with the exchanges or their positions on
the market or as a result of their position or during the course of
performance of their duties.
3.9. Accreditation of Assayers
3.9.1. The exchanges shall follow a transparent process for accreditation
of assayers by issue of open advertisement in leading newspapers
and by putting up the same on the exchange website. The process
being followed for such accreditation shall be displayed on the
website of the Exchange in advance. The accreditation shall be
done with the approval of the Risk Management Committee of the
Board of Directors of the Exchange.
3.9.2. The Exchange shall conduct independent pre-empanelment due
diligence of Assayers by visiting the laboratories and assessing the
testing and certification facilities. The exchanges shall give
preference to the government assayers or to those Assayers who
are having testing and certification facilities at various locations
across India. In addition to the empanelment of assayers for
deployment by the WSPs at their warehouses, the exchange shall
also identify and empanel separate independent assayer(s) at each
such delivery location where the market participants can
independently get their goods/commodities assayed, at the time of
depositing into or withdrawing such commodities/goods from a
warehouse. However, if the original empanelled assayers engaged
by WSP at a delivery centre happened to be Government assayer,
then the need for empanelling an additional independent assayer
may be dispended with.
3.9.3. The exchanges shall ensure that the empanelled assayers work
independently and their operations are governed by prescribed
Standard Operating Procedures (SOPs). The assayers shall be
preferably certified by one or more national/international agencies
like NABL (National Accreditation Board for calibration and testing
Laboratories), BIS etc., and shall have the facilities as laid down by
the exchanges from time to time.
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3.10. Warehouses at delivery centres
3.10.1. The exchanges shall ensure that all the warehouses of a WSP
accredited by them are registered with the statutory authority viz.,
WDRA. The exchanges shall take necessary steps to ensure that
warehouses which are not registered with the WDRA are registered
by WDRA within 6 months from the date of such accreditation,
failing which the accreditation given to the WSP in respect of such
warehouses shall expire.
3.10.2. The exchanges shall have at least one warehouse at each of the
delivery centres (as specified in the contract specification) at the
time of launch of contract itself and address of such warehouses
shall be mentioned in the contract specifications.
3.10.3. The exchanges may accredit warehouses of a WSP within 100 kms
radius of the delivery centres depending on the feasibility and
requirements, in respect of all commodities.
3.11. Insurance
3.11.1. The WSP shall at all times ensure to fully cover under insurance,
the value of goods stored at exchange approved warehouses
against all potential perils relevant to the commodities for which
insurance cover is available and necessary.
3.11.2. The WSP shall undertake to take insurance cover for risks such as
viz. Fire and allied perils including flood, cyclone, earthquake and
spontaneous combustion, Burglary and Theft and special perils
covering riots, strikes and terrorism.
3.11.3. The WSP shall take Fidelity guarantee & crime insurance and
Professional indemnity cover to cover all deliverable stocks on the
exchange.
3.11.4. The value of goods to be insured should be marked to market on
replacement value on ongoing basis.
3.12. Monitoring/Inspection/Audit of warehouses by WSPs and Exchanges
3.12.1. Periodic inspection/audit by WSPs: The WSP should ensure that
there is periodic inspection/audit of the warehouse as well as the
commodities stored in the warehouses.
I. Inspection staff must be independent of the employees / staff
deputed at the registered warehouse.
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II. The inspection/audit report is submitted to the Exchange within
a week of the completion of such inspection/audit.
III. The Exchange shall ensure that the physical counting of stocks
and their reconciliation with the corresponding electronic
records is done periodically.
3.12.2. The WSP shall allow the members /clients holding electronic credit
balances to do physical inspection of their goods. However, the
request for such physical inspection would have to be submitted to
the Exchange and the Exchange after verification of such request,
shall forward the same to the concerned WSP for allowing such
inspection within a stipulated time.
3.12.3. Periodic inspection/audit of warehouses by the exchange: The
Exchange shall ensure that independent audit of the stocks and
other facilities in the warehouses is carried out by engaging expert
agencies, at regular intervals.
I. Such inspections shall be carried out at least twice in each
accredited warehouse in a calendar year with a gap of not more
than six months between two inspections/audits of same
warehouse.
II. In addition to the above, the audit may also be conducted on
risk profiling, as identified by the Exchange. For this purpose,
the Exchange shall form a panel of independent expert
agencies and the cost of such audit shall be borne by the
respective Exchange.
III. The result of such audit/audit report shall be displayed by the
Exchange on its website immediately after the completion of the
audit and submission of report by the auditor.
IV. The exchanges shall prepare a panel of such independent
expert agencies for carrying out inspection of warehouses,
which shall also be reviewed by the Exchange from time to time.
In addition, the Exchanges shall also conduct in-house physical
audit of accredited warehouses at regular intervals.
V. Exchange should also carry out surprise inspections of
warehouses as and when such exigencies arise in terms of the
prescribed norms.
VI. The exchange shall have a policy of rotation of such
independent expert agencies for carrying out inspection after
every 3 years with a provision for ‘cooling off' period of 1 year.
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VII. The exchange shall have a detailed inspection manual for
carrying out the audits and inspections of the WSP/warehouses
concerned.
3.12.4. Monitoring of warehouses by exchange: The exchanges shall
be responsible for the monitoring of the warehouses of their
accredited WSPs. In this regard:
I. Norms relating to the monitoring of warehouses shall be placed
in public domain.
II. A deliberation on the continuous functioning, monitoring and
compliance of norms by WSPs, warehouse and assayers shall
be a mandatory agenda item in all Board meetings as well as
the Risk management committee meeting of the exchange.
III. The Exchange and WSPs shall ensure that the goods whose
final expiry date is over, are removed from the concerned
warehouse immediately, but not later than 3 months from the
date of the final expiry date.
3.13. Review of WSPs/Warehouses
3.13.1. The Exchange shall review and appraise operational performance
of each WSP every year. Based on the operational review the
Exchange may adjust the allocation of commodities and the limit of
deliveries at various warehouses of the concerned WSP in
accordance with the results of such performance evaluation and
appraisal.
3.13.2. Additionally, the Exchange may carry out biennial and quarterly
performance review of all warehouses accredited by it, taking into
account various performance areas such as storage facilities, the
capacity and appearance of the warehouse, business capabilities,
business performance, accounting, the satisfaction level of
members/clients, redressal of client grievances, and other factors
as the Exchange may deem necessary for its review.
3.13.3. The exchange may take necessary action against as mentioned in
para S against a WSP/warehouse, if the warehouse is unable to
meet the requirements of an accredited warehouse and fails to
improve the standard within the stipulated time.
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Securities and Exchange Board of India
3.14. Code of Conduct
3.14.1. The exchange shall frame necessary code of conduct for the
WSPs, warehouses and assayers.
3.14.2. The said code of conduct shall be displayed on the exchange
website.
3.15. Grievance Cell
3.15.1. The exchange shall ensure that it has a Grievance Cell to handle
consumer complaints.
3.15.2. The exchange shall take proactive steps to resolve customer
related issues and maintain a record of complaints received /
resolved.
3.15.3. The exchange shall require the WSP to report the details of
complaints received / resolved by it/ pending and action taken on
the complaints, once in very fortnight.
3.16. MIS System
3.16.1. WSP shall have a Standard Operating Procedure (SOP) which is
process-dependent and not person-dependent. It is desirable that
there should be electronic record of information at the WSP and a
MIS system with an arrangement for flow of real time information
from the warehouse location to the central MIS and onwards to
Exchange electronically. The MIS should have the capability to
capture and disseminate information regarding stocks being held
warehouse wise/location wise, and the availability of space in the
warehouses.
3.16.2. The exchange shall display on a daily basis warehouse wise details
of the space available, stock of goods held, name of the warehouse
service provider, details of location of the warehouse, particulars of
acceptance/rejection of goods by the warehouse concerned, details
of empanelled assayers and independent assayers, if any, attached
to the warehouse etc., on its website. The archives of such reports
shall be available on the exchange website.
3.16.3. The participants/clients willing to deposit goods in Exchange
accredited Warehouses would submit a request to the Exchange.
The Exchange shall use a transparent and time-bound process for
the participants to identify the warehouse where the participants
can deposit the goods. After such identification, the Exchange shall
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Securities and Exchange Board of India
intimate the participants about the time, place and the warehouse
where they can deposit the goods. The Exchange shall then issue
directions to the concerned warehouse for accepting deposits from
the concerned participants/clients after assaying/ quality testing as
per the laid down procedure in a transparent manner. The WSP
shall accept the goods for deposits only at the instruction of
Exchange concerned.
3.17. Surrender/Cancellation of accreditation
3.17.1. Any WSP that applies for surrender of its accreditation shall submit
its Application for Surrender to the Exchange for evaluation and
approval.
3.17.2. The exchange may cancel the accreditations a WSP if it fails to
comply with the provisions of the rules/regulations specified by it
and intimate the same to the market participants through circular.
Further, the exchange shall put in place a cancellation policy for
WSP in public domain. However, the exchange shall offer the WSP
concerned an opportunity of being heard and take a decision on
cancellation after considering the explanation of the WSP.
3.17.3. A WSP that surrenders its accreditation or its accreditation is
cancelled, shall attend to the following matters urgently:
I. All commodities for futures contract delivery shall be dispatched
out of the warehouse or converted to physical commodities;
II. All liabilities and debts vis-a-vis the Exchange , Member and
Clients shall be settled;
III. There is no obligation on its part to deliver goods to the clients
pertaining to their trades on the exchange platform, and
IV. No customer complaints pertaining to any of its registered
warehouses are pending for redressal.
3.17.4. SD and FSD shall be returned in accordance with the Exchange’s
rules, keeping aside 10% of such deposits with the exchange,
which shall not be released until six months after cancellation or
surrender of accreditation of the WSP or until satisfaction of all
claims against the deposits made in its warehouses, whichever is
later.
3.17.5. A WSP which surrenders its accreditation with the exchange shall
not be eligible to provide its services to the exchange for a period
of 3 years.
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3.17.6. Once the accreditation of a WSP is cancelled or WSP is expelled
by an exchange then it shall not be eligible to provide its services
to any commodity derivatives exchanges for 3 years.
3.17.7. Adequate notice intimation to general public / clients should be
given through widely published newspapers and website etc.
before accepting the surrender of WSP or cancellation/expulsion of
the WSP.
3.18. Business Continuity Plan
3.18.1. A WSP shall put in place, a business continuity plan and submit
such plan to the exchanges.
3.19. Actions against WSPs
3.19.1. The Exchange may frame byelaws/rules/regulations/guidelines for
its accredited WSPs to rectify correct their misconduct or
misconduct on the part of any of its approved warehouses used for
storing goods for delivery on exchange platform. The exchanges
may also direct the WSPs to indemnify an entity aggrieved by the
delivery process of its warehouse or, in serious cases of
misconduct/malfeasance, revoke the accreditation of the
concerned warehouse or/and hold the WSP accountable for any
legal liabilities, if the concerned erring WSP/ warehouse engages
in any of the following offences:
I. refuses to accept delivery without any bonafide reasons or,
issues a falsified certificate of delivery;
II. violates any of the Exchange’s rules or limits the movement
of a deliverable commodity into or out of the warehouse;
III. discloses any confidential business information relating to a
buyer or seller or a futures contract;
IV. provide inaccurate or incomplete information, conceal the
truth of the facts;
V. engages in the futures trading activities; or
VI. engages in any other behaviour in breach of the Exchange’s
rules; or
VII. any other offence not listed above.
However, the above actions may be initiated only after taking due
approval from the Risk management Committee.
3.19.2. The accredited WSP shall be liable for any losses resulting from
any action or inaction on its part or on the part of its warehouses
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that prevents the buyer or seller from exercising, in whole or in part,
their rights. The Exchange shall compensate the aggrieved client
for any such losses that have been appropriately established by
debiting the FSD of WSP held with the exchange, in accordance
with its applicable rules, and WSP shall within 7 days replenish the
FSD as required.
3.20. Cold Storages
3.20.1. In case of any commodity which generally require storage in the
cold storages, the exchanges shall ensure that such commodities
are stored in cold storages only.
3.21. Status report
3.21.1. The Exchanges shall upload a status report on their websites by 5th
of every month giving the details of the number of applications
received for accreditation of warehouses, Warehouses registered
with WDRA during the month, registration pending with WDRA,
warehouses pending with Inspecting Agencies,
accreditation/registration of warehouses rejected by
Exchange/WDRA with reason for the same, etc.
3.21.2. The archives of such reports shall be available on the exchange
website.
The exchanges shall put in place necessary arrangements for ensuring compliance
with the provisions of the Regulation 44D(2) of SECC Regulations regarding
guarantee for settlement of trades including good delivery. Further, the exchanges
have necessary arrangements to ensure that in the event of bankruptcy or
insolvency of the WSP or other such contingency, there must be no restrictions
placed upon owners/depositors of the commodity wishing to take possession of
their individually identified commodity and remove it from the accredited
Warehouse(s).
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Chapter 4. Risk Management
4.1. Comprehensive Risk Management Framework for National
Commodity Derivatives Exchanges46
4.1.1. Overview
The core of the risk management system of national commodity
derivatives exchanges (Exchanges) shall comprise of the following:
I. Liquid Assets: Liquid assets shall be deposited by members
with the Exchanges in compliance with the norms specified
herewith to cover various margin and deposit requirements.
II. Initial Margins (IM)47: Margins to cover potential future
exposure to participants in the interval between the last
margin collection and the close out of positions following a
participant default subject to minimum percentage floor value as
prescribed by SEBI from time to time.
III. Extreme Loss Margins (ELM): Margins to cover the loss in
situations that lie outside the coverage of the VaR based initial
margins.
IV. Additional Margins: Margins imposed on both long and short
sides over and above the other margins, would be called
additional margins.
Tender Period Margin/Pre-expiry Margin: Exchanges shall
levy tender period /pre-expiry margin which may be increased
gradually every day beginning from the pre-determined number
of days before the expiry of the contract as applicable.
V. Delivery Period Margin: Appropriate delivery period margin
shall be levied by Exchanges on the long and short positions
marked for delivery till the pay-in is completed by the member.
Once delivery period margin is levied, all other applicable
margins may be released.
VI. Minimum Liquid Net-worth Requirement: Initial margins,
ELM, additional margins or any other margins as may be
specified by SEBI from time to time shall be deducted from the
liquid assets of a clearing member. The clearing member’s liquid
46 SEBI Circular No. CIR/CDMRD/DRMP/01/2015 dated 01 Oct 2015
47 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated September 01, 2016
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Securities and Exchange Board of India
assets after adjusting for applicable margins shall be referred to
as ‘Liquid Net-worth’ of the clearing member. Clearing Members
shall maintain ‘Liquid Net-worth’ as specified by SEBI from time
to time.
VII. MTM (Mark to Market) Settlement: Mark to market settlement
of all open positions of clients/members shall be done on daily
basis.
VIII. Base Minimum Capital: Exposure free deposit required from
all members of exchanges.
IX. Settlement Guarantee Fund (SGF): Exchanges shall maintain
SGF which shall be used by Exchanges only for the purpose of
providing settlement guarantee.
X. Concentration margins: Margins to cover the risk of longer
period required for liquidation of concentrated positions in
any commodity derivatives contract.
4.1.2. Liquid Assets
The types of liquid assets acceptable by Exchanges from their
members and the applicable haircuts and concentration limits are listed
below:
Item Minimum Haircut Limits
(see Note ‘a’)
Cash Equivalents
Cash 0 No limit
Bank fixed deposits 0 No limit (see Note i)48
Bank guarantees 0 Limit on exchange’s exposure to
a single bank
(see Note ‘b’)
Securities of the Central 10% No limit
Government
Units of liquid mutual 10% No limit
funds or government
securities mutual funds
(by whatever name
called which invest in
government securities)
Other Liquid Assets
48 SEBI Circular SEBI/HO/CDMRD/DRMP/CIR/P/2018/52 dated March 21, 2018
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Item Minimum Haircut Limits
(see Note ‘a’)
Liquid (Group-I) Same as the VaR Limit on exchange’s exposure to
Equity Shares (see margin for the a single
Note ‘d’) respective shares issuer (see Note ‘e’)
(see note ‘d’)
Mutual fund units other Same as the VaR
than those listed under margin for the units
cash computed using the
equivalents traded price on stock
exchange, if
available, or else,
using the NAV of the
unit treating it as a
liquid security (as per
methodology given in
para (ii) of Annexure
J.).
Corporate Bonds having Fixed percentage Not to exceed 10% of the total
rating of AA or above( or based or VaR based liquid assets of the clearing
with similar rating Haircut. A higher member.
nomenclature) by haircut may be (see Note ‘e’)
recognised credit rating considered to cover
agencies the expected time
frame for liquidation.
To begin with the
haircut shall be a
minimum of 10%
Bullion 20% Total commodities collateral for
any clearing member shall not
Gold ETF 20%
exceed 30% of the total liquid
Steel 60%
assets of the clearing member,
Agricultural Commodities 40%
out of which non-bullion
collateral shall not exceed 15%
of the total liquid assets of the
clearing member 49
(see note ‘f’)
Notes:
a. The valuation of the liquid assets shall be done on a daily basis after
applying applicable haircuts.
49 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/112 dated 14 October 2016
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Securities and Exchange Board of India
b. The exchanges shall lay down exposure limits either in rupee terms or as
percentage of the total Liquid Assets that can be exposed to a single bank
directly or indirectly. The total exposure towards any bank would include
Bank Guarantees issued by the bank as well as debt or equity securities of
the bank which have been deposited by members towards total liquid
assets.
Not more than 1% of the total liquid assets deposited with the exchange,
shall be exposed to any single bank which has a net worth of less than INR
500 crores and is not rated P1 (or P1+) or equivalent, by a recognized credit
rating agency or by a reputed foreign credit rating agency, and not more
than 10% of the total liquid assets deposited with the exchange shall be
exposed to all such banks put together.
c. Cash equivalents shall be at least 50% of liquid assets. This would imply
that Other Liquid Assets in excess of the total Cash Equivalents would not
be regarded as part of member’s liquid assets as well as total liquid assets.
d. For determination of which equity shares are falling in Group-I and what
would be the appropriate VaR margin for these securities, data
disseminated by Stock Exchanges having equity platform shall be referred.
Stock Exchanges are already required to compute the same on regular
basis in accordance with Annexure J.
e. Exchanges shall adequately diversify their collateral so as to avoid any
concentration of exposure towards any single entity and the same shall be
within the limits as may be prescribed by SEBI from time to time.
f. Agricultural commodities to be accepted as collateral should be of same
quality specification which is deliverable under the contract specification of
agricultural commodities derivatives being traded on the Exchange.
g. Exchanges shall accept liquid assets as collateral only as per the list of liquid
assets specified in the table above. However, exchanges may decide not to
accept certain types of liquid assets specified in the above list based on their
risk perception, capability to hold and arrangements for timely liquidation.
Exchanges may stipulate concentration limits at member level / across all
members as may be necessary.
h. Exchanges shall make necessary arrangements to enable timely liquidation
of collaterals accepted by them.
i. 50Commodity Derivatives Exchanges shall not accept Fixed Deposit
Receipts (FDRs) from trading/clearing members as collateral, which are
issued by the trading/clearing member themselves or banks who are
associate of trading/ clearing member.
Explanation –for this purpose, 'associate' shall have the same meaning as
defined under Regulation 2 (b) of SECC Regulations2012.
50SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/52 dated 21 March 2018
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Securities and Exchange Board of India
4.1.3. Commodity Futures
I. Initial Margins (IM)51
Exchanges shall impose initial margins sufficient to cover its
potential future exposure to participants in the interval between
the last margin collection and the close out of positions following
a participant default. Exchanges shall therefore estimate
appropriate Margin Period of Risk (MPOR) for each product
based on liquidity in the product. However, the MPOR for all
commodity derivatives contracts shall be at least 2 days.
A. Minimum value for Initial Margin: Minimum value of initial
margin would be subject to commodity specific floor value as
may be specified by SEBI from time to time. Currently floor
value of IM applicable for Nickel shall be 5% and for all other
commodities it shall be 4%.
B. Margin Computation at client portfolio level: Margins shall
be computed at the level of portfolio of each individual client
comprising his positions in futures contracts across different
maturities. For Trading/Clearing Member level margins
computation, margins would be grossed across various
clients. The proprietary positions of the Trading Member would
also be treated as that of a client for margin computation.
C. Spread margin benefit: –
i. Spread benefit in initial margin shall be permitted in the
following cases:
a) Different expiry date contracts of the same underlying
b) Two contracts variants having the same underlying
commodity
c) Futures contracts in a commodity complex provided
the conditions in para ii below are met52.
ii. Exchanges may provide spread benefit in initial margin
across futures contracts in a commodity complex
provided the following conditions are met:
a) Minimum coefficient of correlation (r) between
futures prices of the two commodities is 0.90.
51SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated 01 Sep 2016
52SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/51 dated 20 March 2018
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b) Back testing for adequacy of spread margin to cover
MTM has been carried out for a minimum period of
one year (back testing for at least 250 days wherein
daily settlement price of futures used for back
testing have been determined from traded futures
prices).
c) Initial margin after spread benefit has been able to
cover MTM on at least 99% of the days as per back
testing.
iii. Maximum benefit in initial margin on spread positions
indicated in para [i – (a) and (b)] is restricted to 75%.
Maximum benefit in initial margin on spread positions
indicated in para [i – (c)] is restricted to 50%.
iv. In case of spread positions additional margins shall not
be levied. No benefit in ELM would be provided for
spread positions i.e. ELM shall be charged on both
individual legs. Exchanges are free to charge margins
higher than the minimum specified depending upon
their risk perception.
v. 53Margin benefit on spread positions shall be entirely
withdrawn latest by the start of tender period or start of
expiry day, whichever is earlier.
vi. To be eligible for initial margin benefit, each individual
contract in the spread shall be from amongst the first
three expiring contracts.
vii. 54While providing spread benefit across futures
contracts in a commodity complex, exchanges shall
continuously monitor dynamics of the commodities and
their correlation and if there are changes such that
spread margin benefit is no longer appropriate to be
given, shall take appropriate further course of action.
D. Real Time Computation: The margins should be computed
on real time basis. The computation of portfolio initial margin
would have two components. The first is the computation of
initial margin for each individual contract. At the second stage,
these contract initial margins would be applied to the actual
portfolio positions to compute the portfolio initial margin. The
exchanges are permitted to update EWMA volatility estimates
for contracts at discrete time points each day (with a gap of
53 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/130 dated 02 December 2016
54 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/51 dated 20 March 2018
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Securities and Exchange Board of India
not more than 2 hours between any two consecutive updates
and at the end of the trading session) and the latest available
scaled up WMA volatility estimates would be applied to
member/client portfolios on a real time basis.
II. Extreme Loss Margin (ELM): ELM of 1% on gross open
positions shall be levied and shall be deducted from the liquid
assets of the clearing member on an online, real time basis.
III. Additional Margins: Exchanges may levy Additional Margins
based on their evaluation in specific situations as may be
necessary.
IV. Tender Period Margin: Exchanges shall levy Tender
period/Pre-expiry margin which shall be increased gradually
every day beginning from the pre-determined number of days
before the expiry of the contract as applicable. Exchanges shall
determine the quantum of tender period margin as appropriate
based on the risk characteristics of the particular commodity.
V. Delivery Period Margin55: Appropriate delivery period margin
shall be levied by Exchanges on the long and short positions
marked for delivery till the pay-in is completed by the member.
Once delivery period margin is levied, all other applicable
margins may be released.
However, delivery period margins shall be higher of:
A. 3% + 5 day 99% VaR of spot price volatility
Or
B. 20%
Or
C. Applicable delivery period margins as on September 01, 2016
Exchanges may impose higher margins if deemed fit.
VI. Mark to Market (MTM) Settlement: All open positions of a
futures contract would be settled daily, only in cash, based on
the Daily Settlement Price (DSP). DSP shall be reckoned and
disseminated by the Exchange at the end of every trading day.
The mark to market gains and losses shall be settled in cash
before the start of trading on T+1 day. If mark to market
obligations are not collected before start of the next day’s
trading, the exchange shall collect correspondingly higher initial
margin (scaling up by a factor of square root of two) to cover the
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potential losses over the time elapsed in the collection of
margins.
4.1.4. Options on commodity futures56
Exchanges shall adopt risk management framework compliant with the
CPMI-IOSCO Principles for Financial Market Infrastructures, including
the following:
I. Margining model and quantum of initial margins:
Exchanges shall adopt initial margin models and parameters
that are risk-based and generate margin requirements
sufficient to cover potential future exposure to
participants/clients in the interval between the last margin
collection and the close out of positions following a
participant/client default. The model should :
A. use a conservative estimate of the time horizons for close out
of the positions (including in stressed market conditions),
B. have an appropriate method for measuring credit exposure
that accounts for relevant risk factors and portfolio effects, and
C. to the extent practicable and prudent, limit the need
for destabilizing, pro-cyclical changes.
Initial margin requirement shall be adequate to cover 99% VaR
(Value at Risk) and Margin Period of Risk (MPOR) shall be at
least two days. In case of portfolio based margining, this
requirement applies to each portfolio’s distribution of future
exposure.
Accordingly, exchanges shall fix prudent price scan range,
volatility scan range and/or plausible changes in any other
parameters impacting options price. Exchange shall impose
appropriate short option minimum margin, calendar spread
charge and extreme loss margin for option contracts.
II. Margining at client level: Exchanges shall impose initial
margins at the level of portfolio of individual client comprising of
his positions in futures and options contracts on each
commodity.
56 SEBI Circular No. SEBI/HO/CDMRD/DMP/CIR/P/2017/55 dated 13 June 2017
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
III. Real time computation: Though the margining models may
update various scenarios of parameter changes (underlying
price, volatility etc.) at discrete time points each day (at least
every two hours), the latest Page 4 of 4 available scenarios
shall be applied to client portfolios on a real time basis.
IV. Mark to market: Exchanges shall mark to market the options
positions by deducting/adding the current market value of
options (positive for long options and negative for short
options) times the number of long/short options in the
portfolio from/to the margin requirement. Thus, mark to
market gains and losses would not be settled in cash for
options positions.
V. Risks pertaining to options that devolve into futures on
expiry:
A. For handling increase in margins on expiry when options
devolve into futures position, specifically for long option
positions which are probable to be exercised, exchanges
shall start sensitizing the option holders of the impending
increase in margins (along with the estimated increase)
at least few days in advance, and/or, based on their risk
perception, may also consider gradually collecting
increased margins during the last few days so as to have
adequate margins to cover the risk of futures position that
will be created on devolvement of options into futures.
B. As per the provisions given in 4.1.14 below, penalty is levied
on members for short-collection/non-collection of the initial
margins. Penalty for such short-collection/non-collection due
to increase in initial margins resulting from devolvement of
options into futures may not be levied by Exchanges for the
first day.
4.1.5. Concentration Margins57
Exchanges shall impose adequate concentration margins (only on
concentrated positions) to cover the risk of longer period required for
liquidation of concentrated positions in any commodity. The threshold
value for imposing concentration margin may be determined taking into
account factors including open interest, concentration and estimated
time to liquidation based on prevailing liquidity and possible reduction
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Securities and Exchange Board of India
in liquidity in times of market stress etc. The quantum of concentration
margins imposed may vary based on the level of concentration.
