MASTER CIRCULAR FOR COMMODITY DERIVATIVES SEGMENT
SEBI/HO/MRD/MRD-PoD-1/P/CIR/2023/136 August 04,2023
The Managing Directors/Chief Executive Officers
All Stock Exchanges and Clearing Corporations with Commodity Derivatives
Segment
Dear Sir / Madam,
Sub: Master Circular for Commodity Derivatives Segment
1. In order to ensure availability of comprehensive information mentioned in
various circulars pertaining to commodity derivatives market or segment at one
place, the Securities and Exchange Board of India (“SEBI”) has been issuing
Master Circulars. This Master Circular has covered various circulars issued till
March 31, 2023. The references in this circular to the Statutes/Regulations
which now stand repealed have been suitably updated.
2. The terms “National Commodity Derivatives Exchanges” or “Regional
Commodity Derivatives Exchanges” or “Commodity Derivatives Exchanges”
may be read as stock exchanges and stock exchange(s) shall mean recognized
stock exchange(s) having commodity derivatives segment.
3. This Master Circular shall come into force from the date of its issuance. The
Circulars mentioned in Annexure –ZG of this Master Circular shall stand
rescinded with the issuance of this Master Circular, including Master Circular
SEBI/HO/CDMRD/DMP/P/CIR/2022/64 dated May 17, 2022. With respect to
the directions or other guidance issued by SEBI, as specifically applicable to
National Commodity Derivative Exchanges, the same shall continue to remain
in force in addition to the provisions of any other law for the time being in force.
4. Notwithstanding such rescission,
4.1. anything done or any action taken or purported to have been done or taken
under the rescinded circulars, including registrations or approvals granted
fees collected, registration suspended or cancelled, any inspection or
investigation or enquiry or adjudication commenced or show-cause notice
issued prior to such rescission, shall be deemed to have been done or
taken under the corresponding provisions of this Master Circular,
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4.2. any application made to SEBI under the rescinded circulars, prior to such
rescission, and pending before it shall be deemed to have been made
under the corresponding provisions of this Master Circular
4.3. the previous operation of the rescinded circulars or anything duly
done or suffered thereunder, any right, privilege, obligation or liability
acquired, accrued or incurred under the rescinded circulars, any penalty,
incurred in respect of any violation committed against the rescinded
circulars, or any investigation, legal proceeding or remedy in respect
of any such right, privilege, obligation, liability, penalty as aforesaid,
shall remain unaffected as if the rescinded circulars have never been
rescinded.
5. This Master Circular is issued in exercise of the powers conferred by Section
11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the
interest of investors in securities and to promote the development of, and to
regulate, the securities market and shall come into force from the date of its
issue. All Stock Exchanges and Clearing Corporations with Commodity
Derivatives Segment shall ensure compliance with this Master Circular
including any subsequent amendment thereto or supersession through any
circular/ master circular.
6. This Master Circular is issued with the approval of the Competent Authority.
7. This Master Circular is available on SEBI Website at www.sebi.gov.in under the
category “Legal – Master Circulars” and “Info for Commodity Derivatives.”
Yours faithfully,
Naveen Sharma
General Manager
Policy and Development (POD) -1 (Commodity)
Market Regulation Department
Email: naveens@sebi.gov.in
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Table of Contents
Abbreviations .......................................................................................................... 9
CHAPTER 1. TRADING ...................................................................................... 13
1.1. Trading Hours and Holidays ...................................................................... 13
1.2. Transaction Charges .................................................................................. 14
1.3. Spot Price Polling ....................................................................................... 15
1.4. Unique Client Code (UCC) and Mandatory Requirement of Permanent
Account Number ......................................................................................................... 17
1.5. Modification of Client Codes Post Execution of Trades ........................ 18
1.6. Disclosure of Proprietary Trading by Broker to Client .......................... 21
1.7. “Pro – account” Trading Terminals .......................................................... 21
1.8. Sharing of Information in Case of Declaration of Member as Defaulter
in case of Multiple Membership ................................................................................ 22
1.9. Liquidity Enhancement Scheme (LES) .................................................... 23
1.10. Framework for Utilization of Regulatory Fee Forgone by SEBI ............ 26
1.11. Price Dissemination through SMS / Electronic Communication Facility
29
1.12. Programmes Sponsored by the Exchanges through Media Channels . 29
1.13. Maintenance and Preservation of Records .............................................. 30
1.14. Forward Segment ......................................................................................... 30
1.15. Disclosure Requirements for stock exchanges on their websites ........ 30
1.16. Disclosures regarding commodity risks by listed entities .................... 33
CHAPTER 2. PRODUCTS RELATED GUIDELINES ........................................ 35
2.1. Goods notified under SCRA ....................................................................... 35
2.2. Criteria for Eligibility, Retention and Re-introduction of Derivative
Contracts on Commodities ........................................................................................ 35
2.3. Role of Regulatory Oversight Committee regarding Product Design .. 39
2.4. Product Advisory Committee .................................................................... 39
2.5. Performance Review of the Commodity Derivatives Contracts ............. 42
CHAPTER 3. DAILY PRICE LIMITS AND POSITION LIMITS ......................... 43
3.1. General guidelines for Daily Price Limit ................................................... 43
3.2. DPL for Commodity futures contracts which are based on agricultural
and agri-processed goods .......................................................................................... 44
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3.3. DPL for Commodity futures contracts which are based on non-
agricultural goods........................................................................................................ 45
3.4. General guidelines for Position Limits...................................................... 46
3.5. Position limits for Agricultural Commodity Derivatives ......................... 47
3.6. Position limits for Non-Agricultural Commodity Derivatives ................. 51
3.7. Position Limit for Hedgers ......................................................................... 52
CHAPTER 4. PARTICIPANTS IN COMMODITY DERIVATIVES MARKETS .. 55
4.1. Category III Alternative Investment Funds ............................................. 55
4.2 Foreign Portfolio Investor ........................................................................... 55
4.3 Portfolio Management Services ................................................................. 57
4.4 Mutual Funds ................................................................................................ 58
CHAPTER 5. OPTIONS IN GOODS .................................................................. 62
5.1. Product Design ............................................................................................ 62
5.2. Risk Management ........................................................................................ 64
5.3. Other aspects ............................................................................................... 65
CHAPTER 6. OPTIONS ON COMMODITY FUTURES ..................................... 67
6.1. Product Design ............................................................................................ 67
6.2. Risk Management ........................................................................................ 69
6.3. Other aspects ............................................................................................... 71
CHAPTER 7. DESIGN OF COMMODITY INDICES AND PRODUCT DESIGN
FOR FUTURES ON COMMODITY INDICES ....................................................... 72
7.1. Design of Commodity Indices .................................................................... 72
7.2. Product Design for Futures on Commodity Indices ................................ 74
7.3. Risk Management ........................................................................................ 76
7.4. Cross Margin in Commodity Index Futures and its underlying
constituent futures or its variants ............................................................................. 77
7.5. Other aspects ............................................................................................... 79
CHAPTER 8. OPTIONS ON COMMODITY INDICES - PRODUCT DESIGN
AND RISK MANAGEMENT FRAMEWORK ......................................................... 80
8.1. Product Design ............................................................................................ 80
8.2. Risk Management ........................................................................................ 82
8.3. Other aspects ............................................................................................... 83
CHAPTER 9. RISK MANAGEMENT .................................................................. 84
9.1. Risk Management Framework ................................................................... 84
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9.2. Alternative Risk Management Framework Applicable in case of Near
Zero and Negative Prices ............................................................................................ 98
9.3. Regaining matched book .......................................................................... 101
9.4. Framework to Enable Verification of Upfront Collection of Margins .. 102
9.5. Mechanism for regular monitoring of and penalty for short- collection/
non-collection of margins from clients ................................................................... 103
9.6. Settlement Guarantee Fund, Default Waterfall and Stress Testing ..... 106
9.7. Interoperability among Clearing Corporations ...................................... 106
CHAPTER 10. CONTRACT APPROVAL AND MODIFICATION ................. 107
10.1. Permission for Trading in Futures Contracts ........................................ 107
10.2. Modifications in the Contract Specifications of Commodity Derivatives
Contracts ................................................................................................................... 109
CHAPTER 11. DELIVERY AND SETTLEMENT ............................................ 110
11.1. Staggered Delivery ................................................................................... 110
11.2. Early Delivery System .............................................................................. 111
11.3. Early Pay-in Facility .................................................................................. 112
11.4. Penalty on Delivery Default ..................................................................... 112
11.5. Penalty for Repeated Delivery Default .................................................... 113
11.6. Fixation of Final Settlement Price (FSP) ................................................ 114
11.7. Change in Expiry Date .............................................................................. 115
11.8. Identification and Selection of Location as a Delivery Centre(s) ....... 115
11.9. Criteria for Settlement Mode of Commodity Derivative Contracts ...... 117
11.10. Timelines for Marking Delivery Intention ............................................... 117
11.11. Location Premium / Discount .................................................................. 118
CHAPTER 12. WAREHOUSING NORMS FOR AGRICULTURE AND AGRI-
PROCESSED COMMODITIES AND NON-AGRICULTURAL GOODS ............ 119
12.1. General ........................................................................................................ 119
12.2. Accreditation of Warehouse Service Provider (WSP) ........................... 120
12.3. Eligibility and Experience of WSP/Promoters/Promoter Group of WSP
121
12.4. Financial Soundness of the WSP ............................................................ 122
12.5. Fit and Proper Criteria ............................................................................... 126
12.6. Corporate Governance norms for WSP .................................................. 127
12.7. Know Your Depositor ................................................................................ 129
12.8. PAN requirement ........................................................................................ 129
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12.9. Facilities & Infrastructure Requirement for WSP ................................... 129
12.10. Standard Operating Procedure (SOP) and Standards .......................... 133
12.11. Sampling Procedure .................................................................................. 135
12.12. Accreditation of Assayers ........................................................................ 135
12.13. Warehouses at delivery centres .............................................................. 136
12.14. Insurance .................................................................................................... 136
12.15. Embracing new technology ...................................................................... 137
12.16. Monitoring/Inspection/Audit ..................................................................... 137
12.17. Code of Conduct ........................................................................................ 141
12.18. Grievance Cell ............................................................................................ 141
12.19. Monthly Information System (MIS) .......................................................... 141
12.20. Surrender/Cancellation of accreditation ................................................. 142
12.21. Business Continuity Plan ......................................................................... 143
12.22. Actions against WSPs ............................................................................... 143
12.23. Policy for depositors for rejection of goods .......................................... 144
12.24. Disclosures by Clearing Corporations .................................................... 144
CHAPTER 13. INVESTOR PROTECTION FUND & INVESTOR SERVICE
FUND AND ITS RELATED MATTERS ............................................................... 147
13.1. Investor Protection Fund (IPF) ................................................................. 147
13.2. Investor Service Fund (ISF) ...................................................................... 153
CHAPTER 14. INVESTOR GRIEVANCE REDRESSAL SYSTEM AND
ARBITRATION MECHANISM ............................................................................. 156
14.1. Investor Grievance Redressal System ................................................... 156
14.2. Online Web Based Complaints Redressal System ................................ 162
14.3. Increasing Awareness regarding Online Mechanisms for Investor
Grievance Redressal ................................................................................................. 163
14.4. Hybrid Mode of Conducting GRC and Arbitration / Appellate Arbitration
163
14.5. Disclosure of Complaints against the Stock Exchange(s)and the
Clearing Corporation(s) ............................................................................................ 164
14.6. Arbitration mechanism ............................................................................. 164
............................................................................................................................... 176
CHAPTER 15. GOVERNANCE AND ADMINISTRATION OF EXCHANGES
AND CLEARING CORPORATIONS ................................................................... 176
15.1. Compliance with various provisions of Securities Laws by Stock
Exchanges having Commodity Derivatives Segment .......................................... 176
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15.2. Commencement of operations by a newly recognized stock exchange/
Clearing Corporation ................................................................................................ 177
15.3. Statutory Committees ............................................................................... 177
15.4. Monthly Development Report .................................................................. 180
15.5. Mandatory requirements / exit policy ..................................................... 180
CHAPTER 16. TRADING SOFTWARE AND TECHNOLOGY ...................... 183
16.1. Algorithmic Trading .................................................................................. 183
16.2. Co-Location ............................................................................................... 189
16.3. System and Network Audit ....................................................................... 189
16.4. Business Continuity Plan (BCP) and Disaster Recovery (DR) ............. 190
16.5. Annual System Audit of Stock Brokers / Trading Members ................ 195
16.6. Testing of software used in or related to Trading and Risk Management
196
16.7. Cyber Security and Cyber Resilience framework .................................. 202
16.8 Handling of Technical glitches by Market Infrastructure Institutions
(MIIs) and payment of “Financial Disincentive” .................................................... 204
ANNEXURES ....................................................................................................... 205
Format for Dissemination of Member’s Data on Website – Annexure A ............ 205
Disclosure of Information Regarding Trading Activity during Life Cycle of
Contract – Annexure B .............................................................................................. 206
Format for Disclosure of Open Interest (OI) and Turnover for Various Categories
of Market Participants at Individual Commodity as well as Overall Market Level –
Annexure C ................................................................................................................. 208
Commodity-wise Format of Disclosure for Top Participants, Members and
Market Wide Position Limits – Annexure D ............................................................ 212
Disclosures regarding commodity risks by listed entities – Annexure E .......... 213
Goods notified u/s 2(bc) of SCRA – Annexure F ................................................... 214
Template on Criteria for Eligibility of Commodity Derivative Products –
Annexure G ................................................................................................................. 217
Parameters for Performance Review of Commodity Derivative Contract –
Annexure H ................................................................................................................. 220
Clubbing of Open Positions – Annexure I .............................................................. 223
Position Limit Violation – Annexure J ..................................................................... 225
Format for Dissemination of Information on Website – Annexure K .................. 226
Format for disclosing data of complaints by all the Recognized Stock
Exchanges and Clearing Corporations on their website – Annexure L .............. 227
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Client Level Numerical Position Limits for Non-Agricultural Commodities –
Annexure M................................................................................................................. 229
Liquidity Categorization and Computation of VaR – Annexure N ....................... 230
Core Settlement Guarantee Fund (Core SGF) – Annexure O ............................... 232
Checklist of information/details for launch of new contract or/and for renewal of
existing/earlier contracts – Annexure P .................................................................. 241
List of contracts approved for continuous trading – Annexure Q ...................... 246
Categorization of contract specification parameters in commodity derivatives
contracts – Annexure R ............................................................................................ 247
Formats for providing details of Security Deposit – Annexure S ........................ 250
Format for details of disposal of arbitration proceedings – Annexure T ........... 251
Format for disclosure of Arbitration Awards – Annexure U ................................. 253
Report on Shareholding Pattern – Annexure V ...................................................... 254
Functions and Composition of Statutory Committees – Annexure W ................ 258
Format for Monthly Development Report – Annexure X ....................................... 280
System and Network Audit Framework - Annexure Y ........................................... 290
System and Network Audit Program – Terms of Reference (TOR) - ................... 295
Annexure Z ................................................................................................................. 295
Format for monitoring compliance with requirements emanating from SEBI
circulars/guidelines/advisories related to technology - Annexure ZA ................ 302
Exception Observation Reporting Format - Annexure ZB .................................... 303
Stock Broker System Audit Framework – Annexure ZC ....................................... 306
Executive Summary Reporting Format ................................................................................... 327
Cyber Security and Cyber Resilience framework – Annexure ZD ....................... 328
Standard Operating Procedure (SOP) for handling of technical glitches -
ANNEXURE- ZE .......................................................................................................... 337
“Financial Disincentive” structure - ANNEXURE- ZF ............................................ 339
ANNEXURE ZG: LIST OF CIRCULARS RESCINDED ...................................... 342
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Abbreviations
AD -1 AUTHORIZED DEALER CATEGORY-I BANK
AIFs ALTERNATIVE INVESTMENT FUNDS
AMCs ASSET MANAGEMENT COMPANIES
AMFI ASSOCIATION OF MUTUAL FUNDS IN INDIA
API APPLICATION PROGRAMMING INTERFACE
APMC AGRICULTURAL PRODUCE MARKETING COMMITTEE
ASBs AUTHORIZED STOCK BROKERS
AT ALGORITHMIC TRADING
ATM AT THE MONEY
BCP BUSINESS CONTINUITY PLAN
BG BANK GUARANTEE
BIS BUREAU OF INDIAN STANDARDS
BMC BASE MINIMUM CAPITAL
CBI CENTRAL BUREAU OF INVESTIGATION
CCs RECOGNISED CLEARING CORPORATIONS
CISA CERTIFIED INFORMATION SYSTEM AUDITORS
CISM CERTIFIED INFORMATION SECURITIES MANAGER
CISSP CERTIFIED INFORMATION SYSTEMS SECURITY
PROFESSIONAL
CPF CONSUMER PROTECTION FUND
CSR Fund CORPORATE SOCIAL RESPONSIBILITY FUND
CTCL COMPUTER TO COMPUTER LINK SOFTWARE
CTM CLOSE TO THE MONEY
DMA DIRECT MARKET ACCESS
DPL DAILY PRICE LIMITS
DR DISASTER RECOVERY
DRS DISASTER RECOVERY SITE
DSP DAILY SETTLEMENT PRICE
E EXPIRY DAY
EFE ELIGIBLE FOREIGN ENTITIES
ELM EXTREME LOSS MARGINS
eNWRs ELECTRONIC NEGOTIABLE WAREHOUSE RECEIPTS
Page 9 of 348
EOD END OF DAY
ETCD EXCHANGE TRADED COMMODITY DERIVATIVES
EWMA EXPONENTIALLY WEIGHTED MOVING AVERAGE
FAQs FREQUENTLY ASKED QUESTIONS
FATF FINANCIAL ACTION TASK FORCE
FCRA FORWARD CONTRACTS (REGULATION) ACT, 1952
FDR FIXED DEPOSIT RECEIPTS
FED FINAL EXPIRY DATE
FEMA FOREIGN EXCHANGE MANAGEMENT ACT, 1999
FPIs FOREIGN PORTFOLIO INVESTORS
FPOs FARMER PRODUCER ORGANIZATIONS
FSD FINANCIAL SECURITY DEPOSIT
FSP FINAL SETTLEMENT PRICE
FSSAI FOOD SAFETY STANDARD AUTHORITY OF INDIA
FVCI FOREIGN VENTURE CAPITAL INVESTORS
GDS GOLD DEPOSIT SCHEME
GLEIF GLOBAL LEGAL ENTITY IDENTIFIER FOUNDATION
GMS GOLD MONETISATION SCHEME
Gold ETFs GOLD EXCHANGE TRADED FUNDS
IBT INTERNET BASED TRADING
IGRC INVESTOR GRIEVANCE REDRESSAL COMMITTEE
IGRP INVESTORS GRIEVANCE RESOLUTION PANEL
IM INITIAL MARGINS
IML INTERMEDIATE MESSAGING LAYER
IOC IMMEDIATE OR CANCEL
IPF INVESTOR PROTECTION FUND
ISACA INFORMATION SYSTEMS AUDIT AND CONTROL
ASSOCIATION
ISC INVESTOR SERVICE COMMITTEE
ISF INVESTOR SERVICES FUND
ITM IN THE MONEY
KMP KEY MANAGEMENT PERSONNEL
KYC KNOW YOUR CLIENT
KYD KNOW YOUR DEPOSITOR
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LEI LEGAL ENTITY IDENTIFIER
LES LIQUIDITY ENHANCEMENT SCHEME
LTP LAST TRADED PRICE
MCR MONTHLY CUMULATIVE REPORT
MDR MONTHLY DEVELOPMENT REPORT
MFs MUTUAL FUNDS
MIIs MARKET INFRASTRUCTURE INSTITUTIONS
MoUs MEMORANDUM OF UNDERSTANDING
MPOR MARGIN PERIOD OF RISK
MSMEs MICRO, SMALL AND MEDIUM ENTERPRISES
MT METRIC TON
MTM MARK TO MARKET
NABL NATIONAL ACCREDITATION BOARD FOR CALIBRATION
AND TESTING LABORATORIES
NAV NET ASSET VALUE
NISM NATIONAL INSTITUTE OF SECURITIES MARKET
NRIs NON-RESIDENT INDIA
NS NEAR SITE
OI OPEN INTEREST
OTM OUT OF THE MONEY
PAC PRODUCT ADVISORY COMMITTEE
PAN PERMANENT ACCOUNT NUMBER
PDC PRIMARY DATA CENTRE
PFMI PRINCIPLES FOR FINANCIAL MARKET
INFRASTRUCTURE
PIDs PUBLIC INTEREST DIRECTORS
PMLA PREVENTION OF MONEY LAUNDERING ACT, 2002
RBI RESERVE BANK OF INDIA
RMS RISK MANAGEMENT SYSTEM
RPF RISK PARAMETER FILE
RPO RECOVERY POINT OBJECTIVE
RTO RECOVERY TIME OBJECTIVE
SCRA SECURITIES CONTRACTS (REGULATION) ACT, 1956
SCRR SECURITIES CONTRACT (REGULATION) RULES, 1957
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SD SECURITY DEPOSIT
SEBI SECURITIES AND EXCHANGE BOARD OF INDIA
SECC SECURITIES CONTRACTS (REGULATION) (STOCK
Regulations EXCHANGES AND CLEARING CORPORATIONS)
REGULATIONS, 2018
SGF SETTLEMENT GUARANTEE FUND
SOP STANDARD OPERATING PROCEDURE
SOR SMART ORDER ROUTING
STWT SECURITIES TRADING USING WIRELESS
TECHNOLOGY
TAC TECHNICAL ADVISORY COMMITTEE
TGF TRADE GUARANTEE FUND
TOR TERMS OF REFERENCE
UAT USER ACCEPTANCE TEST
UCC UNIQUE CLIENT CODE
VaR VALUE AT RISK
VCP VALUE CHAIN PARTICIPANTS
VWAP VOLUME WEIGHTED AVERAGE PRICE
WDRA WAREHOUSE DEVELOPMENT AND REGULATORY
AUTHORITY
WMA WEIGHTED MOVING AVERAGE
WSP WAREHOUSE SERVICE PROVIDER
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CHAPTER 1. TRADING
1.1. Trading Hours and Holidays 1
1.1.1. Trading Hours
i. Trading shall be permitted only from Monday to Friday.
ii. Trading hours shall be fixed by the stock exchanges within the time
limits as mentioned in the table below 2:
S. Commodity category Trade Trade end time
No start
After start of After end of
time
US day light US day light
savings in savings in fall
spring season season
1 Non-agricultural 09:00 AM 11:30 PM 11:55 PM
commodities
2 Agricultural and agri- 09:00 AM 09:00 PM
processed commodities
iii. Any extension of the trade timing within the specified limit shall be
subject to the stock exchanges and its clearing corporation(s) putting
in place adequate risk management system, surveillance system
and infrastructure commensurate with the increased trading hours.
iv. Regarding Muhurat Trading on Diwali (Lakshmi Poojan) day, all
stock exchanges shall jointly decide the common trade timing and
notify the same to the market under prior intimation to SEBI.
v. Stock exchanges shall ensure that they have necessary risk
management system and infrastructure in place commensurate to
their trading hours.
1.1.2. Trading Holidays
i. All stock exchanges shall jointly decide upon the common holiday
list within the broad framework of the Negotiable Instruments Act,
1 SEBI Circular No. SEBI/HO/CDMRD/DMP/CIR/P/2016/75 dated August 30, 2016
2 SEBI circular no. SEBI/HO/CDMRD/DMP/CIR/P/2018/146 dated November 30, 2018
Page 13 of 348
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.
ii. On such trading holidays, the stock exchanges may permit trading
of internationally reference able commodities in evening session i.e.
post 5:00 PM, in case the corresponding international market(s) are
open.
iii. While finalizing the list of trading holidays, the stock exchanges shall
suitably consider the views of market participants. Frequent changes
in the list of trading holidays 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.
1.2. Transaction Charges 3
1.2.1. The stock exchanges collect 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, following norms shall be
applicable while levying transaction charges-
i. The stock exchanges may levy different transaction charges for
different commodities' contracts, even in the case of contracts of the
same commodity.
ii. The stock exchanges shall ensure that the ratio between highest to
lowest transaction charges in the turnover slab of any contract is not
more than 2:1.4
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 shall be charged-on post-facto basis, i.e.,
after the trades are executed.
3 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/82 dated September 07, 2016
4 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2018/1 dated January 03, 2018
Page 14 of 348
1.2.2. While revising the transaction charges, the stock exchanges shall
ensure that its systems are capable of handling the additional load
and that the revising of transaction charges:
i. does not affect the existing risk management system,
ii. does not favour selective trades or selective category of investor,
iii. does not encourage generation of artificial demand,
iv. does not result in any market irregularities,
v. is uniformly applied to trades of similar nature,
vi. is imposed in fair and transparent manner.
1.3. Spot Price Polling 5
1.3.1. The stock 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 stock exchange platform. To arrive at the
prevailing spot prices, the stock exchanges are polling the spot prices
from various spot price polling participants. Some stock exchanges
undertake this activity themselves whereas some have outsourced
this work to an external agency.
1.3.2. In order to maintain the transparency of spot price polling process
and dissemination of spot prices arrived at through spot price polling
process, the stock exchanges shall:
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. Particulars Details
No.
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 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/78 dated September 02, 2016
Page 15 of 348
S. Particulars Details
No.
5. Whether spot prices polling has been outsourced
to any external agency and if so, the details
thereof.
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 quoted Time,
Date
A
1
A
2
 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.
 This information shall be updated on exchange website every
day for every contract traded on the exchange platform.
 The information shall continue to be displayed even after the
expiry of the contract for a period of 3 years.
iv. endeavor 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 stock exchanges shall address such complaints in a
time-bound manner. Further the stock exchanges shall keep the
audit trail of all such complaints received and the steps taken for
redressal.
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1.4. Unique Client Code (UCC) and Mandatory Requirement of Permanent
Account Number 6
1.4.1. It shall be mandatory for the members of the stock exchanges to use
Unique Client Code (“UCC”) for all clients. The stock exchanges shall
not allow execution of trades without uploading of the UCC details by
the members of the stock 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 (IT) Department, for all their clients. However, in case of
e-PAN, members shall verify the authenticity of e-PAN with the
details on the website of IT Department and maintain the soft copy of
PAN in their records.7
1.4.2. PAN shall be the sole identification number and mandatory for all
entities/persons who are desirous of transacting on the stock
exchanges.
However, the investors residing in the State of Sikkim are exempted
from the mandatory requirement of PAN. The stock 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 courts e.g.
Official liquidator, Court receiver etc. (under the category of
Government) for transacting in the securities market. The member of
the stock exchange 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.
1.4.3. 8The stock exchanges shall ensure that their members 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 (IT) Department. However,
6 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/87 dated September 16, 2017
7 SEBI circular no. SEBI/HO/CDMRD/DNP/CIR/P/2021/30 dated March 08, 2021.
8 SEBI circular no. SEBI/HO/CDMRD/DNP/CIR/P/2021/30 dated March 08, 2021
Page 17 of 348
in case of e-PAN, verify the authenticity of e-PAN with the details on
the website of IT Department and maintain the soft copy of PAN in
their records.”
iii. upload details of PAN or e-PAN so collected to the stock exchanges
as part of the UCC.
iv. verify the documents with respect to the unique client and retain a
copy of the document.
1.4.4. The member shall also be required to furnish the above particulars
of their clients to the stock exchanges and the same shall be updated
on a monthly basis. Such information for a specific month should
reach the stock exchanges within 7 working days of the following
month.
1.4.5. The stock 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 stock exchanges shall be transferred to the
Investor Protection Fund (“IPF”) of that stock exchange. Further, the
member shall be liable to be suspended if the client details are not
uploaded within a month of the trade.
1.4.6. The stock exchanges shall be required to maintain a database of
client details submitted by its members. Historical records of all such
submissions shall be maintained for a period of 7 years by the stock
exchange.
1.5. Modification of Client Codes Post Execution of Trades 9
1.5.1. The stock exchanges may allow modifications of client codes of non-
institutional trades only to rectify a genuine error in entry of client
code at the time of placing/ modifying the related order in all
segments. It is also re-emphasized here that this facility is expected
to be used more as an exception rather than a routine.10
1.5.2. For this purpose, the following shall be classified as genuine errors:
9 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/73 dated August 19, 2016
10 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/43 dated March 29, 2016
Page 18 of 348
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)
1.5.3. Error Account
i. Shifting of trades to the ‘Error account’ of stock 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, stock broker shall disclose the codes of accounts which are
classified as ‘Error accounts’ to the stock exchanges. Each stock
broker shall have a well-documented error policy approved by the
management of the stock broker. The stock exchanges shall
periodically review the trades flowing to the ‘Error accounts’ of the
stock brokers.
1.5.4. If stock exchange wishes to allow its members to modify client codes
of non-institutional trades, it shall
i. lay down strict objective criteria (in line with the Para ‘1.5.2’ 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 its 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 its members.
iv. not allow proprietary trades to be modified as client trades and vice
versa.
v. shall levy a penalty and collect from its members and credit the same
to its IPF as under:
Page 19 of 348
‘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 its members
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 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 stock exchange,
if any deficiency is observed.
1.5.5. Waiver of Penalty
i. The stock exchanges may waive penalty for a client code
modification where the member is able to produce evidence to the
satisfaction of the stock 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 member 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. The stock exchanges shall submit a report to SEBI every quarter
regarding all such client code modifications where penalties have
been waived.
Page 20 of 348
1.6. Disclosure of Proprietary Trading by Broker to Client 11
1.6.1. With a view to increase the transparency in the dealings between the
stock broker and the client, every stock broker shall disclose to his
client whether he does client based business or proprietary trading
as well.
1.6.2. The stock broker shall disclose this information upfront to his new
clients at the time of entering into the KYC agreement.
1.6.3. In case of a stock 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.
1.7. “Pro – account” Trading Terminals 12
1.7.1. 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.
1.7.2. 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 stock
exchange / SEBI.
1.7.3. 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 stock exchange
stating the reason for using the “pro-account” at multiple locations
and the stock 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.
1.7.4. Stock exchanges shall take necessary disciplinary action wherever
such facility is being misused by any of its member.
11 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/49 dated April 25, 2016
12 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/49 dated April 25, 2016
Page 21 of 348
1.8. Sharing of Information in Case of Declaration of Member as Defaulter in
case of Multiple Membership 13
1.8.1. 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.
1.8.2. 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.
1.8.3. 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 sub-regulation (1) of regulation 2 of
the Securities and Exchange Board of India (Substantial Acquisition
of Shares and Takeovers) Regulations, 2011.
13 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/102 dated September 27, 2016
Page 22 of 348
1.9. Liquidity Enhancement Scheme (LES) 14
1.9.1. The stock exchanges may introduce Liquidity Enhancement Scheme
(“LES”) in commodity derivatives segment subject to the following:
i. The scheme shall have the prior approval of the board of directors of
the stock exchange and its implementation and outcome shall be
monitored by them at quarterly intervals.
ii. The scheme shall be objective, transparent, non-discretionary and
non-discriminatory.
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.
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.
1.9.2. The stock 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 stock exchanges shall introduce LES 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, a stock exchange may introduce LES in commodity derivative
product where LES has been introduced in another stock exchange.
Such schemes cannot be continued beyond the period of LES of the
initiating stock exchange.
14 SEBI circular no SEBI/HO/CDMRD/DRMP/CIR/P/2018/55 dated March 26, 2018
Page 23 of 348
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 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.
1.9.3. The incentives under LES shall be transparent and measurable, and
may take either of the following:
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 stock 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 stock exchange shall ensure that this is in compliance
with the Securities Contracts (Regulation) (Stock Exchanges and
Clearing Corporations) Regulations, 2018 (“SECC Regulations”) at all
times.
1.9.4. Any stock exchange, in early years of its formation /commencement
of business, may not be able to generate profits or have free reserves
from business operations. In this regard, such stock exchanges are
exempted, during their first five years of operation from the date of
SEBI’s approval for commencement/recommencement of their
business, from the applicability of abovementioned para (clauses
given in 1.9.3 above)15 subject to adherence to the following
conditions:
15 SEBI Circular No SEBI/HO/CDMRD/DNPMP/CIR/P/2019/84 dated July 26, 2019
Page 24 of 348
i. The yearly incentives that such a stock exchange can earmark for
LES shall not exceed 25% of the audited net-worth of the said stock
exchange as on the last day of the previous financial year.
ii. Such stock exchange shall create a reserve specifically to meet its
LES incentives/expenses and transfer funds to such reserve
accordingly. However, such reserves shall not be included in the
calculation of the net worth of that stock exchange.
iii. Such stock exchange shall continuously comply with the minimum
net-worth requirements as per SECC Regulations.
1.9.5. Market integrity - The stock exchange shall ensure the following:
i. The stock 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 mis-selling of the product in the market.
ii. The stock exchange shall have systems and defined procedures in
place to monitor collusion between stock 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 UCC is on both sides of the
transaction.
iv. Any violations of clauses in this para shall be viewed most seriously.
1.9.6. Market maker / liquidity enhancer - The stock 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 stock exchange.
ii. A conflict of interest framework shall be put in place by the stock
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 stock exchange on their
website.
Page 25 of 348
1.9.7. For the present, schemes which incentivize brokers based on
activation of new UCC, number of trades or open interest shall not
be permissible under LES.
1.10. Framework for Utilization of Regulatory Fee Forgone by SEBI 16
1.10.1. With a view to encourage the participation by Farmers/Farmer
Producer Organizations (“FPOs”) in agricultural commodity
derivatives markets, SEBI has reduced the regulatory fee on stock
exchanges with respect to turnover in agricultural commodity
derivatives. The objective was to reduce the cost burden on
Farmers/FPOs from the amount saved by the stock exchanges due
to reduction of regulatory fee.
1.10.2. In order to pass on the desired benefits from reduction of regulatory
fees on agricultural commodity derivatives, the stock exchanges
dealing with agricultural commodity derivatives shall create a
separate fund earmarked for the benefit of Farmers/FPOs in which,
the regulatory fee forgone by SEBI shall be deposited and utilized
exclusively for the benefit of and easy participation by Farmers and
FPOs in the agri-commodity derivatives market. Any income on
investments from the fund shall also be ploughed back into the same
fund.
1.10.3. In this regard, the stock exchanges shall follow the guiding principles
outlined below for the purpose of utilization of the earmarked fund –
i. The fund shall be used exclusively for the benefit of and for easy
participation by Farmers and FPOs in the agri-commodity derivatives
market.
ii. It shall be the endeavor of the exchange to utilize the earmarked fund
primarily for reducing cost of transaction and for facilitating ease of
trading by farmers/FPOs.
iii. The stock-exchange shall draw an action plan for full utilization of
regulatory fee foregone by SEBI in any financial year to be utilized
during the succeeding financial year. Such action plan shall be
drawn up by the 10th of April (of the year in which the fund must be
utilized) keeping in view the amount of fund available for the
purpose.
16 SEBI circular no SEBI/HO/CDMRD/DMP/IR/P/2019/40 dated March 20, 2019
Page 26 of 348
iv. The stock exchange shall disseminate the details of the action plan
including the financial assistance proposed to be rendered to
farmers/FPOs, activities to be subsidized/facilitated with respect to
participation by farmers/FPOs during the financial year on their
website under intimation to SEBI.
v. The aforesaid earmarked fund shall not be clubbed with any other
funds such as Investor Protection Fund (“IPF”) /Investor Services
Fund (“ISF”) /Corporate Social Responsibility (“CSR”) Funds etc.
vi. The stock exchange shall ensure that the participating farmers/FPOs
are treated in a fair and equitable manner while utilizing the proceeds
of the fund for their benefit. Accordingly, the choice of activities for
utilizing the fund and the rate of benefit should be such that benefits
with respect to the activity are imparted to all farmers/FPOs
participating during the year and are not restricted to a select few
farmers/FPOs.
1.10.4. While preparing the action plan for a financial year, the stock
exchanges may consider one or more of the following activities for
utilization of the fund for benefit of farmers/FPOs –
i. Funding of Warehousing and/or Assaying charges –
Waiver/subsidy in warehousing and/or assaying charges for
agricultural commodities deposited for delivery on the platform of the
stock exchange by the farmers/FPOs.
ii. Cost of bags and transportation for the Farmers / FPOs for
delivery on exchange platform- The cost of bags may be
reimbursed or bags may be provided to farmers / FPOs for deposits
on the stock exchange platform. To incentivize delivery-based
participation by farmers/FPOs, certain percentage of transportation
expenses may also be considered for reimbursement to
farmers/FPOs.
iii. Cost of Mark to market (MTM) funding – The cost of or a part of
the cost of MTM funding by the stock exchange/clearing corporation
on the sell positions of the farmers/FPOs who make early pay-in of
the commodities in approved warehouses.
iv. Broker fee – Stock Broker fee for farmers/FPOs may be subsidized.
v. Delivery fee/charge- As delivery fee is one of the largest
constituents of the overall transaction costs in the delivery based
agri-commodity derivatives markets, the stock exchanges may
reduce/subsidize this cost head.
Page 27 of 348
vi. Repository related fee – Stock exchanges may subsidize
repository related charges for farmers/FPOs - account opening,
maintenance and transfer charges or any other similar charges.
vii. 17Reimbursement of Mandi tax: Reimbursement of Mandi tax
including any other mandi cess or whatever name it may be called,
levied against the goods deposited in warehouses accredited with
Clearing Corporations for the purpose of delivering on the stock
exchange platform for which exchange specific Electronic
Negotiable Warehouse Receipt (“eNWR”) is generated.
viii. 18Reimbursement of assaying, cleaning, drying, sorting,
storage and transportation charges: Farmers/FPOs may be
reimbursed the charges incurred towards assaying, cleaning, drying,
sorting, storage and transportation in respect of goods deposited in
warehouses accredited with Clearing Corporations with an intention
to deliver them on stock exchange Platform for which exchange
specific eNWR is generated.
ix. 19Incentivizing Option Premium: The farmers / FPOs may be
incentivized to participate in “options in goods”. For this purpose, the
farmers / FPOs may be reimbursed a certain percentage or fixed
amount of the premium paid by them, for purchasing “options in
goods” on the stock exchange platform.
x. 20Reimbursement of fees levied by Clearing Corporation:
Fees/cost levied by Clearing Corporation, if any, on farmers/FPOs in
the process of their participation in commodity derivatives trading
may be reimbursed.
xi. Any other activity as may be permitted by SEBI.
1.10.5. The stock exchanges shall allow utilization of the fund for the
activities mentioned above with certain conditions such as overall
amount per activity, maximum amount per farmer/FPO, maximum
period etc., as may be applicable from time to time, so as to ensure
fair and equitable distribution of benefit to farmers/FPOs.
1.10.6. 21Further, in order to enhance transparency, the stock exchanges are
advised to make disclosure regarding the corpus of the fund and its
utilization, on their website, on a monthly basis.
17 SEBI Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2020/206 dated October 19, 2020
18I SEBI Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2020/206 dated October 19, 2020
19 SEBI Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2020/206 dated October 19, 2020
20 SEBI Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2020/206 dated October 19, 2020
21 SEBI Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2020/206 dated October 19, 2020
Page 28 of 348
1.10.7. The stock exchanges are further advised to include the details of the
corpus of the fund and its utilization in the Monthly Development
Report (“MDR”).
1.11. Price Dissemination through SMS / Electronic Communication
Facility22
1.11.1. 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.
1.11.2. The Exchanges may provide price dissemination through SMS or any
other electronic communication facility (instant messengers, email
etc.) for all commodities.
1.11.3. 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 IPF.
1.12. Programmes Sponsored by the Exchanges through Media Channels23
1.12.1. The stock exchanges being neutral platforms, either as an institution
or through their functionaries, shall not sponsor or associate
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.
1.12.2. The stock exchanges shall also ensure that their staff members are
not associated with such activities as mentioned above. The stock
exchanges shall lay down a suitable code of conduct for their
executives and other staff members in this regard.
22 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/76 dated August 30, 2016
23 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/72 dated August 19, 2016
Page 29 of 348
1.13. Maintenance and Preservation of Records24
1.13.1. In terms of Rules 14 and 15 of Securities Contract (Regulation)
Rules, 1957 (“SCRR”), 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 the Securities and Exchange
Board of India (Stock Brokers) Regulations, 1992 (“Stock 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 the Information Technology Act, 2000 in this regard shall be
complied with.
1.13.2. Further, it has been noticed that enforcement agencies like the
Central Bureau of Investigation (“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.
1.13.3. 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.
1.14. Forward Segment25
1.14.1. Participants in Forward Segment are not allowed to enter into fresh
contracts.
1.15. Disclosure Requirements for stock exchanges on their websites26
1.15.1. In order to promote transparency in the markets, the stock exchanges
shall make following disclosures on their website:
24 SEBI Circular No. SEBI/HO/CDMRD/DMP/CIR/P/2016/74 dated August 30, 2016
25 SEBI Circular no. CIR/CDMRD/DMP/2/2016 dated January 15, 2016
26 SEBI circular no SEBI/HO/CDMRD/DMP/2016/101 dated September 27, 2016
Page 30 of 348
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).
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 A on format for
dissemination of member’s data on website).
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 Fund and
will be updated on quarterly basis.
ix. Disclosure of information regarding trading activity during life cycle
of contract (as mentioned in Annexure B on disclosure of
information regarding trading activity during life cycle of contract).
1.15.2. Disclosure of suspended /expelled /defaulter members: The
stock 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 stock exchange.
Page 31 of 348
1.15.3. Disclosure of disablement of member terminals 27: The
disablement of terminals of the members along with duration of
disablement due to shortage of funds, margin money etc., shall be
disclosed by the stock exchange on its website at the end of every
quarter i.e., 30th June, 30th September, 31st December and 31st
March.
1.15.4. Category-wise disclosure of Open Interest and turnover: All
stock exchanges shall also make additional disclosures on their
websites (as per the format at Annexure C on format for disclosure
of Open Interest (OI) and turnover for various categories of market
participants at individual commodity as well as overall market level
and at Annexure D on commodity wise format of disclosure for top
participants, members and market wide position limits ) 28. The
Annexure on format for disclosure of Open Interest (“OI”) and
turnover for various categories of market participants at individual
commodity contains a disclosure format for OI and turnover for
various categories of participants at Commodity as well as market
level. While the Annexure D on Commodity wise format of disclosure
for top participants, members and market wide position limits
contains commodity wise format of disclosure for top participants,
members and market wide position limits. In this regard the stock
exchanges shall:
i. categorize the participants in the following six categories:
a) Farmers/FPOs: It includes participants such as farmers,
farmers’ cooperatives, FPOs and such entities of like nature.
b) Value chain participants (VCPs): It includes participants such
as Processors, Commercial users as Dal and Flour Millers,
Importers, Exporters, Physical Market Traders, Stockists, Cash
& Carry participants, Produces, SMEs/MSMEs & Wholesalers
etc., but exclude farmers/FPOs.
c) Proprietary traders: It includes the members of stock
exchanges trading in their proprietary account.
d) Domestic financial institutional investors: It includes
participants such as Mutual Funds (“MFs”), Portfolio Managers,
Alternative Investment Funds (“AIFs”), Banks, Insurance
27 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/93 dated 26 September 2016
28 SEBI Circular no SEBI/HO/CDMRD/DNPMP/CIR/P/2019/08 dated January 04, 2019
Page 32 of 348
Companies and Pension Funds etc., which are allowed to trade
in commodity derivatives.
e) Foreign participants: It includes participants such as Eligible
Foreign Entities (“EFEs”), Non Resident Indians (“NRIs”) etc.
which are allowed to trade in commodity derivatives markets.
f) Others: All other participants which cannot be classified in the
above categories.
ii. The categorization of the clients/members shall be made on self-
declaration basis for each commodity. However, the stock
exchanges can re-classify any participant where it deems necessary
to do so based on the information available with it. Stock exchanges
shall be required to conduct periodical exercise to capture the above
data. Thus, the stock exchange shall put in place necessary systems
to capture the requisite information.
iii. In case self-declaration is not obtained for a particular client for a
particular commodity, positions of such client in such commodity
shall be clubbed with “Others” category.
iv. In case there are less than 10 participants in any category, the stock
exchanges while disclosing the number of participants can disclose
as “less than 10”.
v. Such Disclosures shall be made on daily basis by 6:00 PM on T+1
day.
vi. Stock Exchanges shall make disclosures on daily basis, latest within
a month of the date of this circular. Such disclosures for any day are
to be made before start of trading on the next day. The recognized
stock exchange shall make necessary disclaimer that the grouping
of clients is based on the “Guidelines on Clubbing of Open Positions”
issued by it.
vii. Stock Exchanges shall also maintain complete historical data of the
above disclosures on their website in spread sheet format.
1.16. Disclosures regarding commodity risks by listed entities 29
1.16.1. Regulation 34(3) read with clause 9(n) of Part C of Schedule V of the
Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirements) Regulations, 2015 (“SEBI LODR
Regulations”) mandates listed entities to make disclosures
regarding commodity price risk and hedging activities in the
29 SEBI Circular no SEBI/HO/CFD/CMD1/CIR/P/2018/141dated November 15, 2018
Page 33 of 348
Corporate Governance Report section of the Annual Report of a
listed entity.
1.16.2. In order to benefit the shareholders and to bring further clarity in
disclosures to be made in the annual reports by listed entities, all
listed entities shall make the disclosures in the format as per the
Annexure E on Disclosures regarding commodity risks by listed
entities as part of the Corporate Governance Report in the Annual
Report under clause 9(n) of Part C of Schedule V of the SEBI LODR
Regulations.
Page 34 of 348
CHAPTER 2. PRODUCTS RELATED GUIDELINES
2.1. Goods notified under SCRA30
2.1.1. 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 specified
therein, for the purpose of clause (bc) of section 2 of the SCRA with
effect from the date of the said notification.
2.1.2. As specified in the aforesaid Gazette notification, list of notified goods
are at Annexure F on Goods notified u/s 2(bc) of SCRA.
2.2. Criteria for Eligibility, Retention and Re-introduction of Derivative
Contracts on Commodities 31
2.2.1. The commodities which are to be recommended by SEBI for
notification by the Government or on which the stock exchange
proposes to launch a contract should pass through some test based
upon the objective parameters and upon satisfaction, should be
allowed for trading. It is also important that the contracts available for
trading in the commodity derivatives market are liquid enough for the
contracts to trade smoothly.
2.2.2. The following criteria for eligibility, retention and re-introduction of
derivative contracts on commodities shall be followed by all the stock
exchanges.
2.2.3. Eligibility criteria for allowing derivative contracts on
commodities: Stock Exchanges shall examine following basic
parameters and the commodity may be permitted to be included
under derivatives if such commodity satisfies these parameters.
30 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/105 dated September 28, 2016
31 SEBI circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/6 dated January 20, 2017
Page 35 of 348
i. Commodity Fundamentals
a) 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.
b) 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 platform should be able to
unambiguously understand exactly what they are trading as
on exchange only standardized contracts can be traded.
c) 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.
ii. Trade Factors
a) 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.
b) 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.
c) 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
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the commodity across the country. Higher coverage would
attract higher number of participants to the derivatives.
iii. Ease-of- doing-business
a) 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
b) Applicability of other laws: The Essential Commodities Act,
1955, the laws relating to the Agricultural Produce Marketing
Committee (“APMC”), 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.
iv. Risk management
a) 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.
b) 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.
c) Price Volatility: Commodities with high volatility of prices
have high need for hedging. Such commodities are
conducive for Derivatives trading.
v. In order to bring in uniformity among the stock exchanges, the
indicative template (as enclosed at Annexure G on Template on
Criteria for Eligibility of Commodity Derivative Products) shall be
adopted by them. In this regard the stock exchanges shall
decide upon the specific numerical weight ages as approved by
their oversight committee for 'Product Design'.
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vi. The stock 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.
2.2.4. 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 stock 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.
2.2.5. Criteria for retention and reintroduction of derivative contracts on
commodities
i. For any commodity to continue to be eligible for Futures trading on
stock exchange, it should have annual turnover of more than five
hundred crore rupees across all stock 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 stock 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 stock
exchange from derivatives trading on its platform, shall not be re-
considered by the concerned stock exchange for re-launching of
derivatives contract on such commodity at least for a minimum
period of one year.
Page 38 of 348
2.3. Role of Regulatory Oversight Committee regarding Product Design 32
2.3.1. The Regulatory Oversight Committee of the stock exchanges is one
of the mandatory oversight committee of the Governing Board of the
stock exchange. The functions of Regulatory Oversight Committee
with respect to the “Product Design” is as under-
i. Oversee matters related to product design and review the design of
the already approved and running contracts
ii. Oversee SEBI inspection observation on Product Design related
issues.
iii. Estimate the adequacy of resources dedicated to Product Design
related function.
2.3.2. The head(s) of department(s) handling above matters shall report
directly to the Regulatory Oversight Committee and also to the
Managing Director. Any action against the head(s) of department
shall be subject to an appeal to the Regulatory Oversight Committee,
within such period as may be determined by the Governing Board.
2.4. Product Advisory Committee 33
2.4.1. Each stock exchange shall constitute a Product Advisory Committee
(“PAC”) for each group/complex of commodities having common
stakeholders/value chain participants, on which derivatives are
traded or being proposed to be traded on the stock exchange.
2.4.2. Terms of Reference: The PAC shall be consulted for the following:
i. Contract design on new commodities and review of design of
existing contracts, to ensure that contract specifications represent
the industry’s needs:
a. alignment of quality/quantity specifications of the product with
the physical market
b. choice of basis and additional delivery centers
c. appropriate premium/discount for additional deliverable quality/
delivery at additional delivery center, etc.
32 SEBI circular no. SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 dated January 10, 2019.
33 SEBI circular no SEBI/HO/CDMRD/DNPMP/CIR/P/2019/89 dated August 07, 2019
Page 39 of 348
ii. Discussion on the “State of the Markets for the commodity” at every
meeting.
iii. Review of the delivery centres as well as recommendations with
respect to modifications of delivery centres.
iv. Review of suggestions/feedback/complaints received by the stock
exchange regarding the commodity/contract and action taken
thereon.
v. Performance review of the existing contracts on various parameters.
vi. Any other related matter thereof.
vii. Stock Exchange shall have the right to accept, reject or modify any
recommendations made to it by the PAC, by recording the reasons
thereof.
2.4.3. Composition
i. The PAC shall have a balanced representation from amongst the
following categories of stakeholders:
a. Representatives from Trade Associations representing various
value chain participants.
b. Representatives from various Stakeholders and value chain
participants such as producers, traders, consumers, Farmers
and FPOs / Cooperative societies in case of agricultural
commodities, Small & Medium Enterprises (“SMEs”) / Micro,
Small & Medium Enterprises (“MSMEs”) etc.
c. Representative(s) from warehousing/ assaying sector.
d. Independent Expert(s) in the specific commodity group.
e. Representative(s) from financial sector (such as Financial
Institutions, brokers, etc.).
f. Representative(s) from stock exchange / clearing corporation
responsible for specific commodity.
ii. Each PAC meeting shall be headed by a Chairman (who shall be an
independent person with experience in the specific commodity)
selected as such for the meeting based on attendees’ choice. PAC
shall have an exchange executive as Vice Chairman for
administrative coordination/decision.
2.4.4. Proceeding of meetings
i. The PAC shall meet at least twice a year and more frequently as and
when required.
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ii. The stock exchange shall prepare the agenda for the meeting based
on the views and requirements of value chain participants and also
taking into account any suggestions/feedback/complaints received
by the stock exchange regarding the commodity/contract.
iii. In the PAC meetings at least 50% members (excluding
representative from stock exchange/ clearing corporation) shall be
present, including its chairman or vice chairman (acting chairman).
2.4.5. Disclosure: For each PAC, the stock exchange shall make following
disclosures on its website:
i. Composition of the PAC- Name of the member, Organisation, Sector
ii. Terms and reference of the PAC
iii. The PAC shall be at liberty to publicise agenda items with the prior
concurrence of the stock exchange in order to encourage market
participants to contribute their point of view.
2.4.6. Confidentiality and Conflicts of Interest
i. PAC members must ensure that, unless outside consultation is
specifically agreed, all matters discussed and all materials and data
made available to them in respect of their Committee-related
activities are kept confidential at all times. Stock Exchange shall
formulate a code of conduct to be adhered to as a member of the
Committee.
ii. If there is a conflict of interest arising for a member out of any matter
proposed to be discussed at a meeting of the PAC or a matter that
comes for discussion in the course, in a meeting of the PAC, such
member of the PAC must absent himself from discussion on that
matter and the minutes of the meeting must record the same.
2.4.7. There should be an annual review of the PAC’s performance by the
Regulatory Oversight Committee of the Stock Exchange.
Page 41 of 348
2.5. Performance Review of the Commodity Derivatives Contracts34
2.5.1. All stock exchanges shall review the performance of all contracts
traded on their platform (as per the parameters illustrated in
Annexure H on Parameters for Performance Review of Commodity
Derivative Contract).
2.5.2. The said performance review shall be consulted with the PAC.
2.5.3. The said performance review along with the methodology adopted in
evaluation, if any, shall be disclosed by the stock exchanges on their
website prominently.
2.5.4. The said performance review shall be conducted on an annual basis
for each financial year and shall be disclosed by 30th June of the
following financial year.
34 SEBI circular no SEBI/HO/CDMRD/DNPMP/CIR/P/2020/21 dated February 04,2020
Page 42 of 348
CHAPTER 3. DAILY PRICE LIMITS AND POSITION LIMITS
3.1. General guidelines for Daily Price Limit35
3.1.1. Base price for DPL: The base price for fixing the Daily Price Limit
(“DPL”) slabs shall be the previous day’s closing price of the
underlying contract on the respective stock exchange.
3.1.2. Order Acceptance: The stock exchanges shall ensure that their
system should only accept those orders which are within the relevant
prescribed slab at any point of time.
3.1.3. Breach of slab: A breach of slab shall be considered when trading
in a contract is executed at the upper or lower band of the prescribed
slab.
3.1.4. DPL on First Trading Day of the Contract
i. In order to prescribe DPL slabs for the first trading day (launch day)
of each contract, stock 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 number of trades are not executed during the first
half an hour, then the VWAP of first hour trade subject to
minimum of ten trades shall be considered.
c) If sufficient number of trades are not executed even during the
first hour of the day, then VWAP of the first ten trades during
the day shall be considered.
ii. The base price arrived as per para (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.
iii. However, in case there is no trade during the day or there are less
than ten trades during the day, the stock exchange shall adopt an
appropriate methodology for determining the base price and disclose
the same on their website for dissemination to the stakeholders. DPL
on the next trading day will be applicable on such base price.
35 SEBI Circular no. SEBI/HO/CDMRD/DNPMP/CIR/P/2021/9 dated January 11, 2021.
Page 43 of 348
3.1.5. Calculation of closing price or Daily Settlement Price
i. The stock Exchange/ Clearing Corporation shall determine the
closing price or Daily Settlement Price (“DSP”) in the following order:
a) VWAP of all trades done during last half an hour of the trading
day;
b) If the number of trades during last half an hour is less than 10,
then DSP shall be based on the VWAP of the last 10 trades
executed during the day;
c) If the number of trades done during the day is less than 10or
no trade has been executed in a contract on a day, the stock
exchange/ clearing corporation shall adopt an appropriate
methodology for determining daily closing price/ settlement
price and disclose the same on their website for dissemination
to the stakeholders.
ii. The Stock Exchange/ Clearing Corporation may increase the
number of minimum trades based on the liquidity criteria set by the
Stock Exchange/ Clearing Corporation. Approval shall be taken from
their Risk Management Committee on liquidity criteria and disclosed
by them on their website
3.1.6. For any commodity futures contracts, the stock exchange at its
discretion may prescribe DPL narrower than the slabs prescribed
based upon reasons including analysis of price movements, finding
pertaining to surveillance etc.
3.2. DPL for Commodity futures contracts which are based on agricultural
and agri-processed goods36
3.2.1. The DPL for commodity futures contracts based on agricultural and
agri-processed goods is as under:
Category Initial Slab Enhanced Aggregate DPL
Slab
Broad 4% 2% 6%
Narrow 4% 2% 6%
36 SEBI Circular no. SEBI/HO/CDMRD/DNPMP/CIR/P/2021/9 dated January 11, 2021.
Page 44 of 348
Category Initial Slab Enhanced Aggregate DPL
Slab
Sensitive 3% 1% 4%
3.2.2. Once the initial slab limit is breached in any contract, then, after a
cooling-off period of 15 minutes, this limit shall be increased further
by enhanced slab, only in that contract.
3.2.3. During the cooling-off period of 15 minutes, the trading shall be
permitted, within the initial slab limit.
3.2.4. After the DPL is enhanced, trading shall be permitted throughout the
day within the enhanced Aggregate DPL.
3.3. DPL for Commodity futures contracts which are based on non-
agricultural goods37
3.3.1. Following slabs shall be applied for DPL on futures contracts based
on non-agricultural goods:
Category Initial Enhanced Aggregate Trading
Slab Slab DPL beyond
Aggregate
DPL
Energy 6% 3% 9% Yes
Metals and Alloys 6% 3% 9% Yes
Precious metals 6% 3% 9% Yes
Gems and Stone 3% 3% 6% No
Other Non-agricultural 6% 3% 9% No
Commodities
3.3.2. Once the initial slab limit is breached in any contract, the DPL for that
contract shall be relaxed further by the ‘Enhanced Slab’ after the
cooling off period of 15 minutes in the trading.
3.3.3. During the cooling off period trading shall continue to be permitted
within the previous slab of DPL.
37 SEBI Circular no. SEBI/HO/CDMRD/DNPMP/CIR/P/2021/9 dated January 11, 2021.
Page 45 of 348
3.3.4. In case the price movement in the international markets is more than
the aggregate DPL or if international price is beyond aggregate DPL
range (after appropriate currency conversion) when compared with
closing price on previous day on domestic exchange, the same
maybe further relaxed in stages of 3% by the Exchange with cooling
off period of 15 minutes. For such instances, the Stock Exchanges
shall give appropriate notice to the market along with all the relevant
details and justification for the same.”38
3.3.5. Only in the event of exceptional circumstances, where there is
extreme price movement, beyond the initial slab of the DPL, in the
international markets, during trading hours or after the closure of
trading on domestic exchanges, the stock exchanges can relax the
DPL directly by the required level, by giving appropriate notice to the
market, as per para 3.3.4 above.”39
3.3.6. The stock exchanges shall inform SEBI of all such instances of
relaxation of DPL pursuant to Para 3.3.4 and Para 3.3.5 above, under
Para 10 of Section I in the Monthly Development Report being
submitted to SEBI.
3.3.7. It is clarified that breach of slab is not essential for implementation of
the Clause 3.3.4 and 3.3.5 above of this Master Circular.
3.4. General guidelines for Position Limits40
3.4.1. 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 stock 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
members and while calculating member’s open positions, his
38 SEBI Circular SEBI/HO/MRD/MRD-PoD-1/P/CIR/2022/128 dated September 27, 2022.
39 SEBI Circular SEBI/HO/MRD/MRD-PoD-1/P/CIR/2022/128 dated September 27, 2022.
40 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
Page 46 of 348
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 ‘i (under
3.5.1) or (under 3.6.1)) 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.
3.4.2. Clubbing of Open Positions 41
i. While calculating open positions for the purpose of position limits,
stock 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 on this
are provided in Annexure I on Clubbing of Open Positions.
ii. All stock exchanges shall jointly formulate uniform guidelines and
disclose the same to the market.
3.4.3. Monitoring of Position Limits 42
i. Stock 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'.
ii. 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 J on Position Limit Violation.
3.5. Position limits for Agricultural Commodity Derivatives43
3.5.1. 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 added up
41 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
42 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
43 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
Page 47 of 348
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, framework is prescribed below for agricultural
commodities (3.5.2).44
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 3.5.2
below.
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 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.45
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.46
v. Exchange-wide Position Limit for Agricultural Commodities:
The overall Stock 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 the stock
exchanges along with client level numerical limits.47
44 SEBI circular SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July 25, 2017.
45 SEBI circular no. CDMRD/DMP/CIR/32/2016 dated January 29, 2016
46 SEBI circular no. CDMRD/DMP/CIR/32/2016 dated January 29, 2016
47 SEBI circular SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July 25, 2017.
Page 48 of 348
3.5.2. Framework for determination of numerical value of overall client level
open position limits 48:
i. 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: -
a. Sensitive commodity: An agricultural commodity shall be
classified as a sensitive commodity if it:
 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
 has observed frequent instances of price manipulation in
past five years of derivatives trading
b. Broad Commodity: An agricultural commodity shall be
classified as ‘Broad Commodity’ if it is not ‘Sensitive
Commodity’ and satisfies following criteria:
 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.
c. 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’
ii. Deliverable Supply: The deliverable supply for an agricultural
commodity would be “Production + Imports”
iii. Client Level Numeric Position Limits: Numerical Value of overall
client level open position limits for each commodity shall be
calculated from 'deliverable supply' available in a particular year, as
per its category as given below:
48 SEBI circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July 25, 2017
Page 49 of 348
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.
iv. Yearly Categorization of commodities and computation of
position limits: All exchanges shall jointly classify agricultural
commodities into the afore-stated three categories on annual basis
as per the principles indicated above.
a. 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 above for ‘broad
commodity’ exceeds by more than 5%.
b. 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.
c. 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
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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. Stock 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
d. Dissemination of Information on Website: In order to
provide necessary information to the stakeholders the Stock
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 stock exchange, as per the format given in
Annexure K Format for Dissemination of Information on
Website. 49
e. 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.
3.6. Position limits for Non-Agricultural Commodity Derivatives50
3.6.1. 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 M or 5% of market-wide open
interest, whichever is higher.
49 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2018/96 dated June 11, 2018
50 SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/96 dated September 27, 2016
Page 51 of 348
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.
3.7. Position Limit for Hedgers 51
3.7.1. 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 stock exchanges shall stipulate a
“Hedge Policy” for granting hedge limits to their members and clients.
The stock exchanges shall widely publicize their respective hedge
policy by holding awareness programmes for the target participants
and making it publicly available on their website.
3.7.2. The stock exchanges shall adhere to the following broad guidelines
while granting hedge limit exemptions to their members and clients:
i. The hedge limit to be granted by the stock 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.
ii. 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.
iii. 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 stock
exchanges may deem appropriate.
iv. The stock 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.
v. 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,
51 SEBI Circular NO. SEBI/HO/CDMRD/DMP/CIR/P/2016/71 dated August 19, 2016
Page 52 of 348
a. pledged with the Scheduled Commercial Banks/Co-operative
Banks;
b. lying in any Government Entity’s warehouse or warehouse
approved by the Warehousing Development and Regulatory
Authority (“WDRA”) Approved warehouses; or
c. 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 the stock 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 stock exchange in accordance with the
procedure laid down by it in this regard.
vi. At any point of time during the hedge period, hedging positions taken
in derivatives contracts by hedger, across multiple stock 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 stock exchange to the hedger.
vii. If under any circumstances a hedger is found availing hedge limit in
contrary to the guideline framed by the SEBI/stock exchanges or
submits false document or fails to inform stock exchange timely
about reduction of underlying exposure based upon which it has
been allocated hedge limit by the stock 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 the stock exchanges.
viii. A hedger having availed of benefit of hedge limits, shall preserve
relevant records for a period of minimum three years for inspection
by SEBI/stock exchange.
ix. The approved hedge limit 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.
x. The stock 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:
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Sr. Name of the Hedger Long Hedge Short Hedge Date of making Application Approval Date till
Commodity Limits Limits application Approval Date Start Date Approval is
valid
1. Hedger 1
2. Hedger 2
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CHAPTER 4. PARTICIPANTS IN COMMODITY DERIVATIVES MARKETS
4.1. Category III Alternative Investment Funds 52
4.1.1. 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 stock exchanges from time
to time.
ii. Category III AIFs shall invest not more than ten percent of the
investable funds in one underlying commodity.
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 SEBI 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 the notification of the
Reserve Bank of India (“RBI”) having 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 the
Securities and Exchange Board of India (Alternative Investment
Funds) Regulations, 2012 and circulars issued thereunder.
4.2 Foreign Portfolio Investor53
52 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2017/61 dated June 21, 2017
53 SEBI Circular no SEBI/HO/MRD/MRD-RAC-1/P/CIR/2022/131 dated September 29, 2022
Page 55 of 348
4.2.1 Foreign investors are allowed to participate in Indian Exchange Traded
Commodity Derivatives (“ETCDs”) through the Foreign Portfolio
Investor (“FPI”) route, subject to conditions prescribed by SEBI.
4.2.2 The participation of FPIs in Indian ETCDs would be subject to the
following:
i. To begin with, FPIs will be allowed to participate in cash settled non-
agricultural commodity derivative contracts and indices comprising
such non-agricultural commodities.
ii. FPIs desirous of participating in ETCDs shall be subject to risk
management measures applicable, from time to time.
iii. Position Limits:
a) FPIs other than individuals, family offices and corporates may
participate in eligible commodity derivatives products as ‘Clients’
and shall be subject to all rules, regulations and instructions,
position limit norms as may be applicable to clients, issued by SEBI
and stock exchanges, from time to time.
b) FPIs belonging to categories viz. individuals, family offices and
corporates will be allowed position limit of 20 per cent of the client
level position limit in a particular commodity derivative contract.
iv. The participation of FPIs including individuals, family offices and
corporates shall be subject to compliance with the provisions of the
Securities and Exchange Board of India (Foreign Portfolio Investors)
Regulations, 2019, the Securities and Exchange Board of India
(Custodian) Regulations, 1996 and other applicable SEBI circulars on
ETCDs.
v. Stock Exchanges/Clearing Corporations may specify additional
safeguards/conditions, as deemed fit, to manage risk and ensure
orderly trading in ETCDs.
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4.3 Portfolio Management Services54
4.3.1 Portfolio Managers are permitted to participate in ETCDs on behalf of
their clients’ subject to the following:
i. Portfolio Managers may participate in ETCDs on behalf of
their clients and such participation shall be in compliance
with all the rules, regulations including the Securities and
Exchange Board of India (Portfolio Managers) Regulations,
2020 (“Portfolio Managers Regulations”) and
circulars/guidelines and position limit norms as may be
applicable to ‘clients’, issued by SEBI and stock exchanges
from time to time.
ii. Portfolio Managers may participate in ETCDs after entering into an
agreement with the clients. Portfolio Managers may execute
addendums to the agreement with their existing clients, permitting
the Portfolio Managers to participate in the ETCDs on their behalf.
iii. Portfolio Managers shall provide adequate disclosures in the
Disclosure Document as well as the agreement with the client
pertaining to their participation in the ETCDs, including but not
limited to the risk factors, margin requirements, position limits, prior
experience of the Portfolio Manager in ETCDs, valuation of goods
etc.
iv. In case dealing in Commodity derivatives lead to delivery of physical
goods, there is a possibility that, the Portfolio Manager remains in
possession of the physical commodity. In such cases, the goods
need to be disposed of at the earliest, on best effort basis within the
timelines as agreed upon between the client and the Portfolio
Manager. The responsibility of liquidating the physical goods shall
be with the Portfolio Manager.
v. Since FPIs are allowed to participate in the ETCDs market subject
to certain conditions, Portfolio Managers shall ensure that any
transaction relating to any FPI on-boarded by them are conducted
after strictly following those conditions.
54 SEBI circular no SEBI/HO/IMD/DF1/CIR/P/2019/066 dated May 22, 2019.
Page 57 of 348
vi. Portfolio Managers shall also provide periodic reports to the clients
as per the Portfolio Managers Regulations regarding their exposure
in ETCDs.
vii. Portfolio Managers shall report the exposure in ETCDs under the
heading of ‘Commodity Derivatives’ in the monthly reports submitted
to SEBI.
4.3.2 It would be mandatory for Portfolio Managers to appoint SEBI
registered Custodians before dealing in ETCDs.
4.4 Mutual Funds55
4.4.1 Mutual Funds are permitted to participate in ETCDs subject to the
following:
i. Mutual funds are permitted to participate in ETCDs in India, except
in commodity derivatives on ‘Sensitive Commodities’ as defined
under Chapter 3.
ii. ETCDs having gold as the underlying directly or indirectly, shall also
be considered as ‘gold related instrument’ for Gold Exchange Traded
Funds (“Gold ETFs”).
iii. No Mutual fund schemes shall invest in physical goods except in
‘gold’ through Gold ETFs. However, as mutual fund schemes
participating in ETCDs may hold the underlying goods in case of
physical settlement of contracts, in that case mutual funds shall
dispose of such goods from the books of the scheme, at the earliest,
not exceeding the timeline prescribed below 56: -
a) For Gold and Silver: - 180 days from the date of holding of
physical goods,
b) For other goods (except for Gold and Silver):
 By the immediate next expiry day of the same contract series
of the said commodity.
 However, if Final Expiry Date (“FED”) of the goods falls
before the immediate next expiry day of the same contract
series of the said commodity, then within 30 days from the
date of holding of physical goods.
55 SEBI circular no SEBI/HO/IMD/DF2/CIR/P/2019/65 dated May 21, 2019.
56 SEBI circular no. SEBI/HO/IMD/DF2/CIR/P/2020/96 dated June 05, 2020.
Page 58 of 348
iv. No mutual fund scheme shall have net short positions in ETCDs on
any particular goods, considering its positions in physical goods as
well as ETCDs, at any point of time.
v. Mutual funds are permitted to participate in ETCDs through the
following schemes:
a) Hybrid schemes in terms of Master Circular for Mutual Funds
(which includes multi asset scheme), and
b) Gold ETFs.
vi. In case of existing schemes, as mentioned in paragraph (V)
above, prior to commencement of participation in ETCDs,
the scheme shall comply with the applicable provisions of
the Securities and Exchange Board of India (Mutual Funds)
Regulations 1996, as this will lead to change in fundamental
attributes of the scheme and all unit holders shall be given a
time-period of at least 30 days to exercise the option to exit
at prevailing Net Asset Value (“NAV”) without charging of
exit load, if any.
vii. Prior to participation in ETCDs, the Asset Management Companies
(“AMCs”) shall adhere to the following:
a) Appoint a dedicated fund manager with requisite skill and
experience in commodities market (including commodity
derivatives market).
b) Appoint a custodian registered with SEBI for custody of the
underlying goods, arising due to physical settlement of
contracts.
c) Have written down investment policy for participation in ETCDs
approved by the Board of the AMC and Trustees.
d) Have written down valuation policies approved by the Trustees
and the board of the AMC for valuation of commodity
derivatives and the underlying goods, arising due to physical
settlement of contracts. The approved valuation policies should
be subject to the fair valuation of the assets of mutual fund
schemes.
viii. Before investing in Gold Deposit Scheme (“GDS”) of Banks, Gold
Monetisation Scheme (“GMS”) and ETCDs having gold as the
underlying, mutual funds shall put in place a written policy with
regard to such investments with due approval from the Trustees and
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board of directors of the AMC. The policy should have provision to
make it necessary for the mutual funds to obtain approval of trustees
for investment proposal in GDS of any Bank and GMS. The policy
shall be reviewed by mutual funds, at least once in a year.
ix. Mutual fund schemes may participate in the ETCDs as ‘clients’ and
shall be subject to all the rules, regulations and instructions, position
limit norms, etc. as may be applicable to clients, issued by SEBI and
Stock Exchanges from time to time. The position limits at mutual fund
level be as applicable to ‘Trading Members’.
x. Schemes investing in ETCDs shall be benchmarked against an
appropriate benchmark.
xi. AMCs shall not onboard Foreign Portfolio Investors (FPIs) in
schemes investing in ETCDs until FPIs are permitted to participate
in ETCDs.
xii. 57Mutual funds shall not write options or purchase instruments with
embedded written options in goods or on commodity futures.
4.4.2 Investment limits: Participation of mutual funds in ETCDs shall be
subject to the following investment limits:
i. Mutual fund schemes shall participate in ETCDs of a particular
goods (single), not exceeding 10% of net asset value of the scheme.
However, the limit of 10% is not applicable for investments through
Gold ETFs in ETCDs having gold as the underlying directly or
indirectly.
ii. In case of multi assets allocation schemes, the exposure to ETCDs
shall not be more than 30% of the net asset value of the scheme.
iii. In case of other hybrid schemes excluding multi assets allocation
scheme, the participation in ETCDs shall not exceed 10% of net
asset value of the scheme.
iv. In case of Gold ETFs, the cumulative exposure to gold related
instruments i.e. GDS of banks, GMS and ETCD having gold as the
underlying, shall not exceed 50% of net asset value of the scheme.
However, within the 50% limit, the investment limit for GDS and GMS
as part of gold related instrument shall not exceed 20% of net asset
value of the scheme. The unutilized portion of the limit for GDS of
banks and GMS may be utilized for ETCD having gold as the
underlying.
57
SEBI circular no SEBI/HO/IMD/DF2/CIR/P/2021/10 dated January 15, 2021
Page 60 of 348
v. 58The cumulative gross exposure through equity, debt derivative
positions (including commodity and fixed income derivatives), repo
transactions and credit default swaps in corporate debt securities,
Real Estate Investment Trusts (“REITs”), Infrastructure Investment
Trusts (“InvITs”), other permitted securities/assets and such other
securities/assets as may be permitted by SEBI from time to time
should not exceed 100% of the net assets of the scheme
vi. 59The following exposures shall not be considered in the cumulative
gross exposure as specified in para v above:
a) Short position in ETCDs not exceeding the holding of the
underlying goods received in physical settlement of ETCD
contracts.
b) Short position in ETCDs not exceeding the long position in
ETCDs on the same goods.
4.4.3 Disclosures: In case of mutual fund schemes investing in ETCDs,
the AMC shall adhere to the following:
i. The NAVs of those schemes shall be updated on daily basis by the
AMCs on their website and on the website of the Association of
Mutual Funds in India (“AMFI”) by 09:00 a.m. of the following
calendar day.
ii. The format of monthly and half-yearly portfolio may be modified to
reflect the investment in ETCDs.
iii. The total exposure to ETCDs shall be disclosed as a line item in the
Monthly Cumulative Report (“MCR”).
58 SEBI Circular no. SEBI/HO/IMD/DF2/CIR/P/2021/24 dated March 04, 2021
59 SEBI circular no SEBI/HO/IMD/DF2/CIR/P/2021/10 dated January 15, 2021
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CHAPTER 5. OPTIONS IN GOODS 60
5.1. Product Design
5.1.1. Underlying: Goods as notified vide number S.O. 3068(E), dated the
27th September 2016 under clause (bc) of section 2 of the Securities
Contracts (Regulation) Act, 1956.
5.1.2. Eligibility Criteria for Underlying: Only those goods shall be
eligible as underlying for these options, on which the stock exchange
either is already trading the futures contracts or is proposing to
launch the futures contracts on or before the day of launching option
in those goods. These option contracts shall have same quality
specifications, delivery centres, Final Settlement Price methodology
etc. as in the case of corresponding futures contracts.
5.1.3. Settlement Method: On exercise, option contract shall be settled
through delivery of goods.
5.1.4. Exercise Style: All exercise style are permitted.
5.1.5. 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”).
5.1.6. Exercise Mechanism: On expiry, following mechanism shall be
adopted by stock exchanges for exercise of the options contracts:
i. Option series having strike price closest to the price of the underlying
shall be termed as At the Money (ATM) option series.
This ATM option series and three option series having strike prices
immediately above this ATM strike and three option series having
strike prices immediately below this ATM strike shall be referred as
‘Close to the money’ (“CTM”) option series.
In case the price of the underlying is exactly midway between two
strike prices, then immediate three option series having strike prices
just above the price of the underlying and immediate three option
60 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2020/05 dated January 16, 2020
Page 62 of 348
series having strike prices just below the price of the underlying shall
be referred as ‘Close to the money’ (CTM) option series.
ii. 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.
iii. 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.
iv. All Out of the money (OTM) option contracts, except those belonging
to ‘CTM’ option series, shall expire worthless.
v. All exercised contracts within an option series shall be assigned to
short positions in that series in a fair and non-preferential manner.
5.1.7. Trading hours: Trading hours shall be same as those of
corresponding futures contract.
5.1.8. Expiry Day: Stock Exchanges shall have flexibility to decide upon
expiry day of option contracts.
5.1.9. Minimum Tenor: Minimum tenor of such option contracts shall be
same as those of corresponding futures contracts.
5.1.10. Position Limits:
i. Position limits for options shall follow the norms as provided in
Chapter 3.
ii. The computation of position limits for ‘option in goods’ shall be
clubbed with position limits of ‘options on commodity futures’ on the
same underlying goods but shall remain separate from position limits
of futures contracts on the same underlying. Numerical value for
client level/member level limits shall be twice of the corresponding
numbers applicable for futures contracts.
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5.2. Risk Management
5.2.1. Clearing Corporations (“CCs”) shall adopt risk management
framework compliant with the Principles for Financial Market
Infrastructures issued by the Committee on Payments and Market
Infrastructures (“CPMI”) and the International Organization of
Securities Commissions (“IOSCO”), including the following.
5.2.2. Margining model and quantum of initial margins: CCs 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
i. use a conservative estimate of the time horizons for close out of the
positions (including in stressed market conditions),
ii. have an appropriate method for measuring credit exposure that
accounts for relevant risk factors and portfolio effects, and
iii. to the extent practicable and prudent, limit the need for destabilizing,
pro-cyclical changes.
Initial margin requirement shall be adequate to cover at least 99%
Value at Risk (“VaR”). Margin Period of Risk (“MPOR”) shall be at
least equal to three days or MPOR of corresponding futures
contracts, whichever is higher. In case of portfolio based margining,
this requirement applies to each portfolio’s distribution of future
exposure. Accordingly, CCs shall fix prudent price scan range,
volatility scan range and/or plausible changes in any other
parameters impacting options price.