4.1.6. Additional Ad-hoc Margins
Exchanges have the right to impose additional risk containment
measures over and above the risk containment system mandated by
SEBI. However, the Exchanges should keep the following three factors
in mind while taking such action:
A. Additional risk management measures (like ad-hoc margins)
would normally be required only to deal with circumstances that
cannot be anticipated or were not anticipated while designing the
risk management system. If ad-hoc margins are imposed with any
degree of regularity, exchanges should examine whether the
circumstances that give rise to such margins can be reasonably
anticipated and can therefore be incorporated into the risk
management system mandated by SEBI. Exchanges are
encouraged to analyse these situations and bring the matter to
the attention of SEBI for further action.
B. Any additional margins that the exchanges may impose shall be
based on objective criteria and shall not discriminate between
members on the basis of subjective criteria.
C. Transparency is an important regulatory goal and therefore every
effort must be made to make the risk management systems fully
transparent by disclosing their details to the public.
4.1.7. Margin Provisions for Intra-day crystallized losses:58
To mitigate the risk arising out of accumulation of crystallized
obligations incurred on account of intra-day squaring off of positions,
the following has been decided:
A. The intra-day crystallized losses shall be monitored and
blocked by Clearing Corporations from the free collateral
on a real-time basis only for those transactions which
are subject to upfront margining. For this purpose,
crystallised losses can be offset against crystallised profits
at a client level, if any.
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Securities and Exchange Board of India
B. If crystallised losses exceed the free collateral available with
the Clearing Corporation, risk reduction mode shall be
followed.
C. Crystallised losses shall be calculated based on weighted
average prices of trades executed.
D. Adjustment of intraday crystallised losses shall not be done
from exposure free liquid networth of the clearing member.
4.1.8. Margin Collection and Enforcement
All applicable margins shall be deducted by Exchanges from the Liquid
Assets of the clearing members on an online, real time basis.
Margins applicable on client positions have to be compulsorily collected
from the clients and reported to the Exchange by the members.
4.1.9. Minimum Liquid networth59
Members of Clearing Corporations in commodity derivatives segment
shall maintain a minimum Liquid Net-worth of at least INR 50 Lakhs at
all points of time.
4.1.10. Base Minimum Capital (BMC)60
I. Exchanges shall have BMC requirements for their members
(Trading members) as given below:
A. Members without Algo trading – INR 10 Lacs
B. Members doing Algo trading – INR 50 Lacs
II. Clearing members who clear and settle only non-algo trades for
other trading members shall have BMC requirement of INR 25
lakhs. Clearing members who clear and settle algo trades shall
continue to have BMC requirement of INR 50 lakhs.61
III. No exposure will be given by the Exchange on this BMC.
IV. 25% of the above deposit shall be in the form of cash and
balance 75% can be in the form of Fixed Deposit/Bank
Guarantee.
59 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/52 dated 21 March 2018
60 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/86 dated 16 Sep 2016
61 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated 01 September 2016
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V. These funds would be kept in a separate account by the
Exchange and would be used only towards the settlement of
claims of the client, payment of arbitration fee by the member if
any, and dues payable by the member on account of pending
arbitration cases/arbitration awards and would not be used by
the exchange for meeting any of its other dues.
VI. BMC would be refunded to the members at the time of surrender
of membership provided that there is no unsettled claim against
member and no arbitration cases are pending against the
member.
4.1.11. Risk Reduction Mode
Exchanges shall ensure that the trading members/clearing members
are mandatorily put in risk-reduction mode when 90% of the member’s
Liquid Assets available for adjustment against margins/deposits gets
utilized for margins/deposits. Such risk reduction mode shall include
the following:
I. All unexecuted orders shall be cancelled once trading member
himself or his clearing member breaches 90% collateral
utilization level.
II. Only orders with Immediate or Cancel attribute shall be
permitted in this mode.
III. All new orders shall be checked for sufficiency of margins and
such potential margins shall be blocked while accepting the
orders in the system.
IV. The trading member shall be moved back to the normal risk
management mode as and when the collateral utilization level
of the trading member as well as his clearing member is lower
than 90%.
4.1.12. Measures in case of repeated shortfall in margin/pay-in62
In case of repeated margin/pay-in shortfalls beyond a threshold amount
by any member in a month, following risk mitigation measures shall be
initiated by commodity derivatives exchanges:
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I. The member be put in square off mode and required to reduce
positions.
II. The member be charged initial margins at a higher rate for the
next one month,
Or
The member be subjected to a penal exposure free deposit
equal to the cumulative funds/margin shortage over previous
one month which could be kept with the exchange for the next
month.
III. Exchange shall keep a close watch on such member.
4.1.13. Regaining matched book
In the event of a member/client failing to honor pay-in/margin
obligations, exchanges may employ the below given alternative tools
to liquidate the positions and regain a matched book based on the
conditions of market liquidity, volatility, size of position to be liquidated
etc. Any tool lower in the list prescribed hereunder may be resorted to
only in extremely rare occasions when the exchange reasonably
expects that it may not be able to restore a matched book by choosing
the alternatives above it and also records the reasons for the same in
writing:
I. Alternative 1: Liquidation in normal market in orderly manner
(with relaxed price limits, if required);
II. Alternative 2: Auction of the positions within a specified price
band
III. Alternative 3: Voluntary tear-up at last mark-to-market price
along with compensation (%age of last mark-to-market price
equal to twice the daily price limit) and penalty (5%, to be
credited to SGF);
IV. Alternative 4: Partial tear-up (pro-rata against members/clients
having opposite positions) at last mark-to-market price along
with compensation (%age of last mark-to-market price equal to
thrice the daily price limit) and penalty (5%, to be credited to
SGF).
4.1.14. Mechanism for regular monitoring of and penalty for short-
collection/ non-collection of margins from clients63
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
The penalty structure and framework for short-collection/non-collection
of margins by members from their clients shall be as under:
I. The ‘margins’ for this purpose shall mean initial margin, extreme
loss margin (ELM), mark to market margin, special / additional
margin, delivery margin or any other margin as prescribed by
the Exchange to be collected by member from their clients.
II. The members are required to collect upfront initial margins and
extreme loss margins64 from their clients. The members will
have time till ‘T+2’ working days to collect margins (except initial
margins and extreme loss margins) from their clients. (The
clients must ensure that the initial margins and extreme loss
margins are paid in advance of trade and other margins are paid
as soon as margin calls are made by Exchanges/Members. The
period of T+2 days has been allowed to members to collect
margin from clients taking into account the practical difficulties
often faced by them only for the purpose of levy of penalty and
it should not be construed that clients have been allowed 2 days
to pay margin due from them.)
III. The members shall report to the Exchange on T + 5 day the
actual short-collection/non-collection of all margins from clients.
IV. Penalty shall be levied as per the details given below on the
members for short / non-collection of margins from their clients
beyond T + 2 working days:
For each member
‘a’ Per day penalty as % of ‘a’
(< INR 1 lakh) and (< 10% of 0.5
applicable margin)
(>= INR 1 lakh) or (>= 10% of 1.0
applicable margin)
Where a = short-collection / non-collection of margins per client per day
V. In case of short-collection /non collection of initial margins and
extreme loss margins, the above penalty structure would be
applicable from T day.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
VI. The Exchanges should put in place a suitable mechanism to
enable the members to report the collection of all margins from
their clients at the end of each trading day and to report short
collection/non-collection of all margins on the T+5 day.
VII. All instances of non-reporting shall amount to 100% non-
collection of margin and the penalty as prescribed above shall
be charged on these instances in respect of non-collection.
VIII. The penalty shall be collected by the Exchanges not later than
five days of the last working day of the trading month.
IX. With respect to repeated defaulters, who default 3 times or more
during a month, the penalty would be 5% of the shortfall in such
instances. (Every short/non collection of margin is to be
considered as one instance of default. In case margin shortage
is reported for a client 3 times or more during a month, i.e., either
in consecutive instances or in 3 different instances, the penalty
would be 5% of the shortfall from 4th instance of shortfall. E.g.
shortage is reported for a client on 1st and 2nd day of month
consecutively; thereafter again on 10th day shortage is
reported. So the number of instances are 3 and in case shortage
is reported on any day later in the month, the penalty shall be
5% of the shortfall amount for all such instances beyond 3rd
instance.)
X. All the penalties collected as prescribed above shall be credited
to the Investor Protection Fund.
XI. Report on the penalties as collected by the Exchanges shall be
submitted to SEBI by the 10th day of the following month.
XII. Exchanges shall examine implementation of these instructions
during the inspection of its members. If during inspection or
otherwise, incorrect reporting on collection of margin from client
by member is found, the member shall be penalized up to 100%
of such amount short collected.
XIII. The Exchange shall direct their members to monitor trades of
every client. Suitable mechanism may be put in place to intimate
the clients as and when the margins are used up to an
appropriate level as considered fit.
XIV. In exceptional situations wherein members and/or clients were
not in position to square off the open positions to avoid levy of
penalty for margin shortfall due to lack of adequate liquidity
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
and/or high market volatility, exchanges may take a suitable
decision depending upon the merit of the circumstances and
keep SEBI informed of the same. Further, the exchanges are
directed to take such exceptional matters to their Board of
Directors for decision.
4.1.15. Settlement Guarantee Fund, Default Waterfall and Stress
Testing
I. Provisions applicable to Commodity Derivatives
Exchanges (till transfer of Clearing and Settlement
functions to Clearing Corporations)
A. Components of SGF:
i. The initial contribution to SGF by the Exchange equal
to 5% of the sum total of the Gross revenues of the
Exchange for the preceding financial years starting
from financial Year 2007-08 or from the date when the
Exchange was set up, till the Financial Year 2012-13,
subject to a minimum of Rs.10 crores.
ii. Base minimum capital of members
iii. Interest accrued on Base Minimum Capital
iv. All settlement related penalties charged by the
Exchange from members with effect from 1st
September, 2013
v. Interest amount and any other income accrued on the
investment of funds of SGF shall also be credited to
SGF. (The income accruing on the funds belonging to
SGF shall be credited to SGF by the Exchange, net of
income tax paid on such income).
The exchange shall on quarterly basis, make the risk assessment
on Settlement Guarantee Fund (SGF) and shall make fresh
contribution to the Settlement Guarantee Fund to meet the
shortfall, if any. In cases where exchanges have sufficient funds
available in the Settlement Guarantee Fund to meet the
contingent risk, then there is no need for exchanges to make any
further contribution.
The margin collected by the Exchange from the members shall
not be part of SGF.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
B. Risk assessment for adequacy for SGF: The risk
assessment for adequacy of SGF should be made in
compliance with the IOSCO Guidelines, wherein the stress
test to determine adequacy of SGF would include both liability
for pay in of money and commodities towards settlement
obligation and expected losses @ 10% arising on account of
unwinding of the open positions of the Top 2 clearing
members.
C. All the monies earmarked to SGF needs to be maintained in a
separate account and should be maintained by the investment
committee. Further, any income earned on the SGF
contributions needs to be retained in the same account and
should not be used for any other purpose than meeting
settlement obligations.
D. The SGF status funds should be shown separately in the head
of accounts of the Exchange for all accounts purposes.
E. The Exchange may send a quarterly report to the Regulator
on the management of SGF. The said report may include
details like opening balance, accruals, income on previous
accruals, application of funds, net closing funds, outflows from
the fund (if any). The report for the quarter must be sent by the
10th of the following month.
F. Format for submitting Quarterly Report of Settlement
Guarantee Fund by the Commodity Exchanges is as follows:
S. No. Items Status of
information
1 Opening balance in the SGF (In
Rs.) as on
2 Income of Previous Accruals (IN
Rs.)
3 Accruals during the quarter (In
Rs.)
Total (A)
4 Outflows from the Fund during the
quarter, if any (In Rs.) (B)
5 Net closing Fund (IN Rs.) (A-B)
6 Details of the Application of Funds
during the quarter
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
S. No. Items Status of
information
7 Any other information relevant for
regulatory purpose
G. Default Waterfall:
Till clearing and settlement of trades in commodity derivatives
are transferred to clearing corporations, the default waterfall of
exchanges shall follow the following order:
i. Defaulting member’s monies (including contribution to
SGF)
ii. Insurance, if any
iii. Exchange resources equal to 5% of SGF
iv. SGF resources in the following order:
a. Penalties and investment income on SGF
b. 25% of Exchange contribution to SGF
c. Remaining (non-defaulting members’ and
exchange) contribution to SGF on pro-rata basis.
v. Remaining exchange resources (excluding INR 100
Crore*)
vi. Capped additional contribution by non-defaulting
members (equal to their required contribution to SGF)
vii. Any remaining loss to be covered by way of pro-rata
haircut to payouts.
*INR 100 Crore to be excluded only when remaining exchange
resources are more than INR 100 Crore.
II. Provisions applicable to Clearing Corporations and Stock
Exchanges in Commodity Derivatives (Post transfer of
Clearing and Settlement Functions)65
65 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/111 dated 11 July 2018
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Clearing Corporations and Stock Exchanges in Commodity
Derivatives shall comply with provisions given in Annexure K
below with respect to Core SGF, Stress Testing and Default
Waterfall post transfer of Clearing and Settlement Function from
Stock Exchanges to Clearing Corporations. However, Clearing
Corporations may continue using the stress testing norms as
given in Para 4.1.15 (I) above till October 10, 2018.
4.1.16. Risk management – disclosure by Exchange:66
The disablement of terminals of the members along with duration
of disablement due to shortage of funds, margin money etc. may
be disclosed on the Exchange website for every quarter at the end
of i.e.30th June, 30th September, 31st December and 31st March.
66 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/93 dated 26 September 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Chapter 5. Contract Approval and Modification
5.1. Permission for trading in futures contracts and modification in
contract specifications at exchange level67
5.1.1. Check-list of information/details to be submitted along with
proposal for launch of new contract or/and for renewal of
existing/earlier contracts
All proposals of exchange for launch of new contract and/or for
renewal of existing/earlier contracts shall be accompanied by
complete information covering all the points delineated in the
check-list appended at Annexure L.
The parameters / items listed in the check-list for compliance are
illustrative and not exhaustive. Any additional relevant
parameter/information as deemed necessary may also be
furnished while sending proposal for contracts.
5.1.2. Approval for futures contracts on continuous basis
The Exchange wise list of contracts approved for continuous
trading is placed at Annexure M. Approval for continuous trading
in futures contracts is contingent upon volume and open interest at
the Exchange. Continuous approval for futures trading in the said
contracts is subject to the following terms and conditions:
I. Approval for continuous trading in futures contracts is subject
to Rules, Byelaws and Regulations of the concerned
Exchange.
II. Approval for continuous trading granted is for the contract
specifications and launch calendar as already approved.
Contract specifications and contract launch calendar shall be
notified well in advance to the market participants on the
website of the Exchange.
III. Except for the specifications permitted to be modified at
exchange level, contracts specifications and contract launch
calendar should not be changed without prior approval. For
any modification in contract specification or contract launch
calendar, the Exchange(s) shall give prior appropriate notice
to the market participants. Once the contracts are
67 SEBI Circular No. CIR/CDMRD/DRMP/CIR/2016/88 dated 20 Sep 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
commenced, no terms of the contract specifications should
be changed without prior approval of SEBI.
IV. In case of contracts approved for continuous trading:
A. If Exchange decides not to launch new contract for trading,
then Exchange shall inform market participants well in
advance and shall also keep the regulator informed with
adequate reasons for not launching of such contract.
B. If Exchange decides to de-list already running contract(s)
having nil open interest, then exchange shall keep the
regulator informed with adequate reasons for de-listing the
contract(s).
C. The re-launch of new contracts in case of A and B above
shall be with prior approval of SEBI.
V. The contracts approved for continuous trading in agri-
commodities shall continue to follow the lean month expiry
policy as laid down and shall be subject to any other directions
as may be issued by SEBI from time to time. Also, apart from
the approved quality standards, the Exchange should ensure
that the commodity deposited should comply with the
regulations laid down by the other authorities like Food Safety
Standard Authority of India, Agmark, BIS etc.
VI. A limit on open position of each member and non-member client
and the limit on daily price fluctuation as specified in the contract
specification.
VII. The permission granted for the contracts is subject to daily Mark
to Market settlement of outstanding contracts as per the
procedure and delivery mechanism/process specified in the
Bye-laws, the Rules and the Regulations of the Exchange.
VIII. The Exchange, being the first tier regulator, shall ensure that
there is no unhealthy speculative trading in the market, which
may result in cornering or artificial rigging up or down of the
prices by a particular member or group or class of members.
IX. The list of contracts available for trading on continuous basis
shall be reviewed by SEBI from time to time
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
5.1.3. Permission to allow modification in futures contract
specifications at the exchange level
To ensure that Exchanges are enabled to respond to the market
requirements quickly, National Commodity Derivatives Exchanges
are permitted to modify the futures contract specifications related
to Ticker symbol, Basis, Maximum order size, Trading unit, Delivery
unit, Quotation base value, Tick size, Delivery centers, additional
delivery centers, issue related to Premium/Discount, Quality
parameters and its relevant aspects such as Quantity variation and
Tolerance limit in the futures contract specifications. The
permission to modify the above parameters of the futures contract
specifications is subject to the condition that Exchanges shall
invariably inform the market participants and the regulator well in
advance before introduction of any modification in contract
specifications with reasons for the modifications.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Chapter 6. Delivery and Settlement
6.1. Staggered delivery, early delivery system, early pay-in facility,
penalty on delivery default, fixation on FSP and changes in expiry
dates68
6.1.1. Staggered delivery
In all futures contracts for which staggered delivery is mandated, the
framework shall be as given below:
I. The tender period shall start with onset of the applicable
staggered delivery period. In case the day happens to be a
Saturday, Sunday or exchange holiday, the tender period shall
start from the next working day.
II. Seller/buyer shall have an option of marking an intention of
giving/taking delivery on any day from start of the tender
period up to expiry of the contract.
III. Exchange shall allocate delivery to buyers having open long
position as per random allocation methodology to ensure that
all buyers have an equal opportunity of being selected to
receive delivery irrespective of the size or value of the position.
However, preference may be given to buyers who have
marked an intention of taking delivery.
IV. If the tender date is T, then pay-in and pay-out shall happen
latest by T+2th working day.
V. Open position on expiry of the contract would result in
compulsory delivery and would be settled at Final Settlement
Price (FSP) of the respective contracts and pay-in and pay-out
shall happen latest by the 2nd working day after expiry.
6.1.2. Early delivery system
In all futures contracts for which early delivery system is mandated,
the framework shall be as given below:
I. An early delivery period may be provided during E-14 to E-1
days (where E stands for expiry day) of the contract during
which buyers/sellers can give intention to take/give delivery. If
the intentions of the buyers/sellers match, then the respective
positions will be closed out by physical deliveries. The process
of pay in and pay-out will be completed on T + 2 basis, where
'T' stands for the day on which matching has been done.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
II. If there is no intention matching for delivery between sellers
and buyers, then such delivery intention will get automatically
extinguished at the close of E-1 day. The intentions can be
withdrawn during the course of E-14 to E-1 day if they
remained unmatched.
III. In respect of delivery defaults after the matching of delivery
intentions, penalty provisions as applicable in the case of
delivery defaults in compulsory delivery contracts will be
applied.
IV. On the expiry of the contract, all outstanding positions would
be settled by delivery and all the penalty provisions for delivery
default applicable in the compulsory delivery contracts shall
apply.
6.1.3. Early pay-in facility
I. Exchanges shall provide early pay-in facility to market
participants permitting market participants to deposit certified
goods to the Exchange accredited warehouse against relevant
futures contracts sold. For such short positions against which
early pay-in has been made, based on risk perception,
exchanges may exempt imposition of all types of margins.
However, Exchanges shall continue to collect mark to market
margins from such market participants against such positions.
II. In case of compulsory delivery and seller’s option contracts,
delivery to the extent of open position at the expiry of the
contract shall be mandatory after claiming early pay-in facility on
the position. The exchanges should provide for extremely strict
penalties including disciplinary actions against such members
who fail to do so.
6.1.4. Penalty on delivery default
I. Penalty on seller in case of delivery default (default in delivery
against open position at expiry in case of compulsory delivery
contracts, default in delivery after giving intention for delivery)
shall be as follows:
A. Futures contracts on agri-commodities: 3% of Settlement
Price + replacement cost (difference between settlement
price and average of three highest of the last spot prices of
5 succeeding days after the commodity pay-out date, if the
average price so determined is higher than Settlement Price,
else this component will be zero.)
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
B. Futures contracts on non-agri commodities: 3% of
Settlement Price + replacement cost (difference between
settlement price and higher of the last spot prices on the
commodity pay-out date and the following day, if the spot
price so arrived is higher than Settlement Price, else this
component will be zero.)
II. Exchanges shall have the flexibility to increase/decrease penalty
for specific commodities depending on situation, in consultation
with SEBI
III. Norms for apportionment of penalty –
A. At least 1.75% of Settlement Price shall be deposited in the
IPF of the exchange
B. Up to 0.25% of Settlement Price may be retained by the
Exchange towards administration expenses
C. 1% of Settlement Price + replacement cost shall go to buyer
who was entitled to receive delivery
IV. Exchange shall have appropriate deterrent mechanism
(including penal/disciplinary action) in place against
intentional/wilful delivery default.
V. Buyer default shall not be permitted.
6.1.5. Fixation of Final Settlement Price (FSP)
I. For contracts where Final Settlement Price (FSP) is determined
by polling, unless specifically approved otherwise, the FSP shall
be arrived at by taking the simple average of the last polled spot
prices of the last three trading days viz., E0 (expiry day), E-1 and
E-2. In the event the spot price for any one or both of E1 and E-
2 is not available; the simple average of the last polled spot price
of E0, E-1, E-2 and E-3, whichever available, shall be taken as
FSP. Thus, the FSP under various scenarios of non-availability
of polled spot prices shall be as under
Scenario Polled spot price FSP shall be simple
availability on average of last polled
spot prices on:
E0 E‐1 E‐2 E‐3
1 Yes Yes Yes Yes/No E0, E‐1, E‐2
2 Yes Yes No Yes E0, E‐1, E‐3
3 Yes No Yes Yes E0, E‐2, E‐3
4 Yes No No Yes E0, E‐3
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Scenario Polled spot price FSP shall be simple
availability on average of last polled
spot prices on:
E0 E‐1 E‐2 E‐3
5 Yes Yes No No E0, E‐1
6 Yes No Yes No E0, E‐2
7 Yes No No No E0
II. In case of non-availability of polled spot price on expiry day (E0)
due to sudden closure of physical market under any emergency
situations noticed at the basis centre, Exchanges shall decide
further course of action for determining FSP in consultation with
SEBI.
6.1.6. Change in expiry date
I. Exchange may advance expiry date of running contract in case
physical market is closed in the notified basis centre on the
expiry day of the contract, due to festivals, strikes, erratic
weather conditions, etc.
II. Decision about advancing expiry of running contract shall be
intimated to the trade participants at least 10 days before the
revised expiry date. The delivery period may be advanced
accordingly for contract having staggered delivery. The FSP of
such contract shall be fixed as per the above procedure (para
6.1.5 above).
6.2. Criteria for Settlement Mode of Commodity Derivative Contracts69
The following broad guidelines are being specified for deciding appropriate
settlement mode for commodity derivatives contracts:
6.2.1. The first preference of settlement type shall always be by the way
of physical delivery.
6.2.2. Any exemption from the above i.e. cash settlement of commodity
derivatives contract, may be considered only in following scenarios
with a proper justification –
I. Physical delivery is difficult to implement due to any reason,
which may inter-alia include the following:
A. commodity is intangible; or
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Securities and Exchange Board of India
B. commodity is difficult to store may be due to low shelf life or
inadequate storage infrastructure; or
C. it is difficult to physically handle and transport the commodity
due to inadequate logistics and transport infrastructure.
II. There is availability of reliable benchmark price of the
commodity which can be used as reference for settlement price.
Exchanges shall satisfy themselves that the reference spot
price is robust – fair indicator of prevailing prices and not
susceptible to any distortion/manipulation.
Subject to the above conditions, both cash settled and physically settled
derivative contracts on the same commodity may also be considered for
trading, in case basis of price discovery of the proposed contracts is
different.
6.3. Disclosure of disablement of member terminals70
The disablement of terminals of the members along with duration of
disablement due to shortage of funds, margin money etc., shall be
disclosed by Exchange on its website at the end of every quarter i.e.,
30th June, 30th September, 31st December and 31st March.
6.4. Timelines for marking delivery intention
Exchanges may decide the timelines for submission of delivery instruction
by members based on their assessment of the time required for marking
as well as for modifying any delivery intentions wrongly marked.
6.5. Location premium/discount
Exchanges shall determine and disclose for contracts the location
premium/discount prior to launch of the contract in various
commodities.
70 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/93 dated 26 September 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Chapter 7. Investor Protection Fund & Investor service Fund and its related
matters
The following prescribed norm and guidelines shall be applicable for National
Commodity Derivatives Exchanges (NCDEs) with respect to Investor Protection
Fund (IPF) and Investor Service Fund (ISF).
7.1. Investor Protection Fund (IPF)71
7.1.1. Constitution and Management of the IPF72
I. The IPF shall be administered by a Trust created for this purpose.
II. The IPF Trust of the exchange shall have maximum 5 trustees.
The IPF Trust shall consist of three public interest directors, one
representative from investor associations recognized by SEBI
and the compliance officer of the exchange. The maximum
tenure of a trustee (excluding the compliance officer of the
exchange, whose trusteeship would be co-terminus with the
service) shall be five years or as specified by SEBI.
III. Exchanges shall provide the secretariat for the IPF
Trust/Committee.
IV. Exchanges shall ensure that the funds in the IPF are well
segregated from that of the Exchange and that the IPF is immune
from any liability of the Commodity Derivatives Exchanges
7.1.2. Contributions to the IPF
The IPF will be funded as follows:
I. All the penalties levied and collected by the exchange, except for
the settlement related penalties (including penalties from delivery
default), shall be credited of the IPF.
II. 1% of the turnover fee charged by the exchange from its
members/brokers or ten lakh whichever is higher in a financial
year.
7.1.3. Manner of filing/inviting claims from the Investors/Clients
71 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2016/94 dated September 26, 2016
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I. In accordance with its bye-laws, rules or regulations, the
Exchange shall publish a notice inviting the legitimate claimants
to file claims against the defaulter member within a specified
period of time called as the ‘specified period’.
II. The specified period shall be a minimum period of 90 days.
III. Exchanges shall publish the notice in all the editions of at least
one English national daily with wide circulation and in at least one
regional language daily with wide circulation at the place(s) where
the concerned Exchange Member(s) is/are situated.
IV. The notice calling for claims shall be displayed on the website of
the Exchange for the entire specified period.
V. The notice shall contain the specified period, the maximum
compensation limit for a single claim of an investor/client and all
other relevant information.
7.1.4. Eligibility of Claims73
I. The claims received against the defaulter member during the
specified period shall be eligible for being considered for
compensation from the IPF.
II. If any eligible claim arises within three years from the date of
expiry of the specified period, such claim
A. shall be considered eligible for compensation from IPF/CPF in
case where the defaulter member’s funds are inadequate. In
such cases, IPF/CPF Trust shall satisfy itself that such claim
could not have been filed during the specified period for
reasons beyond the control of the claimant.
B. shall not be considered eligible for compensation from
IPF/CPF in case where the surplus funds of the defaulter
member is returned to the defaulter member. The same shall
be borne by the exchanges after scrutinizing and satisfying
itself that such claim could not have been filed during the
specified period for reasons beyond the control of the
claimant.
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Provided that any claim received after three years from the
date of expiry of the specified period may be dealt with as a
civil dispute.
III. The investor claim arising out of a default of a broker/member of
the exchange shall be eligible for compensation from IPF.
7.1.5. Determination of Legitimate Claims74
I. In case of claims against a defaulter member, the claims of the
claimant shall be placed before the defaulters’ committee for
sanction and ratification. The Defaulters’ Committee’s advice with
respect to legitimate claims shall be sent to IPF Trust for
disbursement of the amount.
II. In case the claim amount is more than the maximum limit for
compensation under IPF or the amount sanctioned and ratified by
the Defaulters Committee is less than the claim amount, then the
investor may prefer for arbitration mechanism for claim of the
balance amount.
III. In the event of default by the member, all transactions executed
on the exchange platform shall be eligible for settlement from IPF
subject to the appropriate norms laid down by the defaulters’
committee. The IPF of the exchange shall be utilized for the
clients of SEBI registered members. However, the said amount
shall not be more than the maximum limit as prescribed at all time.
IV. The exchanges shall also use the IPF of the exchange for meeting
their liabilities towards the clients of members not registered with
SEBI, if the same is allowed under the byelaws of the exchange.75
7.1.6. Threshold limit for Claims
I. The Exchanges are free to fix suitable compensation limits, in
consultation with IPF trust. However, the amount of compensation
available against a single claim of an investor arising out of
defaulter by a member broker shall not be less than Rs 1 lakh.
II. The exchanges in consultation with IPF Trust, shall review and
progressively incase the amount of compensation available
against a single claim from an investor at least every three year.
III. Exchanges shall disseminate the compensation limit fixed by
them and any change thereof, to the public through a Press
Release and through their Website.
74 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2016/53 dated June 13, 2017
75 SEBI Circular no. CIR/HO/CDMRD/DCE/CIR/P/2018/49 dated March 14, 2018
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Securities and Exchange Board of India
7.1.7. Disbursements of claims from the IPF
I. The IPF Trust shall disburse the amount of compensation from
the IPF to the investors and such compensation shall not be more
than the maximum amount fixed for a single claim of an investor.
II. The compensation shall be disbursed to the investor from the IPF
in case there is a shortage of defaulter broker’s assets after its
realization.
III. The Exchange shall ensure that the amount realized from the
assets of the defaulter member is returned to the defaulter
member after satisfying the claims of the exchanges and SEBI in
accordance with the bye-laws of the exchange.
Provided that in case of a member broker having membership
on multiple exchanges, amount realized from the assets of the
defaulter member shall be returned to the said member only after
satisfying eligible claims of the concerned exchange, SEBI, and
other exchanges as the case may be.
Provided further that in cases where any litigations are pending
against the defaulter member, the residual amount, if any, may
be retained by the exchange until such litigations are concluded."
IV. Investment of funds of IPF will be as per the relevant provision of
the Indian Trust Act 1882 and Section 11 (5) of Income Tax Act,
1961. The Exchanges are requested to ensure that the
investment of trust money is done with utmost caution and
prudence.
V. Appeal should be referred to the Board of the Exchange on any
decision of the Managing Committee of IPF regarding any claim.
VI. In case the National Commodity Derivatives Exchange is wound
up, then the balance in the IPF lying un-utilized with the IPF Trust,
shall be transferred to SEBI. In such an event, the funds will be
maintained in a separate account and SEBI shall act as trustee of
these funds. The funds shall be utilized for purposes of
investor/client education, awareness, research or other such
programme as may be decided by SEBI.
VII. The IPF Trust shall disburse the compensation to the investors as
and when claims have been crystallized against a defaulter
member. The IPF Trust need not wait for realization of assets of
the defaulter member for disbursement of the claims. Upon
receipt of advice of defaulter’s committee, for payment, the IPF
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Trust shall take necessary steps for disbursement of amount at
the earliest.
VIII. Exchanges shall periodically review the sources of fund and
eligible compensation amount so as to recalibrate the fund to
make suitable recommendation for enhancement.
7.1.8. Income earned on IPF and its Utilization76:
I. The exchange may utilize income earned on the corpus of IPF
towards promotion of investor education and awareness
programmes through seminars, lectures, workshops, publications
(print and electronic media), training programs etc. to enhance
literacy and to promote participation in the commodity derivatives
market or any other mandated purpose. Capital expenditure
would be permissible only w.r.t. setting up of Investor Service
Centre. However, no expenditure to be incurred on product
promotion in any manner. However, in case of non-utilization of
the said income in the same financial year for the mandated
purpose, the same shall be ploughed back to IPF. In addition to
above, the income earned on the IPF corpus may be utilized in
other manner as prescribed/permitted by SEBI in the interest of
investors from time to time.
II. The unutilized IPF interest income accruing during a specific
financial year can be carried forward to the next financial year to
enable effective utilization of such money by the exchanges
during such extended period.
III. The exchange shall also be permitted to utilize IPF interest
income for undertaking research activities related to commodities
market, provided every such research activity / project can be
undertaken only after obtaining prior written approval of the
trustees of the IPF Trust, who would inter alia, record the reasons,
relevance and stated objectives of the research project while
according approval to such activity/ project. Further, the Board of
the exchange may be apprised of the research programs /
activities being undertaken at least once in every quarter or half
year of a given financial year.
There will be an overall cap on the total amount, not more than
10% of the interest amount of IPF which can be spent on Research
activities related to commodities market. IPF shall frame a policy
towards identifying / recognising public and private academic
institutions, professional bodies, trade (physical market)
associations and industry bodies / chambers through / with whom
76 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2016/53 dated June 13, 2017.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
such Research activities shall be undertaken / organised /
sponsored.77
IV. In order to ensure effective utilization of income earned on IPF,
supervision of utilization of interest on IPF will rest with the IPF
Trust of the exchange.
7.2. Investor Service Fund (ISF)78
7.2.1. Exchanges are mandated to set up Investor Service Fund (ISF) for
providing following basis minimum facilities at various Investor
Service Centers (ISC).
I. The ISC shall provide 4 financial newspapers with at least one
in the Regional language.
II. The ISC shall install computer software (marketed by some
vendors) which provide information about various commodities
(agri and non agri) including research reports, general, financial
& other important commodity related information. The
information will be made available through computers with one
master terminal and some dummy terminals through which
investors could access this information. Other facilities like
copying will be made available to the investors at minimum cost.
III. The ISC shall provide facilities for receiving/recording investor
complaints. Special staff recruited/deployed by the exchange for
this purpose will register the complaints and provide counseling
service to the investors. Status of complaints will be maintained
and updated in the computer system of the Center.
IV. The ISC shall provide for other infrastructure facilities such as
telephone, photocopier, furniture, sitting space, internet
connection having access to various directions / circulars issued
by SEBI and Government agencies etc.
V. The ISC shall provide published commodity related materials of
exchanges for the benefit of the investors. It should also provide
the pamphlets / brouchers detailing the rights and obligation of
investors while dealing with brokers in commodity markets,
FAQ's etc.
VI. The ISC shall provide for dummy terminals to display the prices
of the commodities listed on the exchange on real-time basis, to
77 SEBI Circular no. CIR/HO/CDMRD/DCE/CIR/P/2018/49 dated March 14, 2018
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Securities and Exchange Board of India
enable investors watch the price movements of the commodities
etc.
VII. The ISC shall maintain a library on relevant laws, financial
analysis, market trend analysis etc. for the education of the
investors.
VIII. The ISC shall conduct various investor education and investor
awareness programs through seminars, lectures, workshops,
publications (print and electronic media), training programs etc.
enhance literacy and promoting participation in the commodity
derivatives market.
7.2.2. Contribution to ISF
I. At initial stage, the exchange shall contribute a minimum of Rs
Ten Lakhs towards setting up of Investor Service Fund (ISF).
Subsequently, onwards, the Exchanges shall transfer the 1%
percent of the turnover fees charged by the exchange from its
members on monthly basis towards ISF within 7 days of the end
of the month, subject to minimum of Rs. Ten Lakh in a financial
year.
II. The Exchange shall also plough back the entire income earned
on the corpus of ISF to the ISF within one month from the end
of September and March of each year.
III. The exchange shall be permitted to utilize the corpus of ISF for
conducting various investor education and awareness
programs, capacity building programs and maintenance of all
price ticker boards installed by the respective exchanges, cost
of training of arbitrators etc. In addition to above, the corpus may
be utilized in other manner as prescribed/permitted by SEBI in
the interest of investors from time to time.
IV. In order to efficient management of ISF, Investor Service
Committee (ISC) of exchange shall oversee the contribution to
ISF and its utilization.
V. Exchange shall maintain separate bank account for maintaining
corpus of the IPF as well as ISF and such funds should not be
co-mingled with any other fund(s) of the exchange and shall not
be used for any other purpose.
VI. SEBI has prescribed certain expenditures which are to be met
utilizing the ISF and not IPF. However since ISF is of recent
origin, its corpus may be inadequate. NCDEs have therefore
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
requested to permit utilizing interest on IPF in lieu of ISF for
expenditures meant only for ISF. Accordingly, the NCDEs have
been granted 3 years period starting April 1st, 2018 to permit
utilizing interest on IPF for activities of ISF also79.
79 SEBI Circular no. CIR/HO/CDMRD/DCE/CIR/P/2018/49 dated March 14, 2018.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Chapter 8. Investor Grievance Redressal System and Arbitration
Mechanism
8.1. Investor Grievance Redressal System80
The national commodity derivatives exchanges (NCDEs) shall constitute
Investor Grievance Redressal Committee (IGRC) for redressal of investor
grievances.
In light of the concerns expressed by investors and to decide to mandate
that commodity derivatives exchanges having nationwide terminals (MCX,
NCDEX, NMCE), functional commodity derivatives exchanges having
trading volumes, commodity derivatives exchanges entering into MOUs
with other exchanges intending to recommence trading operations shall
constitute IGRC at every investor service centre.
8.1.1. The composition of the IGRC shall be as follows:-
I. The IGRC shall comprise of a single person for claims up to Rs. 25
Lakh, whereas, for claims above Rs. 25 Lakh, the IGRC shall
comprise of three persons.
II. The IGRC shall comprise of independent persons with qualifications
in the area of law, finance, accounts, economics, management or
administration and experience in financial services, including
securities market.
III. Further, the three members Committee shall comprise of at least one
technical expert for handling complaints related to technology issues
(such as internet based trading, algorithmic trading, etc.).
IV. The members of IGRC shall not be associated with a trading member
in any manner.
V. Empanelment of IGRC members81: Exchanges shall empanel IGRC
members, however, no arbitrator/ appellate arbitrator shall be
empaneled as IGRC member.
VI. The disclosures and code of conduct prescribed is given below:
A. The name of a person shall be included in the panel after
obtaining :
80 SEBI Circular No. CIR/CDMRD/DEICE/02/2015 dated November 16, 2015.
81 SEBI Circular No. CIR/CDMRD/DEICE/CIR/P/2017/77 July 11, 2017.
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भारतीय प्रततभूतत और वितिमय बोर्ड
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i. a declaration that he has not been involved in any act of
fraud, dishonesty or moral turpitude, or found guilty of any
economic offence,
ii. disclosure of the nature of his association with securities
market
iii. disclosure of the names of his dependents associated
with the securities market as member, sub-broker or
authorized person, and
iv. an undertaking that he shall abide by the code of
conduct prescribed in this circular.
B. Code of Conduct for IGRC Members
An IGRC Member shall –
i. act in a fair, unbiased, independent and objective manner;
ii. maintain the highest standards of personal integrity,
truthfulness, honesty and fortitude in discharge of his duties;
iii. disclose his interest or conflict in a particular case, i.e.,
whether any party to the proceeding had any dealings with
or is related to the IGRC Member;
iv. not engage in acts discreditable to his responsibilities;
v. avoid any interest or activity which is in conflict with the
conduct of his duties as a IGRC Member;
vi. avoid any activity that may impair, or may appear to impair,
his independence or objectivity;
vii. conduct IGRC proceedings in compliance with the principles
of natural justice and the relevant provisions of the
Arbitration and Conciliation Act, 1996, the SEBI Act, 1992,
the Securities Contracts (Regulation) Act, 1956 and the
Rules, Regulations and Bye-laws framed thereunder and the
circulars, directions issued by the Government / SEBI;
viii. endeavor to pass IGRC Order expeditiously and in any case
not later than the time prescribed in this circular; and
ix. pass reasoned and speaking IGRC Orders.
8.1.2. With a view to streamline and make more effective the investor
grievance redressal mechanism at Exchange, it has been decided
to shorten the time taken for the proceedings as well as to give
monetary relief to the investors, during the course of pendency of
proceedings. In this regard, Exchanges are advised as under:
I. The exchanges shall ensure that all complaints are resolved at
their end within 15. The correspondence with the Member &
investor (who is client of a Member) may be done on email if the
email id of the investor is available in the UCC database. The
Member (Commodity Broker, Trading Member and Clearing
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भारतीय प्रततभूतत और वितिमय बोर्ड
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Member) shall provide a dedicated email-Id to the exchange for
this purpose.
II. In case the matter does not get resolved, conciliation process of
the exchange would start immediately after the time lines stated
in sub-para (a) above.
III. Investor Grievance Redressal Committee (IGRC) shall be
allowed a time of 15 days to amicably resolve the investor
complaint.
IV. IGRC shall adopt a two-fold approach i.e. for proceedings leading
to direction to the Member to render required service in case of
service related complaints and proceedings leading to an order
concluding admissibility of the complaint or otherwise in case of
trade related complaints.
V. In case the matter is not resolved through the conciliation
process, IGRC would ascertain the claim value admissible to the
investor.
VI. Upon conclusion of the proceedings of IGRC, i.e. in case claim is
admissible to the investor, Exchanges shall block the admissible
claim value from the deposit of the Member.
VII. The exchange shall give a time of 7 days to the Member from the
date of signing of IGRC directions as mentioned under sub-para
(d) above to inform the Exchange whether the Member intends to
pursue the next level of resolution i.e. Arbitration.
VIII. In case, the Member does not opt for arbitration, the Exchange
shall, release the blocked amount to the investor after the
aforementioned 7 days.
IX. In case, the Member opts for arbitration and the claim value
admissible to the investor for interim relief paid out of IPF in
exchanges is prescribed below82 :
A. In case, award is in favour of client and the member opts for
arbitration wherein the claim value admissible to the client is
not more than Rs. 20 lakhs (Rs. Twenty lakhs), the following
steps shall be undertaken by the Exchange:
i. In case the IGRP award is in favour of the client then 50%
of the admissible claim value or Rs. 2.00 lakhs (Rs. Two
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भारतीय प्रततभूतत और वितिमय बोर्ड
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lakhs), whichever is less, shall be released to the client
from IPF of the Exchange.
ii. In case the arbitration award is in favour of the client and
the member opts for appellate arbitration then 50% of the
amount mentioned in the arbitration award or Rs. 3.00
lakhs (Rs. Three lakhs), whichever is less, shall be
released to the client from IPF of the Exchanges. The
amount released shall exclude the amount already
released to the client at clause (a) above.
iii. In case the appellate arbitration award is in favour of the
client and the member opts for making an application
under Section 34 of the Arbitration and Conciliation Act,
1996 to set aside the appellate arbitration award, then 75%
of the amount determined in the appellate arbitration
award or Rs.5.00 lakhs (Rs. Five Lakhs), whichever is less,
shall be released to the client from IPF of the Exchanges.
The amount released shall exclude the amount already
released to the client at clause (a) and (b) above.
iv. Total amount released to the client through the facility of
interim relief from IPF in terms of this Circular shall not
exceed Rs. 10.00 lakhs (Ten lakhs) in a financial year.
v. Before release of the said amounts from the IPF to the
investor, the Exchange shall obtain appropriate
undertaking / indemnity from the investor against the
release of the amount from IPF, to ensure return of the
amount so released to the investor, in case the
proceedings are decided against the investor.
vi. If it is observed that there is an attempt by investor / client
either individually or through collusion with Member (s) or
with any other stakeholder, to misuse the provision of this
Circular, then without prejudice to the powers of the Board
to take action, appropriate action in this regard shall be
taken against any such person so involved from henceforth
accessing the benefits of this Circular.
vii. In case the complaint is decided in favour of the investor
after conclusion of the proceedings, then amount released
to the investor shall be returned to IPF from the blocked
amount of the Member by Exchange and the rest shall be
paid to the investor.
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viii. The Exchanges may devise a detailed procedure with
regard to release of funds from IPF and recovery thereof
and necessary formats of documents.
ix. In case the investor loses at any stage of the proceedings
and decides not pursue further, then the investor shall
refund the amount released from IPF, back to the IPF. In
case the investor fails to make good the amount released
out if IPF then investor (based on PAN of the investor) shall
not be allowed to trade on any of the Exchanges till such
time the investor refunds the amount to IPF. Further, the
securities lying in the demat account(s) of the investor shall
be frozen till such time as the investor refunds the amount
to the IPF.
x. The exchanges may also resort to displaying the names
such investors on their websites if considered necessary.
B. Exchanges, in consultation with the IPF Trust and SEBI, shall
review and progressively increase the amount of interim relief
available against a single claim for an investor, at least every
three years.
C. The Exchanges shall disseminate the interim relief limit fixed
by them and any change thereof, to the public through a Press
Release and also through its website.
8.1.3. With a view to rationalize the timelines involved in the arbitration
mechanism, Exchanges are advised as under:
I. The Members are required to file application for appellate
arbitration within one month of the date of receipt of arbitral
award. Further as per section 34 (3) of the Arbitration and
Conciliation Act, 1996 the Members have three months to make
an application to set aside an arbitral award. In this regard, the
Members shall convey their intention to Exchanges within 7 days
of receipt of the award, as regards whether such Members desire
to challenge the arbitration award/appellate arbitration award in
Court or not.
II. If the Members do not express their intent to challenge the
arbitration award/appellate arbitration award then it would be
presumed that Members does not intend to challenge the award
and the Exchange shall take further steps accordingly.
In addition to the above, the exchanges shall also take the below
mentioned steps:
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8.1.4. With a view to address complaints regarding 'unauthorised trades'
Exchanges are advised to direct the Members to put in place the
following:
I. In case the Member has made margin calls to the client and the
client has failed to comply with these margin calls, then the
contract note issued by Member for transactions owing to non-
compliance of such margin calls would bear a remark specifying
the same.
II. The Member shall maintain a verifiable record of having made
such margin calls and that clients have not complied with the
same.
III. With a view to assist investors engaged in dispute resolution
process, Exchanges shall set up facilitation desks at all investor
services centres as specified by SEBI from time to time. These
facilitation desks would inter alia also assist investors in
obtaining documents/details from Exchanges wherever so
required for making application to IGRC and filing arbitration.
8.2. Arbitration Mechanism at Commodity Derivatives Exchanges83
8.2.1. The Bye-laws of the exchanges relating to arbitration proceedings
shall be in accordance with the Arbitration and Conciliation Act,
1996.
8.2.2. In consultation with the exchanges, it has been decided to
streamline the arbitration mechanism available at exchanges for
arbitration of disputes (claims, complaints, differences, etc.) arising
between a client and a member (Broker, Trading Member and
Clearing Member) across various market segments.
8.2.3. An exchange shall provide an arbitration mechanism for settlement
of disputes between a client and a member through arbitration
proceedings in accordance with the provisions of this Circular read
with Section 2(4) of the Arbitration and Conciliation, Act, 1996.
8.2.4. Maintenance of a Panel of Arbitrators.
I. A exchange shall maintain a panel of arbitrators. The number of
arbitrators in the panel shall be commensurate to the number of
disputes so that an arbitrator handles a reasonable number of
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references simultaneously and all arbitration references are
disposed of within the prescribed time.
II. The exchange shall have a set of fair and transparent criteria for
inclusion of names in the panel of arbitrators.
III. While deciding to include a particular person in the panel of
arbitrators, the exchange shall take into account the following
factors:
A. age,
B. qualification in the area of law, finance, accounts,
economics, management, or administration, and
C. experience in financial services, including securities
market.
IV. The name of a person shall be included in the panel after
obtaining:
A. a declaration that he has not been involved in any act of
fraud, dishonesty or moral turpitude, or found guilty of any
economic offence,
B. disclosure of the nature of his association with securities
market,
C. disclosure of the names of his dependents associated with
the securities market as member, sub-broker or
authorized person, and
D. an undertaking that he shall abide by the code of conduct
prescribed in this circular.
8.2.5. Code of Conduct for Arbitrators
An arbitrator shall –
I. act in a fair, unbiased, independent and objective manner;
II. maintain the highest standards of personal integrity,
truthfulness, honesty
III. and fortitude in discharge of his duties;
IV. disclose his interest or conflict in a particular case, i.e.,
whether any party to the proceeding had any dealings with
or is related to the arbitrator;
V. not engage in acts discreditable to his responsibilities;
VI. avoid any interest or activity which is in conflict with the
conduct of his duties as an arbitrator;
VII. avoid any activity that may impair, or may appear to impair,
his independence or objectivity;
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VIII. conduct arbitration proceedings in compliance with the
principles of natural justice and the relevant provisions of
the Arbitration and Conciliation Act, 1996, the SEBI Act,
1992, the Securities Contracts (Regulation) Act, 1956 and
the Rules, Regulations and Bye-laws framed thereunder
and the circulars, directions issued by the Government /
SEBI;
IX. endeavour to pass arbitral award expeditiously and in any
case not later than the time prescribed in this circular; and
pass reasoned and speaking arbitral awards.
8.2.6. Arbitration
I. The limitation period for filing an arbitration reference shall
be governed by the law of limitation, i.e., The Limitation Act,
1963.
II. An arbitration reference for a claim / counter claim up to
Rs.25 lakh shall be dealt with by a sole arbitrator while that
above Rs.25 lakh shall be dealt with by a panel of three
arbitrators.
III. The exchange shall ensure that the process of appointment
of arbitrator(s) is completed within 30 days from the date of
receipt of application from the applicant.
IV. The arbitration reference shall be concluded by way of issue
of an arbitral award within four months from the date of
appointment of arbitrator(s).
V. The Managing Director/ Executive Director of the exchange
may for sufficient cause extend the time for issue of arbitral
award by not more than two months on a case to case basis
after recording the reasons for the same.
8.2.7. Appellate Arbitration
I. A party aggrieved by an arbitral award may appeal to the
appellate panel of arbitrators of the exchange against such
award.
II. An appeal before the appellate panel of arbitrators may be filed
within one month from the date of receipt of arbitral award.
III. The appellate panel shall consist of three arbitrators who shall
be different from the ones who passed the arbitral award
appealed against.
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IV. The exchange shall ensure that the process of appointment of
appellate panel of arbitrators is completed within 30 days from
the date of receipt of application for appellate arbitration.
V. The appeal shall be disposed of within three months from the
date of appointment of appellate panel of such appeal by way
of issue of an appellate arbitral award.
VI. The Managing Director/ Executive Director of the exchange may
for sufficient cause extend the time for issue of appellate arbitral
award by not more than two months on a case to case basis
after recording the reasons for the same.
VII. A party aggrieved by the appellate arbitral award may file an
application to the Court of competent jurisdiction in accordance
with Section 34 of the Arbitration and Conciliation Act, 1996.
8.2.8. Arbitration Fees84
The fee structure (exclusive of statutory dues -stamp duty, service
tax, etc.) for filing arbitration reference shall be as follows:-
Amount of If claim is If claim is filed after If the claim is
Claim / filed within six months from the filed beyond
Counter six months date of dispute or the timeline
Claim, from the after one month from prescribed in
whichever is date of the date of IGRP column 3, (only
higher (in Rs.) dispute order, whichever is for member)
later
≤ 10,00,000 1.3% 3.9% subject to a Additional fee of
subject to a minimum of Rs.30,000 Rs. 3,000/-per
minimum of month over and
Rs.10,000 above fee
prescribed in
column 3
> 10,00,000 - Rs. 13,000 Rs. 39,000 plus 0.9% Additional fee of
25,00,000 ≤ plus 0.3% amount above Rs. 10 Rs. 6,000/-per
amount lakh month over and
above Rs. above fee
10 lakh prescribed in
column 3
84 SEBI Circular No. CIR/CDMRD/DEICE/CIR/P/2017/77 dated July 11, 2017.
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Amount of If claim is If claim is filed after If the claim is
Claim / filed within six months from the filed beyond
Counter six months date of dispute or the timeline
Claim, from the after one month from prescribed in
whichever is date of the date of IGRP column 3, (only
higher (in Rs.) dispute order, whichever is for member)
later
> 25,00,000 Rs. 17,500 Rs. 52,500 plus 0.6 % Additional fee of
plus 0.2 % amount above Rs. 25 Rs. 12,000/-per
amount lakh subject to maximum month over and
above Rs. of Rs.90,000 above fee
25 lakh prescribed in
subject to column 3
maximum of
Rs. 30,000
I. The filing fee will be utilized to meet the fee payable to the
arbitrators. Excess of filing fee over fee payable to the
arbitrator, if any, to be deposited in the IPF of the respective
exchange.
II. A client, who has a claim / counter claim up to Rs. 10 lakh and
files arbitration reference, will be exempted from filing the
deposit. Expenses thus arising with regard to such
applications shall be borne by the Exchanges”.
III. In all cases, on issue of the arbitral award the exchange shall
refund the deposit to the party in whose favour the award has
been passed. In cases where claim was filed within six months
period, the full deposit made by the party against whom the
award has been passed, shall be appropriated towards
arbitration fees. In cases where claim was filed after six
months, one-third of the deposit collected from the party
against whom the award has been passed, shall be
appropriated towards arbitration fees and balance two-third
amount shall be credited to the Investor Protection Fund of the
respective stock exchange.
Note : Six months (as referred to in paras 8.2.8 (I), 8.2.8 (II),
and 8.2.8 (III) above) shall be computed from the end of the
quarter during which the disputed transaction(s) were
executed / settled, whichever is relevant for the dispute , and
after excluding:-
A. The time taken by the Investors Grievances Redressal
Committee of the Exchange (the time taken from the date
of receipt of dispute till the decision by the committee) to
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resolve the dispute under its Rules, Bye-laws &
Regulations, and
B. The time taken by the member to attempt the resolution of
the dispute (the time from the date of receipt of dispute by
the member to the date of receipt of the member’s last
communication by the client) or one month from the date
of receipt of the dispute by the member, whichever is
earlier.