CCs shall impose appropriate short option minimum margin,
calendar spread charge, extreme loss margin, concentration
margins, additional margins, pre-expiry margin, delivery period
margin etc. for option contracts.
5.2.3. Volatility Scan Range61: The Volatility Scan Range (“VSR”) in
respect of various categories of commodities shall be subject to
following minimum values:
61 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2021/08 dated January 11, 2021
Page 64 of 348
Volatility Minimum VSR % Minimum VSR %
Category Non Agri Agri Commodities
commodities
Low 4 5
Medium 5 6
High 6 7
CCs (providing clearing and settlement for options) shall review the
value of VSR by back testing on a monthly basis using last 3 years’
data by 15th of every month and any change in VSR shall be
implemented from 1st trading day of the following month.
The back testing shall be done by using appropriate models to extract
volatility (such as the Exponentially Weighted Moving Average
(“EWMA”) volatility of the underlying futures contract, implied
volatility of options, etc.) over the relevant MPOR period.
5.2.4. Margining at client level: CCs shall impose initial margins at the
level of portfolio of individual client comprising of his positions in
futures and options contracts on each commodity.
5.2.5. 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 available scenarios shall be applied to client portfolios on a real
time basis.
5.2.6. Mark to market: CCs shall mark to market the options positions by
adding the current market value of options (positive for long options
and negative for short options) to the margin requirement. Thus, mark
to market gains and losses would not be settled in cash for options
positions.
5.3. Other aspects
5.3.1. Stock Exchanges willing to start trading in options contracts with
goods as underlying shall take prior approval of SEBI for launching
such contracts.
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5.3.2. Stock Exchanges shall make necessary disclosures such as open
interest of top 10 largest participants/group of participants in “option
in goods” (both long and short) and the details of their combined open
interest in underlying constituents etc., as per Clause 1.15.4 of this
Master Circular.
5.3.3. The stock exchanges shall augment their monitoring and surveillance
capacity.
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CHAPTER 6. OPTIONS ON COMMODITY FUTURES62
6.1. Product Design
6.1.1. Underlying: Commodity futures contract (of a specified month)
traded on the corresponding stock exchange.
6.1.2. Eligibility criteria for selection of underlying Commodity
Futures for Options: Options would be permitted for trading on a
stock exchange only on those commodity futures as underlying,
which are traded on its platform and satisfy the criteria specified
below on the respective exchange:
i. 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
6.1.3. Settlement Method: On exercise, option position shall devolve into
underlying futures position as follows: -
i. long call position shall devolve into long position in the underlying
futures contract
ii. long put position shall devolve into short position in the underlying
futures contract
iii. short call position shall devolve into short position in the underlying
futures contract
iv. 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.
6.1.4. Exercise Style: To begin with European Style options are permitted.
6.1.5. 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).
62 SEBI circular no SEBI/HO.CDMRD/DMP/CIR/P/2017/55 dated June 13, 2017
Page 67 of 348
6.1.6. Exercise Mechanism: On expiry, following mechanism shall be
adopted by Stock Exchanges for exercise of the options contracts:63
i. All In the money (ITM) option contracts shall be exercised
automatically, unless ‘contrary instruction’ has been given by long
position holders of such contracts for not doing so.
ii. All Out of the money (OTM) option contracts shall expire worthless.
iii. All exercised contracts within an option series shall be assigned to
short positions in that series in a fair and non-preferential manner.
6.1.7. Trading Hours: Trading hours shall be same as those of
corresponding futures contract.
6.1.8. Expiry Day: Expiry day of options contracts shall be decided by the
Stock Exchange based upon period of high liquidity of underlying
futures contract and shall be part of option contract specifications.
6.1.9. Position Limits
i. Position limits for options shall follow the same norms as provided
for futures.
ii. 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.
iii. 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 stock 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.
63
SEBI Circular No. SEBI/HO/CDMRD/DNP/CIR/P/2022/01 dated January 03, 2022.
Page 68 of 348
6.2. Risk Management
6.2.1. Stock Exchanges shall adopt risk management framework compliant
with the CPMI-IOSCO Principles for Financial Market Infrastructures,
including the following.
6.2.2. Margining model and quantum of initial margins: Stock
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:
i. use a conservative estimate of the time horizons for close out of the
positions (including in stressed market conditions),
ii. have an appropriate method for measuring credit exposure that
accounts for relevant risk factors and portfolio effects, and
iii. to the extent practicable and prudent, limit the need for destabilizing,
pro-cyclical changes.
Initial margin requirement shall be adequate to cover 99% VaR and
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, stock exchanges shall fix prudent price scan range,
volatility scan range and/or plausible changes in any other
parameters impacting options price. Stock Exchanges shall impose
appropriate short option minimum margin, calendar spread charge
and extreme loss margin for option contracts.
6.2.3. Volatility Scan Range64: The VSR in respect of various categories
of commodities shall be subject to following minimum values:
Volatility Minimum VSR % Minimum VSR %
Category Non Agri Agri Commodities
commodities
Low 4 5
Medium 5 6
High 6 7
64 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2021/08 dated January 11, 2021
Page 69 of 348
CCs (providing clearing and settlement for options) shall review the
value of VSR by back testing on a monthly basis using last 3 years’
data by 15th of every month and any change in VSR shall be
implemented from 1st trading day of the following month.
The back testing shall be done by using appropriate models to extract
volatility (such as EWMA volatility of the underlying futures contract,
implied volatility of options, etc.) over the relevant MPOR period.
6.2.4. Margining at client level: Stock 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.
6.2.5. 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 available scenarios shall be applied to client portfolios on a real
time basis.
6.2.6. Mark to market: Stock 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.
6.2.7. Risks pertaining to options that devolve into futures on expiry:
i. For handling increase in margins on expiry when options devolve
into futures position, specifically for long option positions which are
probable to be exercised, stock 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.
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ii. 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 stock exchanges for the
first day.
6.3. Other aspects
6.3.1. The stock exchanges willing to start trading in such options contracts
shall take prior approval of SEBI for launching such contracts.
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CHAPTER 7. DESIGN OF COMMODITY INDICES AND PRODUCT DESIGN
FOR FUTURES ON COMMODITY INDICES 65
7.1. Design of Commodity Indices
7.1.1. Types of Indices: Composite (i.e., comprising of commodities from
more than one sector) as well as sectoral indices, meeting the
eligibility criteria specified herein are permitted. For being eligible to
launch derivatives upon, stock exchanges shall ensure that indices
are compliant with IOSCO Principles for Financial Benchmarks and
make necessary disclosures in this regard on their websites. Further,
stock exchanges shall also ensure that an index is not susceptible to
manipulation and shall make mandatory disclosure with respect to
the Index design parameters on their website.
7.1.2. Name: The name of index should include the name of the stock
exchange on which the constituents of index are traded.
7.1.3. Eligibility criteria: Constituents of the commodity index shall meet
the criteria given below –
i. Constituent futures contracts should be in existence on the
respective stock exchange for at least previous twelve months. (All
constituents shall meet this criterion)
ii. The contracts have traded for at least 90% of the trading days during
the previous twelve months. (All constituents shall meet this
criterion)
iii. The average daily turnover of the constituent futures contracts during
the previous twelve months is at least:
a) INR 75 Crore for agricultural and agri-processed commodities
b) INR 500 Crore for all other commodities.
(Constituents having at least 80% combined weightage in the index
shall meet this criterion and no single constituent not meeting this
criterion shall have a weightage of more than 15% in the index)
However, the above turnover requirements shall not be applicable for
sectoral indices subject to exchanges ensuring that constituent
futures have adequate liquidity.
65 SEBI circular no SEBI/HO/CDMRD/DNPMP/CIR/P/2019/71 dated June 18, 2019
Page 72 of 348
7.1.4. Re-balancing
i. The index constituents and their weightages shall be at least
annually selected and rebalanced. Stock Exchanges shall decide
and announce/disclose the constituents and weightages of the index
at least three months before the actual re-balancing of the index.
Stock Exchanges shall ensure that constituents meet the eligibility
criteria as mentioned above while deciding the constituents and
weightages for rebalancing.
ii. However, in case of an extraordinary event such as ban / suspension
of trading of an index constituent, following action shall be taken by
stock exchanges-
a) Reselection of commodities (excluding banned / suspended
commodities)
b) Recalculation of weightage
Stock Exchanges shall ensure that constituents meet the eligibility
criteria as mentioned above.
iii. The index changes shall be implemented only after market hours.
7.1.5. Weights of constituents
i. Index constituents shall be assigned weightages based on their
production value and liquidity value with appropriate weightages pre-
decided by stock exchange for production value and liquidity value
(provided that weightage of either shall not be less than 25%). The
liquidity value shall be total traded value of the index constituent on
the stock exchange platform in the preceding twelve months prior to
the construction / announcement of re-balancing of the index. The
production value shall be average of the value of deliverable supply
of underlying commodity for past five financial years prior to the
construction / announcement of re-balancing of the index.
ii. In order to ensure that no single commodity dominates a composite
index, maximum weightage for any index constituent in a composite
index shall be capped at 30% and minimum weightage shall be at
least 1%. However, these weightage caps shall not be applicable for
sectoral indices subject to exchanges ensuring that any single
constituent does not get heavily weighted in an index.
Page 73 of 348
iii. In case of an index having multiple commodity groups, stock
exchanges may put in place maximum and minimum weightages for
a commodity group.
7.1.6. Computation and roll over
i. The index value shall ordinarily be computed using the nearest
expiry futures prices of the index constituents so that prices of liquid
contracts are used for index construction.
ii. Stock Exchange shall put in place a transparent methodology
(including the dates of roll over, the various constituents which will
be rolled over from nearest to next expiry, weights of nearest and
next expiry contracts during each of the roll over day for such
constituents etc.) for gradual roll over of the index constituents to
next expiry taking into account the liquidity in the underlying nearest
/next expiry contracts.
7.1.7. Real time dissemination: The index value shall be updated on real
time continuous basis and shall be displayed on the Exchange
website.
7.1.8. Dissemination of methodology: Stock Exchange shall ensure a
transparent methodology of index construction, calculation, dates
and details of roll over, dates and other details of periodic
rebalancing, report on compliance with IOSCO principles etc., and
disseminate the same on its website.
7.2. Product Design for Futures on Commodity Indices
7.2.1. Trading Hours: The trading hours shall be in line with the trading
hours for constituent futures of underlying index. In case trading
hours vary for constituents, trading hours for index derivatives shall
be kept such that it is available for trading whenever any of the
constituent futures contract is available for trading. However, on the
day of its expiry, Index futures contract shall expire at 5:00 pm.
7.2.2. Size of the Contract: At least INR 5 lakh at the time of introduction
in the market.
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7.2.3. Tenor of the Contract: To begin with, maximum tenor of contracts
shall be 12 months.
7.2.4. Available Contracts: Stock Exchanges shall decide the number of
contracts, duration of contracts and launch calendar based on market
requirements.
7.2.5. Position Limits
i. Client level- Higher of:
5% of the total open interest in the market in commodity index futures
Or
1000 lots
ii. Trading Member level- Higher of:
15% of the total open interest in the market in commodity index
futures Or
10000 lots
7.2.6. Daily Price Limit: Stock Exchanges shall decide appropriate daily
price limits for commodity index futures based on historical price
movement of the indices.
7.2.7. Settlement Mechanism: Final Settlement for futures on commodity
index shall be done in cash.
7.2.8. Final Settlement Price: The Final Settlement Price shall be the
underlying index price arrived at based on Volume Weightage
Average Price of the constituents of the underlying index between
4:00 pm and 5:00 pm on the expiry day of the Index futures contract.
{In absence of trading in any constituent during last one hour, stock
exchange shall determine appropriate methodology (in line with the
methodology for determining daily closing price) to arrive at
appropriate price of the constituent to be used for determining index
price}.
7.2.9. Expiry date: The stock exchanges shall have the flexibility to set the
expiry date for contracts. However, the expiry date may not coincide
with the roll-over period of the constituents of the underlying index.
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7.2.10. Application: Before launching any futures contract on an index, a
stock exchange shall submit its proposal with contract specifications
and risk management framework to SEBI, for approval.
7.3. Risk Management
7.3.1. Stock Exchanges shall adopt risk management framework compliant
with the CPMI-IOSCO Principles for Financial Market Infrastructures,
including the following.
7.3.2. Margining model and quantum of initial margins: Stock
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:
i. use a conservative estimate of the time horizons for close out of
the positions (including in stressed market conditions),
ii. have an appropriate method for measuring credit exposure that
accounts for relevant risk factors and portfolio effects, and
iii. to the extent practicable and prudent, limit the need for
destabilising, pro-cyclical changes.
Initial margin requirement shall be adequate to cover at least 99%
VaR and 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, stock exchanges shall fix prudent price scan range,
and/or plausible changes in any other parameters impacting futures
price.
7.3.3. Margining at client level: Stock Exchanges shall impose initial
margins at the level of portfolio of individual client.
7.3.4. 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 available scenarios shall be applied to client portfolios on a real
time basis.
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7.4. Cross Margin in Commodity Index Futures and its underlying
constituent futures or its variants66
7.4.1. SEBI has prescribed norms, inter-alia, for providing margin benefit
on spread positions in commodity futures contracts. In order to
improve the efficiency of the use of the margin capital by market
participants, cross margin benefit between Commodity Index futures
and futures of its underlying constituents or its variants was
introduced as it would reduce the cost of trading and may lead to
enhanced liquidity in both the Commodity index futures and its
underlying constituent futures or its variants.
7.4.2. Therefore, based on the consultation with the stakeholders, the
following provisions shall be applicable in this regard;
i. Computation of cross margin benefit:
a) Cross margin benefit of 75 % on Initial Margin may be
allowed for eligible offsetting positions of index futures and
futures of its underlying constituents or its variants. The
Extreme Loss Margin and Mark to Market Margin shall
continue to be levied.
b) Cross margin benefit shall be computed at the client level
on an online real time basis and provided to the trading
member / clearing member, as the case may be. This
benefit in turn shall be passed on to the client.
ii. Separate Accounts
a) Clients may be allowed to maintain two accounts with
trading member/clearing member, viz arbitrage account
(which holds fully replicated portfolio) and a non-arbitrage
account. This is for the purpose of allowing clients to convert
a partially replicated portfolio into a fully replicated portfolio
by taking opposite positions in two accounts. A fully
replicated portfolio is one which has exact offsetting
positions of index futures contract and all its constituent
futures contracts or its variants.
66 SEBI Circular no. SEBI/HO/CDMRD/CDMRD_DRM/P/CIR/2021/586 dated June 29, 2021
Page 77 of 348
b) However, for the purpose of compliance and reporting
requirements, the positions across both the accounts shall
be taken together and the client shall continue to have a
unique client code.
iii. Eligibility
a) To be eligible for cross margin benefit, contracts belonging
to Index futures and underlying constituents or its variants
shall belong to same expiry month or to the nearest expiry
month and should be from amongst the first three expiring
contracts only.
b) Cross Margin benefit on the eligible positions shall be
entirely withdrawn latest by the start of the tender period for
the constituent futures of the index or its variants or start of
the expiry day, whichever is earlier.
c) Clearing Corporations / Stock Exchanges may introduce
cross margin benefit, after back testing for adequacy of
cross margin to cover Mark to Market losses (“MTM”) for a
minimum period of six months. Initial margin after cross
margin benefit should be able to cover MTM on at least 99%
of the days as per back testing.
iv. Default
a) In the event of a default by a trading member / clearing
member, as the case may be, whose clients have availed
cross margin benefit, the Clearing Corporation shall have
the option to:
1) Hold the positions in the cross margin account till
expiry, in its own name.
2) Liquidate the positions / collateral and use the
proceeds to meet the default obligation.
v. Agreement: The Stock Exchange / Clearing Corporation shall
enter into an agreement with the trading member / clearing
member, as the case may be, clearly laying down the distribution
of liability / responsibility in the event of a default.
vi. CCs shall apply to SEBI for approval for provision of cross
margin benefit on the indices. The application shall be
accompanied with the back testing data as mentioned at para
7.4.2 (iii)(c).
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7.5. Other aspects
7.5.1. The stock exchanges willing to start trading in futures on commodity
indices shall take prior approval of SEBI for launching such contracts.
Stock Exchanges shall have to submit at-least past 3 years data of
the index constructed along with data on monthly volatility, roll over
yield for the month and monthly return while seeking approval from
SEBI. On approval, stock exchanges shall also publish the above
data on their website before launch of the products.
7.5.2. Stock Exchanges shall make necessary disclosures such as open
interest of top 10 largest participants/group of participants in index
futures (both long and short) and the details of their combined open
interest in underlying constituents etc., as per section 1.15.
7.5.3. The Stock Exchanges shall augment their monitoring and
surveillance capacity.
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CHAPTER 8. OPTIONS ON COMMODITY INDICES - PRODUCT DESIGN
AND RISK MANAGEMENT FRAMEWORK67
8.1. Product Design
8.1.1. Underlying: The underlying shall be commodity indices, which shall
conform to the guidelines as prescribed in Chapter 7 of this Master
Circular.
8.1.2. Eligibility Criteria for Underlying: Option contracts may be
introduced on those indices on which futures contracts are available.
8.1.3. Settlement Mechanism: On exercise, options contract shall be
settled in cash.
8.1.4. Exercise Style: European style options.
8.1.5. 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”).
8.1.6. Size of the Contract: At least INR 5 lakh at the time of introduction
in the market.
8.1.7. Exercise Mechanism: On expiry, following mechanism shall be
adopted by stock exchanges for exercise of the options contracts:
i. All ITM option contracts shall be exercised automatically, unless
‘contrary instruction’ has been given by long position holders of
such contracts for not doing so.
ii. All OTM option contracts shall expire worthless.
iii. All exercised contracts within an option series shall be assigned
to short positions in that series in a fair and non-preferential
manner.
67 SEBI Circular No. SEBI/HO/CDMRD/DNP/CIR/P/2022/34 dated March 24, 2022
Page 80 of 348
8.1.8. Trading Hours: The trading hours shall be in line with the trading
hours for constituent futures of underlying index. In case trading
hours vary for constituents, trading hours for index derivatives shall
be kept such that it is available for trading whenever any of the
constituent futures contract is available for trading. However, on the
day of its expiry, Index options contract shall expire at 5:00 pm.
8.1.9. Expiry Date: The stock exchanges shall have the flexibility to set the
expiry date for contracts. However, the expiry date shall not coincide
with the roll-over period of the constituents of the underlying index.
8.1.10. Tenor of the Contract: To begin with, maximum tenor of contracts
shall be 12 months.
8.1.11. Final Settlement Price: The Final Settlement Price shall be the
underlying index price arrived at based on Volume Weightage
Average Price of the constituents of the underlying index between
4:00 pm and 5:00 pm on the expiry day of the Index options
contract.{In absence of trading in any constituent during last one
hour, stock exchange shall determine appropriate methodology (in
line with the methodology for determining daily closing price) to arrive
at appropriate price of the constituent to be used for determining
index price}.
8.1.12. Position Limits:
i. Client level -Higher of:
10% of the total open interest in the market in commodity index
options
Or
2000 lots
ii. Trading Member level -Higher of:
30% of the total open interest in the market in commodity index
options
Or
20000 lots
The computation of position limits for ‘options’ shall remain separate
from position limits of futures contracts on the same underlying.
Page 81 of 348
8.2. Risk Management
CCs shall adopt risk management framework compliant with the CPMI-
IOSCO Principles for Financial Market Infrastructures, including the
following:
8.2.1. Margining model and quantum of initial margins: CCs 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:
i. use a conservative estimate of the time horizons for close out of
the positions (including in stressed market conditions),
ii. have an appropriate method for measuring credit exposure that
accounts for relevant risk factors and portfolio effects, and
iii. to the extent practicable and prudent, limit the need for
destabilizing, pro-cyclical changes.
Initial margin requirement shall be adequate to cover at least 99%
VaR and MPOR shall be at least two days. In case of portfolio based
margining, this requirement applies to each distribution of portfolio’s
exposure. Accordingly, CCs shall fix prudent price scan range,
volatility scan range and/or plausible changes in any other
parameters impacting options price. CCs shall impose appropriate
short option minimum margin, calendar spread charge, extreme loss
margin, concentration margins, additional margins, pre-expiry
margin, etc. for option contracts.
8.2.2. Margining at client level: CCs shall impose initial margins at the
level of portfolio of individual client.
8.2.3. 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 available scenarios shall be applied to client portfolios on a real
time basis.
8.2.4. Mark to Market: CCs shall mark to market the options positions by
adding the current market value of options (positive for long options
and negative for short options) to the margin requirement. Thus, mark
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to market gains and losses would not be settled in cash for options
positions.
8.3. Other aspects
8.3.1. Stock Exchanges willing to introduce trading in options on commodity
indices shall take prior approval of SEBI for the same.
8.3.2. Stock Exchanges shall submit at-least past three-years data of the
index constructed along with data on monthly volatility, roll over yield
for the month and monthly return while seeking approval from SEBI.
On approval, the Stock Exchange(s) shall also publish the above
data on their website before launch of the contract.
8.3.3. Stock Exchanges shall make necessary disclosures, such as, open
interest of top 10 largest participants/group of participants in “option
in indices” (both long and short) and the details of their combined
open interest in underlying constituents, etc., in line with Clause
1.15.4 of this Master Circular.
8.3.4. Stock exchanges shall put in place adequate monitoring and
surveillance capacity for the options on indices contracts.
Page 83 of 348
CHAPTER 9. RISK MANAGEMENT
9.1. Risk Management Framework 68
9.1.1. Overview: The core of the risk management system of stock
exchanges shall comprise of the following:
i. Liquid Assets: Liquid assets shall be deposited by members with
the Stock Exchanges in compliance with the norms specified
herewith to cover various margin and deposit requirements.
ii. Initial Margins (“IM”)69: Value at Risk (VaR) Margins to cover
potential future exposure for at least 99% of the days 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 specified 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.
v. Pre-expiry Margin70: Stock Exchanges shall levy pre-expiry margin
which may be increased gradually every day.
vi. Delivery Period Margin: Appropriate delivery period margin shall be
levied by Stock 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.
vii. 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
68 SEBI Circular No. CIR/CDMRD/DRMP/01/2015 dated October 01, 2015
69 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated September 01, 2016.
70 SEBI Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2019/83 dated July 26, 2019.
Page 84 of 348
clearing member. The clearing member’s liquid 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.
viii. MTM (Mark to Market) Settlement: Mark to market settlement of all
open positions of clients/members shall be done on daily basis.
ix. Base Minimum Capital: Exposure free deposit required from all
members of exchanges.
x. Settlement Guarantee Fund (“SGF”): Stock Exchanges shall
maintain SGF which shall be used by Stock Exchanges only for the
purpose of providing settlement guarantee.
xi. Concentration margins: Margins to cover the risk of longer period
required for liquidation of concentrated positions in any commodity
derivatives contract.
9.1.2. Liquid Assets: The types of liquid assets acceptable by Stock
Exchanges from their members and the applicable haircuts and
concentration limits are listed below:
Item Minimum Haircut Limits
(Note ‘a’)
Cash Equivalents
Cash 0 No limit
Bank fixed deposits 0 No limit (Note i)71
Bank guarantees 0 Limit on exchange’s
exposure to a single
bank. (Note ‘b’)
Securities of the 10% No limit
Central Government
Units of liquid mutual 10% No limit
funds or government
securities mutual funds
(by whatever name
71 SEBI Circular SEBI/HO/CDMRD/DRMP/CIR/P/2018/52 dated March 21, 2018
Page 85 of 348
Item Minimum Haircut Limits
(Note ‘a’)
called which invest in
government securities)
Other Liquid Assets
Liquid (Group-I) Same as the VaR margin Limit on stock
Equity Shares (Note for the respective shares exchange’s
‘d’) (Note ‘d’) exposure to a single
issuer (Note ‘e’)
Mutual fund units other Same as the VaR margin
than those listed under for the units computed
cash equivalents using the 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 N
on Liquidity
Categorization and
Computation of VaR
Corporate Bonds Fixed percentage based Not to exceed 10%
having rating of AA or or VaR based Haircut. A of the total liquid
above (or with similar higher haircut may be assets of the
rating nomenclature) considered to cover the clearing member.
by recognized credit expected time frame for (Note ‘e’)
rating agencies liquidation. To begin with
the haircut shall be a
minimum of 10%
Bullion 20% 72Total commodities
collateral for any
Gold ETF 20%
clearing member
Agricultural 40%
shall not exceed
Commodities
30% of the total
Base metals and 30%
liquid assets of the
Alloys 73
72 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/112 dated 14 October 2016.
73 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2019/100 dated September 13, 2019.
Page 86 of 348
Item Minimum Haircut Limits
(Note ‘a’)
Diamond 40% clearing member,
out of which non-
bullion collateral
shall not exceed
15% of the total
liquid assets of the
clearing member
(Note ‘f’)
Notes:
a. The valuation of the liquid assets shall be done on a daily basis after
applying applicable haircuts.
b. The stock 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 stock 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 N regarding Liquidity
Categorization and Computation of VaR.
e. Stock 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.
Page 87 of 348
Item Minimum Haircut Limits
(Note ‘a’)
f. All commodities to be accepted as collateral should be of same quality
specification which is deliverable under the contract specification of
commodity derivatives being traded on the Stock Exchange74.
g. Stock Exchanges shall accept liquid assets as collateral only as per
the list of liquid assets specified in the table above. However, stock
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. Stock Exchanges may
stipulate concentration limits at member level / across all members as
may be necessary.
h. Stock Exchanges shall make necessary arrangements to enable
timely liquidation of collaterals accepted by them.
i. Stock 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. 75
Explanation –for this purpose, 'associate' shall have the same
meaning as defined under SECC Regulations.
9.1.3. Commodity Futures
I. Initial Margins (IM)76 : Stock 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. Stock Exchanges shall
therefore estimate appropriate MPOR for each product based on
liquidity in the product.
a. Minimum value for Initial Margin and minimum MPOR77:
CPSS-IOSCO Principles for Financial Market Infrastructure
(“PFMI”) inter alia prescribes under Key Considerations for
Principle 6 on margin that margining model should to the extent
practicable and prudent, limit the need for destabilising, pro-
74 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2019/100 dated September 13, 2019.
75SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/52 dated March 21, 2018
76SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated September 01, 2016
77 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2020/15 dated January 27, 2020.
Page 88 of 348
cyclical changes. In light of the above and given the wide
variation of liquidity and volatility among different commodity
derivatives, accordingly, norms regarding Minimum IM and
minimum MPOR for commodity derivatives segment stands are
as per the framework mentioned below: -
(i) CCs shall categorise their commodities into three
categories of volatility based upon the realized volatility for
last three years as given below: -
Volatility Category of Realized Annualized Volatility
Commodity criteria
Low 0 to 15%
Medium Above 15 % to 20%
High Above 20%
(ii) Realized volatility shall be calculated from series of daily
log normal return of main near month future contracts of
the respective commodity. The series of daily log normal
return shall be rolled over to next month contract on start
of staggered delivery period if it is applicable. If staggered
delivery is not applicable, then rollover shall be done on the
day after the expiry of near month contract.
(iii) Stock Exchange having maximum average daily turnover
across all derivative contracts on the respective commodity
based on last six months’ period shall be termed as the
Lead Stock Exchange. The CC of the Lead Stock
Exchange shall do the categorisation of the respective
commodities and same shall be intimated to, and adopted
by all other CCs
(iv) Based on volatility category, minimum initial margin (IM)
and minimum MPOR shall be as under:
Volatility Minimum IM Minimum MPOR
Category
Non- Non-
of Agri Agri
Agri Agri
Commodity
Low 6% 8% 2 3
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Volatility Minimum IM Minimum MPOR
Category
Non- Non-
of Agri Agri
Agri Agri
Commodity
Medium 8% 10% 2 3
High 10% 12% 3 4
(v) It is also clarified that floor values prescribed for IM in table
above need not be scaled up by MPOR.
(vi) CCs shall review the categories of all commodities once in
every six months’ period based upon past three years’
data. Commodity may be moved from higher volatility
category to lower category only if it satisfies criteria of the
revised category of volatility for two consecutive reviews.
However, movement from a lower to higher volatility
category shall be done based upon a single review.
(vii) The categorization shall be done on 1st March and 1st
September of each year on rolling basis and changes if any
shall be made applicable from 1st April and 1st October
respectively of each year.
(viii) In case derivatives are launched on any new underlying
commodity for the first time for which no reference futures
prices are available, it shall be initially categorized based
upon prices available in the spot markets subject to a
minimum of Medium Category of volatility. Re-
categorization of such commodity from higher to lower
category of volatility can only be done after two
consecutive reviews.
b. Additional Lean Period Margin in Agri Commodities:
(i) In case of Agri commodities, it has been observed that
during lean period (i.e. the period before the arrival of new
crop) there is often uncertainty about the arrivals of new
crop. This may lead to higher volatility in prices of
commodities during this period. Therefore, CCs shall levy
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additional lean period margin of 2% on contracts expiring
during lean period.
(ii) Lead stock exchanges shall determine the lean period in
consultation with their relevant Product Advisory
Committee and disclose the same on their websites.
c. 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 shall be grossed across various clients.
The proprietary positions of the Trading Member shall also be
treated as that of a client for margin computation.
d. 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 met78.
(ii) Stock 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.
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.
78 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/51 dated 20 March 2018
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(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 and special
margins 79 shall not be levied. No benefit in ELM would be
provided for spread positions i.e. ELM shall be charged on
both individual legs. Stock Exchanges are free to charge
margins higher than the minimum specified depending
upon their risk perception.
(v) Margin benefit on spread positions shall be entirely
withdrawn latest by the start of tender period or start of
expiry day, whichever is earlier. 80
To be eligible for initial margin benefit, each individual
contract in the spread shall be from amongst the first three
expiring contracts.
(vi) While providing spread benefit across futures contracts in
a commodity complex, stock 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.81
(vii) In case of calendar spreads or spreads consisting of two
contract variants having the same underlying commodity
(wherein currently 75% benefit in initial margin is
permitted), benefit in initial margin shall be permitted when
each individual contract in the spread is from amongst the
first six expiring contracts. 82
e. Real Time Computation: The margins shall be computed on
real time basis. The computation of portfolio initial margin shall
have two components. The first is the computation of initial
79 SEBI Circular No. CIR/ISD-2/CDD-1/99/2016 dated September 27, 2016
80 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/130 dated December 02, 2016.
81 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/51 dated March 20, 2018
82 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2021/ dated 9 August, 2021.
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margin for each individual contract. At the second stage, these
contract initial margins shall be applied to the actual portfolio
positions to compute the portfolio initial margin. The stock
exchanges are permitted to update EWMA volatility estimates
for contracts at discrete time points each day (with a gap of not
more than 2 hours between any two consecutive updates and
at the end of the trading session) and the latest available scaled
up Weighted Moving Average (“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: Stock Exchanges may levy Additional Margins
based on their evaluation in specific situations as may be necessary.
IV. Pre-expiry Margin: Stock Exchanges shall levy pre-expiry margin
which shall be increased gradually every day beginning from the pre-
determined number of days before the expiry of the contract and
latest by the start of the staggered delivery period. Stock Exchanges
shall determine the quantum of pre-expiry margin as appropriate
based on the risk characteristics of the particular commodity.
V. Delivery Period Margin83: Appropriate delivery period margin shall
be levied by Stock 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
83 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated 01 September 2016
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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 stock 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 stock exchange shall collect
correspondingly higher initial margin (scaling up by a factor of square
root of two) to cover the potential losses over the time elapsed in the
collection of margins.
VII. It is reiterated that risk management is primarily a responsibility of
CCs and the framework prescribed by SEBI is minimum framework.
CCs are allowed to be more conservative as per their own perception
of risk.84
VIII. CCs shall also disclose detailed break up of various applicable
margins on contracts cleared by them along with volatility on their
websites.
9.1.4. Concentration Margins85 : Stock 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 in liquidity in times of
market stress etc. The quantum of concentration margins imposed
may vary based on the level of concentration.
9.1.5. Additional Ad-hoc Margins: Stock Exchanges have the right to
impose additional risk containment measures over and above the risk
containment system mandated by SEBI. However, the Stock
Exchanges should keep the following three factors in mind while
taking such action:
84 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2020/15 dated 27 January, 2020
85 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated 01 September 2016
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i. 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, stock 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. Stock
Exchanges are encouraged to analyse these situations and bring
the matter to the attention of SEBI for further action.
ii. Any additional margins that the stock exchanges may impose
shall be based on objective criteria and shall not discriminate
between members on the basis of subjective criteria.
iii. 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.
9.1.6. Margin Provisions for Intra-day crystallized losses 86 : In order to
mitigate the risk arising out of accumulation of crystallized obligations
incurred on account of intra-day squaring off of positions, the stock
exchanges shall adopt the following:
i. 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.
ii. If crystallised losses exceed the free collateral available with the
Clearing Corporation, risk reduction mode shall be followed.
iii. Crystallised losses shall be calculated based on weighted
average prices of trades executed.
iv. Adjustment of intraday crystallised losses shall not be done from
exposure free liquid net-worth of the clearing member.
9.1.7. Margin Collection and Enforcement: All applicable margins shall
be deducted by Stock 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 Stock Exchange by the members.
86 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/52 dated March 21, 2018
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9.1.8. Minimum Liquid net-worth87 : 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.
9.1.9. Base Minimum Capital (“BMC”)88
i. Stock 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. 89Members of Clearing Corporations in commodity derivatives
segment shall not have any Base Minimum Capital requirement.
iii. No exposure will be given by the Stock 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.
v. These funds shall be kept in a separate account by the Stock
Exchange and shall 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 shall not be used by the
stock exchange for meeting any of its other dues.
vi. BMC shall 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.
9.1.10. Risk Reduction Mode: Stock 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
87 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/52 dated March 21, 2018
88 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/86 dated September 16, 2016
89 SEBI Circular no. SEBI/HO/CDMRD/DRMP/CIR/P/2018/52 dated March 21, 2018
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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%.
9.1.11. Measures in case of repeated shortfall in margin/pay-in90 : 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:
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 stock exchange for the next
month.
iii. Stock Exchange shall keep a close watch on such member.
90 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated 01 September 2016
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9.2. Alternative Risk Management Framework Applicable in case of Near
Zero and Negative Prices91
9.2.1. In order to enable risk management framework to handle the
scenario of ’near zero’ and negative prices, the following provisions
shall be complied: -
i. Alternate Risk Management Framework (“ARMF”) shall be
applicable in such cases of near zero and negative prices for any
underlying commodities/futures. Details of the ARMF are given
in 9.2.2 below.
ii. To begin with, the commodities having the following
characteristics may be in principle treated as susceptible to the
possibility of near zero and negative prices: -
a. Commodities that need specialized storage space in physical
markets, which, if not followed, may cause environmental
hazards or have other external implications AND
b. Commodities that can’t be disposed of/destroyed with ease i.e.
disposal/ destruction of such commodities may cause an
environmental hazard or may incur significant cost.
iii. However, any Clearing Corporation (“CC”) that does not
presently provide for the clearing and settlement services of any
such susceptible commodity, are not required to update their
systems for the prescribed ARMF. This is subject to certification
by their Risk Management Committee that none of the products
being presently cleared by the CC are susceptible to near zero
and negative prices as per Clause (ii) above. However, before
the launch of any such susceptible commodities in future, they
shall ensure that their systems are updated for the ARMF.
iv. 92The pre-expiry margins shall be imposed on cash settled
contracts where in the underlying commodity is deemed
susceptible to possibility of near zero and/or negative prices as
identified by stock exchange/CC. In case of these contracts, pre-
expiry margins shall be levied during the last five trading days
prior to expiry date, wherein they shall increase by 5% every day.
91 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2020/176 dated September 21, 2020
92 SEBI Circular no. SEBI/HO/CDMRD/DRMP/CIR/P/2021/20 dated February 23, 2021
Page 98 of 348
9.2.2. The Alternate Risk Management Framework (“ARMF”) in the
event of Near Zero and Negative Prices is as follows:
I. Activation of ARMF
i. In case the CC foresees the possibility of negative/near zero
prices in any commodity, then for such commodity derivatives, it
shall activate an ARMF. This framework should be capable of
estimating the risk in the event of negative/near zero prices of
the underlying/futures.
ii. The shift to the ARMF shall be conditional, based on triggers
indicating the likelihood of near zero/ negative prices. Some of
the conditions/circumstances which are indicative in nature and
may warrant the activation of the ARMF are illustrated below: -
a. There is a fall in the commodity prices by more than 50% within
20 trading days, while comparing the intra-day highest and
lowest prices.
b. In case of internationally referenced contracts, the international
stock exchange/ clearing corporation having the benchmark
contract decides to introduce such measures for negative
prices.
c. Options contracts having strike price values of near
zero/negative are introduced by the stock exchange for trading.
d. Price of the underlying commodity/futures contract comes
down to the level equal to or lower than the maximum price
movement observed over the Margin Period of Risk (“MPOR”)
in past 12 months.
e. Any other conditions as per the discretion of the CC, which
might indicate the likelihood of negative prices.
iii. In case one or more of the above mentioned conditions or any
other additional conditions that may be identified by the CC
becomes applicable, the CC in consultation with their respective
stock exchange will conduct a review and take a formal decision
on whether there is a need to activate the ARMF. The CC shall
subsequently also communicate its decision to the market and
other stock Exchanges/CCs. If the Lead CC, as defined in. 9.1.3
above, has activated the ARMF, then the other CCs shall also
follow the same.
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iv. The CC shall strive to intimate to the market, well in advance, the
threshold price level, below which the ARMF shall be activated.
II. Characteristics of ARMF: The ARMF shall have the following
characteristics:
i. Normal Distribution: In the regular risk management framework,
prices are assumed to be log normally distributed and volatility is
calculated based on the difference in log prices. This
assumption is valid only for positive prices, as logarithm of zero
or negative prices is not defined.
In a scenario wherein the ARMF gets triggered, the prices shall
be assumed to follow normal distribution. Therefore, in such
scenario, volatility shall be based on the absolute differences in
prices. This volatility shall be determined based on Exponentially
Weighted Moving Average (“EWMA”) as per the parameters of
the regular framework.
ii. Minimum Margin in Absolute terms: In the regular framework, a
floor value for initial margin is prescribed in percentage terms. In
case the prices turn negative, floor value in percentage terms
shall be applied on the absolute value of price levels. Further,
floor value shall also be prescribed in absolute INR terms. The
higher of the two values shall be the applicable floor for the initial
margin. The CC shall determine and notify such floor value
based on past price movements and past margin amounts
observed in respect of such commodities.
iii. Spread margin benefit: The correlation between different
contracts on the same underlying may not hold in the event of
near zero/negative prices. Therefore, margin benefit on spread
positions shall be completely withdrawn upon the activation of
the ARMF.
iv. Option Pricing Model: The theoretical price determination of
options shall be done using appropriate models like the Bachelier
model, or any other model which can be applied on negative
underlying prices.
v. Pre-expiry margins: The appropriate pre-expiry margins shall
also be levied by CCs on cash settled contracts, in respect of
those commodities in which the ARMF is triggered.