IV. A party filing an appeal before the appellate panel [as
mentioned above 8.2.7 Appellate Arbitration] shall pay a fee
not exceeding Rs. 30, 000, as may be prescribed by the
exchange, in addition to statutory dues (stamp duty, service
tax, along with the appeal. In case the party filing the appeal
is a client having claim / counterclaim of up to Rs. 10 lakh,
then the party shall pay a fee not exceeding Rs. 10, 000/-.
Further expenses thus arising shall be borne by the
Exchanges and the Investor Protection Fund of Exchanges
equally.
8.2.9. Place of Arbitration / Appellate Arbitration85
I. The exchanges having nationwide terminals, shall provide
arbitration facility (i.e. arbitration as well as appellate
arbitration) at least at all centres specified by SEBI from time
to time. However, the exchanges having nationwide terminals
may provide arbitration facility at additional centres, if exchanges
so desire. The arbitration and appellate arbitration shall be
conducted at the centre nearest to the address provided by
Client in the KYC form.
II. Other exchanges shall provide the arbitration facility, including
appellate arbitration, at the place where it is located.
III. The application under section 34 of the Arbitration and
Conciliation Act, 1996, if any, against the decision of the
appellate panel shall be filed in the competent Court nearest to
the address provided by Client in the KYC form.
IV. In case award amount is more than Rs. 50 lakh (Rs. Fifty lakh),
the next level of proceedings (arbitration or appellate
arbitration) may take place at the nearest metro city, if desired
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by any of the party involved. The additional cost for arbitration, if
any, to be borne by the appealing party.
8.2.10. Speeding up grievance redressal mechanism
In order to have faster implementation of award and to discourage
delayed filling of arbitrations by members, the additional fees
payable by members who file their claim beyond the prescribed
time-lines shall be non-refundable even if the arbitration award
goes in favor of the member86.
8.2.11. Public dissemination of profiles of arbitrators.
In order to enhance transparency and also to provide choice to
parties, Exchanges shall disseminate information w.r.t. brief profile,
qualification, areas of experience/ expertise, number of arbitration
matters handled, pre-arbitration experience, etc. of the arbitrators
on their website.
8.2.12. Submission of documents in soft copies.
In order to assist the arbitrators in pronouncing comprehensive
and speedy awards, Exchanges shall make necessary
arrangements in terms of hardware viz., computer, scanner,
printer, etc. and required software’s at exchange offices/
Investor Service Centers (ISCs) to facilitate the clients to type/
convert their documents into electronic format/ soft copy. Such
electronic format/ soft copies shall be provided to the arbitrators
along with original submissions in physical copies.
8.2.13. Review and training of arbitrators
Investor Service Committee of the Exchanges shall review the
performance of the arbitrators annually and submit the review
report to the Board of the Exchange. Training need of the
arbitrators will be catered by National Institute of Securities Markets
(NISM). Cost of training of arbitrators may be incurred from
ISF of the exchange.
The NCDEs shall provide training of at least one day to every
arbitrator each year87.
86 SEBI Circular no. CIR/CDMRD/DCE/CIR/P/2018/48 dated March 14, 2018.
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8.2.14. Mechanism for implementation of award.
Exchanges shall create a common database of defaulting clients
accessible to members across the Exchanges.
For this purpose, a client may be identified as defaulter if the client
does not pay the award amount to the member as directed in
the IGRC/ arbitration/ appellate arbitration order and also does
not appeal at the next level of redressal mechanism within the
timelines prescribed by SEBI or file an application to court to set
aside such order in accordance with Section 34 of the Arbitration
and Conciliation Act, 1996 (in case of aggrieved by arbitration/
appellate award).
8.2.15. Empanelment of arbitrators and segregation of arbitration and
appellate arbitration panel
There shall be separate panels for arbitration and appellate
arbitration. Further, for appellate arbitration, at least one member
of the panel shall be a Retired Judge. Exchanges shall obtain prior
approval of SEBI before empanelment of arbitrators/ appellate
arbitrators.
8.2.16. Revision in professional fee of arbitrators
The arbitrator fee shall be upwardly revised to Rs.18, 000/-(Rs.
Eighteen thousand) per case. Consequent to this upward revision,
the additional expenses attributable to a client over and above the
fee structure as specified in point 8.2.8, shall be borne by the
client (wherever applicable) and Exchange equally. The total
expense attributable to the member has to be borne by the
concerned member.
8.2.17. Arbitration / Appellate Arbitration award
In order to safeguard the interest of the parties involved in
arbitration and to ensure speedy implementation of the arbitration
award, the rate of interest on the award passed by arbitrators shall
be in compliance with Arbitration and Conciliation (Amendment)
Act, 2015.
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8.2.18. Disciplinary Action Committee, Defaulters’ Committee, Investors
Service Committee, Arbitration Committee88
The composition and functions of the Disciplinary Action
Committee, Defaulter’s Committee and Investors Service
Committee will be as follows:
Name of Functions Handled Composition
Committee
Disciplinary i. The Committee shall i. The Committee shall have a
Action formulate the policy for minimum of 3 members and a
Committee regulatory actions including maximum of 5 members;
warning, monetary fine,
suspension, withdrawal of ii. The Public Interest Directors shall
trading terminal, expulsion, to form a majority of the Committee;
be taken for various violations
by the members of the iii. A maximum of two key
exchange. management personnel of the
exchange can be on the
ii. Based on the laid down policy, committee and one of which shall
the Committee shall consider necessarily be the Managing
the cases of violations Director of the exchange;
observed during inspection,
etc. and impose appropriate iv. The Committee may also include
regulatory action on the independent external persons
members of the exchange. such as retired judge, etc.
iii. While imposing the regulatory v. SEBI may nominate members in
measure, the Committee shall the Committee, if felt necessary in
adopt a laid down process, the interest of commodities
based on the 'Principles of market;
natural justice'.
Defaulters’ i. To realize all the assets / i. The Committee shall have a
Committee deposits of the defaulter/ minimum of 3 members and a
expelled member and maximum of 5 members;
appropriate the same
amongst various dues and ii. The Public Interest Directors shall
claims against the defaulter/ form a majority of the Committee.
expelled member in
accordance with the Rules, iii. A maximum of two key
Byelaws and Regulations of management personnel of the
the exchange. exchange can be on the
Committee.
ii. In the event both the clearing
member and his constituent
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Name of Functions Handled Composition
Committee
trading member are declared iv. The Committee may also include
defaulter, then the Defaulter’s independent external persons
Committee of the exchange such as retired judge, etc.
and the Defaulter's
Committee of the clearing v. SEBI may nominate members in
corporation shall work the Committee, if felt necessary in
together to realise the assets the interest of commodities
of both the clearing member market;
and the trading member.
iii. Admission or rejection of
claims of client/ trading
members/ clearing members
over the assets of the
defaulter/ expelled member.
iv. Advise in respect of the claims
to the Trustees of the IPF on
whether the claim is to be paid
out of IPF or otherwise.
Investor i. Supervising the functioning of i. The Committee shall have a
Services Investors’ Services Cell of the minimum of 3 members and a
Committee Exchange which includes maximum of 5 members.
review of complaint resolution
process, review of complaints ii. The Public Interest Directors
remaining unresolved over shall form a majority of the
long period of time, estimate Committee.
the adequacy of resources
dedicated to investor iii. A maximum of two key
services, etc.; management personnel of the
exchange can be on the
ii. Supervision of utilization of Committee.
ISF;
iv. The Committee may also include
iii. To have annual review of the independent external persons.
arbitrators and arbitration/
awards (both quantum and v. SEBI may nominate members in
quality of the awards). the Committee, if felt necessary
in the interest of commodities
market;
It is stipulated that the arbitration panel shall not comprise of any trading
members.
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8.2.19. Automatic Process and Common Pool of arbitrators89:
The national commodity derivatives exchanges shall pool all
arbitrators of their exchange in the common pool across all national
commodity derivatives exchanges, facilitate automatic selection of
arbitrators from the common pool. Details are prescribed below:
I. List of Arbitrators on the panel of all exchanges having nation-
wide trading terminals shall be pooled and will be called a
'Common Pool'. This list shall be made publicly available including
by way of display on websites of the exchanges.
II. 'Common pool' of Arbitrators will consist of Arbitrators listed on
the panels of all exchanges having nation-wide trading terminals.
The pooling of arbitrators will be done Centre-wise. To illustrate,
the list of arbitrators on the panel of all exchanges for the region
covered by the Delhi centre will be pooled. This would enable an
applicant from the region to choose any arbitrator from the
'Common Pool' for Delhi.
III. If the client and member (broker, trading member or clearing
member) fail to choose the Arbitrator(s) from the Common Pool,
the Arbitrator(s) will be chosen by an 'Automatic Process' wherein
neither the parties to arbitration (i.e. client or member) nor the
concerned Exchanges will be directly involved.
IV. The 'Automatic Process' will entail a randomized, computer
generated selection of Arbitrator, from the list of Arbitrators in the
'Common Pool'. The selection process shall be in chronological
order of the receipt of arbitration reference i.e. only after selecting
an arbitrator for the former arbitration reference received,
selection for the latter shall be taken up.
V. The 'Automatic Process' will send a system generated, real time
alert (sms, email etc.) to all entities involved in the particular case.
Further, the communication for the appointment of the Arbitrator
will be sent immediately and in any case not later than the next
working day from the day of picking of the Arbitrator. This
communication will be sent by the exchange on which the dispute
had taken place, to all concerned entities including clients,
arbitrators, members, exchanges etc.
VI. The selection of Arbitrators by exchanges as done currently, shall
henceforth be replaced by the 'Automatic Process'. In case of any
probable conflict of interest in an arbitration reference being
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assigned to any Arbitrator the Arbitrator will have to upfront
decline the arbitration reference. After the said arbitrator declines,
the 'automatic process' will pick the name of another Arbitrator.
This will continue till the time there is no conflict of interest, by the
selected arbitrator. The exchanges should ensure that the
process of appointment of arbitrator(s) is completed within 30
days. However, the timeline can be extended and exchanges
shall put on record the reasons of such extension.
VII. In case of conflict of interest by the arbitrator, the information for
the same may reach the exchange on which the dispute has taken
place within 15 days of receipt of communication from the SE
above. The said information may be sent by any method which
ensures proof of delivery.
VIII. Fees of arbitrator shall be dealt in line with existing provisions, by
the exchange on which the dispute had taken place.
8.2.20. Implementation of Arbitral Award in favour of Clients
I. In case the arbitral / appellate arbitral award is in favour of the
client, the exchange shall, on receipt of the same, debit the
amount of the award from the security deposit or any other
monies of the member (against whom an award has been
passed) and keep it in a separate escrow account.
II. The exchange shall implement the arbitral award, by making
payment to the client, along with interest earned on the amount
that has been set aside, as soon as the time for preferring an
appeal before the appellate panel of arbitrators has expired and
no appeal has been preferred.
III. The exchange shall implement the appellate arbitral award, by
making payment to the client, along with interest earned on the
amount that has been set aside, as soon as
A. the time for making an application to a Court to set aside such
appellate arbitral award under Section 34 of the Arbitration
and Conciliation Act, 1996 has expired, and no application
has been made, or
B. b. when an application to a Court to set aside such appellate
arbitral award under Section 34 of the Arbitration and
Conciliation Act, 1996, having been made, it has been
refused by such Court, or
C. c. an application to a Court to set aside such appellate arbitral
award under Section 34 of the Arbitration and Conciliation
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Act, 1996, having been made, but where no stay has been
granted by such Court within a period of three months from
the date on which the party making that application had
received the appellate arbitral award.
8.2.21. Record and Disclosures
I. The exchange shall preserve the following documents related to
Arbitration:
A. the arbitral and appellate arbitral award with acknowledgements,
confirming receipt of award by the disputing parties, permanently;
B. other records pertaining to arbitration for five years from the date
of arbitral award, appellate arbitral award or Order of the Court,
as the case may be; and
C. register of destruction of records relating to B above,
permanently.
II. The exchange shall disclose on its website, details of disposal of
arbitration proceedings as per format given in Annexure N and
details of arbitrator-wise disposal of arbitration of arbitration
proceedings as per format given in Annexure O
III. The exchanges shall continue to disclose on their website the
arbitration awards (issued since April 01, 2007) in format given in
Annexure P
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Chapter 9. Trading Software and Technology
9.1. Annual System Audit90
9.1.1. The national commodity derivatives exchanges shall conduct
annual system audit as per the prescribed audit framework which
includes, audit process, auditor selection norms, Terms of
Reference (TOR) and audit report guidelines.
9.1.2. The Systems Audit Report and compliance status should be placed
before the governing board of the exchange and communicated to
SEBI along with their comments.
9.1.3. System Audit Framework
I. Audit Process
Following steps would be repeated annually to ensure that the
process is comprehensive & effective:
A. The Audit shall be conducted according to the Norms, Terms of
References (TOR) and Guidelines issued by SEBI.
B. Stock Exchange / Depository (Auditee) may negotiate and the board
of the Stock Exchange / Depository shall appoint the Auditors based
on the prescribed Auditor Selection Norms and TOR. The Auditors
can perform a maximum of 3 successive audits. The proposal from
Auditor must be submitted to SEBI for records.
C. Audit schedule shall be submitted to SEBI at-least 2 months in
advance, along with scope of current audit & previous audit.
D. The scope of the Audit may be extended by SEBI, considering the
changes which have taken place during last year or post previous
audit report.
E. Audit has to be conducted and the Audit report be submitted to the
Auditee. The report should have specific compliance / non-
compliance issues, observations for minor deviations as well as
qualitative comments for scope for improvement. The report should
also take previous audit reports in consideration and cover any open
items therein.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
F. The Auditee management provides their comment about the Non-
Conformities (NCs) and observations. For each NC, specific time-
bound (within 3 months) corrective action must be taken and reported
to SEBI. The auditor should indicate if a follow-on audit is required to
review the status of NCs. The report along with Management
Comments shall be submitted to SEBI, within 1 month of completion
of the audit.
G. Follow-on audit, if any, has to be scheduled within 3 months of the
Audit to ensure that the corrective actions have been taken.
H. If follow-on audit is not required, the Auditee management has to
submit a report of actions taken and evidence of corrections to the
Auditors & SEBI within 3 months. This report should include updated
Issue-Log to indicate the corrective actions taken, verified by the
auditors.
II. Auditor Selection Norms
A. Auditor must have minimum 3 years of experience in IT audit of
Securities Industry participants e.g. stock exchanges, clearing
houses, depositories etc. The audit experience should have covered
all the Major Areas mentioned under SEBI’s Audit Terms of
Reference (TOR).
B. The Auditor must have experience in / direct access to experienced
resources in the areas covered under TOR. It is recommended that
resources employed shall have relevant industry recognized
certifications e.g. CISA (Certified Information Systems Auditor) from
ISACA, CISM (Certified Information Securities Manager) from
ISACA, GSNA (GIAC Systems and Network Auditor), CISSP
(Certified Information Systems Security Professional) from
International Information Systems Security Certification Consortium,
commonly known as (ISC)².
C. The Auditor should have IT audit/governance frameworks and
processes conforming to industry leading practices like CobiT.
D. The Auditor must not have any conflict of interest in conducting fair,
objective and independent audit of the Exchange / Depository. It
should not have been engaged over the last three years in any
consulting engagement with any departments / units of the entity
being audited.
E. The Auditor may not have any cases pending against its previous
auditees, which fall under SEBI’s jurisdiction, which point to its
incompetence and/or unsuitability to perform the audit task.
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III. Terms of Reference (ToR)
A. General Controls for Data Center Facilities – It must include
i. Application access – Segregation of duties, Database &
Application access etc.
ii. Maintenance access – Vendor engineers.
iii. Physical access – Permissions, logging, exception reporting &
alerts.
iv. Environmental controls – Fire protection, AC monitoring etc.
v. Fault resolution mechanism.
vi. Folder sharing and Back-up controls – Safeguard critical
information on local desktops
vii. Incidences of violations in last year & corrective actions taken
B. Software Change Control – It must include
i. User awareness
ii. Processing of new feature request
iii. Fault reporting / tracking mechanism & process for resolutions
iv. Testing of New releases / Bug-fixes – Testing process
(automation level)
v. Version Control – History, Change Management process etc.
vi. Development / Test/ Production environment – Segregation
vii. New release in Production – Promotion, Release note
approvals
viii. Production issues / disruptions reported during last year &
corrective actions taken
C. Data communication / Network controls – It must include
i. Network Administration – Redundancy, Monitoring,
breakdown resolution etc.
ii. WAN Management – Connectivity provisions for business
continuity.
iii. Encryption - Router based as well as during transmission
iv. Connection Permissions – Restriction on need to have basis
v. Fallback mechanism – Dial-up connections controls etc.
vi. Hardware based Signing Process
vii. Incidences of access violations in last year & corrective
actions taken
D. Security Controls – General office infrastructure – It must include
i. Security Policy & quality of implementation of the same
ii. LAN security control and monitoring
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Securities and Exchange Board of India
iii. OS & Database Security controls & monitoring
iv. Internet connection controls – Firewall protection, Intrusion
Detection System, Access rights and privileges.
v. Virus protection – Controls to mitigate the Virus attacks /
Outbreaks.
vi. Secured (digitally signed) e-mail with other entities like SEBI,
other partners
vii. Email Archival Implementation
viii. Incidences of security violations in last year & corrective
actions taken
E. Access policy and controls
F. Electronic Document controls
G. General Access controls
H. Performance audit – It must include
i. Comparison of changes in transaction volumes since previous
audit
ii. Review of systems (hardware, software, network)
performance over period
iii. Review of the current volumes against the last Performance
Test performed
I. Business Continuity / Disaster Recovery Facilities – It must include
i. BCP manual, including Business Impact Analysis, Risk
Assessment and DR process
ii. Implementation of policies
iii. Back-up procedures and recovery mechanism using back-
ups.
iv. Storage of Back-up (Remote site, DRS etc.)
v. Redundancy – Equipment, Network, Site etc.
vi. DRS installation and Drills - Management statement on
targeted resumption capability (in terms of time required &
extent of loss of data)
vii. Evidence of achieving the set targets during the DRS drills in
event of various disaster scenarios.
viii. Debrief / review of any actual event when the DR/BCP was
invoked during the year
J. IT Support & IT Asset Management – It must include
i. Utilization monitoring – including report of prior year utilization
ii. Capacity planning – including projection of business volumes
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
iii. IT (S/W, H/W & N/W) Assets, Licenses & maintenance
contracts
iv. Insurance
v. Disposal – Equipment, Media, etc.
K. Entity Specific Software
L. Any other Item
i. Electronic Waste Disposal
ii. Based upon previous Audit report as well as any other specific
information given by SEBI
IV. Audit Report Guidelines
A. The Audit report should have explicit coverage of each Major Area
mentioned in the TOR, indicating any Nonconformity (NCs) or
Observations (or lack of it).
B. For each section – auditors should also provide qualitative input
about ways to improve the process, based upon the best practices
observed.
C. The report should also include tabulated data to show NCs /
Observations for each Major Area in TOR
.
D. Fully detailed report should be submitted, along with an Executive
Summary in tabulated form including following information:
Issue Log Column Description Responsibility
Heading
Major Area Major area/relevant clause in Terms of Auditor
Reference against which compliance is being
audited
Description of Describe the findings in sufficient detail, Auditor
Finding/ referencing any accompanying evidence (e.g.
Observation procedure manual, interview notes, reports
etc.)
Reference Reference to the section in detailed report – Auditor
where full background information about the
findings are available
Process/ Unit Process or unit where the audit is conducted Auditor
and the finding pertains to
Category of Major/Minor Nonconformity, Observation, Auditor
Findings Suggestion etc.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Issue Log Column Description Responsibility
Heading
Audited By Which Auditor covered the findings Auditor
Root Cause A detailed analysis on the cause of the Auditee
Analysis nonconformity
Remediation The action (to be) taken to correct the Auditee
nonconformity
Target Completion The date by which remedial action must be/will Auditor/Auditee
Date for Remedial be completed
Action
Status Status of finding on reporting date (open/close) Auditor/Auditee
Verified By Auditing personnel (upon verification that Auditor
finding can be closed)
Closing Date Date when finding is verified and can be closed Auditor
E. The Executive Summary should also include an overall comment
from the Auditors to indicate if a follow-on audit is required and the
time lines of respective corrective action for non-conformities.
F. Further, along with the audit report, the Stock Exchange / Depository
shall also submit a declaration from the MD / CEO certifying the
integrity and security of IT Systems
9.2. Business Continuity Plan (BCP) and Disaster Recovery (DR)91
9.2.1. The national commodity derivatives exchanges shall have BCP &
DR policy in place and implement the broad guidelines regarding
the setting up of Disaster Recovery Site (DRS) and Near Site (NS),
Configuration of DRS/NS with Primary Data Centre (PDC), DR drills
/ Testing, BCP DR Policy as mentioned below:
I. The exchanges should have in place Business Continuity Plan
(BCP) and Disaster Recovery Site (DRS) so as to maintain data
and transaction integrity.
II. Apart from DRS, exchanges should also have a Near Site (NS)
to ensure zero data loss.
III. The DRS should be set up sufficiently away, i.e. in a different
seismic zone, from Primary Data Centre (PDC) to ensure that
both DRS and PDC are not affected by the same disasters.
91SEBI Circular No. CIR/CDMRD/DEICE/01/2015 dated November 16, 2015
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
IV. The manpower deployed at DRS / NS should have similar
expertise as available at PDC in terms of knowledge /
awareness of various technological and procedural systems
and processes relating to all operations such that DRS / NS can
function at short notice, independently.
V. Configuration of DRS / NS with PDC
A. Hardware, system software, application environment, network and
security devices and associated application environments of DRS /
NS and PDC should have one to one correspondence between them.
B. Exchanges Depositories should have Recovery Time Objective
(RTO) and Recovery Point Objective (RPO) not more than 4 hours
and 30 minutes, respectively.
C. Solution architecture of PDC and DRS / NS should ensure high
availability, fault tolerance, no single point of failure, zero data loss,
and data and transaction integrity.
D. Any updates made at the PDC should be reflected at DRS / NS
immediately (before end of day) with head room flexibility without
compromising any of the performance metrics.
E. Replication architecture, bandwidth and load consideration between
the DRS / NS and PDC should be within stipulated RTO and ensure
high availability, right sizing, and no single point of failure.
F. Replication between PDC and NS should be synchronous to ensure
zero data loss. Whereas the one between PDC and DR and between
NS and DR may be asynchronous.
G. Adequate resources (with appropriate training and experience)
should be available at all times to handle operations on a regular
basis as well as during disasters.
VI. DR Drills / Testing
A. DR drills should be conducted on quarterly basis. In case of
exchanges, these drills should be closer to real life scenario (trading
days) with minimal notice to DR staff involved.
B. During the drills, the staff based at PDC should not be involved in
supporting operations in any manner. To begin with, initial three DR
drills from the date of this circular may be conducted with the support
of staff based at PDC.
C. The drill should include running all operations from DRS for at least
1 full trading day.
D. Before DR drills, the timing diagrams clearly identifying resources at
both ends (DRS as well as PDC) should be in place.
E. The results and observations of these drills should be documented
and placed before the Governing Board of Stock Exchange /
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Securities and Exchange Board of India
Depositories. Subsequently, the same along with the comments of
the Governing Board should be forwarded to SEBI within a month of
the DR drill.
F. The system auditor while covering the BCP – DR as a part of
mandated annual system audit should also comment on documented
results and observations of DR drills.
VII. BCP – DR Policy Document
A. The BCP – DR policy of national commodity derivatives exchanges
should be well documented covering all areas as mentioned above
including disaster escalation hierarchy.
B. The exchanges should specifically address their preparedness in
terms of proper system and infrastructure in case disaster strikes
during business hours.
C. Depositories should also demonstrate their preparedness to handle
any issue which may arise due to trading halts in stock exchanges.
D. The policy document and subsequent changes / additions / deletions
should be approved by Governing Board of the exchange and
thereafter communicated to SEBI.
VIII. Further, the exchanges should also ensure that point VI (F)
mentioned above is also included in the scope of its annual system
audit.
9.3. Annual System Audit of Stock Brokers / Trading Members of National
Commodity Derivatives Exchanges92
9.3.1. The exchanges should ensure that system audit of stock brokers/
trading members are conducted in accordance with the prescribed
framework as placed below as Annexure Q.
9.3.2. Exchanges are advised to keep track of findings of system audits
of all brokers on quarterly basis and ensure that all major audit
findings, specifically in critical areas, are rectified / complied in a
time bound manner failing which follow up inspection of such
brokers may be taken up for necessary corrective steps / actions
thereafter, if any.
9.3.3. Stock Exchange should report all major non-compliances /
observations of system auditors, broker wise, on a quarterly basis
to SEBI.
92SEBI Circular No. SEBI/HO/CDMRD/DEICE/CIR/P/2016/70 dated August 11, 2016
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
9.3.4. Further, it was decided that Type I brokers may be exempted from
system audit and the development of NEAT / BOLT / Exchange
provided terminals be included in the scope of Annual System Audit
of National Commodity Derivatives Exchanges.
9.3.5. In view of above, the provisions relating to Type I Brokers, as
mentioned in this circular, shall not be applicable to Type I
Brokers. However, such provisions shall be included in the TOR
of the Annual System Audit for National Commodity Derivatives
Exchanges.
9.4. Testing of software used in or related to Trading and Risk
Management93
9.4.1. Due to technological developments and innovations, currently the
members of exchanges have multiple options for using software i.e.
either exchange provided or in-house developed software which
is being used for trading and risk management related activities.
Since new software or changes to the existing software without
proper testing may affect the integrity of the markets, it has been
decided to make the applicable the following provisions to
commodity derivatives markets.
9.4.2. 'Software’ shall mean electronic systems or applications used by
stock brokers / trading members for connecting to the stock
exchanges and for the purposes of trading and real-time risk
management, including software used for Internet Based Trading
(IBT), Direct Market Access (DMA), Securities Trading using
Wireless Technology (STWT), Smart Order Routing (SOR),
Algorithmic Trading (AT), etc.
9.4.3. Testing of Software
In addition to the testing and approval requirements specified
through various circulars issued by SEBI on IBT, DMA, STWT, SOR
and AT, stock exchanges shall frame appropriate testing policies
for functional as well as technical testing of the software. Such
framework shall at the minimum include the following:
I. Testing in a simulated test environment: National commodity
derivatives exchanges shall provide suitable facilities to market
participants / software vendors to test new software or existing
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Securities and Exchange Board of India
software that have undergone change. Subjecting the new
software or existing software that have undergone change to
such testing facility shall be mandatory for market participants,
before putting it in use.
II. Mock testing
A. National commodity derivatives exchanges shall organize mock
trading sessions on regular basis, at least once in a calendar
month, to facilitate testing of new software or existing software
that has undergone any change of functionality, in a close-to-real
trading environment. Stock exchanges shall suitably design and
plan such mock trading sessions to ensure maximum
participation and sufficient trading volumes for the purpose of
testing.
B. National commodity derivatives exchanges shall mandate a
minimum time period for such testing in the mock trading
sessions.
C. In order to improve the efficacy of the mock trading sessions, all
stock brokers / trading members shall ensure that all user-ids
approved for Algo trading, irrespective of the algorithm having
undergone change or not, shall participate in the mock trading
sessions.