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vi. Extreme Loss Margin (“ELM”): In case the price of any futures
contract goes below a threshold, ELM shall be levied on such
threshold price or absolute price of the contract, whichever is
higher. The CC shall decide threshold price in respect of each
commodity on which ELM under the ARMF shall be made
applicable.
vii. Other margins: CCs may levy other margins such as additional
margins, special margins, concentration margins etc. as per their
own discretion.
III. Deactivation of ARMF
i. The following principles shall be taken into account by CCs for
deactivation of the ARMF i.e. switching from alternate to regular
risk management framework:
a. The de-activation of the ARMF shall be done when the
conditions that triggered the activation of the ARMF no longer
prevail. The exit from the ARMF shall be done after a
reasonable time lag so as to avoid frequent switching between
alternate and regular frameworks.
b. In case the entry and exit of the ARMF is defined in terms of
specific price points, the exit point shall be kept sufficiently
above the entry point to avoid frequent switching between
alternate and regular frameworks.
c. The de-activation of the ARMF and re-activation of regular
framework will be done when the margin requirement under the
two frameworks sufficiently converges.
ii. The observation of a zero or negative prices shall have to be
excluded from model under regular margin framework since log
return involving zero or negative price is not defined.
9.3. Regaining matched book
9.3.1. In the event of a member/client failing to honour pay-in/margin
obligations, stock 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
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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 equal to 10% of last mark-to-market price and
penalty equal to 1% of last mark-to-market price (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 equal to 8% of last mark-to-market price and penalty
equal to 1% of last mark-to-market price (to be credited to SGF).93
9.3.2. To enable timely and error free execution, CCs shall have an
automated system to implement all such tools. CCs shall put in place
such system, and also conduct testing of the same.
9.4. Framework to Enable Verification of Upfront Collection of Margins
9.4.1. The provisions related to framework to enable verification of upfront
collection of margins shall be same as specified for equity cash
segment in SEBI circular no.
SEBI/HO/MRD2/DCAP/CIR/P/2020/127 dated July 20, 2020,
SEBI/HO/MRD2/DCAP/P/CIR/2022/60 dated May 10, 2022 and
SEBI/HO/MRD/MRD-PoD-2/P/CIR/2023/016 dated February 01,
2023 and subsequent amendment thereto or supersession through
any circular or master circular issued from time to time.
9.4.2. Para 2 of clause (i) of Annexure of SEBI circular no.
SEBI/HO/MRD2/DCAP/CIR/P/2020/127 dated July 20, 2020 was
modified as under:94
“Further, for commodity derivatives segment, clearing corporations
shall send an additional minimum two snapshots for commodity
derivative contracts which are traded till 9:00 PM and additional
minimum three snapshots for the commodity derivatives contracts
93 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2020/32 dated March 03, 2020.
94 SEBI Circular No. SEBI/HO/CDMRD/CDMRD_DRM/P/CIR/2021/689 dated December 16, 2021
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which are traded till 11:30/11:55 PM. Margins/EOD margins
shall be determined as per the relevant Risk Parameter Files.”
9.5. Mechanism for regular monitoring of and penalty for short- collection/
non-collection of margins from clients95
9.5.1. 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 (“IM”),
extreme loss margin (“ELM”), mark to market margin (“MTM”),
special / additional margin, delivery margin or any other margin as
prescribed by the stock exchange to be collected by member from
their clients.
ii. The members are required to collect upfront initial margins and
extreme loss margins 96 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 stock 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’
95 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/80 dated September 7, 2016
96 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/93 dated September 26, 2016
Page 103 of 348
For each member
(< 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.
vi. The Stock Exchanges shall 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. The Stock Exchanges and Clearing Corporations, in consultation
with one another, shall devise a standard framework for imposition
of fine on the Trading Member/ Clearing Member for incorrect/false
reporting and non-reporting of margin collected from the client.97
viii. The penalty shall be collected by the Stock 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.)
97 SEBI Circular No. CIR/HO/MIRSD/DOP/CIR/P/2019/88 dated August 01, 2019.
Page 104 of 348
x. All the penalties collected as prescribed above shall be credited to
Core SGF 98.
xi. Report on the penalties as collected by the Stock Exchanges shall
be submitted to SEBI by the 10th day of the following month.
xii. Considering the principle of ‘proportionality’, the fine shall be
charged to the member based on the materiality of non-compliance
done by the member which may include factors such as number of
instances, repeated violations, etc. The amount of fine to be charged
upon the member may extend to 100% of such false/incorrectly/non-
reported amount of margin and/or suspension of trading for
appropriate number of days.99
xiii. The Stock 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 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.
xv. For commodity derivative contracts having trading hours beyond
5:00 PM 100:
a. For the purpose of determining minimum threshold of margins to
be collected by members from their clients, cut off time shall be
kept as 5:00 PM.
b. Risk Parameter File (“RPF”) to be generated at cut-off time shall
be applied on clients’ End of Day (“EOD”) portfolio for the
purpose of determining minimum threshold of margin to be
collected from clients by members.
98 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2019/73 dated June 20, 2019
99 SEBI Circular No. CIR/HO/MIRSD/DOP/CIR/P/2019/88 dated August 01, 2019.
100 SEBI circular no. SEBI/HO/CDMRD/DRMP/CIR/P/2019/149 dated November 29, 2019
Page 105 of 348
c. Similarly, for the purpose of determining minimum threshold of
ELM to be collected from clients, EOD client portfolio shall be
valued at the half an hour weighted average trade price arrived
at cut-off time stipulated above.
xvi. For commodity derivative contracts having trading till 5:00 PM,
margin collection from clients shall be on EOD basis.
9.6. Settlement Guarantee Fund, Default Waterfall and Stress Testing
9.6.1. Clearing Corporations and Stock Exchanges in Commodity
Derivatives segment shall comply with provisions given in Annexure
O regarding Core Settlement Guarantee Fund (Core SGF) with
respect to Core SGF, Stress Testing and Default Waterfall post
transfer of Clearing and Settlement Function from Stock Exchanges
to Clearing Corporations. 101
9.6.2. Risk management- disclosure by Stock Exchange:102 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 Stock Exchange website for every quarter at the end
of i.e.30th June, 30th September, 31st December and 31st March.
9.7. Interoperability among Clearing Corporations
9.7.1. The interoperability framework is not available for commodity
derivatives products available for trading on the stock exchange.103
101 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2018/111 dated July 11, 2018.
102 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/93 dated September 26, 2016
103 SEBI Circular No. CIR/MRD/DRMNP/CIR/P/2018/145 dated November 27, 2018
Page 106 of 348
CHAPTER 10. CONTRACT APPROVAL AND MODIFICATION
10.1. Permission for Trading in Futures Contracts 104
10.1.1. 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 stock exchange for
launch of new contract and/or for renewal of existing/earlier contracts
shall be accompanied by complete information covering all the points
appended at Annexure P regarding Checklist of information/details
for launch of new contract or/and for renewal of existing/earlier
contracts. 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.
10.1.2. Approval for futures contracts on continuous basis: The Stock
Exchange wise list of contracts approved for continuous trading is
placed at Annexure Q regarding List of contracts approved for
continuous trading. Approval for continuous trading in futures
contracts is contingent upon volume and open interest at the Stock
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 Stock 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 Stock
Exchange.
iii. Except for the specifications permitted to be modified at stock
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
Stock Exchange(s) shall give prior appropriate notice to the market
participants. Once the contracts are commenced, no terms of the
contract specifications should be changed without prior approval of
SEBI.
104 SEBI Circular No. CIR/CDMRD/DRMP/CIR/2016/88 dated September 20, 2016
Page 107 of 348
iv. In case of contracts approved for continuous trading:
a. If stock exchange decides not to launch new contract for trading,
then stock 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 stock exchange decides to de-list already running contract(s)
having nil open interest, then stock 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 stock 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 MTM
settlement of outstanding contracts as per the procedure and
delivery mechanism/process specified in the Bye-laws, the Rules
and the Regulations of the stock exchange.
viii. The stock exchange 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.
Page 108 of 348
10.1.3 Multiple contracts in same commodity105
i. Stock exchanges may be allowed to launch multiple contracts in
same commodity
10.2. Modifications in the Contract Specifications of Commodity Derivatives
Contracts 106
10.2.1. The modifications in contract specification parameters are
categorized in following three categories:
A. Category A: Non-material modifications which can be made at stock
exchange level in yet to be launched and running contracts.
B. Category B: Material modifications which can be made at the stock
exchange level in yet to be launched contracts or running contracts
which have nil open interest. These modifications shall require
approval from Product Advisory Committee and approval of
Regulatory Oversight Committee to be obtained post facto.
C. Category C: Material modifications which can be made only after
approval from SEBI. These modifications shall require deliberations
and approval from Product Advisory Committee and Regulatory
Oversight Committee before seeking permission from SEBI.
10.2.2. The list of various contract specification parameters as per the above
stated categories along with the timelines for advance intimation of
modification to SEBI and market participant is given at Annexure R
on Categorization of contract specification parameters in commodity
derivatives contracts.
10.2.3. The permission to modify contract specification parameters of
commodity derivatives contracts is subject to the condition that
before introduction of any modification in contract specifications the
stock exchanges shall inform SEBI and market participants along
with reasons for the modifications as per the timeline mentioned in
Annexure at Categorization of contract specification parameters in
commodity derivatives contracts. However, this shall not apply to
certain modifications which are required to be effected immediately
considering the exigencies of the situation as per surveillance
measure.
105 SEBI Circular No SEBI/HO/MRD/MRD-POD-1/P/CIR/2023/12 dated January 11, 2023
106 SEBI Circular no. SEBI/HO/CDMRD/DOP/CIR/P/2019/135 dated November 14, 2019.
Page 109 of 348
CHAPTER 11. DELIVERY AND SETTLEMENT
11.1. Staggered Delivery 107
11.1.1. Staggered delivery period is the period, beginning few working days
prior to expiry of any contract and ending with expiry, during which
sellers/buyers having open position may submit an intention to
give/take delivery.
11.1.2. All compulsory delivery commodity futures contracts (agriculture
commodities as well as non-agriculture commodities) shall have a
staggered delivery period.
11.1.3. The minimum duration of staggered delivery period shall be at least
five working days.
11.1.4. Stock Exchanges shall have the flexibility to set higher duration of
staggered delivery period for any commodity futures contract, as
deemed fit, taking into account various factors such as historical open
interest, volume near expiry etc. In this regard, for the benefit of the
market participants, all the exchanges shall jointly prepare and
publish a detailed framework outlining various circumstances and
factors which would generally require longer duration of staggered
delivery period in any commodity.
11.1.5. In the interest of trade and public, SEBI or stock exchange may
exercise its due discretion in modifying the aforesaid staggered
delivery period at any time.
11.1.6. Framework
i. Seller/buyer having open position shall have an option, of submitting
an intention of giving/taking delivery, on any day during the
staggered delivery period.
ii. On each day (except for the expiry day), Stock Exchange shall
allocate intentions received to give delivery during the day, 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
107 SEBI Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2019/83 dated July 26, 2019.
Page 110 of 348
intention of taking delivery, which may be based on aspects such as
location, quality etc.
iii. Pay-in and pay-out for the allocated deliveries shall happen within 2
working days after allocation.
iv. All open positions after expiry of the contract shall result in
compulsory delivery and be settled at Final Settlement Price (“FSP”)
of the respective contract and pay-in and pay-out shall happen latest
by the 2nd working day after expiry.
11.2. Early Delivery System 108
11.2.1. 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.
ii. If there is no intention matching for delivery between sellers and
buyers, then such delivery intention shall 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 shall be applied.
iv. On the expiry of the contract, all outstanding positions shall be
settled by delivery and all the penalty provisions for delivery default
applicable in the compulsory delivery contracts shall apply.
108 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/90 dated September 21, 2016
Page 111 of 348
11.3. Early Pay-in Facility 109
11.3.1. Stock Exchanges shall provide early pay-in facility to market
participants permitting market participants to deposit certified goods
to the Stock Exchange accredited warehouse against relevant
futures contracts sold. For such short positions against which early
pay-in has been made, based on risk perception, stock exchanges
may exempt imposition of all types of margins. However, Stock
Exchanges shall continue to collect mark to market margins from
such market participants against such positions.
11.3.2. 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
stock exchanges should provide for extremely strict penalties
including disciplinary actions against such members who fail to do
so.
11.4. Penalty on Delivery Default 110
11.4.1. 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:
i. Futures contracts on agri-commodities: 111[4%] 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.)
ii. 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.)
109 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/90 dated September 21, 2016
110 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/90 dated September 21, 2016
111 SEBI circular SEBI/HO/CDMRD/DRMP/CIR/P/2021/35 dated March 23, 2021
Page 112 of 348
11.4.2. 112[Clearing Corporation/ Stock Exchanges] shall have the flexibility
to increase/ decrease penalty for specific commodities depending on
situation, in consultation with SEBI.
11.4.3. Norms for apportionment of penalty –
a. At least 1.75% of Settlement Price shall be deposited in the
Settlement Guarantee Fund (SGF) of the Clearing Corporation
b. Up to 0.25% of Settlement Price may be retained by the Clearing
Corporation towards administration expenses
c. 113(1% of Settlement Price in case of non-agri goods or 2% of
Settlement price in case of agri goods) plus replacement cost shall
go to buyer who was entitled to receive delivery
11.4.4. 114[Clearing Corporation] may have appropriate deterrent mechanism
(including penal/disciplinary action) in place against intentional/wilful
delivery default.
11.4.5. 115In the case of a default by a buyer in both agricultural and non-
agricultural commodities, following standard procedure shall be
followed by the CCs:
a. The CCs shall review the loss incurred by the non-defaulting
Party, i.e. Seller, at its sole discretion, and accordingly, levy
penalty on the defaulting buyer. However, such penalty shall be
within the overall cap of delivery margins collected by the CCs,
from such defaulting buyer.
11.5. Penalty for Repeated Delivery Default116
11.5.1. A need was felt to put in place a suitable deterrent mechanism to
address instances of repeated delivery defaults to further strengthen
the delivery mechanism and ensure market integrity.
112 SEBI circular SEBI/HO/CDMRD/DRMP/CIR/P/2021/35 dated March 23, 2021
113 SEBI circular SEBI/HO/CDMRD/DRMP/CIR/P/2021/35 dated March 23, 2021
114 SEBI circular SEBI/HO/CDMRD/DRMP/CIR/P/2021/35 dated March 23, 2021
115 SEBI circular SEBI/HO/CDMRD/DRMP/CIR/P/2021/35 dated March 23, 2021.
116 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2021/619 dated August 17, 2021
Page 113 of 348
11.5.2. In view of the above, in consultation with CCs, the following has been
decided:
i. In the case of repeated default by a seller or a buyer, for each
instance of repeated default, an additional penalty shall be
imposed, which shall be 3 % of the value of the delivery default.
ii. Repeated Default shall be defined as an event, wherein a default
on delivery obligations takes place 3 times or more during a six
months’ period on a rolling basis.
iii. The penalty levied shall be transferred to the SGF of the Clearing
Corporation.
11.6. Fixation of Final Settlement Price (FSP) 117
11.6.1. 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
5 Yes Yes No No E0, E‐1
6 Yes No Yes No E0, E‐2
7 Yes No No No E0
117 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/90 dated September 21, 2016
Page 114 of 348
11.6.2. 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, the stock exchanges shall decide further
course of action for determining FSP in consultation with SEBI.
11.7. Change in Expiry Date 118
11.7.1. Stock 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.
11.7.2. 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 mentioned procedure.
11.8. Identification and Selection of Location as a Delivery Centre(s) 119
11.8.1. Considering the inter-play of various factors, a particular location can
be identified and selected as a delivery centre by a stock exchange
based on all or combination of the following guidelines.
i. Demand/supply dynamics:
a. There should be adequate consumption demand throughout the
year and/or adequate supply at least during the expiry month(s)in
and around the location;
b. The location should have a sizeable production catchment area
and arrivals;
c. The location should be an active consumption centre/trading
centre attracting adequate supplies from other production
centres to fulfil demand for processing, consumption, trade, etc.
ii. Liquidity of the contract: The location should have high potential
to attract trading and delivery participation in the derivatives contract.
118 SEBI Circular No. SEBI/HO/CDMRD/DRMP/CIR/P/2016/90 dated September 21, 2016
119 SEBI Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2020/89 dated May 26, 2020
Page 115 of 348
iii. Value chain participants: There should be adequate participation
or representation from different segments of the commodity value
chain of the commodity viz., farmers/producers, traders, millers,
processors, exporters, users, etc. who are interested in trading /
delivering the commodity at such location proposed to be designated
as a delivery centre.
iv. Infrastructure Support:
a. There should be presence of sufficient and sizeable number of
warehouses in and around the location capable of handling the
deliveries on expiry of the contract and capable of getting
registration with the Warehousing Development and Regulatory
Authority (“WDRA”) wherever applicable, before the launch of
the contracts.
b. There should be adequate transport links (road or rail
connectivity), presence of assaying and testing facilities,
processing plants, etc., for effecting smooth deliveries.
v. Trade Feedback: Feedback from all the stake holders including
Farmers/ Farmer Producers Organization (“FPOs”) / Traders / Value
Chain Participants (“VCPs”) / Corporates / Micro, Small & Medium
Enterprises (“MSMEs”), Processors, Exporters etc., should be
obtained and duly considered before selecting a location for
designating as delivery centre(s)of a particular commodity.
11.8.2. Review of delivery centre:
i. The stock exchanges shall carry out a review of the delivery
centre(s) already designated and notified for the existing commodity
derivatives contracts, based on the aforesaid guidelines.
ii. The review shall also include those locations which though satisfy
the above-mentioned guidelines but have not been selected as the
delivery centre(s) by the stock exchanges and examine reasons for
not selecting these locations as delivery centre.
iii. The stock exchanges shall submit their assessment in the form of a
comprehensive review report to their Product Advisory Committee
(“PAC”) constituted for respective commodity for consideration and
advice.
11.8.3. SEBI has issued guidelines about the PAC (Chapter 2) in which the
terms of reference, inter-alia, includes choice of basis and additional
Page 116 of 348
delivery centre, review of the delivery centres etc. Henceforth, the
requisite information highlighted at abovementioned paras (10.2.2
and 10.2.3) shall form part of the information to be submitted to PAC
for their consideration. All the above stated information shall also be
submitted by the stock exchanges to SEBI while submitting
application for contract approval or renewal.
11.9. Criteria for Settlement Mode of Commodity Derivative Contracts120
11.9.1. The first preference of settlement type for commodity derivatives
contracts shall always be by the way of physical delivery.
11.9.2. 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
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. Stock
Exchanges shall satisfy themselves that the reference spot price is
robust – fair indicator of prevailing prices and not susceptible to any
distortion/manipulation.
11.9.3. 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.
11.10. Timelines for Marking Delivery Intention 121
120 SEBI Circular no SEBI/HO/CDMRD/DMP/CIR/P/2017/116 dated October 16, 2017
121 SEBI Circular no. SEBI/HO/CDMRD/DRMP/CIR/P/2016/93 dated September 26, 2016
Page 117 of 348
11.10.1. Stock 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.
11.11. Location Premium / Discount 122
11.11.1. Stock Exchanges shall determine and disclose for contracts the
location premium / discount prior to launch of the contract in various
commodities.
122 SEBI Circular no. SEBI/HO/CDMRD/DRMP/CIR/P/2016/93 dated September 26, 2016
Page 118 of 348
CHAPTER 12. WAREHOUSING NORMS FOR AGRICULTURE AND
AGRI-PROCESSED COMMODITIES AND NON-AGRICULTURAL
GOODS123
12.1. General
12.1.1. The Clearing Corporations to have in place comprehensive
framework of norms for adherence by the Warehouse Service
Providers (“WSP”), 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.
12.1.2. The norms prescribed herein are the minimum
requirements/standards which the Clearing Corporation will set out
for compliance by its accredited WSPs and assayers and are to be
complied with in conjunction with the applicable norms laid down by
WDRA or any other government authority overseeing the
warehousing or storage infrastructure and its ancillary services for
the respective goods.
12.1.3. The Clearing Corporations are at liberty to prescribe additional
norms/guidelines for compliance by their accredited WSPs,
warehouses and assayers, if they deem so fit, for ensuring good
delivery of commodities by them. However, it must be ensured by the
Clearing Corporations that such additional norms specified are not in
contravention with the provisions issued herein.
12.1.4. The Clearing Corporations shall put in place necessary
arrangements for ensuring compliance with the provisions of
Regulation 43A of SECC Regulations. Further, the Clearing
Corporations shall 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 desiring to take possession of
their individually identified commodity and remove it from the
accredited Warehouse(s).
123 SEBI Circular no. SEBI/HO/CDMRD/DMP/P/CIR/2021/551 dated April 16, 2021.
Page 119 of 348
12.2. Accreditation of Warehouse Service Provider (WSP)
12.2.1. For accreditation of WSPs, the Clearing Corporation shall publish
open advertisements in leading newspapers and/or put up the same
on their website and follow transparent selection process thereafter.
The selection process to be followed for such accreditation shall be
displayed on the website of the Clearing Corporation before the
process begins. The Clearing Corporation shall ensure that the
applications of the WSPs are processed within a stipulated time
frame.
Note: For the purpose of this Circular, a WSP is an entity which
provides a storage facility for storing underlying goods related to a
commodity derivatives contract.
12.2.2. The Clearing Corporation shall ensure that the WSP had obtained
the required registrations of the proposed storage facility from the
WDRA for commodities notified by the WDRA and for other
commodities under applicable law/s and the same shall be intimated
by it to the Clearing Corporation prior to providing the storage
services to the Clearing Corporation.
For the purpose of this chapter, Storage Facility, depending on the
nature of the commodity, may include warehouses, silos, cold
storages, sheds, tanks, pipelines, marine vessels, open storage
areas, or other forms of storage as appropriate to a physically
deliverable good for settlement of commodity derivatives contracts
traded on stock exchanges.
12.2.3. The accreditation of the WSPs shall be done with the approval of the
relevant committee of the board of directors of the Clearing
Corporation in terms of the SECC Regulations.
12.2.4. A WSP can be accredited with more than one Clearing Corporation.
In such case, the Clearing Corporation shall not mandate that its
WSP cannot provide services to other Clearing Corporations.
12.2.5. A storage facility of a WSP may be utilized by more than one Clearing
Corporation with proper segregation, demarcation and putting in
place appropriate risk management procedures. However, the same
storage facility shall not be utilized by more than one Clearing
Corporation for the same commodity.
Page 120 of 348
12.2.6. The accreditation of a WSP shall remain valid until:
i. it is surrendered by the WSP and accepted by the Clearing
Corporation; or
ii. cancelled by the Clearing Corporation.
12.3. Eligibility and Experience of WSP/Promoters/Promoter Group of WSP
12.3.1. A WSP shall be a corporate body which is in public warehousing
business.
12.3.2. The Promoters/ Promoter Groups of the WSP should be responsible
persons/entities of repute with a good business reputation and
credibility.
12.3.3. The Promoters/Promoter Groups of the WSP should be in the
business of public warehousing for at least 3 years as on the date of
their application and have knowledge of, and experience in, generally
accepted warehousing and handling practices for commodities for
which they propose to provide their services.
12.3.4. However, the Clearing Corporation in its discretion, may relax the
norm of 3 years stated in para 12.3.3 above, provided that the WSP
or its promoter/promoter group:
I. Meets all other criteria
II. Submit an undertaking that they shall comply with any additional
norm that may be specified by the Clearing Corporation within
the time frame as may be specified by the Clearing Corporation
or meet 3 years’ criterion whichever is earlier.
12.3.5. WSP / Promoters/ Promoter Group of WSP shall have no record of
serious violation of law of land including that of laws governing
warehousing / securities markets; or being expelled by any Clearing
Corporation/stock exchange in last three years. The Clearing
Corporation can take an appropriate undertaking from the WSP in
this regard.
Page 121 of 348
12.4. Financial Soundness of the WSP
12.4.1. Share Capital: The Clearing Corporation shall ensure that an
accredited WSP shall have subscribed and paid-up share capital of
at least ₹10 crores.
12.4.2. Net worth
i. An accredited WSP shall meet the following net worth criteria:-
Type of Goods Number of Minimum
Goods net worth
Agricultural / Agri- 1 ₹10 crores
A
processed
More than 1 ₹25 crores
B Base / Industrial 1 ₹10 crores
Metals
More than 1 ₹25 crores
C Composite* NA ₹50 crores
*Compos ite means combination of A and B
ii. In case of reduction in net worth of WSPs below the stipulated
requirement, a time period of six months may be allowed to the
WSPs to augment the net worth. In the event the WSP is unable
to augment the net worth to the requisite level within the allowed
time frame, the Clearing Corporations shall ensure that WSP does
not carry out any new business related to commodity derivatives
market. The Clearing Corporation shall take suitable measures,
which are disclosed on its website for public information, with
respect to the existing goods handled by such WSP.
iii. The value of the goods stored in the accredited storage facilities
of WSP shall not, at any point of time, exceed 33 times the net
worth of the WSP, irrespective of the number of Clearing
Corporations being served by the WSP. The Clearing
Corporations shall obtain suitable information from the WSPs in
this regard.
Page 122 of 348
iv. The net-worth of the WSP shall be calculated 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."
v. The Clearing Corporation shall ensure that the WSPs submit the
following documents to them:
a) the unaudited quarterly financial statements for all the quarters
of a financial year, within 45 calendar days.
b) unaudited net worth certificate duly certified by the statutory
auditor of the WSP, on half yearly basis i.e. at the end of every
March and September, within 45 calendar days.
c) the audited Annual Financial Statements along with audited net
worth certificate to the Clearing Corporation within six months
of the end of Financial Year.
12.4.3. Security Deposit (“SD”)
i. The Clearing Corporation shall ensure that the accredited WSP
has furnished a refundable security deposit wherein:
a) Such security deposit shall be a minimum amount of INR50
lakhs.
b) Such security deposit shall be in the form of Cash / Bank Fixed
Deposits / Bank Guarantee.
ii. Security deposit shall not be released until six months after
cancellation or surrender of the accreditation of the WSP or until
after satisfaction of every claim against the deposit, whichever is
later.
12.4.4. Financial Security Deposits (“FSD”)
i. The WSP shall furnish refundable FSD for all goods on
incremental basis in addition to the security deposit as under: -
Page 123 of 348
Type of Goods Value of Goods Minimum FSD
stored
Agricultural/Agri- Up to ₹250 crores 2% of the aggregate value of
processed stored commodities
Between ₹250 crores ₹5 crores + 3% of aggregate
and ₹500 crores value of stored commodities
exceeding ₹250 crores
Above ₹500 crores `12.5 crores + 4% of the
aggregate value of stored
commodities exceeding ₹500
crores
Base / Industrial NA 0.5% of the aggregate value of
Metals stored commodities
ii. The Clearing Corporation, based on its risk assessment, can
decide on restricting the amount of FSD to ₹100 Crores from each
WSP.
iii. The FSD shall be in the form of liquid assets with applicable
haircuts and concentration limits as listed below: -
Minimum
Type Limits
haircut
Cash 0 No limit but minimum 10%
Bank Fixed Deposit 0
Bank Guarantees 0 Remaining 90% FSD can be in
any combination of the four
Securities of the
10% types of options provided for
Central Government
furnishing the FSD
iv. A daily monitoring of the FSD vis-à-vis the value of the goods
stored shall be done marked to market on replacement value on
ongoing basis to ensure that the minimum stipulated FSD are
always maintained with the Clearing Corporation. Based on the
risk assessment, the Clearing Corporation may seek additional
FSD over and above the requirement stipulated in Para 12.4.4, if
necessary.
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v. In circumstances where there is shortfall in the minimum required
FSD due to sudden deposit of commodities in large quantity
towards the end of the day, the Clearing Corporations can allow
the WSPs to replenish the FSD within three trading days.
12.4.5. Exposure norms for FSD/SD
i. The Clearing Corporations shall lay down exposure limits (for
Bank Fixed Deposit and Bank Guarantees) either in rupee terms
or as percentage of the total assets to be received (with respect
to SD/FSD) that can be exposed to a single bank directly or
indirectly.
ii. Further, CCs shall ensure that no SD/FSD shall be accepted from
a Bank which has a net worth of less than INR 1000 crores and/or
is not rated P1 (or P1+) or equivalent, by a recognized credit rating
agency or by a reputed foreign credit rating agency.
12.4.6. Coordination between Clearing Corporation and WDRA in
respect of SD / FSD maintained by the WSPs124
i. The Clearing Corporations shall immediately after accreditation of
WSPs, provide the details of WDRA registered warehouses with
full details of warehouseman registration, warehouse registration,
WSP, address etc. to WDRA. WDRA will in turn, share the details
of security deposit received from these accredited
warehouses/WSPs to the respective Clearing Corporations as per
the format enclosed in Annexure S on Formats for providing
details of Security Deposit. Clearing Corporations shall inform the
changes, if any, with respect to accreditation status of these
warehouses, to enable WDRA to provide the required information
as above. WDRA will also inform Clearing Corporations of any
changes, if any, in the security deposit placed by such
warehouses/WSPs with WDRA.
ii. Clearing Corporations shall continue to compute FSD
requirement as mentioned in this chapter. The deposits placed by
WSPs with WDRA for Stock Exchange/Clearing Corporation
specific outstanding eNWRs shall be considered by the Clearing
Corporation in the calculation of available FSD for the WSP.
124 SEBI Circular no. SEBI/HO/CDMRD/DMP/P/CIR/2021/551 dated April 16, 2021.
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iii. The Clearing Corporation shall compensate the aggrieved clients,
in accordance with its rules, regulations etc., by debiting the FSD
of WSP held with it, in the following situations:
a) for any such losses that have been appropriately established
against the WSP.
b) in case of loss arising from any action or inaction of its WSP or
on the part of its warehouses that prevents the buyer or seller
from exercising, in whole or in part, their rights.
iv. In case the FSD available with Clearing Corporation is not
sufficient to compensate for the loss the FSD and the SD
maintained by such WSP with WDRA shall be made available to
Clearing Corporation within 7 days of the release request from
Clearing Corporation to WDRA, for settlement of the remaining
claims.
v. The settlement of security deposit by WDRA originates only after
the goods stored, if any, are disposed of/ withdrawn by the holder.
vi. The discrepancy noted / claim received by any agency (Clearing
Corporation or WDRA) shall be brought to the notice of other
agency irrespective of invoking the security deposit.
12.5. Fit and Proper Criteria
12.5.1. The Clearing Corporation shall ensure that:
i. the WSP, assayers, Promoters of WSP / assayers, Key
Management Personnel (“KMP”) of WSPs / assayers responsible
for business operation relating to the Stock Exchanges / Clearing
Corporations shall always be 'fit and proper' to carry out business
of warehousing.
ii. such persons have adequate knowledge of, and experience in
generally accepted warehousing and handling practices for the
goods concerned, and are competent and willing to operate such a
warehouse for which the WSP has a valid license/expertise under
the appropriate state warehousing laws in respect of the
warehouses concerned.
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12.6. Corporate Governance norms for WSP
12.6.1. Management and Employees:
i. The Clearing Corporation shall ensure that the accredited WSP
has a professional management team to oversee its functioning
and operations.
ii. The Clearing Corporation shall ensure that the KMPs of WSP
taking care of business operations and warehousing in general
have adequate knowledge of, and experience in generally
accepted warehousing and handling practices for goods for which
they are accredited. The Clearing Corporation shall also ensure
that the KMPs of WSP are competent and willing to operate such
a storage facility and do not have any conflict of interest in
discharge of their functions.
iii. The stock exchanges shall ensure that the following entities, are
not allowed to trade, either directly or indirectly, in the commodity
for which it is accredited by the Clearing Corporation:
a) WSP
b) Management of WSP (defined as ‘key managerial personnel’
including whole time directors of WSP and their ‘relatives’ as
per Companies Act, 2013)
c) entities owned or controlled by promoters/management of
WSP/Group concerns/associates directly or indirectly or
persons ‘acting in concert’
iv. However, based on risk assessment, the stock exchanges may
provide exemptions to requirement stated in Para (iii)above in the
following manner:
a) entities stated in Para (iii) above shall not trade in that specific
commodity/commodities at that particular stock exchange
where concerned WSP is accredited, in their proprietary
account.
b) entities which are associated with an accredited WSP, either
directly or indirectly, and are providing broking services will be
permitted to trade in that commodity on that stock exchange
only for their clients (i.e. non-proprietary) subject to stock
exchange ensuring that the particular entity does not extend
direct/indirect funding to its clients for trading in those
commodities.
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v. If the stock exchange is providing exemptions as mentioned in
Para (iv) above, then it should put in place appropriate controls so
that the WSPs do not exercise preferential treatment to such
entities which may act as disadvantage to other market
participants.
vi. The Clearing Corporation may obtain, and share with Stock
Exchanges, 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. Such declaration may be obtained within a month
of end of the financial year.
vii. The Clearing Corporation shall ensure that the WSP always has
adequate number of competent employees who have the
experience, capacity and ability of operating the business without
any conflict of interest.
viii. The Clearing Corporation shall ensure that the WSP and its
KMPs, shall not disseminate any information that is false or
misleading or disclose any confidential information obtained
during the course of their dealings with the Clearing Corporation
or their positions on the market or any information received during
the course of performance of their duties.
ix. The Clearing Corporation shall ensure that the staff/employees of
the WSP 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
relevant training programmes or are deputed to attend the
certification programme conducted by the National Institute of
Securities Markets (“NISM”).
12.6.2. Compliance officer
i. The Clearing Corporation shall ensure that its WSP appoints a
compliance officer who would be responsible for monitoring the
compliance with all relevant Acts, byelaws, rules and regulations,
notifications, guidelines and instructions issued by relevant
authorities from time to time.
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ii. The compliance officer shall be responsible for ensuring that all
applicable norms are followed by the WSP and shall be issuing a
declaration to that effect to the Clearing Corporations, at regular
intervals as directed by the Clearing Corporation.
12.7. Know Your Depositor
12.7.1. The Clearing Corporation shall ensure that the WSP complies with
Know Your Depositor (“KYD”) Policy as prescribed by the Clearing
Corporation from time to time.
12.7.2. The Clearing Corporation shall ensure that they and the WSP shall,
at any point of time be able to identify the depositor of the goods
deposited in registered warehouses, and the actual beneficiary (in
case the depositor and the beneficiary are different) of the
deposited/stored commodities.
12.8. PAN requirement
12.8.1. The Clearing Corporation shall ensure that the WSPs are under
obligation to provide to it the details including PAN numbers of its
Promoters, Promoter group entities, its holding / subsidiaries /
associates and other related entities, persons ‘acting in concert’, Key
Management Personnel, at the time of accreditation and update the
same on periodical basis as mandated by the Clearing Corporation
and whenever any change is noted by WSP, in this regard.
12.9. Facilities & Infrastructure Requirement for WSP
12.9.1. General requirements applicable to all goods
i. The Clearing Corporation shall ensure that the storage facilities
provided by the WSP are under absolute control of the WSP. In
case a storage facility is a leased property it should be ensured
by Clearing Corporation that no third party including the owner /
lessor of the storage facility, has any role to play in the operations
and managing the concerned storage facilities operated by the
WSP.
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ii. The Clearing Corporation shall ensure that the accredited WSPs
have reasonable facility and infrastructure for proper handling and
storage of commodity as specified under:
a) All its storage facilities are well connected with rail and/or road
networks and have sufficient space for parking and movement
of loading/unloading vehicles.
b) All its storage facilities have adequate equipment, installed and
maintained in good working order, as may be prescribed by the
Clearing Corporation, for the movement of commodities into,
out of and within the storage facility.
c) All its storage facilities are physically and operationally suitable
for the proper storage of commodities and are of sound
construction and in a state of good repair.
d) All its storage facilities provide for a safe work environment;
e) All storage facilities shall have adequate security personnel
with required facilities to immediately communicate to Clearing
Corporation regarding any unlawful entry, burglary, theft or
damage or potential loss to the goods deposited with it.
f) All its storage facilities have adequate lighting arrangement as
may be prescribed by the Clearing Corporation.
g) All its storage facilities have adequate firefighting equipment
installed within its premises, have fire escapes and fire hydrant
points (in case of goods which are inflammable) clearly
marked. Further, the employees of the WSP shall undergo
training in fire safety and use of firefighting equipment.
h) All its storage facilities have required ventilation, installed and
maintained in good working order, as may be prescribed by the
Clearing Corporation, for the proper storage and preservation
of quality of goods;
i) Each storage facility has adequate infrastructure for storing the
deliverable commodities of commodity derivative contracts
which needs to be piled properly in a separate storage area as
specified by the Clearing Corporation thereby providing clear-
cut demarcation between Exchange / non- Exchange
commodities;
j) All its storage facilities are free from materials and substances
that may adversely affect the quality of stored commodities;
k) All its storage facilities to have adequate security as prescribed
by the Clearing Corporation for protection of stored or handled
commodities to prevent from tampering or adulteration;
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l) All its storage facilities to assign a separate place to store the
samples used for inspection / testing for further examination /
testing.
m) Shall uniformly follow the Standard Operating Procedure
(“SOP”) developed by the Clearing Corporations with respect
to the maintenance, preservation and retrieval of
data/records/books of accounts.
iii. Clearing Corporations shall ensure that the WSP have adequate
infrastructure and shall take utmost care in storing commodities in
accordance with the climatic conditions and the nature of
commodity stored.
iv. Clearing Corporations shall ensure that the WSP has put in place
necessary infrastructure for accurate and efficient weighing,
sampling, inspection and grading of the commodities deposited in
its storage facility and WSP has deployed personnel who have
knowledge and experience in sampling, weighing, inspecting
and/or grading of commodities.
v. Clearing Corporations shall ensure that the WSPs always gives
priority to commodities meant for derivatives contracts delivery
while receiving, storing and dispatching goods, in case its
warehouse is also permitted to store goods not meant for delivery
on exchange platform. The Clearing Corporation shall ensure that
WSP should have internal process that enables it to physically
verify, by deputing its officials or through any agencies / experts
engaged by it, the goods deposited, the facilities available in such
warehouse, or to inspect the level of compliance of the
warehousing norms stipulated by the Clearing
Corporation/regulator from time to time.
vi. The Clearing Corporation shall ensure that 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.
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vii. Further, the Clearing Corporation shall ensure that it has put in
place appropriate procedure and controls in place so that there is
minimal queuing of deposits/withdrawal at a storage facility.
viii. Clearing Corporations shall ensure that its WSPs have in place,
necessary policies, control and system in place for dealing with
the risk that may be arising due to the warehouses being used for
purposes other than commodity derivatives market.