D. User Acceptance Test (UAT): The broker / trading member shall
undertake UAT of the software to satisfy itself that the newly
developed / modified software meets its requirements.
III. With respect to testing of software related to (a) fixes to bugs in
the software, (b) changes undertaken to the stock brokers’
software / systems pursuant to a change to any stock exchange's
trading system, and (c) software purchased from a software
vendor that has already been tested in the mock environment by
certain number of stock brokers, stock exchanges may prescribe
a faster approval process to make the process of approval
expeditious.
9.4.4. Brokers / trading members shall also engage system auditor(s) to
examine reports of mock tests and UAT in order to certify that the
tests were satisfactorily undertaken.
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Securities and Exchange Board of India
9.4.5. National commodity derivatives exchanges shall monitor
compliance of stock brokers / trading members, who use trading
algorithm, with regard to the requirement of participation in mock
trading session as mandated with this circular. In cases where
stock exchanges find that the stock broker / trading member has
failed to participate in such mock trading sessions, stock exchange
shall call for reasons and if found unsatisfactory, shall suspend the
proprietary trading rights of the stock broker / trading member for a
minimum period of one trading day.
9.4.6. National commodity derivatives exchanges shall also ensure that
the system auditors examine the compliance of stock broker /
trading member, who use trading algorithms, with regard to the
requirement of participation in mock trading session, as mandated
with this circular, and provide suitable comments in the periodic
system audit report. In cases where the system audit report indicate
that the stock broker / trading member has failed to participate in
such mock trading sessions, stock exchange shall call for reasons
from the broker/trading member and if found unsatisfactory, shall
suspend the proprietary trading rights of the broker / trading
member for a minimum period of one trading day.
9.4.7. For pre-approval / periodic system audit of Computer-to-Computer
Link (CTCL) or Intermediate Messaging Layer (IML), IBT, DMA,
STWT, SOR and AT, brokers / trading members shall engage a
system auditor with any of the following certifications :
 CISA: (Certified Information System Auditors) from ISACA;
 DISA: (Post Qualification Certification in Information Systems
Audit) from Institute of Chartered Accountants of India (ICAI);
 CISM: (Certified Information Securities Manager) from
ISACA
 CISSP: (Certified Information Systems Security Professional)
from International Information Systems Security Certification
Consortium, commonly known as (ISC)2.
While finalizing the system auditor, stock brokers / trading members
shall ensure the system auditor does not have any conflict of interest
with the stock broker and the directors/promoters of the system
auditor are not directly or indirectly related to the current directors or
promoters of stock broker / trading member.
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Securities and Exchange Board of India
9.4.8. Approval of Software of broker / trading member
I. Brokers / trading members shall seek approval of the respective
exchanges for deployment of the software in the securities market
by submitting necessary details required by exchange including
details of software, tests undertaken and certificate / report
provided by the system auditor. Exchange may seek additional
details as deemed necessary for evaluating the application of the
stock broker / trading member.
II. National commodity derivatives exchanges shall grant approval
or reject the application of the stock broker as the case may be,
and communicate the decision to the stock broker / trading
member within fifteen working days from the date of receipt of
completed application (or within any other such time period
specified vide SEBI circulars on DMA, IBT, STWT, SOR, AT,
etc.). In case of rejection of the application, the stock exchange
shall also communicate reasons of rejection to the stock broker /
trading member within such time period.
III. Before granting approval to use software in commodities
derivatives market, National commodity derivatives exchanges
shall ensure that the requirements specified by SEBI / exchange
with regard to software are met by the broker / trading member.
IV. National commodity derivatives exchanges may suitably
schedule the requirements of mock testing, certification of test
reports by system auditor(s) and the software approval process,
so as to facilitate a speedy approval and a smooth transition of
the stock brokers to the new / upgraded software.
9.4.9. In order to ensure that brokers are not using software without
requisite approval of the National commodity derivatives
exchanges, exchanges are advised to put in place suitable
mechanism to prevent any unauthorized change to the approved
software.
9.4.10. Undertaking to be provided by brokers / trading members
I. Brokers / trading members shall submit an undertaking to the
respective stock exchanges stating the following at the minimum:
A. M/s (name of the broker / trading member) will take all necessary steps to
ensure that every new software and any change thereupon to
the trading and/or risk management functionalities of the
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
software will be tested as per the framework prescribed by SEBI
/ stock exchange before deployment of such new / modified
software in securities market.
B. M/s (name of the broker / trading member) will ensure that approval of the
stock exchange is sought for all new / modified software and
will comply with various requirements specified by SEBI or the
stock exchange from time to time with regard to usage, testing
and audit of the software.
C. The absolute liability arising from failure to comply with the
above provisions shall lie entirely with M/s (name of the broker / trading
member.
II. National commodity derivatives exchanges may include
additional clauses as deemed necessary in the undertaking.
9.4.11. Sharing of Application Programming Interface (API) specifications
by the exchange with brokers / trading members.
I. API is an interface that enables interaction of software with other
software and typically includes language and message format
that is used by an application program to communicate with the
operating system or other application program. Brokers / trading
members and software vendors require relevant API
specifications to facilitate interaction of the developed software
with the systems of the stock exchanges.
II. Technical Advisory Committee (TAC) had engaged with stock
exchanges, software vendors and stock brokers / trading
members to review the framework of sharing of APIs by stock
exchanges.
III. Based on the recommendations of the committee, it is decided
that National commodity derivatives exchanges shall provide
relevant API specifications to all brokers / trading members and
software vendors who are desirous of developing software for the
securities market, after establishing their respective credentials.
IV. In case of refusal to share APIs, exchanges shall provide reasons
in writing to the desirous stock brokers / trading members or
software vendors within a period of fifteen working days from the
date of receipt of such request for sharing of API.
V. Further, exchanges shall not selectively release updates /
modifications, if any, of the existing API specifications to few
brokers / trading members or software vendors ahead of others
and shall provide such updated / modified API specifications to all
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
stock brokers / trading members and software vendors with whom
the earlier API specifications were shared.
9.4.12. Penalty on malfunction of software used by broker / trading
member: National commodity derivatives exchanges shall examine
the cases of malfunctioning of software used by brokers / trading
members and apply deterrent penalties in form of fines or
suspension to the stock broker/trading member whose software
malfunctioned. In addition, brokers/trading members shall
implement various mechanisms including the following to minimize
their losses in the event of software malfunction:
I. include suitable clauses in their agreement with the software
vendors to define liabilities of software vendor and broker /
trading member in case of software malfunction, and / or,
II. consider taking suitable insurance cover to meet probable
losses in case of software malfunction.
9.4.13. With regard to changes / updates to broker's trading software that
intend to modify the 'look and feel' and do not affect the risk
management system of the broker or the connectivity of the trading
software with exchange's trading system, it is clarified that mock
testing and consequent system audit may not be insisted upon by
the exchanges.
9.4.14. National commodity derivatives exchanges shall direct their brokers
to put in place adequate mechanism to restore their trading
systems to 'production state' at the end of testing session so as to
ensure integrity of stock brokers' trading system
9.5. Cyber Security and Cyber Resilience framework94
9.5.1. SEBI as a member of IOSCO has adopted the Principles for
Financial Market Infrastructures (PFMIs) laid down by CPMI -
IOSCO and has issued guidance for implementation of the
principles in the securities market.
9.5.2. Principle 17 of PFMI that relates to management and
mitigation of ‘Operational risk’ requires that systemically
important market infrastructures institutions “ should identify the
plausible sources of operational risk, both internal and external,
and mitigate their impact through the use of appropriate
systems, policies, procedures, and controls. Systems should be
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designed to ensure a high degree of security and operational
reliability and should have adequate, scalable capacity. Business
continuity management should aim for timely recovery of
operations and fulfilment of the FMI’s obligations, including in
the event of a wide -scale or major disruption.”
9.5.3. Commodity derivatives exchanges referred as Market
Infrastructure Institutions or MIIs are systemically important
market infrastructure institutions. As part of the operational risk
management, these MIIs need to have robust cyber security
framework to provide essential facilities and perform
systemically critical functions relating to trading, clearing and
settlement in securities market.
9.5.4. National commodity derivatives exchanges are required to comply
the framework with regard to cyber security and cyber resilience as
placed as Annexure R.
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Annexures
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Securities and Exchange Board of India
Annexure A
Report on Shareholding Pattern of the Exchange in terms of Securities
contracts (Regulation) (Stock Exchanges and Clearing Corporations)
Regulations, 2012
[Quarter ended ____________]
A. Top ten shareholders during the quarter
Sl. No. Name of the Number of shares Percentage of
shareholder held at the end of shareholding
the quarter
1
2
B. Shareholders falling under Regulation 17 who have acquired shares during
the quarter
Sl. No. Name of the Name of the Number of Percentage of
shareholder shareholder from shares acquired Shareholding
who acquired whom shares during the after the
shares acquired quarter acquisition
1
2
C. Category wise shareholding pattern in the recognised commodity derivate
exchange (along with the names of the shareholder)-
I. TRADING MEMBER
Sl. No Category of No. of Total Percentage
shareholder Shareholder number of of Shares
Shares
Individuals
1
2
Corporates(Listed)
1
Corporates(unlisted)
1
Banks (wherever
permitted)
1
Any other (specific)
Total (A)
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Securities and Exchange Board of India
II. ASSOCIATES OF TRADING MEMBERS
Sr. No Category of No. of Total number Percentage
Shareholder Shareholders of shares of shares
Individuals
1
2
Corporates(listed)
1
Corporates(unlisted)
1
HUF
1
Trust
1
Financial Institutions /
Banks
1
Foreign Holding (FDI)
1
Foreign Holding (FII)
1
Any other (specify)
Total (B)
Total(A+B)
III. PUBLIC SHAREHOLDING
Sr. No. Category of No. of Total number Percentage
shareholder Shareholders of shares of shares
Individuals
1
2
Corporates
(Listed)
1
Corporates
(Unlisted)
1
HUF
1
Trust
1
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Securities and Exchange Board of India
Sr. No. Category of No. of Total number Percentage
shareholder Shareholders of shares of shares
Financial
Institutions /
Banks
1
Foreign Holding
(FDI)
1
Foreign Holding
(FII)
1
Any Other (specify)
Insurance
Companies
1
Mutual Funds
1
Venture Capital
Fund
1
Any other
(specify)
Total (C)
Grand total
(A)+(B)+(C)
D. SHAREHOLDERS ACTING IN CONCERT
The Exchange shall indicate the shareholding pattern in the format given below in
respect of each set of shareholders, in case they hold shares along with persons
acting in concert-
Sr. No. Name of the Category of Details of holding
shareholder shareholder Number Percenta
of shares ge
1
2
3
Page 142 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
UNDERTAKING UNDER REGULATION 21
E. The Managing Director/ Executive Director of the recognized commodity
derivative exchange shall submit an undertaking confirming the compliance
of the provisions Regulation 21 of Securities Contracts (regulation) (Stock
Exchanges and Clearing Corporations) Regulations, 2012 to SEBI on a
quarterly basis within fifteen days from the end of each quarter and to
monitor and ensure compliance with the provisions under Chapter – IV of
the said SECC Regulations at all times.
Page 143 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure B
MARKET DEVELOPMENT REPORT OF _________ EXCHANGE FOR THE PERIOD _____
SECTION I
1. STATISTICAL DETAILS - CURRENT FINANCIAL YEAR
IMPORTANT: The cumulative figures are for the current Financial Year.
Items Apr May Jun Feb Mar Cumulative total for
the year
No. of Trading days
A. Total value of trade (in INR Crores)
Total Volume of trade (in MT)
Total number of contracts traded
B. Agri Commodities
Total value of trade (in INR Crores)
Total Volume of trade (in MT)
Total number of contracts traded
C. Non-Agri commodities
Total value of trade in (in INR Crores)
Total Volume of trade (in MT)
Total number of contracts traded
Page 144 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
2. NO. OF CONTRACTS AVAILABLE FOR TRADING
Commodities on which futures Number of running contracts No. of liquid No. of illiquid
contracts are available* on each commodity contracts* contracts
Note: *please provide criteria for liquid contracts
3. COMMODITY WISE DETAILS
Items (Name of Commodity) Apr May Jun Feb Mar Cumulative total for the year
Total value of trade in INR Crores
Total Volume of trade in MT
Total number of contracts traded
4. MOVEMENT OF THE INDICES COMPILED BY THE EXCHANGE (CLOSING VALUES ONLY)
Index Open High Low Close
(First Day) (With Date) (With Date) (Last Trading Date)
5. TRADING TERMINALS RELATED INFORMATION
a) The number of cities covered across the country
b) Total number of trading terminals set up across the country
c) The number of trading terminals set up abroad, if any
Page 145 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
6. DETAILS OF SPECIFIC PURPOSE FUNDS
a) Investor Protection Fund
Composition of the Fund IPF/CPF
Corpus as per previous Development Report
Add : Accruals to the Fund during the period
Less : Fund utilised during the period
Corpus as of end of the period
Composition of Fund
7. CLEARING, SETTLEMENT & RELATED FUNCTIONS
1. Clearing and Settlement for Commodity Derivatives –
Sr. Average Daily Settlement Value (INR Highest Settlement Value for the
No Crores)* Month (INR Crores)
Average Daily Settlement Value = Total Settlement Value for the Month/ Total number of trading days
2. Top 10 Settlement Shortages
Sr. Name of Shortage in Date of Settlement Number of times the Shortage Type Amount (INR
No Member Commodity/ (for which there Member had settlement (Funds/ Crores)
Contract was a shortage) shortages in the previous Commodities)
6 months
Page 146 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
3. Top 10 Clearing Members based on highest 'Daily Average Pay-In' obligation
Sr. Name of Clearing Category (CM/SCM/PCM) Amount (INR
No Member crores) *
8. DISCIPLINARY ACTION TAKEN AGAINST MEMBERS
Name of member Nature of irregularity Details of action
Sr. No. /violation taken
Note: The details pertaining to cases of deactivation of terminals for three consecutive days or more should be furnished.
9. DEFAULT OF MEMBERS
Name of member declared Date of default Cumulative no. of default cases
defaulter during the
during the period current financial year
10. DETAILS PERTAINING TO DISRUPTIONS IN TRADING, IF ANY
Page 147 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
SECTION II
1. COMPLAINTS RECEIVED FROM INVESTORS
a. Complaints against brokers
Pending at the Received Resolved Pending at the No. of complaints pending for more than
beginning end one month and brief reasons thereof
b. Complaints referred by SEBI against the brokers
Pending at the Received Resolved Pending at the No. of complaints pending for more than
beginning end one month and brief reasons thereof
2. COMPLAINTS AGAINST EXCHANGE
a. By investors
Pending at the Received Resolved Pending at the No. of complaints pending for more than
beginning end one month and brief reasons thereof
b. By members
Received Resolved No. of complaints pending for
Pending at the Pending at the
more than one month and brief
beginning end
reasons thereof
Page 148 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
3. ARBITRATION (MEMBER VS NON-MEMBER)
a. Details of arbitration cases
Pending at Receive Awards passed For "X" the Pendin Details of arbitration cases
the d amount g which are pending for more
beginning set aside by the at the than three months along
Exchange end with reasons
In favour of In favour
No of Amount
non-member of
cases in INR
"X" member
4. DETAILS OF IMPLEMENTATION OF ARBITRATION AWARDS
a. Member-wise statement of unimplemented awards (where the money has not been set aside)
S. Name of the Number of awards Amount involved Action taken by
No member un-implemented the Exchange
b. Complaints received by the Exchange against the Arbitration mechanism of the Exchange
Opening Complaints Comment of
balance received Resolved the
during the during Nature of the Closing exchange
month the month complaint balance
Page 149 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
SECTION III
1. GOVERNING BOARD AND STATUTORY COMMITTEES (To be reported in case of change)
a. Composition of Governing Board/Council of Management:
Names Category Date of Date of Last No. of terms Date of Expiry
Appointment Renewal completed of
of the term current term
2. ATTENDANCE DETAILS OF NON-MEMBER DIRECTORS ON GOVERNING BODY OF THE EXCHANGE
Date of Name of Non-member Directors attended the
Meetings held meeting along with their category
Name of
Date of issue of Notice Non-
Name of Non-member Directors
convening the member
meetings Directors
3. IMPORTANT DECISIONS TAKEN BY GOVERNING BOARD/COUNCIL OF MANAGEMENT IN THE MEETING(S).
Page 150 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
SECTION IV
1. INSPECTION OF MEMBERS
Total no. of No. of active No. of members Cumulative number of % of active members
members members inspected during the members inspected during inspected during the
period the current FY year
2. STATUS OF IMPLEMENTATION OF CIRCULARS ISSUED BY SEBI DURING THE PAST THREE MONTHS
Circular Provisions in the Implemented Date of implementation of In case, not implemented
No. & date circular(Subject) (Y/N) the provisions reasons for non-implementation
3. ANY OTHER IMPORTANT DEVELOPMENTS
4. REPORT ON ALGORITHMIC TRADING FOR THE MONTH
S. No. Particulars Data
1 Turnover of Algorithmic Trading (` in crores)
2 Algorithmic Trading as a percentage of Total trading (%)
Number of stock Brokers / clients using algorithmic
3
trading
4 Action taken in respect of dysfunctional algos
5 Status of grievance, if any, received and processed
Page 151 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
SECTION V
DETAILS OF WAREHOUSING, WAREHOUSING SERVICE PROVIDERS (WSPS), DELIVERIES, HEDGING OPERATIONS &
OPEN INTEREST (OI)
1. DELIVERY DETAILS
Name of the Commodity Physical quantity of Value of Deliveries Contract details
delivery
2. TOP 5 HEDGERS DETAILS (COMMODITY-WISE)
Name of the Highest OI Total Value of Value of Deliveries Stocks held in exchange
Commodity Trades accredited warehouses
3. TOP 5 OI DETAILS (COMMODITY-WISE)
Name of the Quantity of Highest OI Total Value of Value of Deliveries Stocks held in exchange
Commodity held during the month Trades accredited warehouses
4. WAREHOUSE (WH) DETAILS
Name of the Number of the Exchange WDRA registered Inspection done Inspection pending
Exchange accredited WH warehouse
Page 152 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
5. WSP DETAILS
Name of the Name of Number of Name of Quantity Capacity No. of WDRA
Exchange WSPs warehouses commodities stored (in (in MT) registered WH
of each WSPs stored in MT)
warehouses
Page 153 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure C
Criteria for Commodity Eligibility for Derivative Products - Template
Section I
Particulars Weight Sub-score Details
Parameter I - Commodity Fundamentals
Size of commodity This parameter relates to
production, imports, carryover
stocks etc…
Volume in cash market The daily volumes in the underlying
cash/spot/physical market may be a
good indicator of the depth
Durability and Storability Relates to the durability and
duration for which the commodity
can be stored
Homogeneous/ Scope for standardization
Standardization
Parameter I Score
Parameter II - Ease of doing Business
Particulars Weight Sub-score Details
Prevalence of price controls These parameters relates to the
ease of doing business in
Minimum Support Price commodity markets. Issues such as
(MSP) for the commodity price controls, storage controls,
Storage controls/ Stock Taxation etc., have a bearing on the
Limits trade. These parameters are also
an indicator of what reforms should
Government. Policy
be brought in the commodity space
Applicability of other Laws in a regulated environment to be
best in class globally.
Parameter II Score =
Page 154 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Section II
Particulars Weight Sub-score Details
Parameter III - Trade/ Business
Global Trade - Imports or Importance in global trade and to
Exports our economy. Ability to add value
to the base commodity.
Domestic market /
Commercial application, nature of
Geographical coverage
buyers, Supply/demand gap etc.
Presence of Value Chain
participants (VCPs)
Supply/ Demand
Parameter III Score
Parameter IV - Risk Management
Particulars Weight Sub-score Details
Correlation The risk parameters viz., volatility,
correlation with either domestic
Seasonality traded prices or globally traded
prices, seasonality, liquidity,
Basis Risk
benefits to hedgers / farmer through
direct / indirect participation and
Volatility
scope to hedge the price risk forms
part of the Risk Management
Hedging Incentive
Liquidity
Parameter IV Score
Parameter V - Benchmark Potential
Particulars Weight Sub-score Details
Existence of Forward
Trading in OTC markets
Suitability for Futures/
Options Trading
Potential to create a
Domestic Benchmark
Potential to create a Global
Benchmark
Parameter V Score
Page 155 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Section I Score = Parameter I Score + Parameter II Score
Section II Score = Parameter III Score + Parameter IV Score + Parameter V Score
Overall Score = Section I Score + Section II Score
Note:
 Weight-ages in % and total of all weight-ages should be 100
 Scores/Sub-scores are to be given in a range of 1 to 5
 The following scale is to be used for scoring the parameters:
1 : Poor
2 : Reasonable
3 : Good
4 : Very Good
5 : Excellent
Page 156 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure D
Commo Uni Sour Average Deliverable Classifica Deliverable Supply Member Client Limit Overall
dity ts ce of Supply during past five tion during Financial Limit* Exchang
Data Financial Year Year e wide
Product Impo Tot Tot (Board/ Product Impo Tot Over Near Over Near limit
ion rt al al Narrow/ ion rt al all Mon all Mont
(in Sensitive) th h
In Units Cr)
* A member’s open interest limit at overall (all contracts) level will be either the absolute number indicated above or 15% of the total
market wide open position in the commodity, whichever is higher. (As per Clause 5.3 of the SEBI Circular
SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016)
Page 157 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure E
Sr. Commodity Unit Client Level Numerical Position
Limit for Overall Commodity
NON-AGRICULTURAL COMMODITIES
1. Aluminum MT 25,000
2. Brent Crude Oil BBL 400,000
3. Copper MT 7,000
4. Crude Oil BBL 480,000
5. Gold Kgs 5,000
6. Lead MT 3,500
7. Natural Gas mmBtu 6,000,000
8. Nickel MT 1000
9. Silver MT 100
10. Steel MT 120,000
11. Zinc MT 7,000
Page 158 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure F
A. Guidelines for Clubbing of Open Positions:
1. When a person is a partner in one or more partnership firms and /or is a
director in one or more companies and/or is a manager(karta) of a Hindu
Undivided Family (HUF), the total open position of
a. the person as an individual operator,
b. the firm or firms in which he is a partner ;
c. the Company or companies in which he is a director ; and
d. the HUF of which he is a manager(karta)
taken together shall not exceed the prescribed limit.
2. Where two or more persons are partners in a partnership firm or firms and
where two or more persons are director in a company or companies and
where two or more persons are Kartas of HUFs, the total open position
held by
a. all the partners of partnership firm or firms;
b. the concerned partnership firm or firms;
c. all the directors of the company or companies ;
d. the concerned company or companies ;
e. all the Kartas of the HUFs ; and
f. the concerned HUFs
taken together shall not exceed the limit as mentioned above.
3. Where a person or persons operating as individuals and /or being partners
in one or more partnership firms and/or being directors in one or more
companies and/or being kartas of HUFs are also trustees in one or more
trusts, the total open position of
a. the person as individual operator,
b. the firm or firms in which they are partners;
c. the company or companies in which they are directors;
d. the HUFs in which they are Kartas; and
e. the trust or trusts in which they are trustees,
taken together shall not exceed the limit as mentioned above.
Provided that, if at any time more deliveries than one are running in the
same commodity, the above limit shall apply to the combined open position
of the member or the non-member, as the case may be, in all such deliveries
running concurrently.
4. Open position of a member shall be the total of the open position acquired
by him by trading through or with other member and by appropriating the
business of his clients(collectively for all clients).
Page 159 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
5. The open position of a non-member shall be the total of the open position
acquired by him trading through or with one or more members.
B. Exemptions from Clubbing:
1. In the agriculture marketing set up of the rural India, co-operative societies
play a crucial role. Primary Agriculture Marketing Societies registered under
the state cooperative Acts, thus, are active in different agricultural
commodities. These societies are also member of Federations at the State
and National level. Due to this Federal structure there may be some
instances when these societies have common Directors. Also, the persons
from State Governments/RCS may be nominated as Directors in these
societies. In view of this, the position of different societies if they are
members of a Federation will not be clubbed with the open interest position
of the Federation for the purpose of determining the open interest position
of the Federal or vice versa. Similarly, if Govt/RCS nominated directors sits
on the Boards of different societies, this will not amount to common interest
for the purpose of clubbing of positions.
2. As a practice of good corporate governance, the companies now have
independent directors on their Board with no financial interest in the
company. Similarly, companies also have Govt/Financial Institutions
nominated Directors without any financial interest in the company. In such
cases, when the Directors don’t have any financial interest in the company.
The Commission has taken a view that the position of such
companies/corporates may not be clubbed just because they have common
directors.
C. The above stated guidelines are indicative only. The Exchanges are
directed to take suitable measures for clubbing of open positions on the
basis of the criteria laid down above and also include other criteria such as
PAN, patterns such as ‘acting in concert’ through common ownership and
control structures and any other relevant criteria to club open positions that
may be observed during the course of regular monitoring and surveillance
that may appear to compromise market integrity.
Page 160 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure G
Position Limit Violation
The following penal provisions are made to discourage/ prevent open interest
violations at Commodity level / near month contract level-
1. Monetary penalty on the concerned member for violations in the open
interest (either on own account or on account of clients) are linked to the
quantum/ value of violation committed and to be charged from the
concerned member for each such violation as under:
a. Where the violation is more than 2% of the prescribed limit(s) –
Limit exceeded x Closing price x number of days such violation
continued x 2% (0.02) or Rs. 10,000/- whichever is higher.
b. Where the violation is up to 2% of the prescribed limit(s) –
Limit exceeded x Closing price x number of days such violation
continued x 2% (0.02) or Rs. 10,000/- whichever is lower.
c. The member has to ensure reduction in position and to bring it within
the prescribed limit(s) by the next trading day after the day of
violation. In case such violation continues, the Exchange would
square-off the excess position without any further notice to the
member by putting the orders on behalf of the member in that client
code and will not be responsible for the consequences of such action
2. In case, the instance at 1 (a) above is observed for more than 3 times in a
month across the market, the Exchange would suspend the concerned
member for a period of one week. For instances at 1 (b) above, the
Exchange may devise its norms to deal with habitual defaulters.
3. Further, in case repeated violations of such nature are observed by SEBI,
SEBI may consider action against the concerned Exchange.
The monetary penalty as stated above, will be credited to the Investor Protection
Fund of the Exchange.
Page 161 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure H
Proposed format for dissemination of members data on website
Sr. No. Details
1 a) Member Name
b) Type of Member (TM/TCM/CM/ITCM/STCM)
c) Constitution of Member (Partnership/Corporate/Proprietor)
2 Address
a) Registered Office
b) For Correspondence
3 Exchange Code of the Member
4 SEBI Registration Number
5 Details of all Proprietor/Partner/Directors such as Name,
Address, Designation, Email ID, etc.
6 The Link of URL of member’s website, if any, should be provided
7 The Compliance Officer and his contact details (Name, Email Id,
Phone number, Address, etc.)
8 Name of Authorized Person, Email-ID, Phone number, Address,
etc.