12.9.2. Requirements applicable for Agricultural & agri-processed
commodities
i. The Clearing Corporation shall ensure that each storage facility of
accredited WSP meant for storing the Agricultural and agri-
processed commodities shall meet the following conditions in
addition to requirements stated in Para 12.9.1 above:
a) the walls, the floor and the roof do not permit water seepage
and there is no source of any insect infestation.
b) has a fully fenced perimeter/boundary.
c) are free from materials and substances that may adversely
affect the quality of stored commodities;
d) has its own or has access to fumigation facilities/agencies for
pest control activities.
e) has assaying/testing facilities for the commodities it intends to
render warehousing facility for, or shall undertake to be
associated with an assaying/testing agency which may
preferably be certified by one or more national/international
agencies like National Accreditation Board for Calibration and
Testing Laboratories (“NABL”), Bureau of Indian Standards
(“BIS’) etc., as specified by the Clearing Corporation.
ii. 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
favorable 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.
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12.9.3. Requirements applicable for Base Metals/Industrial Metals
i. The Clearing Corporation shall ensure that each storage facility of
accredited WSP meant for storing Base Metals/Industrial Metals
shall meet the following conditions in addition to requirements
stated in Para 12.9.1 above:
a) The storage facilities must have a fully fenced
perimeter/boundary. Loading and unloading shall always take
place within the perimeter/boundary of the warehouse and not
in a public area.
b) All its storage facilities are of sound construction and in a state
of good repair and floor properly levelled and can bear the load
of the weight of the stored metals. The walls, the floor and the
roof do not permit water seepage.
ii. The Clearing Corporation shall ensure that the ferrous metals are
stored by WSP in a manner so as to prevent distortion, corrosion,
scaling and rusting. They shall be stacked/piled adequately above
the ground level.
iii. The Clearing Corporation shall ensure that the WSP undertakes
to have assaying/testing facilities for the commodities it intends to
offer 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 as specified by the
Clearing Corporation.
12.10. Standard Operating Procedure (SOP) and Standards
12.10.1. ISO or other Relevant Standards
i. In case the Clearing Corporations prescribes relevant
International Organization for Standardization (“ISO”) standards
and/or its equivalent, then the Clearing Corporation shall ensure
that the WSPs comply with relevant ISO standards and/or its
equivalent within the timelines prescribed by it.
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12.10.2. SOPs
i. The Clearing Corporation shall ensure that the WSP has a
Standard Operating Procedure (“SOP”) which is process-
dependent and not person-dependent. The Clearing Corporation
shall examine the SOPs in respect of all the concerned storage
facilities before granting accreditation to such storage facilities.
ii. The SOP of a storage facility may cover the following but not
restricted to:
a) Procedures for acceptance of goods to be deposited
b) Weigh bridge empanelment
c) Procedures for weighing, sampling of goods to be deposited as
per industry standards, Procedure for verification of commodity
and communication to depositors,
d) Procedure for depositing and identifying the Exchange related
goods,
e) Procedure for maintaining the quality of the goods stored as
per the exchange contract specification,
f) Procedure for Know your depositor requirements,
g) Security policy for ensuring the safety of the goods from theft,
burglary etc.,
h) Procedure and guidelines for scientific storage of goods,
including stacking etc.,
i) Procedure for losses caused due to theft, fire, burglary, fraud,
negligence and force majeure events,
j) Procedure for internal verification of stock,
k) 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.
l) Selection of Location for offering warehousing services
m) Grievance redressal procedures
n) Role and responsibilities of employees (including outsourced
employees)
o) Model warehouse agreement format
p) Maintenance of surroundings, infrastructure etc.
iii. The Clearing Corporation shall ensure that the WSP has good
internal systems and controls which should meet the operating
guidelines, if any, issued by the Clearing Corporation from time to
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time. The WSP shall have clear delegation of powers to meet
operational requirement.
iv. The Clearing Corporation shall ensure that WSP intimates /
notifies in writing to the Clearing Corporation, if there is any
material change in it SOP, prior to making such change.
v. The Clearing Corporation shall ensure that WSP reports to the
Clearing Corporation within three days of initiation of any civil and
criminal proceedings by or against it and shall also intimate the
Clearing Corporation if there is probability of any such legal
proceedings being initiated involving it, as soon as the same
comes to the knowledge of the WSP.
12.11. Sampling Procedure
12.11.1. The Clearing Corporations shall ensure that, wherever assaying is
carried out by WSPs, adequate samples of goods are
collected/retained from the goods deposited and are sealed in the
presence of the depositor or his authorized representative.
12.11.2. In order to resolve potential disputes arising with respect to the
quality of goods, if any, at least four samples shall be taken of which
one sample shall be used for analysis, one shall be kept with the
WSP for comparison purpose, one shall be given to the depositors
while one shall be kept for record/lab reference purpose.
12.12. Accreditation of Assayers
12.12.1. The Clearing Corporation shall follow a transparent process for
accreditation of assayers by issue of open advertisement in leading
newspapers and/or by putting up the same on the website of the
Clearing Corporation. The process to be followed for such
accreditation shall be displayed on the website of the Clearing
Corporation before the beginning of the selection process. The
accreditation shall be done with the approval of the relevant
Committee of the board of directors of the Clearing Corporation in
terms of the SECC Regulations.
12.12.2. The Clearing Corporation shall conduct independent pre-
empanelment due diligence of Assayers by visiting the laboratories
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and assessing the testing and certification facilities. The Clearing
Corporation shall give preference to the Government assayers or to
those Assayers who are having testing and certification facilities at
various locations across India. In addition to the empanelment of
assayers for deployment by the WSPs at their warehouses, the
Clearing Corporation shall also identify and empanel separate
independent assayer(s) where the market participants can get their
goods/commodities assayed independently, at the time of depositing
into or withdrawing such commodities/goods from a warehouse.
However, if the original empanelled assayers engaged by WSP at a
delivery centre happen to be Government assayer, then the need for
empanelling an additional independent assayer may be dispended
with.
12.12.3. The Clearing Corporation shall ensure that the empanelled assayers
work independently, and their operations are governed by the SOPs
prepared by the Clearing Corporation. The assayers shall be
preferably certified by one or more national/international agencies
like NABL, BIS etc., and shall have the facilities as laid down by the
Clearing Corporation from time to time.
12.13. Warehouses at delivery centres
12.13.1. The Clearing Corporation shall have at least one storage facility at
each of the delivery centres (as specified in the contract specification)
at the time of launch of contract itself and address of such storage
facility shall be disclosed along with the contract specifications by the
Clearing Corporation on their website / by issuance of relevant
Circular to all market participants.
12.13.2. The Clearing Corporation may accredit warehouses of a WSP within
a radius of 100 km of the delivery centres depending on the feasibility
and market requirements in respect of all commodities.
12.14. Insurance
12.14.1. The Clearing Corporation shall ensure that its WSPs, whether
presently registered with the WDRA or not, comply with the insurance
guidelines/ norms issued by the WDRA.
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12.15. Embracing new technology
12.15.1. The Clearing Corporations shall strive to adopt the latest technology
for routine and surprise inspections/audits, monitoring and
surveillance of the warehouses etc.
12.15.2. The Clearing Corporation shall ensure that to the extent possible the
WSP to be accredited by them has adopted or shall adopt the latest
technology with respect to the operations of the warehousing
business. The Clearing Corporation may identify the areas where use
of latest technology can be mandated by it and provide a timeframe
to its WSPs for adoption of the same.
12.16. Monitoring/Inspection/Audit
12.16.1. Periodic inspection/audit by WSPs
i. The Clearing Corporation shall ensure that there is periodic
inspection/audit by the WSP of the storage facilities and the goods
stored therein.
ii. The Clearing Corporation shall ensure that the staff of the WSP
conducting inspection is independent of the employees / staff
deputed at the registered storage facility.
iii. The Clearing Corporation shall ensure that the inspection/audit
report is submitted to the Clearing Corporation within 15 days of
the completion of such inspection/audit.
12.16.2. Periodic inspection/audit of warehouses by the Clearing
Corporation
i. The Clearing Corporation shall ensure that independent audit of
the goods and other facilities in the storage facilities is carried out
by engaging expert agencies, at regular intervals.
ii. Such inspections shall be carried out in each accredited storage
facility, at least twice in a calendar year, with a gap of not more
than six months between two inspections/audits of same storage
facility. However, in case there are NIL stocks in an accredited
storage facility during preceding six months, the Clearing
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Corporations would be exempted from requirement of inspection
by independent agency.
iii. Additionally, the audit may also be conducted on risk profiling, as
identified by the Clearing Corporation. For this purpose, the
Clearing Corporation shall form a panel of independent expert
agencies and the cost of such audit shall be borne by the
respective Clearing Corporation.
iv. The panel of such independent expert agencies for carrying out
inspection of warehouses, shall also be reviewed by the Clearing
Corporation from time to time.
v. The Clearing Corporation 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.
vi. In addition, the Clearing Corporation shall also conduct in-house
physical audit of accredited storage facilities at regular intervals.
vii. The audit report conducted by independent expert agencies shall
be displayed on the website of the Clearing Corporation within 15
days after the submission of report by the auditor.
viii. The Clearing Corporations shall carry out surprise inspections of
storage facilities as and when such exigencies arise.
ix. The Clearing Corporations shall have a detailed manual for
carrying out the audits and inspections of the WSP/ storage
facilities concerned.
12.16.3. Monitoring of goods stored at accredited storage facilities by
the Clearing Corporations
i. The Clearing Corporations shall be responsible for monitoring the
storage facilities of their accredited WSPs.
ii. Norms relating to the monitoring of storage facilities shall be
placed in public domain by the Clearing Corporation.
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iii. A deliberation on the continuous functioning, monitoring and
compliance of norms by WSPs, storage facilities and assayers
may be one of the agenda items in all meetings of the board of
directors of the Clearing Corporation in terms of the SECC
Regulations.
iv. The Clearing Corporations and WSPs shall ensure that the goods
whose Final Expiry Date (“FED”) is over, are removed from the
concerned warehouse immediately, but not later than 3 months
from the date of the final expiry date. However, it is clarified that
WSP shall ensure proper demarcation of goods which have
crossed FED and where follow ups have been done may be
considered compliance of guidelines by WSPs. If there is space
constraint, the Clearing Corporations shall identify new
warehouse nearby for deposit of goods.
Note: For the purpose of this Circular, FED is the date after which
the goods cannot be delivered for settlement of derivatives
contracts on the stock exchange platform.
v. To further strengthen the process of monitoring, the Clearing
Corporations shall mandate their WSPs to submit the report of the
inspections carried out by the statutory authorities like WDRA to
the Clearing Corporations within 2 weeks from the receipt of report
by WSPs of such inspection along with their comments.
12.16.4. Physical inspections of goods by beneficiary owner of goods
i. The Clearing Corporations shall ensure that the beneficiary owner
of the goods is allowed by the concerned WSPs to physically
inspect their goods as and when requested by the holders of
eNWRs.
ii. The request for such physical inspection shall be submitted to the
Clearing Corporations and the Clearing Corporations after
verification and satisfaction of need for such request, shall forward
the same to the concerned WSP for allowing such inspection to
be completed within a stipulated timeframe.
iii. Upon receipt of such advice from the Clearing Corporations, the
WSP shall allow the holder/its authorized representatives holding
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eNWRs or any other electronic receipts/credit balances to do
physical inspection of their goods.
12.16.5. Physical reconciliation of goods
i. The Clearing Corporation shall put in place adequate procedures
to ensure that the physical counting of goods and their
reconciliation with the corresponding electronic records is done
on fortnightly basis by its WSPs.
ii. The Clearing Corporation shall submit report to SEBI of details of
discrepancy observed during the physical reconciliation of goods
along with reasons and action taken thereof, on a quarterly basis.
Only in extreme cases, in the judgement of the Clearing
Corporation, SEBI may be informed of the discrepancy observed
on immediate basis.
12.16.6. Review of WSPs/Warehouses
i. The Clearing Corporations shall review and appraise operational
performance of each WSP every year. Based on the operational
review the Clearing Corporations may adjust the allocation of
commodities and the limit of deliveries at various storage facilities
of the concerned WSP in accordance with the results of such
performance evaluation and appraisal.
ii. Additionally, the Clearing Corporations may carry out quarterly
and quarterly performance review of all warehouses accredited by
it, taking into account various performance parameters such as
storage facilities, the capacity and appearance of the warehouse,
business capabilities, business performance, accounting, the
satisfaction level of members/clients, redressal of client
grievances, and other factors as the Clearing Corporation may
deem necessary for its review.
iii. The Clearing Corporations may take necessary action against
WSPs as mentioned in para 21 of the circular, if the storage facility
is unable to meet the requirements of an accredited storage
facility and fails to improve the standard within the stipulated
timeframe.
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12.17. Code of Conduct
12.17.1. The Clearing Corporation shall frame code of conduct for the WSPs,
storage facility and assayers which shall be disclosed on the website
of the Clearing Corporation.
12.18. Grievance Cell
12.18.1. The Clearing Corporation shall ensure that it has a Grievance Cell to
handle the investor complaints.
12.18.2. The Clearing Corporation shall take proactive steps to resolve
client/customer related issues and maintain a record of complaints
received and resolved.
12.18.3. The Clearing Corporation 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.
12.19. Monthly Information System (MIS)
12.19.1. It is desirable that there should be electronic record of information at
the WSP and a MIS system with an arrangement for flow of real time
information from the storage facility location to the central MIS and
onwards to the Clearing Corporations electronically. The MIS should
have the capability to capture and disseminate information regarding
goods being held either storage facility -wise or location-wise, or the
availability of space in the storage facilities.
12.19.2. The Clearing Corporation shall display on its website, the list of
accredited warehouses for the deposit of goods for delivery on the
exchange platform along with the policy for deposit of such goods.
The market participants willing to deposit goods in accredited
warehouses shall submit a request to the WSP in accordance with
the policy put in place by the Clearing Corporation for deposit of
goods. The WSP shall intimate the depositing participant about the
logistic details such as the time, place and storage facility where the
goods can be deposited by them. The WSP shall accept the goods
for deposits for all such confirmed deposit requests in accordance
with the policy put in place by the Clearing Corporation for deposit of
goods.
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12.20. Surrender/Cancellation of accreditation
12.20.1. The WSP may apply for surrender of its accreditation by submitting
the Application for Surrender to the concerned Clearing Corporation
for evaluation and approval.
12.20.2. The Clearing Corporation may cancel the accreditations of 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 Clearing Corporation shall put in place a
cancellation policy for WSP in public domain. However, the Clearing
Corporation shall offer the WSP concerned an opportunity of being
heard and take a decision on cancellation after considering the
explanation of the WSP.
12.20.3. A WSP that surrenders its accreditation, or its accreditation is
cancelled, shall attend to the following matters urgently:
i. All commodities for delivery towards settlement of derivatives
contract shall be dispatched out of the warehouse;
ii. All liabilities and debts vis-a-vis the Stock Exchange/Clearing
Corporation, 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 client/customer complaints pertaining to any of its registered
warehouses are pending for redressal.
12.20.4. Financial Security Deposit (“FSD”) shall be returned in accordance
with the rules framed by the Clearing Corporations, keeping aside
10% of such deposits with the Clearing Corporations, which shall not
be released until six months after cancellation or surrender of
accreditation of the WSP or until satisfaction of all claims against the
deposits made in its warehouses, whichever is later.
12.20.5. A WSP which surrenders its accreditation with the Clearing
Corporations shall not be eligible to provide its services to the same
Clearing Corporations for a period of 3 years.
12.20.6. Once the accreditation of a WSP is cancelled by a Clearing
Corporation then it shall not be eligible to provide its services to any
other Clearing Corporation for 3 years.
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12.20.7. Adequate notice intimation to general public / clients should be given
by the Clearing Corporation through widely published newspapers
and website etc. before accepting the surrender of WSP or
cancellation of the WSP.
12.21. Business Continuity Plan
12.21.1. A Clearing Corporations shall ensure that the WSP shall put in place,
a business continuity plan and submits such plan to the Clearing
Corporations.
12.22. Actions against WSPs
12.22.1. The Clearing Corporation may frame norms for its accredited WSPs
to rectify or correct their misconduct or misconduct on the part of any
of its approved warehouses used for storing goods for delivery on
exchange platform. The Clearing Corporation may also direct the
WSPs to indemnify an entity aggrieved by the delivery process of its
warehouse or, in serious cases of misconduct/malfeasance, revoke
the accreditation of the concerned warehouse or/and hold the WSP
accountable for any legal liabilities, if the concerned erring WSP/
warehouse engages in any of the following offences:
i refuses to accept delivery without any bonafide reasons or, issues
a falsified certificate of delivery;
ii violates any of the Clearing Corporation’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 of a commodity derivative contract;
iv provide inaccurate or incomplete information to the Clearing
Corporation, conceal the truth of the facts;
v engages in the commodity derivatives trading activities; or
vi any other offence not listed above.
However, the above actions may be initiated only after taking due
approval from the relevant committee of the board of directors of
the Clearing Corporation in terms of the SECC Regulations.
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12.22.2. 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
that prevents the buyer or seller from exercising, in whole or in part,
their rights. The Clearing Corporation shall compensate the
aggrieved client for any such losses that have been appropriately
established by debiting the FSD of WSP held with the CC, in
accordance with its applicable rules, and WSP shall within 7 days
replenish the FSD as required.
12.23. Policy for depositors for rejection of goods
12.23.1. The Clearing Corporations shall frame a policy for rejection of goods
deposited by the depositors.
12.24. Disclosures by Clearing Corporations
12.24.1. Daily disclosure on the following:
i. Details about the storage facility including available and utilized
capacity, type of commodity allowed to be stored, location of
storage facility etc.
ii. Details about storage facility-wise and / or commodity wise details
of opening stock, goods deposited and held in transit (inbound
and outbound), rejected stock, closing stock,
encumbered/pledged stock and stock eligible for delivery on
Clearing Corporation, name of the warehouse service provider,
particulars of acceptance/rejection of goods by the storage facility
concerned, details of empanelled assayers and independent
assayers, if any, attached to the storage facility etc., on their
websites.
iii. FED wise stock position in approved warehouses.
iv. Quantum of goods physically withdrawn by the holders.
v. Commodity wise %age of deposits held by top 3, 5 & 10
beneficiary owners for commodity as under:
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Commodity Commodity Commodity Commodity
A B C D and so
on
Top 3
Top 5
Top 10
Others
12.24.2. Monthly disclosure on the following:
i. A summary of number of complaints with status as per the
following format:
WSP wise status of complaints for Month ended
WSP No. of No. of No. of complaints
Name complaints complaints pending for month
received during resolved during with reasons for
month month pendency
ii. A summary of nature of complaints received as per the following
format:
Month ending
Nature of Name Name of ……. Name of Total
Complaint of WSP WSP 2 WSP n
1
Total
iii. 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 CC/WDRA with reason for the same, etc.
iv. Details of storage fee and assaying charges.
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v. Details of commodity wise goods deposited in WSP’s Clearing
Corporation accredited warehouse - by WSP, Management of
WSP (defined as ‘key managerial personnel’ including whole time
directors of WSP and their ‘relatives’ as per Companies Act,
2013), entities owned or controlled by promoters/management of
WSP/Group concerns/associates directly or indirectly or persons
‘acting in concert’.
The above discourse should be made available on the website of
the Clearing Corporation latest by 7th of the Month.
12.24.3. Other periodical disclosures:
i. Disclosure of the audit report of the WSP within 15 days after the
submission of report by the auditor.
ii. Quarterly Disclosure on average value of various quality
parameters of commodities stored
iii. Commodity wise and WSP wise quarterly disclosure on request
of resampling and its results
iv. Warehouse wise Half yearly disclosure on indicative Load-in and
Load-out Rate (Quantity in Metric Ton- MT)
12.24.4. The archives of above reports shall be available on the website of
Clearing Corporation/ Stock Exchange.
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CHAPTER 13. INVESTOR PROTECTION FUND & INVESTOR SERVICE
FUND AND ITS RELATED MATTERS
13.1. Investor Protection Fund (IPF)125
13.1.1. Constitution and Management of the Investor Protection Fund
(“IPF”)
I. The IPF shall be administered by a Trust created for this purpose.
II. The IPF Trust of the stock 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 stock
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
SEBI126.
III. [***]127
IV. Stock Exchanges shall provide the secretariat for the IPF
Trust/Committee.
V. Stock Exchanges shall ensure that the funds in the IPF are well
segregated from that of the Stock Exchange and that the IPF is
immune from any liability of the exchange.
VI. [***]128
13.1.2. Contributions to the IPF: The IPF will be funded as follows:
I. All the penalties levied and collected by the stock exchange,
except for the settlement related penalties (including penalties
from delivery default), shall be credited to the IPF.129
125 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2016/94 dated September 26, 2016.
126 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
127 SEBI circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
128 SEBI circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
129 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
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II. 1% of the turnover fee charged by the stock exchange from its
members/brokers or ten lakh whichever is higher in a financial
year.130
13.1.3. Manner of filing/inviting claims from the Investors/Clients
I. In accordance with its byelaws, rules or regulations, the stock
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. Stock Exchange(s) 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 Member(s) of the Stock
Exchange(s) is/are situated.
IV. The notice calling for claims shall be displayed on the website
of the stock 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.
13.1.4. Eligibility of Claims
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 131
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.
130 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
131 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
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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 stock 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.
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. [***]132
IV. The investor claim arising out of a default of a broker/member
of the stock exchange shall be eligible for compensation from
IPF.133
13.1.5. Determination of Legitimate Claims
13.1.5.1. The Stock Exchanges shall ensure that once a member has
been declared defaulter, the claim(s) shall be placed before
the Member Core Settlement Guarantee Fund Committee
(“MCSGFC”), the erstwhile Defaulters’ Committee, for
sanction and ratification. MCSGFC’s advice w.r.t. legitimate
claims shall be sent to the IPF Trust for disbursement of the
amount immediately.
13.1.5.2. In case the claim amount is more than the coverage limit under
IPF or the amount sanctioned and ratified by the MCSGFC is
less than the claim amount then the investor shall be at liberty
to prefer for arbitration outside the stock exchange mechanism
/ any other legal forum outside the stock exchange mechanism
for claim of the balance amount. 134
13.1.5.3. In the event of default by the member, all transactions
executed on the stock exchange platform shall be eligible for
settlement from IPF subject to the appropriate norms laid down
by the defaulters’ committee. The IPF of the stock exchange
132 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
133 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
134 SEBI Circular no. SEBI/HO/CDMRD/DoC/P/CIR/2021/651 dated October 22, 2021.
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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. 135
13.1.5.4. The stock exchanges shall also use their IPF for meeting their
liabilities towards the clients of members not registered with
SEBI, if the same is allowed under the byelaws of the stock
exchange. 136
13.1.6. Threshold limit for Claims
I. The Stock 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 INR 1 lakh.137
II. The stock exchanges in consultation with their IPF Trust, shall
review and progressively in case the amount of compensation
available against a single claim from an investor at least every
three year.138
III. [***]139
IV. Stock Exchanges shall disseminate the compensation limit fixed
by them and any change thereof, to the public through a Press
Release and through their Website.
13.1.7. 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.140
135 SEBI Circular No. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
136 SEBI Circular no. CIR/HO/CDMRD/DCE/CIR/P/2018/49 dated March 14, 2018.
137 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
138 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
139 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
140 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
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III. Stock 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 stock exchange141.
Provided that in case of a member having membership on
multiple stock 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 stock exchange,
SEBI, and other stock exchanges as the case may be.
Provided further that in cases where litigation are pending
against the defaulter member, the residual amount, if any, may
be retained by the stock 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. Stock 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 directors of the stock
exchange on any decision of the Managing Committee of IPF
regarding any claim.
VI. In case the stock 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 shall 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
141 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
Page 151 of 348
Trust shall take necessary steps for disbursement of amount at
the earliest.142
VIII. Stock Exchanges shall periodically review the sources of fund
and eligible compensation amount so as to recalibrate the fund
to make suitable recommendation for enhancement.
13.1.8. Income earned on IPF and its Utilization143:
I. Stock Exchanges 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 Centres. However, no expenditure shall be
incurred on product promotion in any manner. Further, the
income earned on the IPF corpus may be utilized in such 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 may be carried forward to the next financial year
to enable effective utilization of such money by the stock
exchanges during such extended period.
III. The stock exchange shall also be permitted to utilize IPF
interest income for undertaking research activities related to
commodities market, provided every such research activity /
project may 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 directors of the stock 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 shall be an overall cap on the total amount, not more than
10% of the interest amount of IPF which can be spent on
142 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
143 SEBI Circular no. CIR/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
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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 such Research activities shall be
undertaken/ organised/ sponsored.144
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 stock exchange.
13.2. Investor Service Fund (ISF)145
13.2.1. Stock Exchanges are mandated to set up Investor Service Fund
(“ISF”) for providing following basis minimum facilities at various
Investor Service Centers (“ISCs”).
I. The ISCs shall provide 4 financial newspapers with at least one
in the Regional language of the concerned ISC.
II. The ISCs 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 shall be made available to the investors at minimum
cost.
III. The ISCs shall provide facilities for receiving/recording investor
complaints. Special staff recruited/deployed by the stock
exchanges for this purpose shall register the complaints and
provide counselling service to the investors. Status of
complaints shall be maintained and updated in the computer
system of the ISCs.
144 SEBI Circular no. CIR/HO/CDMRD/DCE/CIR/P/2018/49 dated March 14, 2018.
145 SEBI Circular no. CIR/HO/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017.
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IV. The ISCs 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 ISCs shall provide published commodity related materials
of stock exchanges for the benefit of the investors. It shall also
provide the pamphlets / brochures detailing the rights and
obligation of investors while dealing with brokers in commodity
markets, FAQ's etc.
VI. The ISCs shall provide for dummy terminals to display the prices
of the commodities listed on the stock exchanges on real-time
basis, to enable investors watch the price movements of the
commodities etc.
VII. The ISCs shall maintain a library on relevant laws, financial
analysis, market trend analysis etc. for the education of the
investors.
VIII. The ISCs 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.
13.2.2. Contribution to ISF
I. At initial stage, the stock exchange shall contribute a minimum
of INR Ten Lakhs towards setting up of ISF. Subsequently,
onwards, the stock exchange 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 INR Ten Lakh in a financial year.
II. The stock 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 stock exchange shall be permitted to utilize the corpus of
ISF for conducting various investor education and awareness
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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, the Investor Service
Committee of the stock exchange shall oversee the contribution
to ISF and its utilization.
V. Stock Exchange shall maintain separate bank account for
maintaining corpus of the IPF as well as ISF and such funds
shall not be co-mingled with any other fund(s) of the stock
exchange and shall not be used for any other purpose.
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CHAPTER 14. INVESTOR GRIEVANCE REDRESSAL SYSTEM AND
ARBITRATION MECHANISM
14.1. Investor Grievance Redressal System 146
14.1.1. The stock exchanges shall constitute Investor Grievance Redressal
Committee (“IGRC”) for redressal of investor grievances.
14.1.2. The composition of the IGRC shall be as follows: -
i. The IGRC shall comprise of a single person for claims up to INR
25 Lakh, whereas, for claims above INR 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 IGRC 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 any trading
member in any manner.
v. Stock Exchanges shall empanel IGRC members, however, no
arbitrator/ appellate arbitrator shall be empanelled as IGRC
member. 147
vi. Stock Exchanges shall organize regular training program for
IGRC members in consultation with National Institute of
Securities Markets (“NISM”). The cost of such program shall be
borne by Investor Service Fund (“ISF”) of the Stock
Exchange.148
146 SEBI Circular No. CIR/CDMRD/DEICE/02/2015 dated November 16, 2015.
147 SEBI Circular No. CIR/CDMRD/DEICE/CIR/P/2017/77 July 11, 2017.
148 SEBI Circular No. SEBI/HO/MIRSD/DOC/CIR/P/2020/226 dated November 6, 2020.
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vii. The disclosures and code of conduct prescribed is given below:
A. The name of a person shall be included in the panel after
obtaining:
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 the securities
market
iii. disclosure of the names of his dependents associated with
the securities market as member or authorized person, and
iv. an undertaking that he shall abide by the code of conduct
prescribed.
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 consonance with the
principles of natural justice and in compliance with the
provisions of the Securities Contracts (Regulation) Act,
1956, the Securities and Exchange Board of India Act, 1992,
the Arbitration and Conciliation Act, 1996 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.
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14.1.3. With a view to streamline and make more effective the investor
grievance redressal mechanism at stock 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, Stock Exchanges are advised as
under:
i. The exchanges shall ensure that all complaints are resolved at
their end within 15 days. If complaint is not resolved within
stipulated time frame, then the reason for non redressal in given
time frame shall also be recorded.149 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 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 stock exchange shall start immediately after the timelines
stated above.
iii. IGRC shall have a time of 15 working days to amicably resolve
the investor complaint through conciliation process. If IGRC
needs additional information, then IGRC may request the Stock
Exchange to provide the same before the initiation of the
conciliation process. In such case, where additional information
is sought, the timeline for resolution of the complaint by IGRC
shall not exceed 30 working days.150
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.
149 SEBI Circular No. SEBI/HO/MIRSD/DOC/CIR/P/2020/226 dated November 6, 2020.
150 SEBI Circular No. SEBI/HO/MIRSD/DOC/CIR/P/2020/226 dated November 6, 2020.
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vi. Expenses of IGRC shall be borne by the respective Stock
Exchange and no fees shall be charged to the complainant/
member.
vii. Upon conclusion of the proceedings of IGRC, i.e. in case claim
is admissible to the investor, the stock exchange shall block the
admissible claim value from the deposit of the Member.
viii. The stock exchange shall give a time of 7 days to the Member
from the date of signing of IGRC directions to inform the stock
exchange whether the Member intends to pursue the next level
of resolution i.e. Arbitration.
ix. In case, the Member does not opt for arbitration, the stock
exchange shall, release the blocked amount to the investor after
the aforementioned 7 days.
x. 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 below151 :
A. In case, the order is in favour of client and the member opts
for arbitration wherein the claim value admissible to the client
is not more than INR 20 lakhs, the following steps shall be
undertaken by the Stock Exchange:152
i. In case the IGRC order is in favour of the client, then 50% of
the admissible claim value or INR 2 lakhs, whichever is less,
shall be released to the client from IPF of the Stock
Exchange.
ii. In case the arbitration award is in favour of the client and the
member opts for appellate arbitration, then a positive
difference of, 50% of the amount mentioned in the arbitration
award or INR 3 lakhs, whichever is less, and the amount
already released to the client at clause (i) above, shall be
released to the client from IPF of the Stock Exchange.
iii. In case the appellate arbitration award is in favour of the
client and the member opts for making an application under
151 SEBI Circular No. CIR/CDMRD/DEICE/CIR/P/2017/77 dated July 11, 2017
152 SEBI Circular No. SEBI/HO/CDMRD/DoC/P/CIR/2021/649 dated October 22, 2021.
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Section 34 of the Arbitration and Conciliation Act, 1996 to set
aside the appellate arbitration award, then a positive
difference of, 75% of the amount mentioned in the appellate
arbitration award or INR 5 lakhs, whichever is less, and the
amount already released to the client at clause (i) and (ii)
above, shall be released to the client from IPF of the Stock
Exchange.
iv. Total amount released to the client through the facility of
interim relief from IPF in terms of this Circular shall not
exceed INR10 lakhs in a financial year.
v. Before release of the said amounts from the IPF to the
investor, the Stock 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 the stock exchange and the rest shall be paid
to the investor.
viii. Stock 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 stock exchange 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.
Page 160 of 348
x. The stock exchanges may resort to displaying the names of
such investors on their websites and also initiate appropriate
legal steps in consultation with the IPF Trust, if deemed
necessary, for bringing the money back in the IPF.
B. Stock 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. Stock 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.
14.1.4. With a view to rationalize the timelines involved in the arbitration
mechanism, stock 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 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 the stock 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 Member does not express their intent to challenge the
arbitration award/appellate arbitration award, then the stock
exchange shall presume that the Member does not intend to
challenge the award and the stock exchange shall take further
steps accordingly.
14.1.5. With a view to address complaints regarding 'unauthorised trades',
the stock exchanges shall 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.
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ii. The Member shall maintain a verifiable record of having made
such margin calls and that clients having not complied with the
same.
iii. With a view to assist investors engaged in dispute resolution
process, stock exchanges shall set up facilitation desks at all
ISCs. These facilitation desks shall also assist investors in
obtaining documents/details from stock exchanges wherever so
required for making application to IGRC and filing arbitration.
14.2. Online Web Based Complaints Redressal System153
14.2.1 SEBI has implemented an online platform known as SEBI Complaints
Redressal System (“SCORES”) designed to help investors to lodge
their complaints, pertaining to securities market, against listed
companies and SEBI registered intermediaries.
14.2.2 In line with the same, to enable investors to lodge and follow up their
complaints and track the status of redressed of such complaints from
anywhere, all Stock Exchanges shall implement an online web based
complaints redressal system of their own, which shall facilitate
investors to file complaints and escalate complaints for redressal
through IGRC, arbitration, appellate arbitration etc. in accordance
with their respective byelaws, rules and regulations. The system shall
be web enabled and provide online access 24 x 7 with the following
salient features;
a) Complaints/GRC/Arbitration/Appellate Arbitration and
reminders thereon are lodged online at anytime from
anywhere;
b) An email is generated instantaneously acknowledging the
receipt of the complaint and allotting a unique registration
number for future reference and tracking;
c) The matter/case moves online to the entity (intermediary or
listed company) concerned for its redressal;
d) The entity concerned can indicate the mode i.e. online or
offline for IGRC and arbitration.
e) The access of the online system should be given to the
Trading Members and Depository Participants.
153 SEBI Circular No. SEBI/HO/MRD1/ICC1/CIR/P/2022/94 dated July 04, 2022.
Page 162 of 348
f) The entity concerned uploads an Action Taken Report
(ATR) on the Complaints/IGRC/Arbitration/Appellate
Arbitration;
g) All Recognized Stock Exchanges including Commodity
Derivatives Exchanges peruse the ATR and dispose of the
Complaints/IGRC/Arbitration/Appellate Arbitration if it is
satisfied that the complaint has been redressed adequately;
h) The concerned investor can view the status of the complaint
online;
i) The entity concerned and the concerned investor can
seek and provide clarification(s) online to each other;
j) The life cycle of a Complaints/GRC/Arbitration/Appellate
Arbitration has an audit trail; and
k) All the Complaints/IGRC/Arbitration/Appellate Arbitration are
saved in a central database which would generate relevant
MIS reports to enable all Stock Exchanges to take appropriate
policy decisions and or remedial actions.
l) There should be a provision to link the online system with
SCORES.
14.3. Increasing Awareness regarding Online Mechanisms for Investor
Grievance Redressal154
14.3.1 In order to increases the awareness regarding SCORES, all Stock
Exchanges /Clearing Corporations shall display the following on the
home page of their websites and mobile apps:
i. link / option to lodge complaint with them directly
ii.link to SCORES website/ link to download SCORES mobile app.
14.4. Hybrid Mode of Conducting GRC and Arbitration / Appellate
Arbitration155
14.4.1 During the COVID pandemic, Stock Exchanges were advised to
conduct IGRC and arbitration/ appellate arbitration
meetings/hearings online for faster redressal of complaints. The
online process of IGRC and arbitration/ appellate arbitration saves
time and cost of the parties involved which is in the interest of
investors.
154 SEBI Circular No. SEBI/HO/MRD1/MRD1_ICC1/P/CIR/2022/05 January 05, 2022.
155 SEBI Circular No. SEBI/HO/MRD1/ICC1/CIR/P2022/94 dated July 04, 2022
Page 163 of 348
14.4.2 Therefore, Stock Exchanges shall continue with the hybrid mode
(i.e., online and offline) of conducting IGRC and arbitration/
appellate arbitration process.
14.5. Disclosure of Complaints against the Stock Exchange(s)and the
Clearing Corporation(s)156
14.5.1. In order to bring about transparency in the Investor Grievance
Redressal Mechanism, all the Stock Exchanges and the Clearing
Corporations shall disclose on their websites, the data on
complaints received against them and redressal thereof, latest by
7th of succeeding month, as per the format given in the Annexure.
14.6. Arbitration mechanism 157
14.6.1. For any dispute between the member and the client relating to or
arising out of the transactions in Stock Exchange, which is of civil
nature, the complainant/ member shall first refer the complaint to
the IGRC and/ or to arbitration mechanism provided by the Stock
Exchange before resorting to other remedies available under any
other law. 158The Bye-laws of the stock exchanges relating to
arbitration proceedings shall be in accordance with the Arbitration
and Conciliation Act, 1996 and this Master Circular.
14.6.2. In consultation with the stock 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.
14.6.3. A stock 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
Master Circular read with Section 2(4) of the Arbitration and
Conciliation, Act, 1996.
156 SEBI Circular No. SEBI/HO/CDMRD/DoC/P/CIR/2021/636 dated October 04, 2021
157 SEBI Circular No. CIR/CDMRD/DEICE/CIR/P/2017/77 dated July 11, 2017
158 SEBI Circular No. SEBI/HO/MIRSD/DOS3/P/CIR/2022/78 dated June 3, 2022
Page 164 of 348
14.6.4. Maintenance of a Panel of Arbitrators.
i. A stock 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 references simultaneously and all arbitration
references are disposed of within the prescribed time.
ii. The stock 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.
14.6.5. 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;
Page 165 of 348
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;
viii. conduct arbitration proceedings in in consonance with the
principles of natural justice and in compliance with the
provisions of the Securities Contracts (Regulation) Act, 1956,
the Securities and Exchange Board of India Act, 1992, the
Arbitration and Conciliation Act, 1996 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 Master Circular; and
pass reasoned and speaking arbitral awards.
14.6.6. Arbitration
i. A complainant/member, who is not satisfied with the
recommendation of the IGRC shall avail the arbitration
mechanism of the Stock Exchange for settlement of complaints
within three months from the date of IGRC recommendation.159
ii. The time period of three months mentioned in the previous sub-
clause for filing arbitration shall be applicable only for the cases
where the IGRC recommendation is being challenged. For any
arbitration application received without going through IGRC
mechanism, the above time period of three months shall not
apply, and for such cases the limitation period for filing an
arbitration reference shall be governed by the law of limitation,
i.e., The Limitation Act, 1963.160
iii. For the removal of doubts, it is clarified that the sole arbitrator
or the panel of arbitrators, as the case may be, appointed under
the Stock Exchange arbitration mechanism shall always be
deemed to have the competence to rule on its jurisdiction.161
159 SEBI Circular No. SEBI/HO/MIRSD/DOS3/P/CIR/2022/78 dated June 3, 2022
160 SEBI Circular No. SEBI/HO/MIRSD/DOS3/P/CIR/2022/78 dated June 3, 2022
161 SEBI Circular No. SEBI/HO/MIRSD/DOS3/P/CIR/2022/78 dated June 3, 2022
Page 166 of 348
iv. An arbitration reference for a claim / counter claim up to INR 25
lakh shall be dealt with by a sole arbitrator while that above INR
25 lakh shall be dealt with by a panel of three arbitrators.
v. The stock 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.
vi. 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).
vii. The Managing Director/ Executive Director of the stock
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.
14.6.7. Appellate Arbitration
i. A party aggrieved by an arbitral award may appeal to the
appellate panel of arbitrators of the stock exchange against
such award.
ii. An appeal before the appellate panel of arbitrators shall 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.
iv. The stock 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 stock
exchange may for sufficient cause extend the time for issue of
Page 167 of 348
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.
14.6.8. Arbitration Fees162 : 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 six If the claim is filed
Claim / filed within months from the date of beyond the
Counter six months dispute or after one timeline
Claim, from the month from the date of prescribed in
whichever is date of IGRP order, whichever is column 3, (only
higher (in dispute later for member)
rupees)
≤ 10,00,000 1.3% subject 3.9% subject to a minimum Additional fee of
to a of INR 30,000 INR 3,000/-per
minimum of month over and
INR 10,000 above fee
prescribed in
column 3
> 10,00,000 - INR 13,000 INR 39,000 plus 0.9% Additional fee of
25,00,000 ≤ plus 0.3% amount above INR 10 lakh INR 6,000/-per
amount month over and
above INR above fee
10 lakh prescribed in
column 3
> 25,00,000 INR 17,500 INR 52,500 plus 0.6 % Additional fee of
plus 0.2 % amount above INR 25 lakh INR 12,000/-per
amount subject to maximum of INR month over and
above INR 90,000 above fee
25 lakh prescribed in
subject to column 3
maximum of
INR 30,000
162 SEBI Circular No. CIR/CDMRD/DEICE/CIR/P/2017/77 dated July 11, 2017.
Page 168 of 348
i. The filing fee shall be utilized to meet the fee payable to the
arbitrator(s). Excess of filing fee over fee payable to the
arbitrator(s), if any, shall be deposited in the IPF of the
respective stock exchange.
ii. A client, who has a claim / counter claim up to INR 20 lakh and
files arbitration reference shall be exempted from filing the
deposit. Expenses thus arising with regard to such applications
shall be borne by the Stock Exchanges163.
iii. In all cases, on issue of the arbitral award the stock exchange
shall refund the deposit to the party in whose favour the award
has been passed. In cases where claim was filed within the
period of six months, 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 IPF of the respective stock exchange.
Note: Six months (as referred to in (I), (II), and (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 Stock Exchange (the time taken from the
date of receipt of dispute till the decision by the committee)
to 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.
163 Substituted by SEBI Circular No. SEBI/HO/MRD1/ICC1/CIR/P/2022/94 date July 04, 2022
Page 169 of 348
iv. A party filing an appeal before the appellate panel [as
mentioned above in Appellate Arbitration] shall pay a fee not
exceeding INR 30,000, as may be prescribed by the stock
exchange, in addition to statutory dues (stamp duty, service tax,
etc.) along with the appeal. In case the party filing the appeal is
a client having claim / counterclaim of up to Rs. 10 lakhs, then
the party shall pay a fee not exceeding INR 10,000/-.
Further expenses thus arising shall be borne by the Stock
Exchanges and the IPF of respective Stock Exchanges
equally.
14.6.9. Place of Arbitration / Appellate Arbitration
14.6.10. In case, the award amount is more than INR 50 lakhs, the next level
of proceedings (arbitration or appellate arbitration) may take place
at the nearest metro city, if so desired by any of the parties involved.
The additional statutory cost for arbitration, if any, shall be borne by
the party desirous of shifting the place of arbitration. 164
14.6.11. 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 favour of the
member165. The additional fees charged from the members, if the
claim is filed beyond the prescribed timeline, if any, shall be
deposited in the IPF of the respective Stock Exchange.166
14.6.12. Public dissemination of profiles of arbitrators: In order to enhance
transparency and also to provide choice to parties, Stock
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.
164 SEBI Circular No. SEBI/HO/CDMRD/DoC/P/CIR/2021/649 dated October 22, 2021
165 SEBI Circular no. CIR/CDMRD/DCE/CIR/P/2018/48 dated March 14, 2018
166 SEBI Circular no. SEBI/HO/CDMRD/DoC/P/CIR/2021/649 dated October 22, 2021
Page 170 of 348
14.6.13. Submission of documents in soft copies: In order to assist the
arbitrators in pronouncing comprehensive and speedy awards,
Stock Exchanges shall make necessary arrangements in terms of
hardware viz., computer, scanner, printer, etc. and required
software’s at exchange offices/ 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.
14.6.14. Review and training of arbitrators
 Investor Service Committee of the Stock Exchanges shall
review the performance of the arbitrators annually and submit
the review report to the board of directors of the Stock
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 stock exchanges shall provide training of at least one day
to every arbitrator each year167.
14.6.15. Mechanism for implementation of award.
 Stock Exchanges shall create a common database of defaulting
clients accessible to members across all Stock 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 prescribed timelines or file an application to court to set
aside such arbitration order in accordance with Section 34 of the
Arbitration and Conciliation Act, 1996 (in case of aggrieved by
arbitration/ appellate award).
14.6.16. Empanelment of arbitrators and segregation of arbitration and
appellate arbitration panel:
Forming of exclusive panel for appellate arbitration is not required
and members can serve on both the panels. However, it is
imperative for the stock exchanges to ensure that in the same
matter, the members of arbitration panel are not considered for
167 SEBI Circular No. CIR/CDMRD/DCE/CIR/P/2018/48 dated March 14, 2018
Page 171 of 348
constituting the appellate arbitration panel if the matter goes to
appeal.
14.6.17. Revision in professional fee of arbitrators: The arbitrator fee shall
be upwardly revised to INR 18,000/- per case. Consequent to this
upward revision, the additional expenses attributable to a client
over and above the fee structure as specified above in Arbitration
Fees, shall be borne by the client (wherever applicable) and the
Stock Exchange equally. The total expense attributable to the
member has to be borne by the concerned member only.
14.6.18. 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.
14.6.19. Committees 168 : The composition and functions of the various
committees has been referred to as in Chapter 15.
14.6.20. Automatic Process and Common Pool of arbitrators169: The stock
exchanges shall pool all arbitrators of theirs in the common pool
and facilitate automatic selection of arbitrators from the common
pool. Details are specified below:
i. List of Arbitrators on the panel of all stock 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 stock exchanges.
ii. 'Common pool' of Arbitrators will consist of Arbitrators listed on
the panels of all stock 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 stock
exchanges for the region covered by the Delhi centre will be
168 As per Regulation 29 of SECC Regulations, the regulatory committees at MIIs has been rationalized into
three functional committees and four oversight committees within each MIIs including functions of
Disciplinary Action Committee, Defaulter’s Committee and Investors Service Committees. SEBI vide
circular SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 dated January 10, 2019 had issued guidelines for the
principles for composition and quorum of the various committees at MIIs.
169 SEBI Circular No. CIR/CDMRD/DIECE/02/2015 dated November 16, 2015
Page 172 of 348
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) shall be chosen by an 'Automatic Process'
wherein neither the parties to arbitration (i.e. client or member)
nor the concerned Stock Exchange will be directly involved.
iv. The 'Automatic Process' shall 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' shall 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(s) shall be sent immediately and in any case not later
than the next working day from the day of picking of the
Arbitrator(s). This communication shall be sent by the stock
exchange on which the dispute had taken place, to all
concerned entities including clients, arbitrators, members, stock
exchanges etc.
vi. The selection of Arbitrators shall henceforth be by the
'Automatic Process'. In case of any probable conflict of interest
in an arbitration reference being assigned to any Arbitrator, the
Arbitrator shall have to upfront decline the arbitration reference.
After the said arbitrator declines, the 'automatic process' shall
pick the name of another Arbitrator. This shall continue till the
time there is no conflict of interest, by the selected arbitrator.
The stock exchanges should ensure that the process of
appointment of arbitrator(s) is completed within 30 days.
However, the timeline may be extended and stock 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 stock exchange on which the dispute
has taken place within 15 days of receipt of communication from
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the stock exchange 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 stock exchange on which the dispute had taken place.
14.6.21. Implementation of Arbitral Award in favour of Clients
i. In case the arbitral / appellate arbitral award is in favour of the
client, the stock 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 stock 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 stock 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. 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. 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, 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.
Page 174 of 348
14.6.22. Record and Disclosures
I. The stock 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 stock exchanges shall disclose on its website, details of disposal
of arbitration proceedings as per format given in Annexure T
regarding Format for details of disposal of arbitration proceedings
and details of arbitrator-wise disposal of arbitration of arbitration
proceedings as per format given in Annexure on Format for
Arbitrator-wise Arbitration Proceedings.
III. The stock exchanges shall continue to disclose on their website the
arbitration awards (issued since April 01, 2007) in format given in
Annexure U on Format for disclosure of Arbitration Awards.
Page 175 of 348
CHAPTER 15. GOVERNANCE AND ADMINISTRATION OF EXCHANGES
AND CLEARING CORPORATIONS
15.1. Compliance with various provisions of Securities Laws by Stock
Exchanges having Commodity Derivatives Segment 170
15.1.1. Stock exchanges shall comply with the applicable provisions of the
Securities Contracts (Regulation) Act, 1956 (“SCRA”), the
Securities Contracts (Regulation) Rules, 1957 (“SCRR”), the
Securities Contracts (Regulation) (Stock Exchanges and Clearing
Corporations) Regulations, 2018, (”SECC Regulations”) and this
Master Circular 171 :
I. Stock Exchanges and Clearing Corporations shall continuously
comply with all the applicable regulations of the SECC
Regulations, as amended from time to time.
II. Validity of recognition of stock exchanges shall not be less than
one year. Further, the renewal of recognition, if any, shall be as
per the SCRA and the SECC Regulations.
III. Stock Exchanges shall pay the regulatory fee in terms of the
SECC Regulations, as amended from time to time [SEBI
(Regulatory Fee on Stock Exchanges) Regulations, 2006 has
been repealed].
IV. Stock Exchanges and Clearing Corporations shall comply with
the shareholdings limits and other applicable provisions in the
SECC Regulations on continuous basis.
V. The format for submitting shareholding pattern to SEBI is
provided in Annexure V on Report on Shareholding pattern.
170 SEBI Vide gazette notification dated October 3, 2018 notified the Securities Contracts (Regulation) (Stock
Exchanges and Clearing Corporations) Regulations, 2018 [SECC Regulations, 2018] and SEBI (Depositories
and Participants) Regulations, 2018 [SEBI (D&P) Regulations, 2018] and repealed SECC Regulations, 2012
and SEBI (D&P) Regulations, 1996.
171
Subsequent to the changes in SECC Regulations, corresponding modifications/omissions required in
various provisions of SEBI Circular No CIR/CDMRD/DEA/03/2015, dated November 26, 2015 have been
incorporated in master circular.
Page 176 of 348
15.2. Commencement of operations by a newly recognized stock exchange/
Clearing Corporation 172
15.2.1. After grant of recognition, the stock exchange can commence
trading operations with a minimum of 25 trading members and the
clearing corporation can commence clearing and settlement
operations with a minimum of 10 clearing members.
15.3. Statutory Committees173
15.3.1. As per Regulation 29 of the SECC Regulations, , the regulatory
committees at Stock Exchanges and Clearing Corporations have
been rationalized into three functional committees and four
oversight committees within each Stock Exchanges and Clearing
Corporations. The functions of the seven committees, along-with
the detailed composition of each committee is provided in
Annexure W on Functions and Composition of Statutory
Committee.
15.3.2. The overarching principles for composition and quorum of the
statutory committee at Stock Exchanges and Clearing Corporations
shall be as under, which shall be applicable to all committees with
an exception for Investor Grievance Redressal Committee (“IGRC”)
and Advisory Committee:
I. On each committee, except IGRC and Advisory Committee, the
number of Public Interest Directors (“PIDs”) shall not be less than
the total of number of shareholder directors, Key Management
Personnel (“KMPs”), independent external persons, etc. put
together, wherever shareholder directors, KMPs, independent
external persons, etc., are part of the concerned committee.
II. PID shall be chairperson of each committee.
III. To constitute the quorum for the meeting of the committee, the
number of PIDs on each of the committees shall not be less than
total number of other members (shareholder directors, KMPs,
independent external persons, etc. as applicable) put together.
IV. The voting on a resolution in the meeting of the committees shall
be valid only when the number of PIDs that have cast their vote
on such resolution is equal to or more than the total number of
172 SEBI circular no SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 dated January 10, 2019
173 SEBI circular no SEBI/HO/MRD/DOP2DSA2/CIR/P/2019/13 dated January 10, 2019
Page 177 of 348
other members (shareholder directors, KMPs, independent
external persons, etc., as applicable) put together who have cast
their vote on such resolution
V. The casting vote in the meetings of the committees shall be with
the chairperson of the committee.
VI. Apart from that specifically provided, whenever required, a
committee may invite Managing Director, other relevant KMPs
and employees of the Stock Exchanges or Clearing Corporations.
However, such invitee shall not have any voting rights.
15.3.3. Stock Exchanges and Clearing Corporations shall adhere to the
following:
I. Over and above the statutory committees mentioned above, the
committees that are mandated by relevant law for listed
companies shall apply mutatis mutandis to Stock Exchanges and
Clearing Corporations.
II. Stock Exchanges and Clearing Corporations shall lay down policy
for the frequency of meetings, etc., for the statutory committees.
III. PIDs in Committees at Stock Exchanges and Clearing
Corporations:
A. SECC Regulations provides that a PID on the board of
directors of a Stock Exchanges or Clearing Corporations
shall not act simultaneously as a member on more than five
committees of that Stock Exchange or Clearing Corporation.
B. It is clarified that the above limitation on maximum number
of committees that a PID can be member of, shall be
applicable only to statutory committees prescribed by SEBI
under the SECC Regulations and circulars issued
thereunder. The said requirement shall not be applicable to
committees constituted under Companies Act, 2013,
Securities and Exchange Board of India (Listing Obligations
and Disclosure Requirements), 2015, amongst others.
C. In case of non-availability of adequate number of PIDs, the
relevant Stock Exchange / Clearing Corporation shall take
necessary steps immediately to induct more PIDs in order to
fulfil the requirement of composition of committees.
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IV. Meeting of PIDs:
A. As per code of conduct for PIDs provided in the SECC
Regulations, the PIDs shall be required to meet separately
every six months.
B. All the PIDs shall necessarily attend all such meetings of
PIDs and the objective of such meetings, shall include inter
alia reviewing the status of compliance with SEBI letters/
circulars, reviewing the functioning of regulatory
departments including the adequacy of resources dedicated
to regulatory functions, etc. PIDs shall also prepare a report
on the working of the committees of which they are member
and circulate the same to other PIDs. The consolidated
report in this regard shall be submitted to the governing
board of the Stock Exchange / Clearing Corporation.
Further, PIDs shall identify the important issues which may
involve conflict of interest for the Stock Exchange / Clearing
Corporation or may have significant impact on the market
and report the same to SEBI, from time to time.
V. Independent external persons in committees at Stock Exchanges
and Clearing Corporations:
A. The independent external persons forming a part of
committees shall be from amongst the persons of integrity,
having a sound reputation and not having any conflict of
interest. They shall be specialists in the field of work
assigned to the committee; however, they shall not be
associated in any manner with the relevant Stock Exchange
/ Clearing Corporation and its members.
B. Stock Exchanges and Clearing Corporations shall frame the
guidelines for appointment, tenure, code of conduct, etc., of
independent external persons. Extension of the tenure may
be granted to independent external persons at the expiry of
the tenure, subject to performance review in the manner
prescribed by SEBI for PIDs. Further, the maximum tenure
limit of Independent external persons in a committee shall
be at par with that of PIDs, as provided under Regulation
24(3) of the SECC Regulations.
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15.4. Monthly Development Report 174
15.4.1. The stock exchanges shall submit a Monthly Development Report
(“MDR”) as per the prescribed format to SEBI by 7th of the
succeeding month for their commodity derivatives segment.
15.4.2. The format for the MDR is provided at Annexure X Format for
Monthly Development Report.
15.5. Mandatory requirements / exit policy 175
15.5.1. If there is no trading operation on the platform of any stock
exchanges for more than twelve months, then such exchange shall
be liable to exit.
15.5.2. In addition to the above, henceforth, all stock exchanges shall
continuously meet the turnover criteria of INR 1000 crores per
annum. In case the stock exchange fails to meet the above criteria
for 2 consecutive years, they shall be liable to exit. 176
15.5.3. In the event a stock 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 stock exchanges shall resume trading
operations only after obtaining prior approval from SEBI.
15.5.4. In case any stock exchange proposes to surrender its recognition
voluntarily or whose recognition is proposed to be withdrawn by
SEBI, the concerned stock exchange shall be directed to comply
with the following:
I. The concerned stock exchange shall not alienate any of its
assets without taking prior approval of SEBI.
174 SEBI Circular No CIR/CDMRD/DEA/4/2015, dated December 9, 2015
175 SEBI Circular No. CIR/CDMRD/DEA/01/2016, dated January 11, 2016
Page 180 of 348
II. Treatment of the assets of de-recognized stock exchange:
A. The concerned stock 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.
B. For the purpose of valuation of the assets of the stock
exchange, a valuation agency shall be appointed by SEBI.
All the valuation charges shall be paid by the concerned
stock 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 stock exchange shall transfer the Investor
Protection Fund or any such fund to the Investor Protection and
Education Fund established by SEBI (“SEBI-IPEF”).
IV. The concerned stock 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
provided in the Securities and Exchange Board of India
(Stock Brokers) Regulations, 1992 till the date of such de-
recognition.
C. Dues of the brokers to SEBI shall be recovered by the stock
exchange out of the brokers’ deposits / capital / share of sale
proceeds / winding up proceeds dividend payable, etc.
available with the exchange.
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D. The stock exchange shall be liable to make good any
shortfall in collection of dues of the brokers to SEBI.
V. Other Conditions
A. In case any stock 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.
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 stock 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-
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 182 of 348
CHAPTER 16. TRADING SOFTWARE AND TECHNOLOGY
16.1. Algorithmic Trading 177
16.1.1. Any order that is generated using automated execution logic shall
be known as algorithmic trading.
16.1.2. The stock 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 stock exchange should be
at least four times the peak order load encountered and the
Exchange system should be upgraded on a regular basis. The
stock 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.
16.1.3. While approving the algorithmic trading, the stock exchanges shall
ensure that:
I. There is clear classification of algorithmic orders in terms of
CTCL terminal code/ATS User ID approved by the stock
exchange for algorithmic trading.
II. The orders of clients are routed through member server only
and client orders are not placed directly to the stock exchange
System.
III. The stock exchanges shall not approve algorithms that may not
be conducive to efficient price discovery or fair play.
IV. The stock exchanges 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.
177 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/97 dated September 27, 2016
Page 183 of 348
VI. The algorithms which will ‘take liquidity’ away from the market
shall not be approved. While approving algorithmic strategies,
stock exchanges shall record the reason as to why such
strategy is allowed and how it will induct more liquidity in the
contract system. Stock Exchanges shall also make half yearly
review of effect of the approved strategies on liquidity and
would discontinue / disapprove any strategy which fails to
induct liquidity.
16.1.4. As mini and micro contracts are targeted towards small
participants, while allowing algorithmic trading in mini and micro
contracts, stock 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.
16.1.5. Algorithmic trading shall not be permitted from stock exchange
hosted CTCL terminals.
16.1.6. In order to ensure orderly trading in the market and fair usage of
the trading platform by all the members, stock exchanges shall put
in place the following economic disincentives for daily algorithmic
order–to–trade ratio:
Member-wise Daily Order-to-Trade Ratio Charges (Per
(X) 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 5 paise
basis)
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.
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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 stock exchange shall put in place monitoring systems to
identify and initiate measures to impede any possible instances
of order flooding by algorithmic trading.
16.1.7. The Stock Exchange shall place a limit (X) on the numbers of orders
per second from a particular CTCL ID/ATS User-ID not exceeding
one hundred and twenty 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 –5th second, 5X orders for 1st-6th second, 5X orders for 2nd to
7th second and so on).
For number of orders exceeding the limit (X) set by the Stock
Exchange, the Stock Exchange shall prescribe economic
disincentives and shall inform the same to SEBI. Further, Stock
Exchange shall ensure that the limits provided is subject to its ability
to handle the load. 178
16.1.8. The limit on OPS may be further relaxed by the Stock Exchanges
based on the increased peak order load observed and
corresponding upgrade of infrastructure capacity to ensure that the
capacity of trading system of the Stock Exchange remains at least
four times the peak order load. The relaxation in limit shall be
subject to approval of SEBI.
16.1.9. The stock 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 the stock
exchange for algorithmic trading. The stock exchanges shall also
178 SEBI Circular No. SEBI/HO/CDMRD/CDMRD_DRM/P/CIR/2022/30 dated March 17, 2022.
Page 185 of 348
ensure that these have no interlink with any system or ID located/
linked outside India.
16.1.10. The stock 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.
16.1.11. In the interest of orderly trading and market integrity, the stock
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 stock exchange should be in a position
to shut down the member’s terminal.
16.1.12. The stock exchange may seek details of algorithmic strategies to
be used by the members for purposes of inquiry, surveillance,
investigation etc.
16.1.13. 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.
16.1.14. The stock exchanges shall ensure that the member shall provide
the facility of algorithmic trading only upon the prior written
permission of the stock exchange. While considering such
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approval, the stock exchanges shall ensure that the controls
specified in these guidelines are fully implemented by the member.
16.1.15. The other risk management checks already put in place by the
stock exchange shall continue and the stock exchange may re-
evaluate such checks if deemed necessary in view of algorithmic
trading.
16.1.16. Stock Exchanges shall have an effective surveillance mechanism
to ensure that only approved algorithmic strategies are used.
16.1.17. Stock Exchanges shall further ensure that their members providing
the facility of algorithmic trading comply with the provisions of these
guidelines. The stock 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 certifications179 :
A. CISA (Certified Information System Auditors) from ISACA
(Information Systems Audit and Control Association)
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).
179 SEBI circular no SEBI/HO/CDMRD/DRMP/CIR/P/2018/60 dated April 03, 2018.
Page 187 of 348
IV. Further, the stock 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 stock 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 stock exchange in order to establish audit trail.
VI. The stock 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 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 the stock exchange informed of such incidents
immediately.
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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 stock exchange
on any modification or change to the approved algorithms or
systems used for algorithms. The stock exchange shall ensure
conformance of such modified algorithms or systems also to
the requirements specified in these guidelines.
16.1.18. The stock 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.
16.2. Co-Location 180
16.2.1. Co-Location, Co–Hosting or any other facility or arrangement which
puts some members in disadvantageous position vis-à-vis other
members is not allowed in the commodity derivatives segment.
16.3. System and Network Audit181
1. Stock Exchanges and Clearing Corporations are required to conduct
System and Network Audit as per the framework enclosed as Annexure Y
and Terms of Reference (TOR) enclosed as Annexure Z. Stock Exchanges
and Clearing Corporations are also required to maintain a list of all the
relevant SEBI circulars/ directions/ advices, etc. pertaining to technology
and compliance thereof, as per format enclosed as Annexure ZA and the
same shall be included under the scope of System and Network Audit.
2. Stock Exchanges and Clearing Corporations are also required to submit
information with regard to exceptional major Non-Compliances (NCs)/ minor
NCs observed in the System and Network audit as per format enclosed as
180 SEBI circular no SEBI/HO/CDMRD/DMP/CIR/P/2016/97 dated September 27, 2016
181 SEBI Circular No. SEBI/HO/MRD1/MRD1_DTCS/P/CIR/2022/58 dated May 02, 2022
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Annexure ZB and are required to categorically highlight those
observations/NCs/suggestions pointed out in the System and Network audit
(current and previous) which remain open.
3. The Systems and Network Audit Report including compliance with SEBI
circulars/ guidelines and exceptional observation format along with
compliance status of previous year observations shall be placed before the
Governing Board of the Stock Exchange/ Clearing Corporation and then the
report along with the comments of the Management of the Stock Exchange/
Clearing Corporation shall be communicated to SEBI within a month of
completion of audit.
4. Further, along with the audit report, Stock Exchanges and Clearing
Corporations are required to submit a Joint declaration from the Managing
Director(MD)/Chief Executive Officer(CEO) and Chief Technology Officer
(CTO) certifying
a) the security and integrity of their IT Systems.
b) correctness and completeness of data provided to the Auditor
c) entire network architecture, connectivity (including co-lo facility)
and its linkage to the trading infrastructure are in conformity with
SEBI’s regulatory framework to provide fair equitable, transparent
and non-discriminatory treatment to all the market participants
d) internal review of Critical Systems as defined in SEBI circular
dated March 22, 2021 was carried out during the Audit period,
including the Failure Modes and Effects Analysis (FMEA).
16.4. Business Continuity Plan (BCP) and Disaster Recovery (DR)182
16.4.1 With advancement in technology and improved automation of processes,
the extant framework for Business Continuity Plan (BCP) and Disaster
Recovery Site (DRS) for Stock Exchanges, Depositories and Clearing
Corporations was re-examined with a view to reducing the time period
specified for moving from Primary Data Centre(PDC) to DRS.
16.4.2 Upon examination and based on consultation with MIIs and Technical
Advisory Committee (TAC) of SEBI, the modified framework for BCP and
DR shall be as under:
182SEBI Circular No. SEBI/HO/MRD1/DTCS/CIR/P/2021/33 dated March 22, 2021
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a) Stock Exchanges, clearing Corporations and Depositories
(collectively referred as Market Infrastructure Institutions –MIIs) shall
have in place BCP and DRS so as to maintain data and transaction
integrity.
b) Apart from DRS, all MIIs shall also have a Near Site (NS) to ensure zero
data loss.
c) The DRS should preferably be set up in different seismic zones and in
case due to certain reasons such as operational constraints, change of
seismic zones, etc., minimum distance of 500 kilometre shall be ensured
between PDC and DRS so that both DRS and PDC are not affected by
the same disaster.
d) The manpower deployed at DRS/NS shall have the same 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. MIIs shall have sufficient number of trained staff at their
DRS so as to have the capability of running live operations from DRS
without involving staff of the PDC.
e) All MIIs shall constitute an Incident and Response team (IRT)/
Crisis Management Team (CMT), which shall be chaired by the
Managing Director (MD) of the MII or by the Chief Technology Officer
(CTO), in case of non-availability of MD. IRT/ CMT shall be responsible
for the actual declaration of disaster, invoking the BCP and shifting of
operations from PDC to DRS whenever required. Details of roles,
responsibilities and actions to be performed by employees, IRT/
CMT and support/outsourced staff in the event of any Disaster shall be
defined and documented by the MII as part of BCP-DR Policy
Document.
f) The Technology Committee of the MIIs shall review the implementation
of BCP-DR policy approved by the Governing board of the MII on a
quarterly basis.
g) MIIs shall conduct periodic training programs to enhance the
preparedness and awareness level among its employees and
outsourced staff, vendors, etc. to perform as per BCP policy.
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16.4.3 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 shall have one to one correspondence between them.
b. MIIs should develop systems that do not require configuration changes
at the end of trading members/ clearing members/ depository
participants for switchover from the PDC to DRS. Further, MIIs should
test such switchover functionality by conducting unannounced live trading
from its DRS for at least 1 day in every six months. Unannounced live
trading from DRS of MIIs shall be done at a short notice of 45 minutes
after 90 days from the date of this circular
c. In the event of disruption of any one or more of the ‘Critical Systems’ (as
defined below), the MII shall, within 30 minutes of the incident, declare
that incident as ‘Disaster’ and take measures to restore operations
including fronds within 45 minutes of the declaration of ‘Disaster’.
Accordingly, the Recovery Time Objective(RTO)-the maximum time
taken to restore operations of ‘Critical Systems’ from DRS after
declaration of Disaster-shall be 45 minutes, to be implemented within 90
days from the date of the circular. ‘Critical Systems’ for an Exchange/
Clearing Corporation shall include Trading, Risk Management, Collateral
Management, Clearing and Settlement and Index computation. ‘Critical
Systems’ for a Depository shall include systems supporting settlement
process and inter-depository transfer system.
d. MIIs to also ensure that the Recovery Point Objective (RPO) -the
maximum tolerable period for which data might be lost due to a major
incident-shall be 15 minutes.
e. Solution architecture of PDC and DRS/ Should ensure high availability,
fault tolerance, no single point of failure, zero data loss, and
data and transaction integrity.
f. 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.
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g. 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.
h. Replication between PDC and NS should be synchronous to ensure zero
data loss whereas, the one between PDC and DRS and between NS and
DRS may be asynchronous.
i. Adequate resources (with appropriate training and experience) should be
available at all times to handle operations at PDC, NS or DRS, as the
case may be, on a regular basis as well as during disasters
16.4.5 DR drills/Testing
a. DR drills should be conducted on a quarterly basis. In case of Exchanges
and Clearing Corporations, these drills should be closer to real life
scenario (trading days) with minimal notice to DRS staff involved.
b. During the drills, the staff based at PDC should not be involved in
supporting operations in any manner.
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 Exchanges
/Clearing Corporations/ 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 check the preparedness of the MII to shift its
operations from PDC to DRS unannounced and also comment on
documented results and observations of DR drills.
g. ‘Live’ trading sessions from DR site shall be scheduled for at least two
consecutive days in every six months. Such live trading sessions from the
DRS shall be organized on normal working days (i.e. not on weekends /
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trading holidays). The Stock Exchange/ Clearing Corporation/ Depository
shall ensure that staff members working at DRS have the abilities and
skills to run live trading session independent of the PDC staff.
h. Stock Exchanges, Clearing Corporations and Depositories shall include
a scenario of intraday shifting from PDC to DRS during the mock trading
sessions in order to demonstrate its preparedness to meet RTO/RPO as
stipulated above.
i. MII should undertake and document Root Cause Analysis (RCA) of their
technical/ system related problems in order to identify the causes and to
prevent reoccurrence of similar problems.
16.4.6 BCP –DR Policy Document
a. MIIs shall put in place a comprehensive BCP-DR policy document
outlining the following:
i. Broad scenarios that would be defined as a Disaster for an MII (in
addition to definition provided in para 16.4.3 (c) of the circular).
ii. Standard Operating Procedure to be followed in the event of
Disaster.
iii. Escalation hierarchy within the MII to handle the Disaster.
iv. Clear and comprehensive Communication Protocols and
procedures for both internal and external communications from the
time of incident till resumption of operations of the MII.
v. Documentation policy on record keeping pertaining to DR drills.
vi. Scenarios demonstrating the preparedness of MIIs to handle
issues in Critical Systems that may arise as a result of Disaster.
vii. Preparedness of Depositories to handle any issue which may arise
due to trading halts in Stock Exchanges.
viii. Framework to constantly monitor health and performance of
Critical Systems in normal course of business.
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b. The BCP-DR policy document of MII should be approved by Governing
Board of the MIIs after being vetted by Technology Committee and
thereafter communicated to SEBI. The BCP-DR policy document should
be periodically reviewed at least once in six months and after every
occurrence of disaster.
c. In case a MII desires to lease its premise at the DRS to other entities
including to its subsidiaries or entities in which it has stake, the MII should
ensure that such arrangements do not compromise confidentiality,
integrity, availability, targeted performance and service levels of the MII’s
systems at the DRS. The right of first use of all the resources at DRS
including network resources should be with the MII. Further, MII should
deploy necessary access controls to restrict access (including physical
access) of such entities to its critical systems and networks.
16.5. Annual System Audit of Stock Brokers / Trading Members 183
16.5.1. The stock exchanges should ensure that system audit of stock
brokers/ trading members are conducted in accordance with the
prescribed framework as placed at Annexure ZC Stock Broker
System Audit Framework.
16.5.2. Stock 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.
16.5.3. Stock Exchanges should report all major non-compliances /
observations of system auditors, broker wise, on a quarterly basis
to SEBI.
16.5.4. Further, it was decided that Type I brokers may be exempted from
system audit and the development of NEAT / BOLT / Stock
Exchange provided terminals be included in the scope of Annual
System Audit of stock exchanges with Commodity Derivatives
segment.
183SEBI Circular No. SEBI/HO/CDMRD/DEICE/CIR/P/2016/70 dated August 11, 2016
Page 195 of 348
16.5.5. In view of above, the provisions relating to Type I Brokers, as
mentioned in this Master Circular, shall not be applicable to Type I
Brokers. However, such provisions shall be included in the TOR of
the Annual System Audit for stock exchanges with Commodity
Derivatives segment.
16.6. Testing of software used in or related to Trading and Risk
Management184
16.6.1. Due to technological developments and innovations, currently the
members of stock exchanges have multiple options for using
software i.e. either stock 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.
16.6.2. '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.
16.6.3. 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: Stock exchanges shall
provide suitable facilities to market participants / software
vendors to test new software or existing software that have
undergone change. Subjecting the new software or existing
software that have undergone change to such testing facility
184 SEBI Circular No. CIR/CDMRD/DEICE/03/2015 dated December 11, 2015
Page 196 of 348
shall be mandatory for market participants, before putting it in
use.
II. Mock testing
A. Stock 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. Stock 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. Mandatory mock trading sessions to facilitate testing of new
software or existing software that has undergone any change of
functionality shall be optional if a Stock Exchange provides
suitable simulated test environment to test new software or
existing software that has undergone any change of functionality
and ensures the following:185
i) The test environment shall be made available to all the
members.
ii) The test environment shall be made available for at least
two hours after market hours and at least on two trading days
in a week.
185 Inserted vide SEBI Circular No. SEBI/HO/MRD1/DSAP/CIR/P/2020/234 dated November 24, 2020.
Page 197 of 348
iii) For the purpose of testing, Stock Exchange shall make
available data from at least one trading day in all segments
and the same shall not be older than one month from the day
of the testing environment.
iv) All trading members (excluding those who use only Stock
Exchange provided front end and/or ASP services) having
approved Algorithms available with the member, irrespective
of the algorithm having undergone change or not, shall
participate in the Simulated Environment at least on one
trading day during each calendar month at all the stock
exchanges where they are members. This shall be audited
and reported in the System Auditors report.
v) Stock Exchanges shall provide a daily log, including Algos
used, of members participation in Simulated Environment to
all participating members and shall also provide summary
report of such activity to SEBI in the monthly development
report (MDR).
IV. 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.
16.6.4. 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.
16.6.5. Stock exchanges shall monitor compliance of stock brokers /
trading members, who use trading algorithm, with regard to the
requirement of participation in mock trading session. 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
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suspend the proprietary trading rights of the stock broker / trading
member for a minimum period of one trading day.
16.6.6. Stock 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.
16.6.7. 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).
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.
16.6.8. Approval of Software of broker / trading member
I. Brokers / trading members shall seek approval of the respective
stock exchange for deployment of the software in the securities
market by submitting necessary details required by exchange
including details of software, tests undertaken and certificate /
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report provided by the system auditor. Stock Exchange may seek
additional details as deemed necessary for evaluating the
application of the stock broker / trading member.
II. Stock 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, stock exchanges shall ensure that the
requirements specified by SEBI / exchange with regard to
software are met by the broker / trading member.
IV. Stock 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.
16.6.9. In order to ensure that brokers are not using software without
requisite approval, stock exchanges are advised to put in place
suitable mechanism to prevent any unauthorized change to the
approved software.
16.6.10. 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
software will be tested as per the framework prescribed by SEBI
/ stock exchange before deployment of such new / modified
software in securities market.
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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. Stock exchanges with commodity derivatives segment may
include additional clauses as deemed necessary in the
undertaking.
16.6.11. 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 stock 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
stock brokers / trading members and software vendors with whom
the earlier API specifications were shared.
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16.6.12. Penalty on malfunction of software used by broker / trading
member: Stock exchanges with commodity derivatives segment
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.
16.6.13. 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.
16.6.14. Stock 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.
16.7. Cyber Security and Cyber Resilience framework186
16.7.1. 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.
16.7.2. 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
186 SEBI Circular No. SEBI/HO/CDMRD/DEICE/CIR/P/2016/0000000044 dated March 29, 2016
Page 202 of 348
operational risk, both internal and external, and mitigate their
impact through the use of appropriate systems, policies,
procedures, and controls. Systems should be 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.”
16.7.3. Stock exchanges with commodity derivatives segment are referred
to 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.
16.7.4. Stock exchanges with commodity derivatives segment are required
to comply the framework with regard to cyber security and cyber
resilience as placed at Annexure ZD on Cyber Security and Cyber
Resilience framework.
16.7.5. The Stock Exchanges and Clearing Corporations are mandated to
conduct comprehensive cyber audit at least 2 times in a financial
year. Along with the Cyber audit reports, henceforth, all Stock
Exchanges and Clearing Corporations are directed to submit a
declaration from the MD/ CEO certifying compliance by the
Stock Exchange/ Clearing Corporation with all SEBI Circulars
and advisories related to Cyber security issued from time to
time.187
187 Inserted vide SEBI Circular No. SEBI/HO/MRD1/MRD1_DTCS/P/CIR/2022/68 dated May 20, 2022
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16.8 Handling of Technical glitches by Market Infrastructure Institutions
(MIIs) and payment of “Financial Disincentive”188
16.8.1. Considering the criticality of smooth functioning of systems of MIIs
(as any disruption adversely impacts all classes of investors /
market participants as well as the credibility of the securities
market), specifying a pre-defined threshold for downtime of systems
of MIIs becomes desirable. For any downtime or unavailability of
services, beyond such pre-defined time, there is a need to ensure
that “Financial Disincentive” is paid by the MIIs as well as Managing
Director (being the executive head in-charge of all the day to day
operations) and Chief Technology Officer (being the executive head
in-charge of technology) of the MII. This will encourage MIIs to
constantly monitor the performance and efficiency of their systems
and upgrade/ enhance their systems etc. to avoid any possibility of
technical glitches/disruption/disaster and restart their operations
expeditiously in the event of glitch/disruption/disaster.
16.8.2. Accordingly, MIIs shall:
a. Follow the Standard Operating Procedure (SOP) for handling technical
glitches as detailed at Annexure – ZE and,
b. Comply with the “Financial Disincentive” structure as detailed at
Annexure - ZF.
16.8.3 The aforesaid “Financial Disincentives”, when triggered automatically
under predefined conditions, as detailed in Annexure-ZF of this
Circular, shall be credited to the Investor Protection Fund / Core
Settlement Guarantee Fund maintained by the MII.