9 a) Date of admission to Exchange
b) Date of commencement of trade by the member
c) Date of activation (enablement of trading of membership)
10 Branch details to be updated on periodic basis which shall
include:
a) Address
b) Contact Number
c) Email-ID
11 Number of clients registered ( to be updated periodically)
Page 162 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure I
S. No. Parameters
1 Commodity
2 Symbol
3 Launch Date
4 Expiry Date
5 Delivery Logic
6 Lot Size
7 Closing price on Launch Date
8 Total lots traded
9 Total number of trades
10 Total trade volume
11 Total trade value
12 Daily average volume
13 Daily average OI
14 Average volume/ Average OI
15 Final Settlement Price
16 Deliveries
17 Sellers default, if any
18 Total number of members traded
19 Total number of client traded
Date and Details
20 Maximum lots traded in a day
21 Maximum volume on a single day
22 Minimum volume on a single day
23 Maximum trade value on a single day
24 Minimum trade value on a single day
25 Maximum open interest at close of any
day
26 Minimum open interest at close of any
day
27 Open interest on expiry date
28 Highest price on a day
29 Lowest price on a day
30 Maximum daily settlement price on a
day
31 Minimum daily settlement price on a day
Page 163 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure J
(i) Liquidity Categorization of Securities
The securities shall be classified into three groups based on their liquidity:
Group Trading Frequency Impact Cost (over the
(over the previous six previous six months –
months – see Note A) see Note A
Liquid Securities (Group At least 80% of the days Less than or equal to 1%
I)
Less Liquid Securities At least 80% of the days More than 1%
( Group II )
Illiquid Securities (Group Less than 80% of the N/A
days
III)
Notes:
A. For securities that have been listed for less than six months, the trading
frequency and the impact cost shall be computed using the entire trading history
of the scrip.
(ii) Computation of VaR Margin
The VaR Margin is a margin intended to cover the largest loss that can be
encountered on 99% of the days (99% Value at Risk). For liquid stocks, the margin
covers one-day losses while for illiquid stocks, it covers three-day losses so as to
allow the clearing corporation to liquidate the position over three days. This leads
to a scaling factor of square root of three for illiquid stocks.
For liquid stocks, the VaR margins are based only on the volatility of the stock while
for other stocks, the volatility of the market index is also used in the computation.
Computation of the VaR margin requires the following definitions:
 Scrip sigma means the volatility of the security computed as at the end of
the previous trading day. The computation uses the exponentially weighted
moving average method applied to daily returns in the same manner as in
the derivatives market.
Page 164 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
 Scrip VaR means the higher of 7.5% or 3.5 scrip sigmas.
 Index sigma means the daily volatility of the market index (S&P CNX Nifty
or BSE Sensex) computed as at the end of the previous trading day. The
computation uses the exponentially weighted moving average method
applied to daily returns in the same manner as in the derivatives market.
 Index VaR means the higher of 5% or 3 index sigmas. The higher of the
Sensex VaR or Nifty VaR would be used for this purpose.
The VaR Margins are specified as follows for different groups of stocks:
Liquidity One-Day VaR Scaling factor VaR Margin
Categorization for illiquidity
Liquid Securities Scrip VaR 1.00 Scrip VaR
( Group I )
Less Liquid Higher of Scrip 1.73 Higher of 1.73
Securities VaR and three (square root of times Scrip VaR
(Group times Index and 5.20 times
3.00)
VaR Index VaR
II)
Illiquid Securities Five times 1.73 8.66 times
(Group III) Index (square root of Index
VaR VaR
3.00)
Page 165 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure K
Core Settlement Guarantee Fund (Core SGF)
Objective of Core SGF
1) Clearing Corporation (CC) shall have a fund called Core SGF for each segment
of each Recognised Stock Exchange (SE) to guarantee the settlement of trades
executed in respective segment of the SE. In the event of a clearing member
(member) failing to honour settlement commitments, the Core SGF shall be
used to fulfill the obligations of that member and complete the settlement
without affecting the normal settlement process.
Corpus of Core SGF
2) The corpus of the fund should be adequate to meet out all the contingencies
arising on account of failure of any member(s). The risk or liability to the fund
depends on various factors such as trade volume, delivery percentage,
maximum settlement liability of the members, the history of defaults, capital
adequacy of the members, the degree of safety measures employed by the
CC/SE etc. A fixed formula, therefore, cannot be prescribed to estimate the risk
or liability of the fund. However, in order to assess the fair quantum of the corpus
of Core SGF, CC should consider the following factors:
 Risk management system in force
 Current and projected volume/turnover to be cleared and settled by the
CC on guaranteed basis
 Track record of defaults of members (number of defaults, amount in
default)
3) However, Minimum Required Corpus of Core SGF (MRC) for each segment of
each stock exchange shall be subject to the following:
i) The MRC shall be fixed for a month.
ii) By 15th of every month, CC shall review and determine the MRC for
next month based on the results of daily stress tests of the preceding
month. (For example, by 15th February, CC shall determine MRC for
March based on results of various stress tests conducted in January).
CC shall also review and determine by 15th of every month, the
adequacy of contributions made by various contributors and any further
contributions to the Core SGF required to be made by various
contributors (as per clause 4) for the next month.
iii) For every day of the preceding month (i.e., January as per example in
(ii) above), uncovered loss numbers shall be estimated by the various
stress tests for credit risk conducted by the CC for the segment (as per
Page 166 of 217
भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
clause 14) and highest of such numbers shall be taken as worst case
loss number for the day.
iv) Average of all the daily worst case loss numbers determined in (iii)
above shall be calculated.
v) The MRC for next month (i.e., March as per example in (ii) above) shall
be higher of the average arrived in at step iv above and the segment
MRC as per previous review (i.e., review done on 15th January for the
month of February).
vi) Minimum threshold value of MRC for commodity derivatives segment of
any stock exchange shall be INR 10 Crores.
Contribution to Core SGF
4) At any point of time, the contributions of various contributors to Core SGF of
any segment shall be as follows:
a) Clearing Corporation contribution: CC contribution to Core SGF shall be
at least 50% of the MRC. CC shall make this contribution from its own
funds. CC contribution to core SGFs shall be considered as part of its
net worth.
b) Stock Exchange contribution: Stock Exchange contribution to Core SGF
shall be at least 25% of the MRC (can be adjusted against transfer of
profit by Stock Exchange as per Regulation 33 of SECC Regulations,
which may be reviewed in view of these guidelines).
c) Clearing Member primary contribution: If the CC wishes, it can seek risk
based contribution from Clearing Members (CMs) of the segment
(including custodial clearing members) to the Core SGF subject to the
following conditions:
 that total contribution from CMs shall not be more than 25% of
the MRC,
 that no exposure shall be available on Core SGF contribution of
any CM (exposure-free collateral of CM available with CC can
be considered towards Core SGF contribution of CM), and
 that required contributions of individual CMs shall be pro-rata
based on the risk they bring to the system.
CC shall have the flexibility to collect CM primary contribution either upfront or
staggered over a period of time. In case of staggered contribution, the
remaining balance shall be met by CC to ensure adequacy of total Core SGF
corpus at all times. Such CC contribution shall be available to CC for
withdrawal as and when further contributions from CMs are received.
The above prescribed limits of contribution by CC, SE and CMs may be
reviewed by SEBI from time to time considering the prevailing market
conditions.
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Securities and Exchange Board of India
5) Any penalties levied by CC (as per Regulation 34 of SECC Regulations) shall
be credited to Core SGF corpus.
6) Interest on cash contribution to Core SGF shall also accrue to the Core SGF
and pro-rata attributed to the contributors in proportion to their cash
contribution.
7) CC shall ordinarily accept cash collateral for Core SGF contribution. However,
CC may accept CM contribution in the form of bank FDs too. CC shall adhere
to specific guidance which may be issued by SEBI from time to time in this
regard.
Management of Core SGF
8) The Defaulter's Committee/SGF utilization Committee of the Clearing
Corporation shall manage the Core SGF.
The CCs shall follow prudential norms of Investment policy for Core SGF
corpus and establish and implement policies and procedures to ensure that
Core SGF corpus is invested in highly liquid financial instruments with minimal
market and credit risk and is capable of being liquidated rapidly with minimal
adverse price effect.
The instruments in which investments may broadly be made are Fixed Deposit
with Banks (only those banks which have a net worth of more than INR 500
Crores and are rated A1 (or A1+) or equivalent, , Treasury Bills, Government
Securities and money market/liquid mutual funds subject to suitable
transaction/investment limits and monitoring of the same. The CCs shall further
ensure that the financial instruments in which the Core SGF corpus is invested
remain sufficiently diversified at all times.
SEBI may prescribe the investment norms in this regard from time to time.
Access to Core SGF
9) CC may utilise the Core SGF in the event of a failure of member(s) to honour
settlement commitment.
Further contribution to / Recoupment of Core SGF
10) Requisite contributions to Core SGF by various contributors (as per clauses 3
and 4) for any month shall be made by the contributors before start of the month.
In the event of usage of Core SGF during a calendar month, contributors shall,
as per usage of their individual contribution, immediately replenish the Core
SGF to MRC.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
In case there is failure on part of some contributor(s) to replenish its (their)
contribution, same shall be immediately met, on a temporary basis during the
month, in the following order:
i. By CC
ii. By SE
Review of Core SGF
11) The monthly review results shall be communicated to the Risk Management
Committee and the Governing Board of the Clearing Corporation. The
exception reporting shall be made to SEBI detailing the outcome of the review
by the CC Governing Board, including steps taken to enhance the Core SGF.
Default waterfall
12) The default waterfall of CC for any segment shall generally follow the following
order –
i. Monies of defaulting member (including defaulting member's primary
contribution to Core SGF(s) and excess monies of defaulter in other
segments).
ii. Insurance, if any.
iii. CC resources (equal to 5% of the segment MRC).
iv. Core SGF of the segment in the following order:
a. Penalties
b. CC contribution to the extent of at least 25% of the segment MRC
c. Remaining Core SGF: CC contribution, Stock Exchange
contribution and non-defaulting members’ primary contribution to
Core SGF on pro-rata basis.
v. Proportion of remaining CC resources (excluding CC contribution to
core SGFs of other segments and INR 100 Crore) equal to ratio of
segment MRC to sum of MRCs of all segments.*
vi. CC/SE contribution to Core SGFs of other segments (after meeting
obligations of those segments) and remaining CC resources to that
extent as approved by SEBI.
vii. Capped additional contribution by non-defaulting members of the
segment.**
viii. Any remaining loss to be covered by way of pro-rata haircut to
payouts.***
* INR 100 Crore to be excluded only when remaining CC resources (excluding CC
contribution to core SGFs of other segments) are more than INR 100 Crore.
**CC shall limit the liability of non-defaulting members towards additional
contribution to a multiple of their required primary contribution to Core SGF
and the framework regarding the same should be disclosed. In case of shortfall
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
in recovery of assessed amounts from non-defaulting members, further loss
can be allocated to layer 'VI' with approval of SEBI.
***In case loss allocation is effected through haircut to payouts, any subsequent
usage of funds shall be with prior SEBI approval. Further, any exit by CC post
using this layer shall be as per the terms decided by SEBI in public interest.
Stress testing and back testing
13) CC shall effectively measure, monitor, and manage its credit exposures to its
participants and those arising from its payment, clearing, and settlement
processes.
14) Stress test for credit risk: CC shall carry out daily stress testing for credit risk
using at least the standardized stress testing methodology prescribed in para
22 below. Apart from the prescribed stress scenarios , CCs shall also develop
own scenarios for a variety of ‘extreme but plausible market conditions’ (in terms
of both defaulters’ positions and possible price changes in liquidation periods,
including the risk that liquidating such positions could have an impact on the
market) and carry out stress testing using self-developed scenarios. Such
scenarios should include relevant peak historic price volatilities, shifts in other
market factors such as price determinants and yield curves, multiple defaults
over various time horizons and a spectrum of forward looking stress scenarios
in a variety of extreme but plausible market conditions.
15) Liquidity stress test and adequacy of liquidity arrangements: CC shall
ensure that it maintains sufficient liquid resources to manage liquidity risks from
members, settlement banks and those generated by its investment policy. CC
shall daily test the adequacy of its liquidity arrangements in order to ensure that
its liquid resources are adequate to meet simultaneous default of at least two
clearing members and their associates that would generate the largest
aggregate liquidity obligation for the CC in extreme but plausible market
conditions and compare such obligation with the resources mentioned
hereunder:
a. Cash
b. Committed lines of credit available to CC
16) Reverse stress test: CC shall periodically carry out reverse stress tests
designed to identify under which market conditions and under what scenarios
the combination of its margins, Core SGF and other financial resources prove
insufficient to meet its obligations (e.g. simultaneous default of top N members
or N% movement in price of top 2 scrips by turnover or 20% movement in price
of top N scrips by turnover etc.)
17) Back testing for adequacy of margins: CC shall daily conduct back testing
of the margins collected vis-à-vis the actual price changes for the contracts
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
being cleared and settled in every segment to assess appropriateness of its
margining models.
18) Adequacy of financial resources: CC shall ensure that it maintains sufficient
financial resources to cover a wide range of potential stress scenarios that
should include, but not be limited to, the default of the two participants and their
associates that would potentially cause the largest aggregate credit exposure
to the CC in extreme but plausible market conditions. Thus, CC shall
continuously monitor the adequacy of financial resources (as available in its
default waterfall) against the uncovered loss estimated by the various stress
tests conducted by the CC and take steps to beef up the same in case of
shortfall.
19) On at least a monthly basis, CC shall perform a comprehensive and thorough
analysis of stress testing scenarios, models, and underlying parameters and
assumptions used to ensure they are appropriate for determining the CCP’s
required level of default protection in light of current and evolving market
conditions. CC shall perform this analysis of stress testing more frequently
when the products cleared or markets served display high volatility, become
less liquid, or when the size or concentration of positions held by a CC’s
participants increases significantly. A full validation of CC’s risk-management
model shall be performed at least annually.
20) The results of tests carried out as per clauses 14, 15, 16, 17 and 18 above and
review conducted as per clause 19 shall be monitored by the Risk Management
Committee of the CC and the same should be communicated for discussion
and review by the Board of the CC.
21) Clearing corporations and Stock Exchanges are directed to make the following
details available on its website:
i. Policy on composition and contributions to be made to the Core SGF;
ii. Investment policy for Core SGF;
iii. Default waterfall for each segment along with the quantum of
resources available in each layer of default waterfall;
Standardized Stress Testing for Commodity Derivatives
Part A. Scenarios
Historical Scenarios
1 Peak Historical Return
Price movement in respect of each underlying over the MPOR period during the
last 15 years to be considered:
Scenario 1A: Maximum percentage rise over MPOR period
Scenario 1B: Maximum percentage fall over MPOR period
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
2 Peak historical price volatility
Historical price volatility (EWMA volatility) in respect of each commodity during the
previous 15 years is to be considered. Percentage price movement equal to 3.5
times the peak historical volatility adjusted for applicable MPOR period of the
commodity shall be considered (subject to a maximum of 110% of the price
movement considered for the commodity under the peak historical return scenario):
Scenario 2A: Percentage price rise
Scenario 2B: Percentage price fall
2 Augmented historical
Exchange shall identify top 10 days during the previous 15 years based on average
of absolute percentage price change across all commodities witnessed over the
MPOR period. For each of the day, exchange shall identify percentage price
change in each commodity (in case of unavailability of prices in any of the
commodity on any of the identified days, price change equal to applicable initial
margin in the commodity to be considered). All the price movements to be scaled
up by 10%.
Thus, one scenario corresponding to each of the 10 identified days shall be
generated.
Hypothetical scenarios
4 Stressed MPOR
It shall be assumed that liquidation of open positions would require 5 days and
percentage price movement equal to 3.5 times current volatility adjusted for 5 day
period (i.e., scaling up by square root of 5) shall be considered.
Scenario 4A: Percentage rise over 5 day period
Scenario 4B: Percentage fall over 5 day period
5 Stressed PSR and VSR
Price movement in respect of each underlying to the extent of 1.5 times the normal
price scan range (PSR) over the MPOR period and change in implied volatility
equal to 1.5 times the normal volatility scan range shall be considered.
Scenario 5A: Underlying price increasing by 1.5 PSR adjusted for MPOR period,
volatility increasing by 1.5 VSR.
Scenario 5B: Underlying price decreasing by 1.5 PSR adjusted for MPOR period,
volatility increasing by 1.5 VSR.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Exchanges shall carry out stress tests using each of the scenarios given in
Part A as follows –
a. By stressing positions in all commodities simultaneously
b. By first identifying top 10 commodities based on OI and stressing 1
commodity at a time (ignoring positions in other commodities and the
corresponding margins)
Part B. Methodology
The percentage price movements identified in each of the above scenarios shall
be applied to the commodity price on the day for which the stress test is being
done. All open positions shall be assumed to be squared up at the theoretical price
corresponding to the revised prices/volatility of the underlying in each of the
scenarios. For each clearing member, the credit exposure to Clearing Corporation
shall be calculated as follows:
a) The time of stress test shall be end of day
b) It shall be assumed that clearing member will default in paying the settlement
obligations and all outstanding positions will be squared off at the theoretical
price corresponding to the revised price/volatility of the underlying in the
scenario.
c) Loss shall be calculated at client portfolio level.
d) For each client, residual loss shall be equal to –> (loss due to close-out of client
positions– margin supporting that specific client’s positions)
e) All residual losses (residual profits to be ignored) for all clients shall be grossed
to compute total residual losses due to client positions.
f) Loss due to close-out of proprietary positions shall be considered.
g) Loss at (e) and loss at (f) and the net pay-in/pay-out requirement of the clearing
member shall be assessed against required margins (excluding margin
supporting client positions and excess collateral, if any) and other mandatory
deposits of defaulting member to calculate credit exposure of Clearing
Corporation to the member. Equity scrips as collateral, if any, shall be valued
with minimum 20% haircut.
Part C. Coverage
To begin with, for each of the scenarios in Part A, Clearing Corporations shall
calculate –
A. Credit exposure due to simultaneous default of at least 2 clearing
members (and their associates) causing highest credit exposure.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
B. 25% of the credit exposure due to simultaneous default of all clearing
members.
However, within a year from the deadline of implementation of the circular, for each
of the scenarios in Part A, Clearing Corporations shall calculate –
A. Credit exposure due to simultaneous default of at least 2 clearing
members (and their associates) causing highest credit exposure.
B. 50% of the credit exposure due to simultaneous default of all clearing
members.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure L
Serial
Items/ Issues to be examined and Reported Compliance/Comments
Number
GENERAL:‐
Justification for introducing of
futures/forward trading in the commodity
1 including its relevance
/importance to the economy (in brief) with
information for preceding 3 financial years
on :‐
a. Its annual production
b. Import‐export data
c. Details of domestic consumption
d. Main area of cultivation
e. Patterns of consumption/utilization
f. Commercialization rate (annual
exports/annual supply)
g. Crop cycle
h. Warehouse facilities in the cultivation area
i. Preferred trade quantity in physical market
j. Shelf‐life of the commodity
k. Global level production / consumption figures,
major exporting & importing countries with
figures
l. Monthly price movement in futures market –
both domestic and international for last 3
years
Prevailing spot prices in the domestic physical
m. market in the last three years and immediate
3 preceding months prior to the application
Which are the other exchanges where the
proposed contract is already being traded and
n.
its/ their respective market share in terms of
volumes & percentage of trades (estimated)?
o. Value Chain of the commodity
p. Degree of standardisation
q. Political sensitivity/price controls
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Serial
Items/ Issues to be examined and Reported Compliance/Comments
Number
Whether commodity is under purview of
Essential commodities act / APMC Act / The
r.
Food Control
Regulation Act etc.
s. Geographical coverage
t. Correlation with International Market
u. Seasonality
v. Price Volatility
2 CONTRACT DESIGN‐ Please Specify with
Reasons
a. Lot size
b. Tick size
c. Period of the contract (one month, two
months, etc.)
Quality standards (should meet FSSAI
d. standards and any other statutory
prescribed standards )
e. Lean period
f. Basis Centers
g. Mechanism for allocation of delivery on the
Exchange platform in a transparent manner
Rationale behind adopting “intention
matching contract” as against “compulsory
h.
delivery” contract, if the case is so, in the
proposed contract.
Mechanism of spot price polling –whether
AGMARK prices used to track spot prices‐
i.
other measures/precautions taken to ensure
transparency and credibility
j. Settlement system with settlement price
formula
3. EXPECTED PARTICIPATION IN THE
CONTRACT
a. Hedgers participation
b. Warehouse participation
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Serial
Items/ Issues to be examined and Reported Compliance/Comments
Number
c. What efforts Exchange had made to educate
hedgers / market participants about the
contract
4. COST OF TRADING IN CONTRACT :‐
Details of Delivery Centers, their respective
a. storage capacity, and price neutralization
formula for non‐preferred delivery centers etc.
Detailed break‐up of charges proposed to be
levied by the Exchanges for trading /
b.
warehouse for storage / delivery charges and
cost in respect of failed deliveries, etc.
5. MARKET SURVEILLANCE AND RISK
MANAGEMENT :–
a. Permitted price variation in a day
b. Open position limits in respect of client,
member and market as a whole
c. Checks and balances for high frequency/ Algo
trades
Initial margin, M ‐o‐M margin, and conditions
d. under which special / additional margins could
be levied by Exchanges
e. Settlement / trade guarantee
f. Cost of failed payments / deliveries
g. Staggered delivery system
Additional Information required in case of proposal for renewal of
existing/earlier contracts
6. THE TRACK RECORD OF TRADING IN THE
CONTRACT LIKE :‐
a.
Trading volume
b.
Open interest
c.
Deliveries
d.
Market participation
e.
Price movement
f.
Trade versus delivery
g.
Order versus actual trade
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Serial
Items/ Issues to be examined and Reported Compliance/Comments
Number
h. Average trade size at Exchange
i. Actual production versus actual delivery
through exchange trading platform
j.
Preferred lot size in physical market
k.
Justification for introduction
l. Whether the contract is traded on other
exchanges?
m.
Justification for span of the contract
n. Any abnormal trade activity / price movements
in previous year
The educational initiatives taken by the
o. Exchanges for the market participants and`
feedback received from them
Efforts taken to create/encourage formation of
p. Aggregators for participation in the contract on
behalf of Farmers/planters
7. Status of quarterly progress reports submitted
to the regulator.
Status of awareness programmes for
Hedgers/Potential Hedgers/Industry
8.
Associations / processors etc. organised
during last 1 year.
9.
Any other information considered relevant
10. ANY OTHER COMMENTS/
EXPLANATIONS TO OFFER, IF ANY (IN
BRIEF)
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure M
Exchange Name Contracts approved for continuous trading
Aluminium, Aluminium Mini, Brent Crude Oil,
Cardamom, Copper, Copper Mini, Cotton, Crude
Multi Commodity Exchange
Palm Oil, Crude Oil, Dhaniya, Gold, Gold Guinea,
of
Gold Mini, Gold Petal, Gold Petal Delhi, Lead, Lead
India Ltd. Mini, Mentha Oil, Natural Gas, Nickel, Nickel Mini,
Silver, Silver1000, Silver Mini, Silver Micro, Zinc,
Zinc Mini
Barley, Chilli, Copper Cathode, Cottonseed Oil Cake,
Crude Oil, Crude Palm Oil, Dhaniya, Gold Hedge,
Guar Gum, Guar Seed (2 MT), Guar Seed (10 MT),
National Commodity &
Jeera, V‐797 Kapas, Maize (Kharif), Maize (Rabi),
Derivatives Exchange Ltd.
Rape/Mustard Seed, Refined Soy Oil, Shankar
Kapas, Soyabean, Steel Long, Sugar M, Turmeric,
Wheat
Cardamom, Castor Seed, Coffee Rep Bulk,
National Multi Commodity
Isabgulseed, Copra, Pepper, Rape/Mustard Seed,
Exchange of India Ltd.
Raw Jute, Rubber, Sacking, Soy Oil, Guar Seed
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure N
Disposal of Arbitration Proceedings (where client is a party) initiated since April 1, 2010 (Updated on mm dd yyyy)
(To be updated quarterly, within a week of end of the quarter)
Arbitration Date of Region Name Name Name of Date of Award in Copy Date of Main reason for
Reference Reference of of Arbitrator(s) Arbitral favour of Implementation non-
No. Client Member award of Award of Award implementation
(client/ (link
Member) given
below)
Initiated during 2010-11
Initiated during 2011-12
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure O
Arbitrator-wise Arbitration Proceedings (where client is a party) disposed of since April 1, 2010 Updated on mm dd
yyyy (In excel sheet) (To be updated quarterly, within a week of the end of the quarter)
S. Name of No. of awards No. of Awards in No. of Appellate Clients of the Arbitration
No. Arbitrator passed favor of Clients of Awards in favor of cases filed by appeal cases
the cases filed by Clients of the cases Arbitration cases pending for
filed by pending for ….
months
Arbitration Appellat Member Client Member Client <4 ≥4 - ≤ >6 <3 ≥3- >6
e 6 ≤ 6
N
Total
(In case of panel of arbitrators, the cases / awards would appear against every member of the panel) (Arrange the arbitrators in
descending number of awards passed by them during the period)
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure P
Disclosure of Arbitration and Appellate Arbitration Awards Passed since April 1, 2007 Updated on mm dd yyyy (In excel
sheet) (To be updated as soon as a new award is issued)
Sl. No. Date of Issue Name of Name of Initial Arbitration / Link to Award
Client Member Appellate given below
Arbitration
Passed during 2007-08
Passed during 2008-09
Passed during 2009-10
Passed during 2010-11
Passed during 2011-12
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure Q
Stock Broker System Audit Framework
Audit Process
1. System Audit of stock brokers should be conducted with the following
periodicity
a. Annual system audit is prescribed for stock brokers who satisfy any of
the following criteria.
i. Stock Brokers who use [Computer-to-Computer Link (CTCL) or
Intermediate Messaging Layer (IML)] / Internet Based Trading
(IBT)/ Direct Market Access (DMA)/ Securities Trading using
Wireless Technology (STWT) / Smart Order Routing (SOR)
and have presence in more than 10 locations or number of
terminals are more than 50.
ii. Stock Brokers who are depository participants or are involved in
offering any other financial services.
b. Half yearly system audit has been prescribed for stock brokers who use
Algorithmic Trading or provide their clients with the facility of Algorithmic
Trading as per SEBI Circular CIR/MRD/16/2013 dated May 21, 2013.
c. For all other stock brokers, system audit shall be conducted once in two
years.
2. Such audit shall be conducted in accordance with the Norms, Terms of
Reference (ToR) and Guidelines issued by SEBI and / or by stock exchanges.
Separate ToRs are specified for the following categories of brokers:
a. Type I Broker: Brokers who trade through exchange provided terminals
such as NSE’s NEAT, BSE’s BOLT, MCX-SX’s TWS, etc. (ToR attached
as Annexure 1);
b. Type II Broker: Brokers who trade through API based trading terminals
like [CTCL or IML] or IBT/DMA/STWT or SOR facility and who may also
be TYPE I Brokers. (ToR attached as Annexure 2)
c. Type III Broker: Brokers who use Algorithmic Trading facility to trade
and who may also be TYPE II Brokers. (ToR attached as Annexure 3)
3. Stock brokers shall select auditors as per the selection norms provided in the
guidelines and directions issued by stock exchanges and SEBI from time to
time. The Auditor may perform a maximum of 3 successive audits of the stock
broker.
4. The stock exchanges shall periodically review ToR of such system audit and, if
required, shall suitably revise the ToR after taking into consideration
developments that have taken place in the securities market since the last
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
review of ToR, observations reported in the audit reports of the stock brokers
and directions issued by SEBI from time to time in this regard.
5. The auditor in its report shall specify compliance / non-compliance status with
regard to areas mentioned in ToR. Observations on minor / major deviations as
well as qualitative comments for scope for improvement shall also be specified
in the report. The auditor shall also take into consideration the observations /
issues mentioned in the previous audit reports and cover open items in the
report. The audit report submitted by the auditor should be forwarded to the
stock exchange by the Stock Broker along with management comments, within
1 month of submission of report by the auditor.
6. Stock exchange shall ensure that the management of the stock broker provides
their comment about the non-compliance / non-conformities (NCs) and
observations mentioned in the report. For each NC, specific time-bound (within
3 months of submission of report by the exchange) corrective action must be
taken and reported to the stock exchange. The auditor should indicate if a
follow-on audit is required to review the status of NCs.
7. In order to ensure that the corrective actions are taken by the stock broker,
follow-on audit, if any, shall be scheduled by the stock broker within 6 months
of submission of the audit report by the system auditor.
8. The system auditors should follow the reporting standard as specified in
Annexure-4 of this Framework for the executive summary of the System Audit
report to highlight the major findings of the System Audit.
Auditor Selection Norms
1. The Auditor shall have minimum 3 years of experience in IT audit of securities
market participants e.g. stock exchanges, clearing corporations, depositories,
stock brokers, depository participants etc. The audit experience should cover
all the major areas mentioned under Terms of Reference (ToR) of the system
audit specified by SEBI / stock exchange.
2. It is recommended that resources employed shall have relevant industry
recognized certifications e.g. D.I.S.A. (ICAI) Qualification , CISA (Certified
Information System Auditor) from ISACA, CISM (Certified Information
Securities Manager) from ISACA, CISSP (Certified Information Systems
Security Professional) from International Information Systems Security
Certification Consortium, commonly known as (ISC).
3. The Auditor should have experience of IT audit/governance frameworks and
processes conforming to industry leading practices like CobiT.
4. The Auditor shall not have any conflict of interest in conducting fair, objective
and independent audit of the Stock Broker. Further, the directors / partners of
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Auditor firm shall not be related to any stock broker including its directors or
promoters either directly or indirectly.
The Auditor shall not have any cases pending against its previous audited
companies/firms, which fall under SEBI’s jurisdiction, which point to its
incompetence and/or unsuitability to perform the audit task.
Annexure 1
Terms of Reference (ToR) for Type I Broker
The system auditor shall at the minimum cover the following areas:
1. System controls and capabilities
a. Order Tracking – The system auditor should verify system process and
controls at exchange provided terminals with regard to order entry,
capturing of IP address of order entry terminals, modification / deletion
of orders, status of the current order/outstanding orders and trade
confirmation.
b. Order Status/ Capture – Whether the system has capability to generate
/ capture order id, time stamping, order type, scrip details, action,
quantity, price and validity etc.
c. Rejection of orders – Whether system has capability to reject orders
which do not go through order level validation at the end of the stock
broker and at the servers of respective stock exchanges.
d. Communication of Trade Confirmation / Order Status – Whether the
system has capability to timely communicate to Client regarding the
Acceptance/ Rejection of an Order / Trade via various media including
e-mail; facility of viewing trade log.
e. Client ID Verification – Whether the system has capability to recognize
only authorized Client Orders and mapping of Specific user Ids to
specific predefined location for proprietary orders.
2. Risk Management System (RMS)
a. Online risk management capability – The system auditor should check
whether the system of online risk management (including upfront real-
time risk management) is in place for all orders placed through exchange
provided terminals.
b. Trading Limits –Whether a system of pre-defined limits / checks such
as Order Quantity and Value Limits, Symbol wise User Order / Quantity
limit, User / Branch Order Limit, Order Price limit, etc.) are in place and
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only such orders which are within the parameters specified by the RMS
are allowed to be pushed into exchange trading engines. The system
auditor should check that no user or branch in the system is having
unlimited limits on the above parameters.
c. Order Alerts and Reports –Whether the system has capability to
generate alerts when orders that are placed are above the limits and has
capability to generate reports relating to Margin Requirements,
payments and delivery obligations.
d. Order Review –Whether the system has capability to facilitate review of
such orders were not validated by the system.
e. Back testing for effectiveness of RMS – Whether the system has
capability to identify trades which have exceeded the pre-defined limits
(Order Quantity and Value Limits, Symbol wise User Order / Quantity
limit, User / Branch Order Limit, Order Price limit) and also exceed
corresponding margin availability of clients. Whether deviations from
such pre-defined limits are captured by the system, documented and
corrective steps taken.
f. Log Management – Whether the system maintains logs of alerts /
changes / deletion / activation / deactivation of client codes and logs of
changes to the risk management parameters mentioned above. Whether
the system allows only authorized users to set the risk parameter in the
RMS.
3. Password Security
a. Organization Access Policy – Whether the organization has a well-
documented policy that provides for a password policy as well as access
control policy for the exchange provided terminals.
b. Authentication Capability – Whether the system authenticates user
credentials by means of a password before allowing the user to login,
and whether there is a system for authentication of orders originating
from Internet Protocol by means of two-factor authentication, including
Public Key Infrastructure (PKI) based implementation of digital
signatures.
c. Password Best Practices – Whether there is a system provision for
masking of password, system prompt to change default password on first
login, disablement of user id on entering multiple wrong passwords (as
defined in the password policy document), periodic password change
mandate and appropriate prompt to user, strong parameters for
password, deactivation of dormant user id, etc.
4. Session Management
a. Session Authentication – Whether the system has provision for
Confidentiality, Integrity and Availability (CIA) of the session and the data
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transmitted during the session by means of appropriate user and session
authentication mechanisms like SSL etc.
b. Session Security – Whether there is availability of an end-to-end
encryption for all data exchanged between client and broker systems. or
other means of ensuring session security
c. Inactive Session – Whether the system allows for automatic trading
session logout after a system defined period of inactivity.
d. Log Management – Whether the system generates and maintain logs
of Number of users, activity logs, system logs, Number of active clients.
5. Network Integrity
a. Seamless connectivity – Whether stock broker has ensured that a
backup network link is available in case of primary link failure with the
exchange.
b. Network Architecture – Whether the web server is separate from the
Application and Database Server.
c. Firewall Configuration – Whether appropriate firewall is present
between stock broker's trading setup and various communication links
to the exchange. Whether the firewall is appropriately configured to
ensure maximum security.
6. Access Controls
a. Access to server rooms – Whether adequate controls are in place for
access to server rooms and proper audit trails are maintained for the
same.
b. Additional Access controls – Whether the system provides for any
authentication mechanism to access to various components of the
exchange provided terminals. Whether additional password
requirements are set for critical features of the system. Whether the
access control is adequate.
7. Backup and Recovery
a. Backup and Recovery Policy – Whether the organization has a well-
documented policy on periodic backup of data generated from the
broking operations.
b. Log generation and data consistency - Whether backup logs are
maintained and backup data is tested for consistency.
c. System Redundancy – Whether there are appropriate backups in case
of failures of any critical system components.
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8. BCP/DR (Only applicable for Stock Brokers having BCP / DR site)
a. BCP / DR Policy – Whether the stock broker has a well-documented
BCP/ DR policy and plan. The system auditor should comment on the
documented incident response procedures.
b. Alternate channel of communication – Whether the stock broker has
provided its clients with alternate means of communication including
channel for communication in case of a disaster. Whether the alternate
channel is capable of authenticating the user after asking for additional
details or OTP (One-Time-Password).
c. High Availability – Whether BCP / DR systems and network
connectivity provide high availability and have no single point of failure
for any critical operations as identified by the BCP/DR policy.
d. Connectivity with other FMIs – The system auditor should check
whether there is an alternative medium to communicate with Stock
Exchanges and other FMIs.
9. Segregation of Data and Processing facilities – The system auditor should
check and comment on the segregation of data and processing facilities at the
Stock Broker in case the stock broker is also running other business.
10. Back office data
a. Data consistency – The system auditor should verify whether
aggregate client code data available at the back office of broker matches
with the data submitted / available with the stock exchanges through
online data view / download provided by exchanges to members.
b. Trail Logs – The system auditor should specifically comment on the logs
of Client Code data to ascertain whether editing or deletion of records
have been properly documented and recorded and does not result in any
irregularities.
11. IT Infrastructure Management ( including use of various Cloud computing
models such as Infrastructure as a service (IaaS), Platform as a service (PaaS),
Software as a service (SaaS), Network as a service (NaaS) )
a. IT Governance and Policy – The system auditor should verify whether
the relevant IT Infrastructure-related policies and standards exist and are
regularly reviewed and updated. Compliance with these policies is
periodically assessed.
b. IT Infrastructure Planning – The system auditor should verify whether
the plans/policy for the appropriate management and replacement of
aging IT infrastructure components have been documented, approved,
and implemented. The activities, schedules and resources needed to
achieve objectives related to IT infrastructure have been integrated into
business plans and budgets.
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c. IT Infrastructure Availability (SLA Parameters) – The system auditor
should verify whether the broking firm has a process in place to define
its required availability of the IT infrastructure, and its tolerance to
outages. In cases where there is huge reliance on vendors for the
provision of IT services to the brokerage firm the system auditor should
also verify that the mean time to recovery (MTTR) mentioned in the
Service Level Agreement (SLA) by the service provider satisfies the
requirements of the broking firm.
d. IT Performance Monitoring (SLA Monitoring) – The system auditor
should verify that the results of SLA performance monitoring are
documented and are reported to the management of the broker.
12. Exchange specific exceptional reports – The additional checks
recommended by a particular exchange need to be looked into and commented
upon by the system auditor over and above the ToR of the system audit.
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Annexure 2
ToR for Type II Broker
The system auditor shall at the minimum cover the following areas:
1. System controls and capabilities (CTCL / IML terminals and servers)
a. Order Tracking – The system auditor should verify system process and
controls at CTCL / IML terminals and CTCL/ IML servers covering order
entry, capturing of IP address of order entry terminals, modification /
deletion of orders, status of current order/outstanding orders and trade
confirmation.
b. Order Status/ Capture – Whether the system has capability to generate
/ capture order id, time stamping, order type, scrip details, action,
quantity, price and validity, etc.
c. Rejection of orders – Whether system has capability to reject orders
which do not go through order level validation at CTCL servers and at
the servers of respective stock exchanges.
d. Communication of Trade Confirmation / Order Status – Whether the
system has capability to timely communicate to Client regarding the
Acceptance/ Rejection of an Order / Trade via various media including
e-mail; facility of viewing trade log.
e. Client ID Verification – Whether the system has capability to recognize
only authorized Client Orders and mapping of Specific user Ids to
specific predefined location for proprietary orders.
f. Order type distinguishing capability – Whether system has capability
to distinguish the orders originating from (CTCL or IML) / IBT/ DMA /
STWT.
2. Software Change Management - The system auditor should check whether
proper procedures have been followed and proper documentation has been
maintained for the following:
a. Processing / approval methodology of new feature request or patches
b. Fault reporting / tracking mechanism and process for resolution
c. Testing of new releases / patches / modified software / bug fixes
d. Version control- History, Change Management process, approval etc.
e. Development / Test / Production environment segregation.
f. New release in production – promotion, release note approvals
g. Production issues / disruptions reported during last year, reasons for
such disruptions and corrective actions taken.
h. User Awareness
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The system auditor should check whether critical changes made to the (CTCL
or IML) / IBT / DMA / STWT/ SOR are well documented and communicated to
the Stock Exchange.
3. Risk Management System (RMS)
a. Online risk management capability – The system auditor should check
whether system of online risk management including upfront real-time
risk management, is in place for all orders placed through (CTCL or IML)
/ IBT / DMA / STWT.
b. Trading Limits – Whether a system of pre-defined limits /checks such
as Order Quantity and Value Limits, Symbol wise User Order / Quantity
limit, User / Branch Order Limit, Order Price limit, etc., are in place and
only such orders which are within the parameters specified by the RMS
are allowed to be pushed into exchange trading engines. The system
auditor should check that no user or branch in the system is having
unlimited limits on the above parameters.
c. Order Alerts and Reports – Whether the system has capability to
generate alerts when orders that are placed are above the limits and has
capability to generate reports relating to margin requirements, payments
and delivery obligations.
d. Order Review – Whether the system has capability to facilitate review
of such orders that were not validated by the system.
e. Back testing for effectiveness of RMS – Whether system has
capability to identify trades which have exceeded the pre-defined limits
(Order Quantity and Value Limits, Symbol wise User Order / Quantity
limit, User / Branch Order Limit, Order Price limit) and also exceed
corresponding margin availability of clients. Whether deviations from
such pre-defined limits are captured by the system, documented and
corrective steps taken.
f. Log Management – Whether the system maintains logs of alerts /
changes / deletion / activation / deactivation of client codes and logs of
changes to the risk management parameters mentioned above. Whether
the system allows only authorized users to set the risk parameter in the
RMS.
4. Smart order routing (SOR) - The system auditor should check whether proper
procedures have been followed and proper documentation has been
maintained for the following:
a. Best Execution Policy – System adheres to the Best Execution Policy
while routing the orders to the exchange.
b. Destination Neutral – The system routes orders to the recognized stock
exchanges in a neutral manner.
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c. Class Neutral – The system provides for SOR for all classes of
investors.
d. Confidentiality - The system does not release orders to venues other
than the recognized stock Exchange.
e. Opt–out – The system provides functionality to the client who has
availed of the SOR facility, to specify for individual orders for which the
clients do not want to route order using SOR.
f. Time stamped market information – The system is capable of
receiving time stamped market prices from recognized stock Exchanges
from which the member is authorized to avail SOR facility.
g. Audit Trail - Audit trail for SOR should capture order details, trades and
data points used as a basis for routing decision.
h. Server Location – The system auditor should check whether the order
routing server is located in India.
i. Alternate Mode - The system auditor should check whether an
alternative mode of trading is available in case of failure of SOR Facility
5. Password Security
a. Organization Access Policy – Whether organization has a well-
documented policy that provides for a password policy as well as access
control policy for exchange provided terminals and for API based
terminals.
b. Authentication Capability – Whether the system authenticates user
credentials by means of a password before allowing the user to login,
and whether there is a system for authentication of orders originating
from Internet Protocol by means of two-factor authentication, including
Public Key Infrastructure (PKI) based implementation of digital
signatures.
c. Password Best Practices – Whether there is a system provision for
masking of password, system prompt to change default password on first
login, disablement of user id on entering multiple wrong passwords (as
defined in the password policy document), periodic password change
mandate and appropriate prompt to user, strong parameters for
password, deactivation of dormant user id, etc.
6. Session Management
a. Session Authentication – Whether system has provision for
Confidentiality, Integrity and Availability (CIA) of the session and the data
transmitted during the session by means of appropriate user and session
authentication mechanisms like SSL etc.
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b. Session Security – Whether there is availability of an end-to-end
encryption for all data exchanged between client and broker systems or
other means of ensuring session security. Whether session login details
are stored on the devices used for IBT and STWT.
c. Inactive Session – Whether the system allows for automatic trading
session logout after a system defined period of inactivity.
d. Log Management – Whether the system generates and maintains logs
of Number of users, activity logs, system logs, Number of active clients.
7. Database Security
a. Access – Whether the system allows CTCL or IML database access
only to authorized users / applications.
b. Controls – Whether the CTCL or IML database server is hosted on a
secure platform, with Username and password stored in an encrypted
form using strong encryption algorithms.
8. Network Integrity
a. Seamless connectivity – Whether the stock broker has ensured that a
backup network link is available in case of primary link failure with the
exchange.
b. Network Architecture – Whether the web server is separate from the
Application and Database Server.
c. Firewall Configuration – Whether appropriate firewall is present
between stock broker's trading setup and various communication links
to the exchange. Whether the firewall is appropriately configured to
ensure maximum security.
9. Access Controls
a. Access to server rooms – Whether adequate controls are in place for
access to server rooms and proper audit trails are maintained for the
same.
b. Additional Access controls – Whether the system provides for two
factor authentication mechanism to access to various CTCL or IML
components. Whether additional password requirements are set for
critical features of the system. Whether the access control is adequate.
10. Backup and Recovery
a. Backup and Recovery Policy – Whether the organization has a well-
documented policy on periodic backup of data generated from the
broking operations.
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b. Log generation and data consistency - Whether backup logs are
maintained and backup data is tested for consistency
c. System Redundancy – Whether there are appropriate backups in case
of failures of any critical system components
11. BCP/DR (Only applicable for Stock Brokers having BCP / DR site)
a. BCP / DR Policy – Whether the stock broker has a well-documented
BCP/ DR policy and plan. The system auditor should comment on the
documented incident response procedures.
b. Alternate channel of communication – Whether the stock broker has
provided its clients with alternate means of communication including
channel for communication in case of a disaster. Whether the alternate
channel is capable of authenticating the user after asking for additional
details or OTP (One-Time-Password).
c. High Availability – Whether BCP / DR systems and network
connectivity provide high availability and have no single point of failure
for any critical operations as identified by the BCP/ DR policy.
d. Connectivity with other FMIs – The system auditor should check
whether there is an alternative medium to communicate with Stock
Exchanges and other FMIs.
12. Segregation of Data and Processing facilities – The system auditor should
check and comment on the segregation of data and processing facilities at the
Stock Broker in case the stock broker is also running other business.
13. Back office data
a. Data consistency – The system auditor should verify whether
aggregate client code data available at the back office of broker matches
with the data submitted / available with the stock exchanges through
online data view / download provided by exchanges to members.
b. Trail Logs – The system auditor should specifically comment on the logs
of Client Code data to ascertain whether editing or deletion of records
have been properly documented and recorded and does not result in any
irregularities.
14. User Management
a. User Management Policy – The system auditor should check whether
the stock broker has a well-documented policy that provides for user
management and the user management policy explicitly defines user,
database and application Access Matrix.
b. Access to Authorized users – The system auditor should check
whether the system allows access only to the authorized users of the
CTCL or IML System. Whether there is a proper documentation of the
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authorized users in the form of User Application approval, copies of User
Qualification and other necessary documents.
c. User Creation / Deletion – The system auditor should check whether
new users’ ids were created / deleted as per CTCL or IML guidelines of
the exchanges and whether the user ids are unique in nature.
d. User Disablement – The system auditor should check whether non-
complaint users are disabled and appropriate logs (such as event log
and trade logs of the user) are maintained.
15. IT Infrastructure Management ( including use of various Cloud computing
models such as Infrastructure as a service (IaaS), Platform as a service (PaaS),
Software as a service (SaaS), Network as a service (NaaS) )
a. IT Governance and Policy – The system auditor should verify whether
the relevant IT Infrastructure-related policies and standards exist and are
regularly reviewed and updated. Compliance with these policies is
periodically assessed.
b. IT Infrastructure Planning – The system auditor should verify whether
the plans/policy for the appropriate management and replacement of
aging IT infrastructure components have been documented, approved,
and implemented. The activities, schedules and resources needed to
achieve objectives related to IT infrastructure have been integrated into
business plans and budgets.
c. IT Infrastructure Availability (SLA Parameters) – The system auditor
should verify whether the broking firm has a process in place to define
its required availability of the IT infrastructure, and its tolerance to
outages. In cases where there is huge reliance on vendors for the
provision of IT services to the brokerage firm the system auditor should
also verify that the mean time to recovery (MTTR) mentioned in the
Service Level Agreement (SLA) by the service provider satisfies the
requirements of the broking firm.
d. IT Performance Monitoring (SLA Monitoring) – The system auditor
should verify that the results of SLA performance monitoring are
documented and are reported to the management of the broker.
16. Exchange specific exceptional reports – The additional checks
recommended by a particular exchange need to be looked into and commented
upon by the System Auditor over and above the ToR of the System audit.
17. Software Testing Procedures - The system auditor should check whether the
stock broker has complied with the guidelines and instructions of SEBI / stock
exchanges with regard to testing of software and new patches, including the
following:
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a. Test Procedure Review – The system auditor should evaluate whether
the procedures for system and software testing were proper and
adequate.
b. Documentation – The system auditor should verify whether the
documentation related to testing procedures, test data, and resulting
output were adequate and follow the organization's standards.
c. Test Cases – The system auditor should review the internal test cases
and comment upon the adequacy of the same with respect to the
requirements of the Stock Exchange and SEBI.
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Annexure 3
ToR for Type III Broker
The system auditor shall at the minimum cover the following areas:
1. System controls and capabilities (CTCL/IML Terminals and servers)
a. Order Tracking – The system auditor should verify system process and
controls at CTCL / IML terminals and CTCL/ IML servers covering order
entry, capturing IP address of order entry, modification / deletion of
orders, status of current order/outstanding orders and trade
confirmation.
b. Order Status/ Capture – Whether the system has capability to generate
/ capture order id, time stamping, order type, scrip details, action,
quantity, price and validity etc.
c. Rejection of orders – Whether the system has capability to reject
orders which do not go through order level validation at CTCL servers
and at the servers of respective exchanges.
d. Communication of Trade Confirmation / Order Status – Whether the
system has capability to timely communicate to client regarding the
Acceptance/ Rejection of an Order / Trade via various media including
e-mail; facility of viewing trade log.
e. Client ID Verification – Whether the system has capability to recognize
only authorized Client Orders and mapping of Specific user Ids to
specific predefined location for proprietary orders.
f. Order type distinguishing capability – Whether the system has
capability to distinguish the orders originating from (CTCL or IML) / IBT
/ DMA / STWT / SOR / Algorithmic Trading.
2. Software Change Management - The system auditor should check whether
proper procedures have been followed and proper documentation has been
maintained for the following:
a. Processing/approval methodology of new feature request or patches
b. Fault reporting / tracking mechanism and process for resolution
c. Testing of new releases / patches / bug fixes
d. Version control- History, Change Management process, approval etc.
e. Development / Test/ Production environment segregation.
f. New release in production – promotion, release note approvals
g. Production issues/ disruptions reported during last year, reasons for
such disruptions and corrective actions taken.
h. User Awareness
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The System Auditor should check whether critical changes made to the (CTCL
or IML) / IBT / DMA / STWT / SOR are well documented and communicated to
the Stock Exchange.
3. Risk Management System (RMS)
a. Online risk management capability – The system auditor should check
whether the online risk management including upfront real-time risk
management, is in place for all orders placed through (CTCL or IML) /
IBT/ DMA / SOR / STWT / Algorithmic Trading.
b. Trading Limits – Whether a system of pre-defined limits / checks such
as Order Quantity and Value Limits, Symbol wise User Order / Quantity
limit, User / Branch Order Limit, Order Price limit, etc., are in place and
only such orders which are within the parameters specified by the RMS
are allowed to be pushed into exchange trading engines. The system
auditor should check that no user or branch in the system is having
unlimited limits on the above parameters.
c. Order Alerts and Reports – Whether the system has capability to
generate alerts when orders that are placed are above the limits and has
capability to generate reports relating to margin requirements, payments
and delivery obligations.
d. Order Review – Whether the system has capability to facilitate review
of such orders that were not validated by the system.
e. Back testing for effectiveness of RMS – Whether the system has
capability to identify trades which have exceeded the pre-defined limits
(Order Quantity and Value Limits, Symbol wise User Order / Quantity
limit, User / Branch Order Limit, Order Price limit) and also exceed
corresponding margin availability of clients. Whether deviations from
such pre-defined limits should be captured by the system, documented
and corrective steps taken.
f. Log Management – Whether the system maintains logs of alerts /
changes / deletion / activation / deactivation of client codes and logs of
changes to the risk management parameters mentioned above. Whether
the system allows only authorized users to set the risk parameter in the
RMS.
4. Smart order routing (SOR) - The system auditor should check whether proper
procedures have been followed and proper documentation has been
maintained for the following:
a. Best Execution Policy – System adheres to the Best Execution Policy
while routing the orders to the exchange.
b. Destination Neutral – The system routes orders to the recognized stock
exchanges in a neutral manner.
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c. Class Neutral – The system provides for SOR for all classes of
investors.
d. Confidentiality - The system does not release orders to venues other
than the recognized stock Exchange.
e. Opt–out – The system provides functionality to the client who has
availed of the SOR facility, to specify for individual orders for which the
clients do not want to route order using SOR.
f. Time stamped market information – The system is capable of
receiving time stamped market prices from recognized stock Exchanges
from which the member is authorized to avail SOR facility.
g. Audit Trail - Audit trail for SOR should capture order details, trades and
data points used as a basis for routing decision.
h. Server Location – The system auditor should check whether the order
routing server is located in India.
i. Alternate Mode - The system auditor should check whether an
alternative mode of trading is available in case of failure of SOR Facility
5. Algorithmic Trading - The system auditor should check whether proper
procedures have been followed and proper documentation has been
maintained for the following:
a. Change Management –Whether any changes (modification/addition) to
the approved algos were informed to and approved by stock exchange.
The inclusion / removal of different versions of algos should be well
documented.
b. Online Risk Management capability- The CTCL or IML server should
have capacity to monitor orders / trades routed through algo trading and
have online risk management for all orders through Algorithmic trading
and ensure that Price Check, Quantity Check, Order Value Check,
Cumulative Open Order Value Check are in place.
c. Risk Parameters Controls – The system should allow only authorized
users to set the risk parameter. The System should also maintain a log
of all the risk parameter changes made.
d. Information / Data Feed – The auditor should comment on the various
sources of information / data for the algo and on the likely impact (run
away /loop situation) of the failure one or more sources to provide timely
feed to the algorithm. The system auditor should verify that the algo
automatically stops further processing in the absence of data feed.
e. Check for preventing loop or runaway situations – The system
auditor should check whether the brokers have real time monitoring
systems to identify and shutdown/stop the algorithms which have not
behaved as expected.
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f. Algo / Co-location facility Sub-letting – The system auditor should
verify if the algo / co-location facility has not been sub-let to any other
firms to access the exchange platform.
g. Audit Trail – The system auditor should check the following areas in
audit trail:
i. Whether the audit trails can be established using unique
identification for all algorithmic orders and comment on the same.
ii. Whether the broker maintains logs of all trading activities.
iii. Whether the records of control parameters, orders, traders and
data emanating from trades executed through algorithmic trading
are preserved/ maintained by the Stock Broker.
iv. Whether changes to the control parameters have been made by
authorized users as per the Access Matrix. The system auditor
should specifically comment on the reasons and frequency for
changing of such control parameters. Further, the system auditor
should also comment on the possibility of such tweaking leading to
run away/loop situation.
v. Whether the system captures the IP address from where the algo
orders are originating.
h. Systems and Procedures – The system auditor should check and
comment on the procedures, systems and technical capabilities of stock
broker for carrying out trading through use of Algorithms. The system
auditor should also identify any misuse or unauthorized access to
algorithms or the system which runs these algorithms.
i. Reporting to Stock Exchanges – The system auditor should check
whether the stock broker is informing the stock exchange regarding any
incidents where the algos have not behaved as expected. The system
auditor should also comment upon the time taken by the stock broker to
inform the stock exchanges regarding such incidents.