188 SEBI Circular No. SEBI/HO/MRD1/DTCS/CIR/P/2021 dated July 05, 2021
Page 204 of 348
ANNEXURES
Format for Dissemination of Member’s Data on Website – Annexure A
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)
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Disclosure of Information Regarding Trading Activity during Life Cycle of
Contract – Annexure B
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
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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 207 of 348
Format for Disclosure of Open Interest (OI) and Turnover for Various Categories of Market Participants at Individual
Commodity as well as Overall Market Level – Annexure C
A. Disclosure of category wise OI at commodity level
Details of open interest by each category of participants as on T day
FPOs/ VCPs/ Proprietary Domestic financial Foreign
Open Others
Instrument Farmers Hedgers traders institutional investors participants
Interest
Long Short Long Short Long Short Long Short Long Short Long Short
Futures
Options
Details of Changes in open interest by each category of participants from previous disclosure
FPOs/ VCPs/ Proprietary Domestic financial Foreign
Open Others
Instrument Farmers Hedger traders institutional investors participants
Interest
Long Short Long Short Long Short Long Short Long Short Long Short
Futures
Options
Percent of open interest represented by each category of participants as on T day
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FPOs/ VCPs/ Proprietary Domestic financial Foreign
Open Others
Instrument Farmers Hedger traders institutional investors participants
Interest
Long Short Long Short Long Short Long Short Long Short Long Short
Futures
Options
Number of participants in each category as on T day*
Total FPOs/ VCPs/ Proprietary Domestic financial Foreign
Others
Instrument Participa Farmers Hedger traders institutional investors participants
nts Long Short Long Short Long Short Long Short Long Short Long Short
Futures
Options
* In case number of participant is less than 10, the same can be disclosed as “less than 10” in the said category
Page 209 of 348
B. Disclosure of category wise turnover at commodity level
Details of Turnover by each category of participants as on T day
FPOs/ Proprietary Domestic financial Foreign
Instrument Turnover VCPs/ Hedger Others
Farmers traders institutional investors participants
Futures
Options
Details of Changes in turnover by each category of participants from previous day
FPOs/ Proprietary Domestic financial Foreign
Instrument Turnover VCPs/ Hedger Others
Farmers traders institutional investors participants
Futures
Options
Page 210 of 348
C. Disclosure of turnover for various categories of participants at Market level
Details of Turnover by each category of participants as on T day
FPOs/ Proprietary Domestic financial Foreign
Instrument Turnover VCPs/ Hedger Others
Farmers traders institutional investors participants
Futures
Options
Details of Changes in turnover by each category of participants from previous day
FPOs/ Proprietary Domestic financial Foreign
Instrument Turnover VCPs/ Hedger Others
Farmers traders institutional investors participants
Futures
Options
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Commodity-wise Format of Disclosure for Top Participants, Members and
Market Wide Position Limits – Annexure D
A. Disclosure of top participants/members at commodity level
Percentage of open interest held by the indicated number of the largest participants as
on T day *
Top 3 Top 5 Top 10
Instrument
Long Short Long Short Long Short
Futures
Options
Percentage of open interest held by the indicated number of the largest group of
participants as on T day
Top 3 Top 5 Top 10
Instrument
Long Short Long Short Long Short
Futures
Options
Percentage of open interest held by the indicated number of the largest members as on
T day
Top 3 Top 5 Top 10
Instrument
Long Short Long Short Long Short
Futures
Options
* Based on PAN of the participant
B. Disclosure of market wide OI
Commodity Instrument Exchange wide OI at the OI as % of
position limits EOD Exchange wide
position limits
A Futures
Options
B Futures
Options
Page 212 of 348
Disclosures regarding commodity risks by listed entities – Annexure E
1) Risk management policy of the listed entity with respect to commodities
including through hedging (Such policy shall take into account total exposure
of the entity towards commodities, commodity risks faced by the entity, hedged
exposures, etc. as specified below)
2) Exposure of the listed entity to commodity and commodity risks faced by the
entity throughout the year:
a. Total exposure of the listed entity to commodities in INR
b. Exposure of the listed entity to various commodities
Commodi Exposure Exposure % of such exposure hedged through
ty Name in INR in commodity derivatives
towards Quantity
Domestic International Tota
the terms
market market l
particular towards
commodi the
OT Exchang OT Exchang
ty particular
C e C e
commodi
ty
c. Commodity risks faced by the listed entity during the year and how they
have been managed.
Note:
i. The disclosure pertaining to exposure & commodity risks may apply only for
those commodities where the exposure of the listed entity in the particular
commodity is material. (Materiality in such cases shall be according to the
materiality policy approved by the board of Directors of the listed entity in
this context)
ii. If the listed entity has exposure in non-rupee terms, the Indian rupee
equivalent after conversion shall be used for the aforesaid disclosures.
iii. The term ‘exposure’ shall mean gross exposure of the listed entity including
exposure both on the asset and liability side.
iv. Where exact figures are not determinable, ballpark (estimated) figures may
be provided.
Page 213 of 348
Goods notified u/s 2(bc) of SCRA – Annexure F
S. No. Goods
(I) CEREALS AND PULSES
1 Bajra
2 Barley
3 Gram (including Dal)
4 Jowar
5 Kulthi
6 Lakh (Khesari)
7 Maize/Corn
8 Masoor (including dals)
9 Moong and Products (including Chuni, Dal)
10 Moth
11 Peas (including Yellow Peas)
12 Ragi
13 Rice or Paddy (Including Basmati)
14 Small Millets (KodanKulti, Kodra, Korra, Vargu, Sawan, Rala, Kakun,
Samai, Vari and B anti)
15 Tur/Arhar (Including Chuni, Dal)
16 Urad/Mash (Including Dal)
17 Wheat
(II) OILSEEDS, OILCAKES AND OILS
18 Castor Complex (including seed, oil, oilcake)
19 Coconut / Copra complex (including seed / fruit, oil, oilcake)
20 Cottonseed complex (including seed, oil, oilcake)
21 Palm oil complex (including seed, oil, oilcake)
22 Groundnut complex (including nut, oil, oilcake)
23 Linseed complex (including seed, oil, oilcake)
24 Rapeseed Mustardseed complex (including seed, oil, oilcake, meal)
25 Rice bran complex (including bran, oil, oilcake)
26 Safflower complex (including seed, oil, oilcake)
27 Sesamum complex (including seed, oil, oilcake)
28 Soy complex (including bean, oil, oilcake, meal)
29 Sunflower complex (including seed, oil, oilcake)
(III) SPICES
30 Aniseed
31 Cardamom
32 Celeryseed
Page 214 of 348
S. No. Goods
33 Chillies
34 Cinnamon
35 Cloves
36 Coriander seed
37 Ginger
38 Jeera (Cumin seed)
39 Methi
40 Nutmegs
41 Pepper
42 Turmeric
(IV) METALS
43 Aluminium
44 Brass
45 Copper
46 Iron Ore
47 Lead
48 Nickel
49 Pig Iron
50 Sponge Iron
51 Steel
52 Tin
53 Zinc
(V) PRECIOUS METALS
54 Gold (including variants such as coins, bars etc.)
55 Platinum (including variants such as bars etc.)
56 Silver (including variants such as coins, bars etc.)
(VI) GEMS and STONES
57 Diamond
(VII) FIBRES
58 Art Silk Yarn
59 Cotton complex (including Kapas, fibre, loose, half-pressed, full-
pressed, yarn, pods, cloth)
60 Jute and Jute goods (including raw jute, mesta, hessian, sackings,
cloth, bags, twines, yarns and any other products made of jute)
61 Staple Fibre Yarn
(VIII) ENERGY
62 Carbon Credit
63 Coal (including variants such as coking, thermal, lignite etc.)
Page 215 of 348
S. No. Goods
64 Crude Oil
65 Electricity
66 Bio-fuel (Including Ethanol, Bio-diesel)
67 Furnace Oil
68 Gasoline/Petrol
69 Diesel
70 Methanol
71 Natural Gas
(IX) SWEETENERS
72 Gur
73 Sugar (including S, M and other grades and khandsari)
(X) PLANTATION
74 Cocoa
75 Coffee
76 Rubber
77 Tea
(XI) DRY FRUITS
78 Almond
(XII) OTHERS
79 Betelnuts
80 Camphor
81 Chara or Berseem (including chara seed or berseem seed)
82 Eggs
83 Gram Husk (Gram Chilka)
84 Guar Seed and products (including Guar Gum split, Guar Gum
powder, Korma, Churi)
85 Isabgol
86 Mentha Oil and Products (including Crystals, Flakes etc.)
87 Onion
88 Polymer
89 Potato
90 Seedlac
91 Shellac
Page 216 of 348
Template on Criteria for Eligibility of Commodity Derivative Products –
Annexure G
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 relate 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
Government. Policy
an indicator of what reforms should
Applicability of other Laws be brought in the commodity space
in a regulated environment to be
best in class globally.
Parameter II Score =
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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. Commercial
Domestic market /
application, nature of buyers,
Geographical coverage
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
Basis Risk
prices, seasonality, liquidity,
Volatility
benefits to hedgers / farmer through
Hedging Incentive direct / indirect participation and
Liquidity scope to hedge the price risk forms
part of the Risk Management
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
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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
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Parameters for Performance Review of Commodity Derivative Contract –
Annexure H
1) Background
a. Brief about the commodity such as sample picture, lifecycle and various
varieties/grade of the commodity found in India
b. Commodity fundamentals and balance sheet as per the following format (to
be prepared based on publicly available information on best effort basis):
Table - Fundamentals & Balance sheet (quantity)
Global Scenario Previous FY Current FY
Opening Stocks
Production
Others (if any)
Consumption
Closing Stocks
Indian Scenario Previous FY Current FY
Opening Stocks
Production
Imports
Total Supply
Exports
Domestic Consumption
Closing Stocks
Top 10 Major producing Previous FY Current FY
countries
Top 10 Major consuming Previous FY Current FY
countries
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Top 10 Major exporting countries Previous FY Current FY
Top 10 Major importing countries Previous FY Current FY
Top 10 Major producing states in Previous FY Current FY
India
a. Major changes in the polices governing trade in the spot markets of the
commodity
b. Geopolitical issues in the commodity and its impact on Indian scenario.
2) Trading related parameter
a. Monthly and Annual traded volume (quantity in appropriate units)
b. Annual traded volume as proportion of total deliverable supply (quantity
in appropriate units)
c. Annual traded volume as proportion of total annual production (quantity
in appropriate units)
d. Annual average Open interest as proportion of total production
e. Annual average Open interest as proportion of total deliverable supply
f. Monthly and Annual value of trade (in Rs. Crores)
g. Monthly and Annual quantity of delivery (in appropriate units)
h. Monthly and Annual value of delivery (in Rs. Crores)
i. Monthly and Annual Average Open Interest (OI) (in appropriate units)
j. Annual average volume to open interest ratio
k. Total number of unique members and clients who have traded during the
financial year
l. Ratio of open interest by FPOs/farmers/Hedge/VCP positions to total
open interest (Annual average as well as maximum daily value)
m. Number of unique FPOs / farmers and VCPs/hedgers who traded in the
financial year
n. Algorithmic trading as percentage of total trading
o. Delivery defaults
o Number of instances
o Quantity involved
o Value involved
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3) Price movements
a. Comparison, correlation and ratio of standard deviation of Exchange
futures price vis-à-vis international futures price (wherever relevant
comparable are available).
b. Comparison, correlation and ratio of standard deviation of Exchange
futures price vis-à-vis international spot price (wherever relevant
comparable are available) and domestic spot price (exchange polled
price).
c. Correlation between exchange futures & domestic spot prices along with
ratio of standard deviation.
d. Correlation between international futures & international spot prices
along with ratio of standard deviation (wherever relevant comparable are
available).
e. Comparison of Exchange polled price and mandi price (in case of
agricultural commodities) / other relevant price (in case non-agricultural
commodities) at basis centre.
f. Maximum & Minimum value of daily futures price volatility and spot price
volatility along with disclosure of methodology adopted for computing the
volatility.
g. Number of times the futures contract was in backwardation/contango by
more than 4% for the near month contract in the period under review
4) Other parameters
a. Qualitative and quantitative measure for Hedge effectiveness ratio and
basis Risk (Volatility of Basis) along with disclosure of methodology
adopted for such calculations.
b. Details about major physical markets of the commodity vis-à-vis market
reach in terms of availability of delivery centers (information to be
provided state-wise and UT-wise).
c. Details about major physical markets of the commodity and average
Open Interest for each month generated from those regions.
d. Details, such as number and target audience, of stakeholders’
awareness programs carried out by the exchange.
e. Steps taken / to be undertaken to improve hedging effectiveness of the
contracts as well as to improve the performance of illiquid contracts.
5) Any other information to be disclosed as deemed important by the
exchange or as suggested by the PAC.
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Clubbing of Open Positions – Annexure I
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.
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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).
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.
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Position Limit Violation – Annexure J
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.
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Format for Dissemination of Information on Website – Annexure K
Commo Uni Sour Average Deliverable Classifica Deliverable Supply Member Client Limit Overall
dity ts ce of Supply during past five tion during Financial Limit* Exchan
Data Financial Year Year ge
Product Impo Tot Tot (Board/ Product Impo Tot Over Near Overa Near wide
ion rt al al Narrow/ ion rt al all Mont ll Mont limit
In Units (in Sensitive) h h
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)
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Format for disclosing data of complaints by all the Recognized Stock
Exchanges and Clearing Corporations on their website – Annexure L
Data for the month ending
Sr. Received Carried Receive Total Resolv Pending at the Averag
No. from forwar d during Compla ed end of the e
d from the ints during month** Resolut
previou month the ion
s month time^
month *
Pending Pending
for less for
than 3 more
months than 3
months
1 2 3 4 5 6 7 8
1 Directly
from
Investors
2 SEBI
(SCORES)
3 Members
4 Other
Sources (if
any)
Grand
Total
*Should include complaints of previous months resolved in the current month, if
any.
**Should include total complaints pending as on the last day of the month, if any.
^ Average resolution time is the sum total of time taken to resolve each
complaint in the current month divided by total number of complaints resolved
in the current month.
Month-wise data for the current financial year
Sr. No. Month Carried forward from Receive Resolved Pending
previous month d
1 2 3 4 5 6
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1 April
2 May
3 June
4 July
Grand Total
Year-wise data (for 5 years on rolling basis)
Sr. Year Carried forward from Received Resolved Pending
No. previous year
1 2 3 4 5 6
1 2020-21
2 2021-22
3 2022-23
4 2023-24
5 2024-25
Grand
Total
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Client Level Numerical Position Limits for Non-Agricultural Commodities –
Annexure M
Sr. Commodity Unit Client Level Numerical Position
Limit for Overall Commodity
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
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Liquidity Categorization and Computation of VaR – Annexure N
(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
III) days
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.
 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
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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 3.00) and 5.20 times
II) VaR Index VaR
Illiquid Securities Five times 1.73 8.66 times
(Group III) Index (square root of Index
VaR 3.00) VaR
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Core Settlement Guarantee Fund (Core SGF) – Annexure O
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
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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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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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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
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and the framework regarding the same should be disclosed. In case of shortfall
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
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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
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
participant’s 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;
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22) 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
Price movements corresponding to a Z-score of 10 will replace extreme price
movements beyond that threshold in peak historical returns of all the commodities.
Mean and sigma of returns over the applicable MPOR period across 15 years
would be used for calculation of the Z-score.189
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
3 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.
189 Inserted vide circular no. SEBI/HO/CDMRD/DRMP/CIR/P/2020/244 dated December 21, 2020
Page 238 of 348
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.
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
Page 239 of 348
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.
h) While calculating the residual losses as per 'd' and 'f' above, for positions on
which early pay-in are given by the clients/brokers, and margin exemption are
granted on such positions, CCs are permitted to consider the 'margin exemption
granted' or 'value of early paid-in goods', whichever is lower, as 'margins
supporting those positions'.190
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.
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.
190 Inserted via SEBI Circular No SEBI/HO/CDMRD/DRMP/CIR/P/2020/128 dated July 21, 2020
Page 240 of 348
Checklist of information/details for launch of new contract or/and for renewal
of existing/earlier contracts – Annexure P
Serial
Items/ Issues to be examined and Reported Compliance/Comments
Number
GENERAL‐
Justification for introducing of futures/forward
trading in the commodity including its
1 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)?
Page 241 of 348
Serial
Items/ Issues to be examined and Reported Compliance/Comments
Number
o. Value Chain of the commodity
p. Degree of standardisation
q. Political sensitivity/price controls
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 delivery”
h.
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
Page 242 of 348
Serial
Items/ Issues to be examined and Reported Compliance/Comments
Number
3. EXPECTED PARTICIPATION IN THE
CONTRACT
a. Hedgers participation
b. Warehouse participation
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
Page 243 of 348
Serial
Items/ Issues to be examined and Reported Compliance/Comments
Number
b. Open interest
c. Deliveries
d. Market participation
e. Price movement
f. Trade versus delivery
g. Order versus actual trade
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)
Page 244 of 348
Page 245 of 348
List of contracts approved for continuous trading – Annexure Q
Exchange Name Contracts approved for continuous trading
Multi Commodity Aluminium, Aluminium Mini, Brent Crude Oil,
Exchange of India Ltd. Cardamom, Copper, Copper Mini, Cotton, Crude
Palm Oil, Crude Oil, Dhaniya, Gold, Gold
Guinea, Gold Mini, Gold Petal, Gold Petal Delhi,
Lead, Lead Mini, Mentha Oil, Natural Gas,
Nickel, Nickel Mini, Silver, Silver1000, Silver
Mini, Silver Micro, Zinc, Zinc Mini
National Commodity & Barley, Chilli, Copper Cathode, Cottonseed Oil
Derivatives Exchange Ltd. Cake, Crude Oil, Crude Palm Oil, Dhaniya, Gold
Hedge, Guar Gum, Guar Seed (2 MT), Guar
Seed (10 MT), Jeera, V‐797 Kapas, Maize
(Kharif), Maize (Rabi), Rape/Mustard Seed,
Refined Soy Oil, Shankar Kapas, Soyabean,
Steel Long, Sugar M, Turmeric, Wheat
Indian Commodity Cardamom, Castor Seed, Coffee Rep Bulk,
Exchange * Isabgulseed, Copra, Pepper, Rape/Mustard
Seed, Raw Jute, Rubber, Sacking, Soy Oil, Guar
Seed
* National Multi Commodity Exchange of India Ltd. Merged with ICEX
Page 246 of 348
Categorization of contract specification parameters in commodity
derivatives contracts – Annexure R
Category Type of Parameter Number of days
Modification of advance
intimation to be
given to SEBI
and market
participants
Category Non-material  Symbol 10 days
A modifications which  Description
can be made at the  Contract
exchange level in Commencement
yet to be launched Day(Y/L)
and running
 Quotation/Base
contracts
value (Y/L)
 Maximum Order Size
 Tick Size (Minimum
Price Movement)
 Strike Interval (Y/L)
 Number of Strikes
 Initial Margin
 Extreme Loss Margin
 Delivery Period
Margin
 Pre-expiry Margin
 Other Margins
 Underlying Quotation
(Y/L)
Category Material  Last Trading Day 10 days191
B modifications which /Due Date/Expiry
can be made at the Date#
exchange level in  Trading Unit
yet to be launched  Price Quote (Basis)
contracts or running
 Delivery Centre
contracts which
 Delivery Unit
have nil open
interest.
191 Amended vide SEBI Circular no. SEBI/HO/CDMRD_DOP/P/CIR/2021/592 dated July 08, 2021
Prior to the amendment, the requirement was of 30 days.
Page 247 of 348
Category Type of Parameter Number of days
Modification of advance
intimation to be
given to SEBI
and market
participants
These modifications  Additional Delivery
shall require Centre(s)
approval from  Quality
Product Advisory Specifications
Committee and  Quantity Variation
approval of
 Tolerance Limit
Regulatory
 Trading Session
Oversight
 Premium/Discount
Committee to be
 Underlying Price
obtained post facto.
Quote (basis)
 Maximum Allowable
Open Position
Category Material  Contract Launch 10 days192
C modifications which Calendar
can be made only  Trading Period
after approval from  Daily Price Limit
SEBI. These
 Delivery Logic
modifications shall
 Settlement of
require
Contract/ Settlement
deliberations and
Logic/Final
approval from
settlement Method
Product Advisory
Exercise of Options
Committee and
 Mechanism of
Regulatory
Exercise
Oversight
 Due Date Rate (Final
Committee before
Settlement Price)
seeking permission
 Tender Period
from SEBI.
 Start Date of Near
Month Staggered
Delivery
Period/Tender
Period
192 Amended vide SEBI Circular no. SEBI/HO/CDMRD_DOP/P/CIR/2021/592 dated July 08, 2021
Prior to the amendment, the requirement was of 30 days.
Page 248 of 348
Category Type of Parameter Number of days
Modification of advance
intimation to be
given to SEBI
and market
participants
 Option Type
(Y/L)-Modification can only be carried out in yet to be launched contracts
# - Changes in due date/expiry date may be required to be done in the running
contracts in the event of sudden closure of markets on expiry date. Point 6.1.6 (I)
of this circular prescribes that 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.
Decision about advancing expiry of running contract shall be intimated to the trade
participants at least 10 days before the revised expiry date.
Page 249 of 348
Formats for providing details of Security Deposit – Annexure S
A. Details of Bank Guarantee
Sr. Nam BG Bank Branc Date of Maturity Claim Amount
No. e of Number Nam h Issuance Date Date
WSP e Name (DD/MM/Y (DD/MM/Y (DD/MM/
YYY) YYY) YYYY)
B. Details of Fixed Deposit Receipt
Sr. Nam FDR Bank Branch Date of Maturity Date Amount
No. e of Number Nam Name Issuance (DD/MM/YYYY)
WSP e (DD/MM/YYYY)
Page 250 of 348
Format for details of disposal of arbitration proceedings – Annexure T
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
Page 251 of 348
Format for Arbitrator-wise Arbitration Proceedings
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 passed No. of Awards in No. of Appellate Clients of the Arbitration
No. Arbitrator favor of Clients of Awards in favor of cases filed by appeal cases
the cases filed by Clients of the cases Arbitration pending for
filed by cases pending
for …. months
Arbitration Appellate Member Client Member Client <4 ≥4 - ≤ >6 <3 ≥3- >6
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)
Page 252 of 348
Format for disclosure of Arbitration Awards – Annexure U
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
Page 253 of 348
Report on Shareholding Pattern – Annexure V
Report on Shareholding Pattern of the Exchange in terms of Securities
contracts (Regulation) (Stock Exchanges and Clearing Corporations)
Regulations, 2018
[Quarter ended ____________]
A. Top ten shareholders during the quarter
Sl. No. Name of the Number of Percentage of
shareholder shares held at shareholding
the end of 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 shares Shareholding
who acquired from whom acquired after the
shares shares acquired during the acquisition
quarter
1
2
A. 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
Page 254 of 348
Corporates(unlisted)
1
Banks (wherever
permitted)
1
Any other (specific)
Total (A)
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
Page 255 of 348
Sr. No. Category of No. of Total number Percentage
shareholder Shareholders of shares of shares
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)
Insurance
Companies
1
Mutual Funds
1
Venture Capital
Fund
1
Any other
(specify)
Total (C)
Grand total
(A)+(B)+(C)
B. SHAREHOLDERS ACTING IN CONCERT
Page 256 of 348
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 ge
shares
1
2
3
UNDERTAKING UNDER REGULATION 21
C. 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, 2018 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 257 of 348
Functions and Composition of Statutory Committees – Annexure W
A. Mandatory Committees for Stock Exchanges
Sr no. Name of Brief terms of reference Composition
Committee
I. Functional Committees:
1. Member  To scrutinize, evaluate, accept or reject  A maximum of two Key Management
Selection applications for admission of members Personnel (KMPs) of the exchange can be on
Committee and transfer of membership and the committee one of which shall necessarily
approve voluntary withdrawal of be the Managing Director of the stock
membership. exchange.
 Formulate the policy for regulatory  The committee may also include independent
actions including warning, monetary external persons.
fine, suspension, withdrawal of trading,  SEBI may nominate members in the
declaring a member as defaulter, Committee, if felt necessary in the interest of
expulsion, to be taken for various securities market.
violations by the members of the  The number of PIDs shall not be less than the
exchange. total of number of shareholder directors,
 Based on the laid down policy, consider KMPs and independent external persons put
the cases of violations observed during together.
inspection, etc. and impose appropriate
regulatory measures on the members
of the exchange.
 While imposing the regulatory measure,
Page 258 of 348
Sr no. Name of Brief terms of reference Composition
Committee
the Committee shall adopt a laid down
process, based on the 'Principles of
natural justice'.
 Realize all the assets / deposits of the
defaulter/expelled member and
appropriate the same amongst various
dues and claims against the defaulter/
expelled member in accordance with
the Rules, Byelaws and Regulations of
the Exchange.
In the event both the clearing member
and the constituent trading member are
declared defaulter, then the membership
selection committee of the stock
exchange and that of the clearing
corporation shall work together to realize
the assets of both the clearing member
and the trading member.
 Admission or rejection of claims of
client/trading members/clearing
members over the assets of the
defaulter/expelled member.
 Recommendation in respect of the
Page 259 of 348
Sr no. Name of Brief terms of reference Composition
Committee
claims to the Trustees of the IPF on
whether the claim is to be paid out of IPF
or otherwise.
 To oversee contribution towards Core
Settlement
 Guarantee Fund(SGF) of the Clearing
Corporation.
2. Investor Dealing with the complaints referred to it by  The IGRC shall comprise of a single person
Grievance the stock exchange, hear the parties and for claims up to Rs. 25 Lakh, whereas, for
Redressal resolve their complaints. claims above Rs. 25 Lakh, the IGRC shall
Committee comprise of three persons.
(IGRC)  The IGRC shall comprise of independent
external persons with qualifications in the
area of law, finance, accounts, economics,
management or administration and
experience in financial services, including
securities market.
 Further, the three member Committee shall
comprise of at least one technical expert for
handling complaints related to technology
issues (such as internet based trading,
algorithmic trading, etc.).
 The members of IGRC shall not be
Page 260 of 348
Sr no. Name of Brief terms of reference Composition
Committee
associated with a trading member in any
manner.
 The disclosures and code of conduct
prescribed under para 3.4 and 4 of SEBI
circular Ref. No. CIR/MRD/DSA/24/2010
dated August 11, 2010, shall be applicable,
as far as may be, to members of IGRC also.
3. Nomination &  Identifying a Key management  The Committee shall include only public
Remuneration personnel, other than personnel as interest directors. However, independent
Committee specifically provided in its definition external persons may be part of the committee
under SECC Regulations, 2018. for the limited purpose of recommendation
 Laying down the policy for compensation relating to selection of Managing Director;
of key management personnel in terms wherein the number of PIDs shall not be less
of the compensation norms prescribed than the independent external persons.
by SEBI.
 Determining the compensation of KMPs
in terms of the compensation policy.
 Determining the tenure of a key
management personnel, other than a
director, to be posted in a regulatory
department.
 Selecting the Managing Director.
Page 261 of 348
Sr no. Name of Brief terms of reference Composition
Committee
 Framing & reviewing the performance
review policy to carry out evaluation of
every director’s performance, including
that of Public Interest Director (PID).
 Recommending whether to extend the
term of appointment of the PID.
 Besides the above, it will also discharge
the function as Nomination &
Remuneration Committee under the
Companies Act, 2013 and SEBI (LODR)
regulations, 2015 as amended from time
to time.
II. Oversight Committee
4. Standing  Monitor whether the technology used  The Committee shall include at least two
Committee on remains up to date and meets the independent external persons proficient in
Technology growing demands of the markets. technology.
 Monitor the adequacy of systems  The number of PIDs shall not be less than
capacity and efficiency. the total of number of shareholder directors
 To look into the changes being and independent external persons put
suggested by the exchange to the together.
existing software/ hardware.
 Investigate into problems of
Page 262 of 348
Sr no. Name of Brief terms of reference Composition
Committee
computerized trading system, such as
hanging/ slowdown/ breakdown.
 Ensure that transparency is maintained
in disseminating information regarding
slowdown/ breakdown in Online Trading
System.
 Submit a report to the Governing Board,
who shall deliberate on the report and
take suitable action/ remedial measure.
 Explain any stoppage beyond five
minutes and report to the Board. The
Exchange shall also issue a press
release specifying the reasons for the
breakdown.
 Review the implementation of board
approved cyber security and resilience
policy and its framework.
 Such other matters as may be referred
by the Governing Board of exchange
and/or SEBI.
5. Advisory  Advise the governing board on non-  The number of PIDs shall not be less than the
Committee regulatory and operational matters total of number of shareholder directors and
including product design, technology, trading members put together.
Page 263 of 348
Sr no. Name of Brief terms of reference Composition
Committee
charges and levies.  The Committee shall include trading
members of the stock exchange.
 The chairperson of the governing board shall
be the head of the advisory committee.
 The managing director shall be a permanent
invitee to every meeting of the advisory
committee.
6. Regulatory  Oversee matters related to member  The committee shall comprise of public
Oversight regulation such as admission of interest director and independent external
Committee members, inspection, disciplinary persons.
action, etc.
 Oversee SEBI inspection observations  The number of PIDs shall not be less than the
on membership related issues. total of number of independent external
 Estimate the adequacy of resources persons put together. Also shareholder
dedicated to member regulation. director and key management personnel may
 Oversee matters related to listing of be invitee to the committee.
securities such as admission of
securities for trading,
suspension/revocation, etc.
 Oversee SEBI inspection observations
on listing related issues.
 Estimate the adequacy of resources
dedicated to listing related function.
Page 264 of 348
Sr no. Name of Brief terms of reference Composition
Committee
 Oversee trading and surveillance
related functions such as monitoring of
market through order and trade level
alerts, security level alerts, processing
of alerts, price band changes, rumour
verifications, shifting of securities to
trade for trade segment, action against
listed companies as a part of
Surveillance Action, detailed
investigations undertaken, disciplinary
actions, etc., as may be applicable to
the relevant segments of the exchange.
 Oversee SEBI inspection observations
on surveillance related issues and also
decisions taken in the periodic
surveillance meeting at SEBI.
 Estimate the adequacy of resources
dedicated to trading and surveillance
function.
 Oversee matters related to product
design and review the design of the
already approved and running
contracts.
Page 265 of 348
Sr no. Name of Brief terms of reference Composition
Committee
 Oversee SEBI inspection observation
on Product Design related issues.
 Estimate the adequacy of resources
dedicated to Product design related
function.
 Review the actions taken to implement
the suggestions of SEBI's Inspection
Reports, place the same before the
Governing Board of the stock exchange.
 To follow up, ensure compliance/
implementation of the inspection
observations.
 Supervising the functioning of Investors
Services Cell of the exchange, which
includes review of complaint resolution
process, review of complaints remaining
unresolved over long period of time,
estimate the adequacy of resources
dedicated to investor services, etc.
 Supervise Investor Service Fund,
including its utilization.
 Annual review of arbitrators and
arbitration awards (both quantum and
Page 266 of 348
Sr no. Name of Brief terms of reference Composition
Committee
quality of the awards).
 Lay down procedures for the
implementation of the Ethics Code.
 Prescribe reporting formats for the
disclosures required under the Ethics
Code.
 Oversee the implementation of the code
of ethics.
 Periodically monitor the dealings in
securities of the Key Management
Personnel.
 Periodically monitor the trading
conducted by firms/corporate entities in
which the directors hold twenty percent
or more beneficial interest or hold a
controlling interest.
 Monitor implementation of SECC
Regulations and other applicable rules
and regulations along-with SEBI
Circulars and other directions issued
thereunder.
 Review the fees and charges levied by
the exchange.
Page 267 of 348
Sr no. Name of Brief terms of reference Composition
Committee
 The head(s) of department(s) handling
above matters shall report directly to the
committee and also to the managing
director. Any action against the head(s)
of dept. shall be subject to an appeal to
the committee, within such period as may
be determined by the governing board.
7. Risk  To formulate a detailed risk  The risk management committee shall
Management management policy which shall be comprise only of the public interest directors
Committee approved by the governing board. and independent external persons, and shall
 To review the Risk Management report to the Governing Board.
Framework & risk mitigation measures  The number of PIDs shall not be less than the
from time to time. total of number of independent external
 To monitor and review enterprise-wide persons.
risk management plan and lay down
procedures to inform Board members
about the risk assessment and
minimization procedures.
 The head of the risk management
department shall report to the risk
management committee and to the
managing director of the exchange.
 The risk management committee shall
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Sr no. Name of Brief terms of reference Composition
Committee
monitor implementation of the risk
management policy and keep the Board
and the governing board informed about
its implementation and deviation, if any.
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B. Mandatory Committees for Clearing Corporations
Sr no. Name of Brief terms of reference Composition
Committee
I. Functional Committees:
1. Member  To scrutinize, evaluate, accept or reject  A maximum of two key management personnel
Selection applications for admission of members of the clearing corporation shall be on the
Committee and transfer of membership and approve committee one of which shall necessarily be
voluntary withdrawal of membership. the Managing Director of the clearing
 Also in case of clearing corporations with corporation.
commodity segment, the committee shall  The committee may also include independent
also look into: external persons.
o Approving enplanement &  SEBI may nominate members in the
cancellation of Warehouse Service Committee, if felt necessary in the interest of
Providers/Vault Service Providers securities market.
/Assayers, accreditation of  The number of PIDs shall not be less than the
warehouse, etc. total of number of shareholder directors, KMPs
o Reviewing the continuous and independent external persons put
functioning, monitoring, and together.
compliance of norms by Warehouse
Service Providers, Vault Service
Providers and assayers.
 Formulate policy for regulatory actions,
including warning, monetary fine,
suspension, deactivation of terminal,
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Sr no. Name of Brief terms of reference Composition
Committee
declaring a member as defaulter ,
expulsion, to be taken for various
violations by the members of the clearing
corporation.
 Based on the laid down policy, the
Committee shall consider the cases of
violations observed during inspection,
etc. and impose appropriate regulatory
measure on the members of the clearing
corporation.
 While imposing the regulatory measure,
the Committee shall adopt a laid down
process, based on the 'Principles of
natural justice'.
 Realize the assets / deposits of
defaulter/expelled member and
appropriate amongst various dues and
claims against the defaulter/ expelled
member in accordance with the Rules,
Byelaws and Regulations of the Clearing
corporation.
 Admission /rejection of claims against
such members over the assets of the
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Sr no. Name of Brief terms of reference Composition
Committee
defaulter/expelled member.
 To manage the Core Settlement
Guarantee Fund (Core SGF) of the
clearing corporation, including its
investments as per norms laid down and
ensure proper utilization of Core SGF.
2. Investor To deal with the complaints referred to it by the  The IGRC shall comprise of a single person
Grievance Clearing Corporation, hear the parties and for claims up to Rs. 25 Lakh, whereas, for
Redressal resolve their complaints / disputes. claims above Rs. 25 Lakh, the IGRC shall
Committee comprise of three persons.
(IGRC)  The IGRC shall comprise of independent
external persons with qualifications in the
area of law, finance, accounts, economics,
management or administration and
experience in financial services, including
securities market.
 The members of IGRC shall not be
associated with a clearing member in any
manner.
 The disclosures and code of conduct
prescribed under para 3.4 and 4 of SEBI
circular Ref. No. CIR/MRD/DSA/24/2010
dated August 11, 2010, shall be applicable,
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Sr no. Name of Brief terms of reference Composition
Committee
as far as may be, to members of IGRC also.
3. Nomination &  Identifying a Key management  The Committee shall include only public
Remuneration personnel, other than personnel as interest directors.
Committee specifically provided in its definition  However, independent external persons may
under SECC Regulations, 2018. be part of the committee for the limited
 Lay down the policy for compensation of purpose of recommendation relating to
key management personnel in terms of selection of Managing Director; wherein the
the compensation norms prescribed by number of PIDs shall not be less than the
SEBI. independent external persons.
 Determining the compensation of KMPs
in terms of the compensation policy.
 Determining the tenure of a key
management personnel, other than a
director, to be posted in a regulatory
department.
 Selecting the Managing Director.
 Framing & reviewing the performance
review policy to carry out evaluation of
every director’s performance, including
that of Public Interest Director (PID).
 Recommending whether to extend the
term of appointment of the PID.
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Sr no. Name of Brief terms of reference Composition
Committee
 Besides the above, it will also discharge
the function as Nomination &
Remuneration
II. Oversight Committee
4. Standing  Monitor whether the technology used by  The Committee shall include at least two
Committee on the clearing corporation remains up to independent external persons proficient in
Technology date and meets the growing demands. technology.
 Monitor the adequacy of system capacity  The number of PIDs shall not be less than
and efficiency. the total of number of shareholder directors
 Look into the changes being suggested and independent external persons put
to the existing software/hardware. together.
 Investigate into the problems
computerised risk management /
clearing & settlement system, such as
hanging/ slowdown/ breakdown.
 Ensure that transparency is maintained
in disseminating information
regarding slowdown/break down risk
management / clearing & settlement
system.
 The Committee shall submit a report to
the Governing Board of the clearing
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Sr no. Name of Brief terms of reference Composition
Committee
corporation. The Board will deliberate on
the report and suitable action/ remedial
measure will be taken.
 Any stoppage beyond five minutes will be
explained and reported to the Board. The
Clearing Corporation shall issue a press
release specifying the reasons for the
breakdown.
 Review the implementation of board
approved cyber security and resilience
policy and its framework.
 Such other matters in the scope as may
be referred by the Governing Board of
the Clearing Corporation and/or SEBI.
5. Advisory  Advise the governing board on non-  The Committee shall comprise of
Committee regulatory and operational matters clearing members of the clearing corporation.
including product design, technology,  The chairperson of the governing board shall
charges and levies. be the head of the advisory committee.
 The managing director shall be a permanent
invitee to every meeting of the advisory
committee.
 The number of PIDs shall not be less than the
total of number of shareholder directors, and
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Sr no. Name of Brief terms of reference Composition
Committee
clearing members put together.
6. Regulatory  Oversee matters related to member  The committee shall comprise of public interest
Oversight regulation such as admission of director and independent external persons.
Committee members, inspection, disciplinary action,  The number of PIDs shall not be less than the
etc. number independent external persons.
 Oversee SEBI inspection observations  Also shareholder director and key
on membership related issues. management personnel may be invitee to the
 Estimate adequacy of resources committee.
dedicated to member regulation.
 Monitor the disclosures made under
Reg.33 of SECC Regulations, 2018.
 Review the actions taken to implement
the suggestions of SEBI’s Inspection
Reports and place it before the Board of
Clearing Corporation.
 To follow up and ensure compliance/
implementation of the inspection
observations.
 Supervising the functioning of Investors’
Services Cell of the Clearing Corporation
which includes review of complaint
resolution process, review of complaints
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Sr no. Name of Brief terms of reference Composition
Committee
unresolved over long period of time,
estimate the adequacy of resources
dedicated to investor services, etc.
 Lay down procedures for the
implementation of the Code.
 Prescribe reporting formats for the
disclosures required under the Code.
 Oversee the implementation of the code
of ethics.
 To periodically monitor the dealings in
securities of the Key Management
Personnel
 To periodically monitor the trading
conducted by firms/corporate entities in
which the directors hold twenty percent
or more beneficial interest or hold a
controlling interest.
 Reviewing the fees and charges levied
by a Clearing Corporation.