6. Password Security
a. Organization Access Policy – The system auditor should whether the
stock broker has a well-documented policy that provides for a password
policy as well as access control policy for exchange provided terminals
and for API based terminals.
b. Authentication Capability – Whether the system authenticates user
credentials by means of a password before allowing the user to login.
Whether there is a system for authentication of orders originating from
Internet Protocol by means of two-factor authentication, including Public
Key Infrastructure (PKI) based implementation of digital signatures.
c. Password Best Practices – Whether there is a system should for
masking of password, system prompt to change default password on first
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login, disablement of user id on entering multiple wrong passwords (as
defined in the password policy document), periodic password change
mandate and appropriate prompt to user, strong parameters for
password, deactivation of dormant user id, etc.
7. Session Management
a. Session Authentication – Whether the system has provision for
Confidentiality, Integrity and Availability (CIA) of the session and the data
transmitted during the session by means of appropriate user and session
authentication mechanisms like SSL etc.
b. Session Security – Whether there is availability of an end-to-end
encryption for all data exchanged between client and broker system or
other means of ensuring session security. Whether session login details
are stored on the devices used for IBT and STWT.
c. Inactive Session – Whether the system allows for automatic trading
session logout after a system defined period of inactivity.
d. Log Management – Whether the system generates and maintains logs
of number of users, activity logs, system logs, number of active clients.
8. Database Security
a. Access – Whether the system allows CTCL or IML database access
only to authorized users / applications.
b. Controls – Whether the CTCL or IML database server is hosted on a
secure platform, with username and password stored in an encrypted
form using strong encryption algorithms.
9. Network Integrity
a. Seamless connectivity – Whether the stock broker has ensured that a
backup network link is available in case of primary link failure with the
exchange.
b. Network Architecture – Whether the web server is separate from the
Application and Database Server.
c. Firewall Configuration – Whether appropriate firewall are present
between the stock broker's trading setup and various communication
links to the exchange. Whether the firewalls should be appropriately
configured to ensure maximum security.
10. Access Controls
a. Access to server rooms – Whether adequate controls are in place for
access to server rooms, proper audit trails should be maintained for the
same.
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b. Additional Access controls - Whether the system should provide for
two factor authentication mechanism to access to various CTCL or IML
components. Whether additional password requirements are set for
critical features of the system. Whether the access control is adequate.
11. Backup and Recovery
a. Backup and Recovery Policy – Whether the organization has a well-
documented policy on periodic backup of data generated from the
broking operations.
b. Log generation and data consistency – Whether backup logs are
maintained and backup data should be tested for consistency.
c. System Redundancy – Whether there are appropriate backups in case
of failures of any critical system components.
12. BCP/DR (Only applicable for Stock Brokers having BCP / DR site)
a. BCP / DR Policy – Whether the stock broker has a well-documented
BCP / DR policy and plan. The system auditor should comment on the
documented incident response procedures.
b. Alternate channel of communication – Whether the stock broker has
provided its clients with alternative means of communication including
channel for communication in case of a disaster. Whether the alternate
channel is capable of authenticating the user after asking for additional
details or OTP (One-Time-Password).
c. High Availability – Whether BCP / DR systems and network
connectivity provide high availability and have no single point of failure
for any critical operations as identified by the BCP / DR policy.
d. Connectivity with other FMIs – The system auditor should check
whether there is an alternative medium to communicate with Stock
Exchanges and other FMIs.
13. Segregation of Data and Processing facilities – The system auditor should
check and comment on the segregation of data and processing facilities at the
Stock Broker in case the stock broker is also running other business.
14. Back office data
a. Data consistency – The system auditor should verify whether
aggregate client code data available at the back office of broker matches
with the data submitted / available with the stock exchanges through
online data view / download provided by exchanges to members.
b. Trail Logs – The system auditor should specifically comment on the logs
of Client Code data to ascertain whether editing or deletion of records
have been properly documented and recorded and does not result in any
irregularities.
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15. User Management
a. User Management Policy – The system auditor should verify whether
the stock broker has a well-documented policy that provides for user
management and the user management policy explicitly defines user,
database and application access matrix.
b. Access to Authorized users – The system auditor should verify
whether the system allows access only to the authorized users of the
CTCL or IML system. Whether there is a proper documentation of the
authorized users in the form of user application approval, copies of user
qualification and other necessary documents.
c. User Creation / Deletion – The system auditor should verify whether
new user’s ids should be created / deleted as per CTCL or IML guidelines
of the exchanges and whether the user ids are unique in nature.
d. User Disablement – The system auditor should verify whether non-
complaint users are disabled and appropriate logs such as event log and
trade logs of the user should be maintained
16. IT Infrastructure Management ( including use of various Cloud computing
models such as Infrastructure as a service (IaaS), Platform as a service (PaaS),
Software as a service (SaaS), Network as a service (NaaS) )
a. IT Governance and Policy – The system auditor should verify whether
the relevant IT Infrastructure-related policies and standards exist and are
regularly reviewed and updated. Compliance with these policies is
periodically assessed.
b. IT Infrastructure Planning – The system auditor should verify whether
the plans/policy for the appropriate management and replacement of
aging IT infrastructure components have been documented, approved,
and implemented. The activities, schedules and resources needed to
achieve objectives related to IT infrastructure have been integrated into
business plans and budgets.
c. IT Infrastructure Availability (SLA Parameters) – The system auditor
should verify whether the broking firm has a process in place to define
its required availability of the IT infrastructure, and its tolerance to
outages. In cases where there is huge reliance on vendors for the
provision of IT services to the brokerage firm the system auditor should
also verify that the mean time to recovery (MTTR) mentioned in the
Service Level Agreement (SLA) by the service provider satisfies the
requirements of the broking firm.
d. IT Performance Monitoring (SLA Monitoring) – The system auditor
should verify that the results of SLA performance monitoring are
documented and are reported to the management of the broker.
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17. Exchange specific exceptional reports – The additional checks
recommended by a particular exchange need to be looked into and commented
upon by the system auditor over and above the ToR of the system audit.
18. Software Testing Procedures - The system auditor shall audit whether the
stock broker has complied with the guidelines and instructions of SEBI / stock
exchanges with regard to testing of software and new patches including the
following:
a. Test Procedure Review – The system auditor should review and
evaluate the procedures for system and program testing. The system
auditor should also review the adequacy of tests.
b. Documentation – The system auditor should review documented
testing procedures, test data, and resulting output to determine if they
are comprehensive and if they follow the organization's standards.
c. Test Cases – The system auditor should review the test cases and
comment upon the adequacy of the same with respect to the
requirements of the Stock Exchange and various SEBI Circulars.
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भारतीय प्रततभूतत और वितिमय बोर्ड
Securities and Exchange Board of India
Annexure -4
Executive Summary Reporting Format
I. For Preliminary Audit
Status Deadlin
Risk Audi Sugges
Au Observa / Root Impac e for
Descript Ratin t ted Verifi
dit tion Departm Natur Audit Cause t the Closing
ion of g of TOR Correct ed
Dat ent e of ed By Analy Analy Correct Date
Finding Findin Clau ive By
e No Findin sis sis ive
gs se Action
gs Action
Description of relevant Table heads
1. Audit Date – This indicates the date of conducting the audit.
2. Description of Findings/ Observations – Description of the findings in sufficient detail, referencing any accompanying
evidence (e.g. copies of procedures, interview notes, screen shots etc.)
3. Status/ Nature of Findings - the category can be specified for example:
a. Non-Compliant
b. Work In progress
c. Observation
d. Suggestion
4. Risk Rating of Findings – A rating has to been given for each of the observations based on their impact and severity to reflect
the risk exposure, as well as the suggested priority for action.
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Securities and Exchange Board of India
Rating Description
HIGH Weakness in control those represent exposure to the organization or risks that could lead
to instances of noncompliance with the requirements of TORs. These risks need to be
addressed with utmost priority.
MEDIUM Potential weakness in controls, which could develop into an exposure or issues that
represent areas of concern and may impact internal controls. These should be addressed
reasonably promptly.
LOW Potential weaknesses in controls, which in combination with other weakness can develop
into an exposure. Suggested improvements for situations not immediately/directly affecting
controls.
5. Audit TOR Clause – The TOR clause corresponding to this observation
6. Root cause Analysis –A detailed analysis on the cause of the nonconformity
7. Impact Analysis – An analysis of the likely impact on the operations/ activity of the organization
8. Suggested Corrective Action –The action to be taken by the broker to correct the nonconformity
II. For Follow on / Follow up System Audit
Deadline
Sr. Preliminary Preliminary Revised for the
Preliminary Preliminary Current Current Verified Closing
Observation Corrective Corrective Revised
Audit Date Status Finding Status By Date
No Number Action Action Corrective
Action
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Securities and Exchange Board of India
Description of relevant Table heads
1. Preliminary Status – The original finding as per the preliminary System Audit Report
2. Preliminary Corrective Action – The original corrective action as prescribed in the preliminary System Audit report
3. Current Finding – The current finding w.r.t. the issue
4. Current Status – Current status of the issue viz Compliant, Non-Compliant, Work In Progress (WIP)
5. Revised Corrective Action – The revised corrective action prescribed w.r.t. the Non-Compliant / WIP issues
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Securities and Exchange Board of India
Annexure R
Cyber Security and Cyber Resilience framework
1. Cyber-attacks and threats attempt to compromise the Confidentiality,
Integrity and Availability (CIA) of the computer systems, networks and
databases .* Cyber security framework include measures, tools and
processes that are intended to prevent cyber-attacks and improve cyber
resilience. Cyber Resilience is an organization’s ability to prepare and
respond to a cyber-attack and to continue operation during, and recover from,
a cyber-attack.
*Confidentiality refers to limiting access of systems and information to
authorized users, Integrity is the assurance that the information is reliable and
accurate, and Availability refers to guarantee of reliable access to the systems
and information by authorized users
Governance
2. As part of the operational risk management framework to manage risk to
systems, networks and databases from cyber-attacks and threats , MII
should formulate a comprehensive cyber security and cyber resilience
policy document encompassing the framework mentioned hereunder. The
policy document should be approved by the Board, and in case of
deviations from the suggested framework, reasons for such deviations
should also be provided in the policy document. The policy document
should be reviewed by the MII’s Board at least annually with the view to
strengthen and improve its cyber security and cyber resilience framework.
3. The cyber security and cyber resilience policy should include the following
process to identify, assess, and manage cyber security risk associated
with processes, information, networks and systems.
a. ‘Identify’ critical IT assets and risks associated with such assets,
b. ‘Protect’ assets by deploying suitable controls, tools and measures,
c. ‘Detect’ incidents, anomalies and attacks through
appropriate monitoring tools / processes,
d. ‘Respond’ by taking immediate steps after identification of the
incident, anomaly or attack,
e. ‘Recover’ from incident through incident management,
disaster recovery and business continuity framework.
4. The Cyber security policy should encompass the principles prescribed by
National Critical Information Infrastructure Protection Centre (NCIIPC) of
National Technical Research Organization (NTRO), Government of India
in the report titled ‘Guidelines for Protection of National Critical Information
Infrastructure’ and subsequent revisions, if any, from time to time.
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5. MII should also incorporate best practices from standards such as ISO
27001, ISO 27002, COBIT 5, etc., or their subsequent revisions, if any, from
time to time.
6. MII should designate a senior official as Chief Information Security Officer
(CISO) whose function would be to assess, identify and reduce cyber
security risks, respond to incidents, establish appropriate standards and
controls, and direct the establishment and implementation of processes and
procedures as per the cyber security and resilience policy approved by the
Board of the MII.
7. The Oversight Standing Committee on Technology of the stock
exchanges and of the clearing corporations should on a quarterly basis
review the implementation of the cyber security and resilience policy
approved by their Boards, and such review should include review of their
current IT and cyber security and resilience capabilities, set goals for a
target level of cyber resilience, and establish a plan to improve and strengthen
cyber security and cyber resilience
8. MII should establish a reporting procedure to facilitate communication of
unusual activities and events to CISO or to the senior management in a
timely manner.
9. The aforementioned committee and the senior management of the MII,
including the CISO, should periodically review instances of cyber-attacks, if
any, domestically and globally, and take steps to strengthen cyber security and
cyber resilience framework.
10. MII should define responsibilities of its employees, outsourced staff, and
employees of vendors, members or participants and other entities, who
may have access or use systems / networks of MII, towards ensuring the
goal of cyber security.
Identity
11. MII should identify critical assets based on their sensitivity and criticality
for business operations, services and data management. To this end, MII
should maintain up-to-date inventory of its hardware and systems,
software and information assets (internal and external), details of its
network resources, connections to its network and data flows.
12. MII should accordingly identify cyber risks (threats and vulnerabilities) that it
may face, along with the likelihood of such threats and impact on the business
and thereby, deploy controls commensurate to the criticality.
13. MII should identify critical assets based on their sensitivity and criticality
for business operations, services and data management. To this end, MII
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should maintain up-to-date inventory of its hardware and systems,
software and information Security.
Protection
Access Controls
14. No person by virtue of rank or position should have any intrinsic right to
access confidential data, applications, system resources or facilities.
15. Any access to MII’s systems, applications, networks, databases, etc.,
should be for a defined purpose and for a defined period. MII should
grant access to IT systems, applications, databases and networks on a
need-to-use basis and based on the principle of least privilege .Such access
should be for the period when the access is required and should be
authorized using strong authentication mechanisms.
16. MII should implement strong password controls for users’ access to
systems, applications, networks and databases. Password controls
should include a change of password upon first log -on, minimum
password length and history, password complexity as well as maximum
validity period. The user credential data should be stored using strong and
latest hashing algorithms.
17. MII should ensure that records of user access are uniquely identified and
logged for audit and review purposes. Such logs should be maintained and
stored in encrypted form for a time period not less than two (2) years.
18. MII should deploy additional controls and security measures to supervise
staff with elevated system access entitlements (such as admin or
privileged users). Such controls and measures should inter-alia include
restricting the number of privileged users, periodic review of privileged users’
activities, disallow privileged users from accessing systems logs in which their
activities are being captured, strong controls over remote access by privileged
users, etc.
19. Account access lock policies after failure attempts should be implemented for
all accounts.
20. Employees and outsourced staff such as employees of vendors or service
providers, who may be given authorized access to the MII’s critical systems,
networks and other computer resources, should be subject to stringent
supervision, monitoring and access restrictions.
21. Two-factor authentication at log-in should be implemented for all users that
connect using online / internet facility.
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Securities and Exchange Board of India
22. MII should formulate an Internet access policy to monitor and regulate the use
of internet and internet based services such as social media sites, cloud-based
internet storage sites, etc.
23. Proper ‘end of life’ mechanism should be adopted to deactivate access
privileges of users who are leaving the organization or who access privileges
have been withdrawn.
Physical security
24. Physical access to the critical systems should be restricted to minimum.
Physical access of outsourced staff / visitors should be properly supervised by
ensuring at the minimum that outsourced staff / visitors are accompanied at all
times by authorized employees.
25. Physical access to the critical systems should be revoked immediately if the
same is no longer required.
26. MII should ensure that the perimeter of the critical equipments room are
physically secured and monitored by employing physical, human and
procedural controls such as the use of security guards, CCTVs, card access
systems, mantraps, bollards, etc. where appropriate.
Network Security Management
27. MII should establish baseline standards to facilitate consistent application of
security configurations to operating systems, databases, network devices and
enterprise mobile devices within the IT environment. The MII should conduct
regular enforcement checks to ensure that the baseline standards are applied
uniformly.
28. MII should install network security devices, such as firewalls as well as intrusion
detection and prevention systems, to protect its IT infrastructure from security
exposures originating from internal and external sources.
29. Anti-virus software should be installed on servers and other computer systems.
Updation of Anti-virus definition files and automatic anti-virus scanning should
be done on a regular basis.
Security of Data
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30. Data-in motion and Data-at-rest should be in encrypted form by using strong
encryption methods such as Advanced Encryption Standard (AES), RSA, SHA-
2, etc.
31. MII should implement measures to prevent unauthorized access or copying or
transmission of data / information held in contractual or fiduciary capacity. It
should be ensured that confidentiality of information is not compromised during
the process of exchanging and transferring information with external parties.
32. The information security policy should also cover use of devices such as mobile
phone, faxes, photocopiers, scanners, etc. that can be used for capturing and
transmission of data.
33. MII should allow only authorized data storage devices through appropriate
validation processes.
Hardening of Hardware and Software
34. Only a hardened and vetted hardware / software should be deployed by the MII.
During the hardening process, MII should inter-alia ensure that default
passwords are replaced with strong passwords and all unnecessary services
are removed or disabled in equipments / software.
35. All open ports which are not in use or can potentially be used for exploitation of
data should be blocked. Other open ports should be monitored and appropriate
measures should be taken to secure the ports.
Application Security and Testing
36. MII should ensure that regression testing is undertaken before new or modified
system is implemented. The scope of tests should cover business logic,
security controls and system performance under various stress-load scenarios
and recovery conditions.
Patch Management
37. MII should establish and ensure that the patch management procedures include
the identification, categorization and prioritization of security patches. An
implementation timeframe for each category of security patches should be
established to implement security patches in a timely manner.
38. MII should perform rigorous testing of security patches before deployment into
the production environment so as to ensure that the application of patches do
not impact other systems.
Disposal of systems and storage devices
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39. MII should frame suitable policy for disposals of the storage media and
systems. The data / information on such devices and systems should be
removed by using methods viz. wiping / cleaning / overwrite, degauss and
physical destruction, as applicable.
Vulnerability Assessment and Penetration Testing (VAPT)
40. MII should regularly conduct vulnerability assessment to detect security
vulnerabilities in the IT environment. MII should also carry out periodic
penetration tests, at least once in a year, in order to conduct an in-depth
evaluation of the security posture of the system through simulations of actual
attacks on its systems and networks.
41. Remedial actions should be immediately taken to address gaps that are
identified during vulnerability assessment and penetration testing.
42. In addition, MII should perform vulnerability scanning and conduct penetration
testing prior to the commissioning of a new system which offers internet
accessibility and open network interfaces.
Monitoring and Detection
43. MII should establish appropriate security monitoring systems and processes to
facilitate continuous monitoring of security events and timely detection of
unauthorized or malicious activities, unauthorized changes, unauthorized
access and unauthorized copying or transmission of data / information held in
contractual or fiduciary capacity, by internal and external parties. The security
logs of systems, applications and network devices should also be monitored for
anomalies.
44. Further, to ensure high resilience, high availability and timely detection of
attacks on systems and networks, MII should implement suitable mechanism to
monitor capacity utilization of its critical systems and networks.
45. Suitable alerts should be generated in the event of detection of unauthorized or
abnormal system activities, transmission errors or unusual online transactions.
Response and Recovery
46. Alerts generated from monitoring and detection systems should be suitably
investigated, including impact and forensic analysis of such alerts, in order to
determine activities that are to be performed to prevent expansion of such
incident of cyber-attack or breach, mitigate its effect and eradicate the incident.
47. The response and recovery plan of the MII should aim at timely restoration of
systems affected by incidents of cyber-attacks or breaches. The recovery plan
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Securities and Exchange Board of India
should be in line with the Recovery Time Objective (RTO) and Recovery Point
Objective (RPO) specified by SEBI.
48. The response plan should define responsibilities and actions to be performed
by its employees and support / outsourced staff in the event of cyber-attacks or
breach of cyber security mechanism.
49. Any incident of loss or destruction of data or systems should be thoroughly
analyzed and lessons learned from such incidents should be incorporated to
strengthen the security mechanism and improve recovery planning and
processes.
50. MII should also conduct suitable periodic drills to test the adequacy and
effectiveness of response and recovery plan.
Sharing of information
51. Quarterly reports containing information on cyber-attacks and threats
experienced by MII and measures taken to mitigate vulnerabilities, threats and
attacks including information on bugs / vulnerabilities / threats that may be
useful for other MIIs, should be submitted to SEBI.
52. Such details as are felt useful for sharing with other MIIs in masked and
anonymous manner shall be shared using mechanism to be specified by SEBI
from time to time.
Training
53. MII should conduct periodic training programs to enhance awareness level
among the employees and outsourced staff, vendors, etc. on IT / Cyber security
policy and standards. Special focus should be given to build awareness levels
and skills of staff from non-technical disciplines.
54. The training program should be reviewed and updated to ensure that the
contents of the program remain current and relevant.
Periodic Audit
55. The Terms of Reference for the System Audit of national commodities
derivatives exchange shall be accordingly modified to include audit of
implementation of the aforementioned areas.
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Securities and Exchange Board of India
List of Circulars
S. No. Date Title
1. Oct 01, 2015 Comprehensive Risk Management Framework for National
Commodity Derivatives Exchanges
2. Oct 21, 2015 Risk Management for Regional Commodity Derivatives
Exchanges
3. Nov 16, 2015 Investor grievance redressal system and arbitration
mechanism
4. Nov 16, 2015 Annual System Audit and BCP DR
5. Nov 26, 2015 Timelines for Compliance with various provisions of
Securities Laws by Commodity Derivatives Exchanges
6. Dec 09, 2015 Monthly Development Report for Commodity Derivative
Exchanges
7. Dec 11, 2015 Testing of software used in or related to Trading and Risk
Management
8. Jan 11, 2016 Mandatory requirements/Exit Policy for Commodity
Derivatives Exchanges
9. Jan 15, 2016 Reduction in Daily Price Limits& Near month Position Limits
for Agricultural Commodity Derivatives and Suspension of
Forward Segment
10. Jan 29, 2016 Revision in Position Limits for Agricultural Commodities
11. Mar 29, 2016 Modification of Client Codes post Execution of Trades on
National and Regional Commodity Derivatives Exchanges
12. Mar 29, 2016 Cyber Security and Cyber Resilience framework of National
Commodity Derivatives Exchanges
13. Apr 25, 2016 Disclosure of Proprietary Trading by Commodity
Derivatives Broker to Client and Pro - account Trading
terminal
14. Aug 11, 2016 Annual System Audit for Trading members of National
Commodity Derivatives Exchanges
15. Aug 19, 2016 Programmes sponsored by the Exchanges through media
channels
16. Aug 19, 2016 Position Limits for Hedgers
17. Aug 19, 2016 Modification of Client Codes post Execution of Trades on
National and Regional Commodity Derivatives Exchanges–
Clarification
18. Aug 30, 2016 Trading Hours/ Trading Holidays on Commodity Derivatives
Exchanges
19. Aug 30, 2016 Price Dissemination through SMS/Electronic
Communication Facility
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S. No. Date Title
20. Aug 30, 2016 Maintenance and Preservation of Records
21. Sep 01, 2016 Additional risk management norms for national commodity
derivatives exchanges
22. Sep 02, 2016 Spot Price Polling Mechanism
23. Sep 07, 2016 Transaction Charges by Commodity Derivatives
Exchanges
24. Sep 07, 2016 Mechanism for regular monitoring of and penalty for short-
collection/non-collection of margins from clients
25. Sep 07, 2016 Daily Price Limits (DPL) for Non-Agricultural Commodity
Derivatives/First day DPL for All Commodity Derivatives
26. Sep 07, 2016 Guidelines for Due Date Rate (DDR) fixation for Regional
Commodity Derivatives Exchanges
27. Sep 16, 2016 Unique Client Code (UCC) and Mandatory requirement of
Permanent Account Number (PAN)
28. Sep 16, 2016 Settlement Guarantee Fund, Stress Testing and Base
Minimum Capital
29. Sep 20, 2016 Permission for trading in futures contracts and modification
in contract specifications at exchange level
30. Sep 21, 2016 Staggered delivery, early delivery system, early pay-in
facility, penalty on delivery default, fixation of FSP and
changes in expiry dates
31. Sep 26, 2016 Commodity derivatives – Miscellaneous norms
32. Sep 26, 2016 Circular on Investor Protection Fund (IPF) and its related
matters
33. Sep 27, 2016 Revised Warehousing Norms in the Commodity Derivatives
Market for Agricultural and Agri-processed Commodities
Traded on the National Commodity Derivatives Exchanges
34. Sep 27, 2016 Position Limits for Commodity Derivatives, clubbing of open
positions, penalties for violation of position limits
35. Sep 27, 2016 Portfolio Management Services (PMS) in Commodity
Derivatives Market
36. Sep 27, 2016 Sharing of Information in case of Declaration of Member as
Defaulter in case of Multiple Membership
37. Sep 27, 2016 Disclosure by Commodity Derivative Exchanges on their
Websites
38. Sep 27, 2016 Broad Guidelines on Algorithmic Trading for National
Commodity Derivatives Exchanges
39. Sep 28, 2016 List of Commodities Notified under SCRA
40. Sep 28, 2016 Introduction of Options in Commodity Derivatives Market
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Securities and Exchange Board of India
S. No. Date Title
41. Oct 14, 2016 Bullion as collateral
42. Dec 02, 2016 Spread margin benefit
43. Dec 16, 2016 Applicability of Principles of Financial Market Infrastructures
(PFMIs) on Commodity Derivatives Exchanges
44. Jan 20, 2017 Criteria for Eligibility, Retention and re-introduction of
derivative contracts on Commodities
45. Jun 13, 2017 Options on Commodity Futures- Product Design and Risk
Management Framework
46. Jun 13, 2017 Comprehensive guidelines for Investor protection Fund,
Investor Service Fund and its related matters
47. Jun 21, 2017 Participation of Category III Alternative Investment Funds
(AIFs) in the commodity derivatives market
48. Jul 11, 2017 Amendment to Investor Grievance Redressal System and
Arbitration Mechanism
49. Jul 25, 2017 Position Limits for Agricultural Commodity Derivatives
50. Oct 16, 2017 Criteria for Settlement Mode of Commodity Derivative
Contracts
51. Jan 03, 2018 Transaction Charges by Commodity Derivatives
Exchanges
52. Mar 14, 2018 Clarification to Circular pertaining to Investor Protection
Fund (IPF) and Investor Service Fund (ISF)
53. Mar 14, 2018 Clarification to Circular pertaining to Investor Grievance
Redressal System and Arbitration Mechanism
54. Mar 20, 2018 Spread margin benefit in commodity futures contracts
55. Mar 21, 2018 Risk Management norms for commodity derivatives
56. Mar 26, 2018 Guidelines for Liquidity Enhancement Schemes (LES) in
Commodity Derivatives Contracts
57. Apr 03, 2018 Orders per second limit and requirement of empanelment
of system auditors for algorithmic trading in commodity
derivatives
58. Jun 11, 2018 Disclosure by Exchanges related to Deliverable Supply and
Position Limits Calculation for Agricultural Commodity
Derivatives
59. Jul 11, 2018 Core SGF and standardized stress testing for credit risk for
commodity derivatives
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