 Monitoring implementation of SECC
Regulations and other applicable rules
and regulations along-with SEBI
Circulars and other directions issued
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Sr no. Name of Brief terms of reference Composition
Committee
thereunder.
 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 a recognized clearing
corporation 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.
7. Risk  To formulate a detailed risk management  The risk management committee shall
Management policy which shall be approved by the comprise of the public interest directors and
Committee governing board. independent external persons, and shall report
 To review the Risk Management to the Governing Board.
Framework & risk mitigation measures  The number of PIDs shall not be less than the
from time to time. number independent external persons.
 To monitor and review enterprise-wide
risk management plan and lay down
procedures to inform Board members
about the risk assessment and
minimisation procedures.
 The head of the risk management
department shall report to the risk
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Sr no. Name of Brief terms of reference Composition
Committee
management committee and to the
managing director of the Clearing
Corporation.
 The risk management committee shall
monitor implementation of the risk
management policy and keep the Board
and the governing board informed about
its implementation and deviation, if any.
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Format for Monthly Development Report – Annexure X
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)
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Total Volume of trade (in MT)
Total number of contracts traded
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
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b) Total number of trading terminals set up across the country
c) The number of trading terminals set up abroad, if any
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
A. Clearing and Settlement for Commodity Derivatives –
Sr. Average Daily Settlement Value (INR Highest Settlement Value for the Month
No Crores)* (INR Crores)
Average Daily Settlement Value = Total Settlement Value for the Month/ Total number of trading days
B. Top 10 Settlement Shortages
Sr. Name of Shortage in Date of Number of times the Shortage Type Amount (INR
No Member Commodity Settlement (for Member had settlement (Funds/ Crores)
/Contract Commodities)
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which there was shortages in the
a shortage) previous 6 months
C. 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
Sr. No. Name of member Nature of irregularity Details of action
/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 current financial year
during the period
10) DETAILS PERTAINING TO DISRUPTIONS IN TRADING, IF ANY
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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 more
Pending at the Pending at the
than one month and brief reasons
beginning end
thereof
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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 un- Amount Action taken by the
No member implemented involved Exchange
b. Complaints received by the Exchange against the Arbitration mechanism of the Exchange
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Opening Complaints Resolved Nature of the Closing Comment of
balance received during complaint balance the
during the month the month exchange
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 Date of issue of Notice Name of Non-member Directors attended
Meetings held convening the meetings the meeting along with their category
Name of Non- Category of Non-
member Directors member Directors
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3) IMPORTANT DECISIONS TAKEN BY GOVERNING BOARD/COUNCIL OF MANAGEMENT IN THE MEETING(S).
SECTION IV
1) INSPECTION OF MEMBERS
Total no. of No. of No. of members Cumulative number of % of active members
members active inspected during the members inspected during inspected during the
members 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 (%)
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S. No. Particulars Data
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
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
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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
5) WSP DETAILS
Name of the Name of Number of Name of Quantity Capacity No. of WDRA
Exchange WSPs warehouses commodities stored (in MT) (in MT) registered WH
of each WSPs stored in
warehouses
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System and Network Audit Framework - Annexure Y
Audit Process
1. For the System and Network Audit, the following broad areas shall be
considered in order to ensure that the audit is comprehensive and effective:
a. The Audit shall be conducted according to the Norms, Terms of Reference
(TOR) and Guidelines issued by SEBI.
b. The Governing Board of the Market Infrastructure Institution (MII) shall
appoint the Auditors based on the prescribed Auditor Selection Norms and
TOR.
c. An Auditor can perform a maximum of 3 successive audits. However, such
auditor shall be eligible for re-appointment after a cooling-off period of two
years.
d. Further, during the cooling-off period, the incoming auditor may not include:
i) Any firm that has common partner(s) with the outgoing audit firm; and
ii) Any associate / affiliate firm(s) of the outgoing audit firm which are under
the same network of audit firms wherein the term “same network"
includes the firms operating or functioning, hitherto or in future, under
the same brand name, trade name or common control.
e. The number of years an auditor has performed an audit prior to this circular
shall also be considered in order to determine its eligibility in terms of sub-
clause c above.
f. The scope of the Audit may be broadened by the Auditor to inter-alia
incorporate any new developments that may arise due to issuance of
circulars/ directions/ advice by SEBI from time to time.
g. The audit shall be conducted once in a financial year and period of audit
shall be 12 months. However, for the MIIs, whose systems have been
identified as “protected system” by National Critical Information
Infrastructure Protection Centre (NCIIPC), the audit shall be conducted on
a half yearly basis and audit period shall be of 6 months. Further, the audit
shall be completed within 2 months from the end of the audit period.
h. In the Audit report, the Auditor shall include its comments on whether the
areas covered in the Audit are in compliance with the norms/ directions/
advices issued by SEBI, internal policy of the MII, etc. Further, the audit
report shall also include specific non-compliances (NCs), observations
for minor deviations and suggestions for improvement. The audit report shall
take previous audit reports into consideration and cover any open items
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therein. The auditor should indicate if a follow-on audit is required to review
the status of NCs.
i. For each of the NCs/ observations and suggestions made by the Auditor,
specific corrective action as deemed fit may be taken by the MII. The
management of the MII shall provide its comments on the NCs, observations
and suggestions made by the Auditor, corrective actions taken or proposed
to be taken along with time-line for such corrective actions.
j. The Audit report along with the comments of management shall be placed
before the Governing Board of the MII. The Audit report along with
comments of the Governing Board shall be submitted to SEBI, within 1
month of completion of audit.
k. The follow-on audit should be completed within one month of the corrective
actions taken by the MII. After the follow-on audit, the MII shall submit a
report to SEBI within 1 month from the date of completion of the follow-on
audit. The report shall include updated Issue-Log to indicate the corrective
actions taken and specific comments of the Auditor on the NCs and the
corrective actions.
l. In cases wherein follow-on audit is not required, the MII shall submit an
Action Taken Report (ATR) to the Auditor. After verification of the ATR by
the Auditor, the MII shall submit a report to SEBI within 1 month from the
date of completion of verification by the Auditor. The report shall include
updated Issue-Log to indicate the corrective actions taken and specific
comments of the auditor on the ATR.
m. The overall timeline from the last date of the audit period till completion of
final compliance by MII, including follow-on audit, if any, should not exceed
one year/6 months (as applicable). In exceptional cases, if MII is of
the view that compliance with certain observations may extend
beyond said period, then the concerned MII shall seek specific approval
from the Governing Board.
Auditor Selection Norms
2. MII shall ensure compliance with the following norms while appointing
Auditor:
a. The Auditor must have minimum 3 years of demonstrable experience in IT
audit of securities market participants e.g. stock exchanges, clearing
corporations, depositories, intermediaries, etc. and/ or financial services
sector i.e. banking, insurance, Fin-tech etc.
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b. The team performing system and network audit must have experience in /
direct access to experienced resources in the areas covered under TOR. It
is recommended that resources deployed by the Auditor for the purpose of
system and network audit 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).
c. The Auditor shall have experience in working on Network audit/IT
audit/governance/IT service management frameworks and processes
conforming to industry leading practices like Cobi/ ISO 27001 and beyond.
d. The Auditor should have the capability to undertake forensic audit and
undertake such audit as part of system and network audit, if required.
e. The Auditor must not have any conflict of interest in conducting fair,
objective and independent audit of the exchange / depository/ clearing
corporation. It should not have been engaged over the last three years in
any consulting engagement with any departments / units of the entity being
audited.
f. The Auditor should not have any cases pending against it, which point to its
incompetence and/or unsuitability to perform the audit task.
g. The proposed audit agency must be empanelled with CERT-In.
h. Any criteria, in addition to the aforesaid criteria, that the MII may deem fit
for the purpose of selection of Auditor.
Audit Report Guidelines
3.The Audit report should cover each of the major areas mentioned in the TOR
and compliance with SEBI circulars/directions/advices, etc. related to
technology. The Auditor in the Audit Report shall give its views indicating the
NCs to the standards or observations or suggestions. For each section,
auditors should also provide qualitative inputs/suggestions about ways to
improve the processes, based upon the best industry practices.
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4. The auditor shall certify that entire network architecture, connectivity
(including co-lo facility) and its linkage to the trading infrastructure are in
conformity with SEBI’s regulatory framework to provide fair equitable,
transparent and non-discriminatory treatment to all the market participants.
5. The report should also include tabulated data to show NCs / observations
for each of the major areas in the TOR.
6. The audit report to include point-wise compliance of areas prescribed in
Terms of Reference (TOR) and areas emanating from relevant SEBI
circulars/directions/advices along with any accompanying evidence.
7. Evidences should be specified in the audit report while reporting/ closing an
issue.
8. A detailed report with regard to the system and network audit shall be
submitted to SEBI. The report shall include an Executive Summary as per the
following format:
Issue Log Column Description Responsibility
Heading
Major areas Comprehensive identification of Auditor/Auditee
major areas in compliance with
various SEBI circulars / norms
and internal policies of MII
Point wise Compliance Point-wise list of areas/relevant Auditor
clauses in TOR against which
compliance is being audited (in
tabular format).
Description of Finding/ Describe the findings in sufficient Auditor
Observation detail, referencing any
accompanying evidence (e.g.
procedure manual, interview
notes, reports etc.)
Reference Reference to the section in Auditor
detailed report – where full
background information about the
findings are available.
Process/ Unit Process or unit where the audit Auditor
is conducted and the finding
pertains to
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Category of Findings Major/Minor Non-compliance, Auditor
Observation, Suggestion etc.
Audited By Which Auditor covered the Auditor
findings
Root cause Analysis detailed analysis on the cause Auditee
of the Non-compliance
Remediation The action (to be) taken to Auditee
correct the Non-compliance
Target Completion The date by which remedial Auditor/Auditee
Date for Remedial action must be/will be completed
Action
Status Status of finding on reporting Auditor/Auditee
date (open/close)
Verified by Auditing personnel (upon Auditor
verification that finding can be
closed)
Closing Date Date when finding is verified Auditor
and can be closed
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System and Network Audit Program – Terms of Reference (TOR) -
Annexure Z
1. The scope of audit shall encompass all the IT resources including hardware,
software, network, policies, procedures etc. of MIIs (Primary Data Centre
(PDC), Disaster Recovery Site (DRS) and Near Site (NS)
2. IT environment
2.1. Organization details
a. Name
b. Address
c. IT team size (in house- employees)
d. IT team size (vendors)
2.2. IT and network set up and usage
a. PDC, DRS, NS and Regional/ Branch offices (location, owned/
outsourced)
b. Connectivity amongst PDC, NS and DRS
c. IT infrastructure / applications pertaining to the activities done as
a MII. d. System Architecture
e. Network architecture
f. Telecommunication network
3. IT Governance
3.1. Whether IT Governance framework exists to include the following:
a. IT organization structure including roles and responsibilities of key
IT personnel;
b. IT governance processes including policy making, implementation
and monitoring to ensure that the governance principles are
followed;
3.2. IT policies and procedures
a. Whether the organization has a defined and documented IT
policy? If yes, is it approved by the Governing Board (GB)?
b. Is the current System Architecture, including infrastructure,
network and application components describing system linkages
and dependencies, documented?
c. Whether defined and documented Standard Operating
Procedures (SOPs) for the following processes are in place?
i. IT Assets Acquisition
ii. Access Management
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iii. Change Management
iv. Backup and Recovery
v. Incident Management
vi. Problem Management
vii. Patch Management
viii. Data Centre Operations
ix. Operating Systems and Database Management
x. Network Management
xi. DRS Operations
xii. Data Retention and Disposal
xiii. Asset Inventory
xiv. IT asset refresh/replacement policy
xv. Database security
xvi. Interface Security
xvii. Application Security
xviii. Password Security
xix. Archived and backed up data security
3.3. Whether the above mentioned SOPs is reviewed at periodic intervals
or upon the occurrence of any major event? In this regard, whether any
organization policy has been formulated by the MII?
4. Business Controls
4.1. General Controls for Data Centre Facilities
a. Application Access – segregation of duties, database and
application access etc. (Approved Policy clearly defining roles
and responsibilities of the personnel handling business
operations)
b. Maintenance Access – vendor engineers
c. Physical Access controls – permissions, logging, exception
reporting & alerts
d. Environmental Controls – fire protection, AC monitoring, etc.
e. Fault Resolution Mechanism
f. Folder Sharing and Back Up Controls – safeguard of critical
information on local desktops
g. Incidences of violations in the previous audit report and corrective
action(s), if any, taken
h. Any other controls, as deemed fit, by the MII
4.2. Software change control
a. Whether pre-implementation review of application controls
(including controls over change management) was undertaken?
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b. Adherence to secure Software Development Life Cycle (SDLC) /
Software Testing Life Cycle (STLC) standards/ methodologies
c. Whether post implementation review of application controls was
undertaken?
d. Is the review of processes to ensure data integrity post
implementation of new application or system followed by
implementation team?
e. User awareness
f. Processing of new feature request
g. Fault reporting / tracking mechanism & process for resolutions
h. Testing of New releases / Bug-fixes – Testing process
(automation level)
I. Version Control – History, Change Management process etc.
j. Development / Test/ Production environment – Segregation
k. New Release in Production – Promotion, Release note approvals
l. Production Issues / disruptions reported in the previous audit
report, root cause analysis & corrective actions taken, if any
m. Software Development Stage
n. Software Design to ensure adequate system capacity to enable
functioning in a degraded manner in the event of a crash.
o. Any other controls, as deemed fit, by the MII
4.3. Data Communication/ Network Controls
a. Network Administration – Redundancy, Monitoring, breakdown
resolution etc.
b. WAN Management – Connectivity provisions for business
continuity.
c. Encryption - Router based as well as during transmission
d. Connection Permissions – Restriction on need to have basis
e. Fullback Mechanism – Dial-up connections controls etc.
f. Hardware based Signing Process
g. Incidences of access violations observed in the previous report &
corrective actions taken, if any
h. Any other controls, as deemed fit, by the MII
4.4. Security Controls
a. Secured e-mail with other entities such as SEBI, other partners
b. Email Archival Implementation
4.5. Access Policy and Controls
a. Defined and documented policies and procedures for managing
access to applications and infrastructure –PDC, DRS, NS,
branches (including network, operating systems and database)
and approved by relevant authority
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b. Review of access logs
c. Access rights and roles review procedures for all systems
d. Segregation of Duties (SOD) matrix describing key roles
e. Risk acceptance for violation of SOPs and alternate mechanism
put in place
f. Privileged access to system and record of logs,
g. Periodic monitoring of access rights for privileged users
h. Authentication mechanisms used for access to systems including
use of passwords, One Time Passwords (OTP), Single Sign on,
etc.
I. Any other controls, as deemed fit, by the MII
4.6. Electronic Document Controls
4.7. General Access Controls
4.8. Performance Audit
a. Comparison of changes in transaction volumes since previous
audit
b. Review of systems (hardware, software, network) performance
over the period
c. Review of the current volumes against the last performance test
and against the current system utilization
4.9. Business Continuity / Disaster Recovery Facilities
a. Business Continuity Planning (BCP) manual, including Business
Impact Analysis (BIA), Risk Assessment and Disaster Recovery
(DR) process, Roles and responsibilities of Incant Response Team
(IRT) /Crisis Management Team (CMT), employees,
support/outsourced staff.
b. Implementation of policies
c. Back-up procedures and recovery mechanism using back-ups.
d. Storage of Back-up (Remote site, DRS etc.)
e. Redundancy – Equipment, Network, Site etc.
f. DRS installation and Drills - Management statement on targeted
resumption capability (in terms of time required & extent of loss of
data)
g. Evidence of achieving the set targets during the DR drills in event
of various disaster scenarios.
h. Debrief / review of any actual event when the DR/BCP was invoked
during the year
I. User awareness and training
j. Is Recovery Time Objective (RTO) /Recovery Process Objective
(RPO) during BIA documented?
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k. Is annual review of BCP-DR or in case of major change in
business/ infrastructure undertaken?
l. Is quarterly review regarding implementation of BCP policy done by
Standing Committee of Technology (SCOT) of the MII?
m. Testing of BCP-DR plan through appropriate strategies including
simulations, DR drills, system recovery, etc.
n. Is the recordkeeping of quarterly DR drills, live trading sessions
from DRS being maintained?
o. Is BCP-DR policy document prepared and implemented in line with
SEBI circular on BCP and DR of MII?
4.10. IT/Network Support & IT Asset Management
a. Utilization Monitoring – including report of prior year utilization
b. Capacity Planning – including projection of business volumes
c. Capacity and performance management process for the
network/systems
d. IT (S/W, H/W & N/W) Assets, Licenses & maintenance contracts
e. Comprehensive review of Assets life cycle management
(Acquisition, commissioning, deployment, monitoring,
maintenance and de commissioning) and relevant records related
to it.
f. Insurance
g. Disposal – Equipment, media, etc.
5. Entity Specific Software used for or in support of trading/clearing systems
/ peripheral systems and critical processes
6. Human Resources Management
6.1. Screening of Employee, Third party vendors / contractors
6.2. On boarding
6.3. Off boarding
6.4. Consequence Management (Incident / Breach of policies)
6.5. Awareness and Trainings
6.6. Non-Disclosure Agreements (NDAs) and confidentiality
agreement
7. Network audit
7.1 The audit shall cover entire network infrastructure which shall
inter-alia includes physical verification and tracing of the
connectivity paths, server configuration, physical checking wire to
wire connectivity and configurations of computer networking
devices etc.
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7.2 The audit shall require tracing of the connectivity and network
diagram based on the physical audit.
7.3 The audit shall cover the link, the path, device-level redundancy,
no single-point failures, high availability, and fault tolerance
aspects in the network.
7.4 The audit shall cover entire network that is used to connect
members to the MIIs (POP, MPLS, VSAT, COLO, etc.)
7.5 The audit shall cover applications, internal networks, servers, etc.
of the MIIs/offered by the MIIs to its members that are used for
trading, risk management, clearing and settlement etc.
7.6 Network performance and design
7.7 Network Security implementation
7.8 Network health monitoring and alert system
7.9 Log management process
7.10 Service level definition for vendor’s/Service level management
7.11 Governance process for network service delivery by vendors
8. The results of all testing that was conducted before deployment of any IT
system/application in production environment, shall be checked by auditor
during system audit.
9. IT Vendor Selection and Management
9.1. Identification of eligible vendors
9.2. Dissemination process of Request for Proposal (RFP)
9.3. Definition of criteria of evaluation
9.4. Process of competitive analysis
9.5. Approach for selection
9.6. Escrow arrangement for keeping source code
10. E-Mail system
10.1. Existence of policy for the acceptable use of electronic mail
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10.2. Regulations governing file transfer and exchange of messages
with external parties
10.3. Rules based on which e-mail addresses are assigned
10.4. Storage, backup and retrieval
11. Redressed of Technological Complaints
11.1. Ageing analysis of technology complaints
11.2. Whether all complaints received are brought to their logical
conclusion?
12. Any other Item(s)
12.1. Electronic Waste Disposal
12.2. Observation(s) based on previous Audit Report (s)
12.3. Any other specific area(s) that may be informed by SEBI
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Format for monitoring compliance with requirements emanating from SEBI circulars/guidelines/advisories related to
technology - Annexure ZA
Sl. Date of Subject Technological Mechanism Non Compliance Comments of the Time-line for taking
No. SEBI requirements put in place compliances status (Open/ Management corrective action in case
circular/ specified by by the MIIs with SEBI closed) of open observations
directions/ SEBI in brief circulars/
advice, directions, etc.
etc.
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Exception Observation Reporting Format - Annexure ZB
Note: MIIs are expected to submit following information with regard to exceptional major non-compliances (NCs) / minor NCs
observed in the System and Network Audit. MIIs should also categorically highlight those observations/NCs/suggestions pointed out
in the System and Network Audit (current and previous) which are not yet complied with.
Name of the MII: ___________________
Name of the Auditor: _________________
Systems and Network Audit Report Date: _________________
Table 1: For preliminary audit
Audit Descri Department Status/ Risk Audit Root Impact Manageme Whether
period Observation ption of MII Nature Rating TOR Cause Analysis Corrective Deadline nt similar
No. of of of clause Analysis Actions for the response issue
finding finding finding proposed corrective in case of was
as per by auditor action acceptance observed
Auditor of in any of
associated the
risks previous
3
Audits
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Description of relevant Table heads
1. Audit Period – This indicates the period of audit
2. Description of findings/observations – Description of the findings in sufficient details, referencing any accompanying evidence
3. Status/ Nature of Findings – The category can be specified, for example:
a. Non-compliant (Major/Minor)
b. Work in progress
c. Observation
d. Suggestion
4. Risk Rating of finding - A rating has to be given for each of the observations based on its impact and severity to reflect the risk
exposure as well as the suggested priority for action
Rating Description
Represents weakness in control with respect to threat(s) that is /are sufficiently capable and impacts asset (s) leading
HIGH to regulatory non-compliance, significant financial, operational and reputational loss. These observations need to be
addressed with utmost priority.
Represents weakness in control with respect to threat(s) that is /are sufficiently capable and impacts asset (s) leading
MEDIUM to exposure in terms of financial, operational and reputational loss. These observations need to be addressed
reasonable timeframe.
Represents weaknesses in control, which in combination with other weakness can develop into an exposure.
LOW
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 non-conformity.
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7. Impact Analysis – An analysis of the likely impact on the operations/ activity of the organization
8. Corrective Action – The action taken to correct the non-conformity
Table 2: For follow on/ follow up system and Network audit
Preliminary Preliminary Preliminary Preliminary Preliminary Current Current Revised Deadline for Reason for delay
Audit Date Audit Observation Status Corrective Finding Status Corrective the Revised in implementation/
Period Number Action Action, if Corrective compliance
as proposed any Action
by Auditor
Description of relevant Table heads
1. Preliminary Status – The original finding as per the preliminary System and Network Audit Report
2. Preliminary Corrective Action – The original corrective action as prescribed in the preliminary System and Network 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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Stock Broker System Audit Framework – Annexure ZC
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 stated
below);
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 stated below).
c. Type III Broker: Brokers who use Algorithmic Trading facility to trade
and who may also be TYPE II Brokers (ToR stated below).
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
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.
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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 below in
this 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
Auditor firm shall not be related to any stock broker including its directors or
promoters either directly or indirectly.
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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.
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
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.
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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
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
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.
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
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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.
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
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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.
Terms of Reference (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
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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
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.
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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.
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.
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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.
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.
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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.
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.
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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
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
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exchanges with regard to testing of software and new patches, including the
following:
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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Terms of Reference (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
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.
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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.
c. Class Neutral – The system provides for SOR for all classes of
investors.
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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.
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.
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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
login, disablement of user id on entering multiple wrong passwords (as
defined in the password policy document), periodic password change
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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.
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.
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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.
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.
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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.
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
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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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Executive Summary Reporting Format
I. For Preliminary Audit
Audit Observation Description Department Status / Risk Audit Audited Root Impact
Date No of Finding Nature Rating TOR By Cause Analysis
of of Clause Analysis
Findings Findings
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.
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
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Preliminary Sr. Preliminar Preliminar Preliminar Current Current Revised Deadline for
Audit Date No y y Status y Finding Status Corrective the Revised
Observati Corrective Action Corrective
on Action Action
Number
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.
Cyber Security and Cyber Resilience framework – Annexure ZD
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
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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.
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
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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 and classify/designate critical assets based on their
sensitivity and criticality for business operations, services and data
management. The critical assets should include business critical systems,
internet facing applications /systems, systems that contain sensitive data,
sensitive personal data, sensitive financial data, Personally Identifiable
Information (PII) data etc. All the ancillary systems used for
accessing/communicating with critical systems either for operations or
maintenance should also be classified as critical system. The Board of the MII
shall approve the list of critical systems.
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 should
maintain up-to-date inventory of its hardware and systems, software and
information Security.
Protection
Access Controls
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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.
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.
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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
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.
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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.
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Disposal of systems and storage devices
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) MIIs should carry out periodic vulnerability assessment and penetration testing
(VAPT) which inter-alia includes all critical assets and infrastructure
components like Servers, Networking systems, Security devices, load
balancers, other IT systems pertaining to the activities done as a role of MII
etc., in order to detect security vulnerabilities in the IT environment and in-depth
evaluation of the security posture of the system through simulations of
actual attacks on its systems and networks.
MIIs should conduct VAPT at least once in a financial year. However, for the
MIIs, whose systems have been identified as “protected system” by National
Critical Information Infrastructure Protection Centre (NCIIPC), VAPT shall be
conducted at least twice in a financial year. Further, all MIIs are required to
engage only CERT-In empaneled organizations for conducting VAPT. The final
report on said VAPT should be submitted to SEBI after approval from Standing
Committee on Technology (SCOT) of respective MIIs, within 1 month of
completion of VAPT activity.
41) Any gaps/vulnerabilities detected have to be remedied on immediate basis and
compliance of closure of findings identified during VAPT shall be submitted to
SEBI within 3 months post the submission of final VAPT report to SEBI.
42) In addition, MIIs should also perform vulnerability scanning and conduct
penetration testing prior to the commissioning of a new system which is a critical
system or part of an existing critical system.
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
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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
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
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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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Standard Operating Procedure (SOP) for handling of technical glitches -
ANNEXURE- ZE
Definition of “Technical Glitch”
1. Technical glitch shall mean any malfunction in the systems of an MII.
Malfunction in the systems of the MII shall include malfunction in its (a)
hardware, or; (b) software, or; (c) any products/ services provided by the MII,
whether on account of inadequate infrastructure/ systems or otherwise, which
may lead to either stoppage or variance in the normal functions/ operations of
systems of the MII.
Reporting Requirements
2. The following reporting structure for technical glitches shall be adopted by
the MIIs:
Sl. Disruption Reporting
No.
1. No business • Standing Committee on
disruption Technology (SCOT) of MII
• Governing Board of MII
2. Business disruption • SCOT of MII
• Governing Board of MII
• SEBI
Business disruption shall mean either stoppage or variance in the normal
functions/operations of systems of the MII thereby impacting normal/regular
service delivery of the MII.
2.1. With regard to incidents resulting in business disruption, the following shall
be submitted by the MIIs to SEBI:
(i) Information of technical glitch on immediate basis but not later than 2
hours from the time of occurrence of the glitch; provided that glitches
of the nature of a disaster- as defined in SEBI Circular dated March
22, 2021 having reference number
SEBI/HO/MRD1/DTCS/CIR/P/2021/33 and subsequent amendment
thereto or supersession through any circular or master circular issued
from time to time. - shall be reported immediately upon declaration of
disaster.
(ii) Preliminary report within 24 hours of the occurrence of the glitch.
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(iii) Comprehensive Root Cause Analysis (RCA) report and corrective
action taken to address the technical glitch within 21 days of the
incident. Such report shall be submitted to SEBI, after placing the
same before the Standing Committee on Technology and the
Governing Board of the MII and confirming compliance with their
observations.
(iv) RCA submitted by the MIIs should inter-alia include exact cause of the
technical glitch (including root cause from vendor(s), if applicable),
exact duration of the technical glitch, chronology of events, list of
business processes/systems and time for which they were impacted,
recommendations of SCOT / Governing Board of MII, details of
corrective/ preventive measures taken (or to be taken) by MII along
with timelines and any other aspect relevant to the technical glitch. As
part of the RCA, MIIs are required to demonstrate compliance with
various requirements of this SOP. The RCA shall include details
regarding time of incident, time when operations were restored and in
the event of a disaster, time when disaster was declared.
2.2. All communication and information with regard to technical glitch shall be
shared by the MII with SEBI through a dedicated e-mail id viz.
techglitch@sebi.gov.in
Placing before Technical Advisory Committee (TAC)
2.3. With regard to the incidents wherein business is disrupted, the RCA and
corrective action taken, as submitted by the MII, shall be placed before
TAC of SEBI. TAC/ SEBI, if it so desires, may seek additional information/
clarification from the MII regarding the technical glitch.
2.4. In case TAC finds the actions taken by the MII as inadequate, then, based
on the recommendations of TAC, the MII shall be required to address the
technical glitch by taking appropriate corrective actions, within the timeline
specified by TAC/SEBI. While deciding such timeline, criticality of the
malfunction and/or the services/ applications affected by the same shall
also be taken into consideration
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“Financial Disincentive” structure - ANNEXURE- ZF
“Financial Disincentive” structure with regard to handling of technical glitches
Failure to timely submit RCA
1. In case of delay in submission or submission of incomplete/ inadequate RCA
by an MII, a “financial disincentive” of INR 1,00,000 per working day shall be
paid by the MII for each working day of delay from the timeline specified at
Para 2.1(iii) of Annexure ZE of this Circular or any revised timeline specified
by TAC/SEBI for submission of exact RCA.
Failure to timely address technical glitch
2. In order to ensure that MIIs address technical glitch within the timeline specified
by TAC/SEBI, the following progressive slab-wise “financial disincentive” shall
be paid from the expiry of the timeline specified by TAC/ SEBI:
S No. of working days during which Financial disincentive to be paid
No. failure continues (i.e. after expiry of by the MII (in rupees)
the timeline specified by TAC/ SEBI)
i. First 15 working days INR 2 lakh per working day
ii. Subsequent 15 working days INR 3 lakh per working day in
addition to S No. (i) above
iii. Beyond 30 working days INR 25 lakh in addition to S No (i)
and (ii) above
Failure to declare disaster within stipulated timelines
3. Vide SEBI Circular dated March 22, 2021 having reference number
SEBI/HO/MRD1/DTCS/CIR/P/2021/33, it has been mandated that, in the event
of disruption of any one or more of the ‘Critical Systems’, the MII shall, within
30 minutes of the incident, declare that incident as ‘Disaster’. In case of delay
in declaration of disaster beyond the timeline specified by SEBI, the following
“financial disincentive” shall be paid:
S Delay in declaration of disaster Financial disincentive Equivalent (in
No. beyond abovementioned timeline rupees)
specified by SEBI
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i. Financial disincentive on MII 10% of average of standalone net profit
for previous two financial years or INR
2 Crores, whichever is higher.
ii. Financial disincentive on 10% each of their annual pay (both
Managing Director (MD) and Chief fixed and variable components) for the
Technology Officer (CTO) of MII financial year when the disaster
separately occurred
Failure to restore operations within Recovery Time Objective (RTO)
4. In the event of a disaster, if an MII fails to restore its operations within the RTO
prescribed by SEBI, i.e. to restore operations of ‘Critical Systems’ including
from Disaster Recovery Site within 45 minutes of declaration of Disaster, the
following “financial disincentive” shall be paid:
S Failure to restore operations Financial disincentive Equivalent (in
No. within the RTO prescribed by rupees)
SEBI
i. Financial disincentive on MII 10% of average of standalone net profit
for previous two financial years or INR 2
Crores, whichever is higher.
ii. Financial disincentive on MD and 10% each of their annual pay (both fixed
CTO of MII separately and variable components) for the
financial year when the disaster occurred
“Financial disincentive” under Clause 3 and Clause 4 above, in relation to the
same disaster, shall be paid only once either under Clause 3 or Clause 4.
5. Further, if an MII fails to restore operations of Critical Systems including from
Disaster Recovery Site within three hours from the occurrence of the
disaster, the following additional “financial disincentive” (over and above S
No 3 or 4 above) shall be paid:
S Failure to Restore operations of Financial disincentive Equivalent (in
Critical systems beyond rupees)
No.
abovementioned timeline
i. Financial disincentive on MII 10% of average of standalone net profit
for previous two financial years or INR
2 Crores, whichever is higher.
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ii. Financial disincentive on MD and 10% each of their annual pay (both
fixed and variable components) for the
CTO of MII separately
financial year when the disaster
occurred
Failure to restore normalcy in cases of business disruption, not being in
the nature of a Disaster
6. In the event of any business disruption, which is not required to be declared as
“Disaster” as per SEBI circular dated March 22, 2021 having reference number
SEBI/HO/MRD1/DTCS/CIR/P/2021/33, if an MII fails to restore normalcy of
operations within 75 minutes of the incident, the following slab wise “financial
disincentive” shall be paid by the MII:
S No. Failure to Restore normalcy Financial disincentive
within (in rupees)
i. 75 minutes to 3 hours of the INR 50 lacs
incident
ii. Beyond 3 hours of the incident INR 1 crore
The amount of “financial disincentive” paid as per the above structure shall be
credited by MII to the following funds maintained by it
S Financial Disincentive on MIIs, Credited to Funds
MD and CTO
No.
i. Stock Exchange Investor Protection Fund (IPF)
ii. Clearing Corporation Core Settlement Guarantee Fund
(Core SGF)
7. Further, the MII shall submit a compliance report within 90 days of occurrence
of disaster/ business disruption to SEBI providing details of payment of
“financial disincentives” including computation of “financial disincentives” as
per the SOP and
the date when the amount was credited to the aforementioned funds. With
regard to “financial disincentive” on the MD/CTO of the MII arising out of the
variable pay component, the compliance report shall be submitted within 30
days of determination of variable pay of the concerned officials for the financial
year when the disaster occurred.
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8. With regard to the requirement of payment of “financial disincentive” on the
aforesaid officials of the MII (i.e. MD and CTO), the MII shall insert a suitable
clause in the terms of appointment of these officials and/ or in the Internal Code
of Conduct of the MII to comply with the “financial disincentive” requirements.
The financial disincentives automatically triggered under predefined
circumstances as stated in clauses 1,2,3,4,5,6 above shall be paid by the MIIs.
However, these financial disincentives shall be without prejudice to any action
as may be initiated by SEBI.
ANNEXURE ZG: LIST OF CIRCULARS RESCINDED
S. No. Date Title
1. October 01, 2015 Comprehensive Risk Management Framework for National
Commodity Derivatives Exchanges
2. October 21, 2015 Risk Management for Regional Commodity Derivatives
Exchanges
3. November 16, 2015 Investor grievance redressal system and arbitration
mechanism
4. November 16, 2015 Annual System Audit and BCP DR
5. November 26, 2015 Timelines for Compliance with various provisions of
Securities Laws by Commodity Derivatives Exchanges
6. December 09, 2015 Monthly Development Report for Commodity Derivative
Exchanges
7. December 11, 2015 Testing of software used in or related to Trading and Risk
Management
8. January 11, 2016 Mandatory requirements/Exit Policy for Commodity
Derivatives Exchanges
9. January 15, 2016 Reduction in Daily Price Limits& Near month Position Limits
for Agricultural Commodity Derivatives and Suspension of
Forward Segment
10. January 29, 2016 Revision in Position Limits for Agricultural Commodities
11. March 29, 2016 Modification of Client Codes post Execution of Trades on
National and Regional Commodity Derivatives Exchanges
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S. No. Date Title
12. March 29, 2016 Cyber Security and Cyber Resilience framework of National
Commodity Derivatives Exchanges
13. April 25, 2016 Disclosure of Proprietary Trading by Commodity Derivatives
Broker to Client and Pro - account Trading terminal
14. August 11, 2016 Annual System Audit for Trading members of National
Commodity Derivatives Exchanges
15. August 19, 2016 Programmes sponsored by the Exchanges through media
channels
16. August 19, 2016 Position Limits for Hedgers
17. August 19, 2016 Modification of Client Codes post Execution of Trades on
National and Regional Commodity Derivatives Exchanges–
Clarification
18. August 30, 2016 Trading Hours/ Trading Holidays on Commodity Derivatives
Exchanges
19. August 30, 2016 Price Dissemination through SMS/Electronic
Communication Facility
20. August 30, 2016 Maintenance and Preservation of Records
21. September 01, 2016 Additional risk management norms for national commodity
derivatives exchanges
22. September 02, 2016 Spot Price Polling Mechanism
23. September 07, 2016 Transaction Charges by Commodity Derivatives Exchanges
24. September 07, 2016 Mechanism for regular monitoring of and penalty for short-
collection/non-collection of margins from clients
25. September 07, 2016 Daily Price Limits (DPL) for Non-Agricultural Commodity
Derivatives/First day DPL for All Commodity Derivatives
26. September 07, 2016 Guidelines for Due Date Rate (DDR) fixation for Regional
Commodity Derivatives Exchanges
27. September 16, 2016 Unique Client Code (UCC) and Mandatory requirement of
Permanent Account Number (PAN)
28. September 16, 2016 Settlement Guarantee Fund, Stress Testing and Base
Minimum Capital
29. September 20, 2016 Permission for trading in futures contracts and modification
in contract specifications at exchange level
30. September 21, 2016 Staggered delivery, early delivery system, early pay-in
facility, penalty on delivery default, fixation of FSP and
changes in expiry dates
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S. No. Date Title
31. September 26, 2016 Commodity derivatives – Miscellaneous norms
32. September 26, 2016 Circular on Investor Protection Fund (IPF) and its related
matters
33. September 27, 2016 Revised Warehousing Norms in the Commodity Derivatives
Market for Agricultural and Agri-processed Commodities
Traded on the National Commodity Derivatives Exchanges
34. September 27, 2016 Position Limits for Commodity Derivatives, clubbing of open
positions, penalties for violation of position limits
35. September 27, 2016 Portfolio Management Services (PMS) in Commodity
Derivatives Market
36. September 27, 2016 Sharing of Information in case of Declaration of Member as
Defaulter in case of Multiple Membership
37. September 27, 2016 Disclosure by Commodity Derivative Exchanges on their
Websites
38. September 27, 2016 Broad Guidelines on Algorithmic Trading for National
Commodity Derivatives Exchanges
39. September 27, 2016 Spread Margin Benefit
40. September 28, 2016 List of Commodities Notified under SCRA
41. September 28, 2016 Introduction of Options in Commodity Derivatives Market
42. October 14, 2016 Bullion as collateral
43. December 02, 2016 Spread margin benefit
44. December 16, 2016 Applicability of Principles of Financial Market Infrastructures
(PFMIs) on Commodity Derivatives Exchanges
45. January 20, 2017 Criteria for Eligibility, Retention and re-introduction of
derivative contracts on Commodities
46. June 13, 2017 Options on Commodity Futures- Product Design and Risk
Management Framework
47. June 13, 2017 Comprehensive guidelines for Investor protection Fund,
Investor Service Fund and its related matters
48. June 21, 2017 Participation of Category III Alternative Investment Funds
(AIFs) in the commodity derivatives market
49. July11, 2017 Amendment to Investor Grievance Redressal System and
Arbitration Mechanism
50. July 25, 2017 Position Limits for Agricultural Commodity Derivatives
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S. No. Date Title
51. October 16, 2017 Criteria for Settlement Mode of Commodity Derivative
Contracts
52. January 03, 2018 Transaction Charges by Commodity Derivatives Exchanges
53. January 22, 2018 Role of the Independent Oversight Committee for Product
Design
54. March 14, 2018 Clarification to Circular pertaining to Investor Protection
Fund (IPF) and Investor Service Fund (ISF)
55. March 14, 2018 Clarification to Circular pertaining to Investor Grievance
Redressal System and Arbitration Mechanism
56. March 20, 2018 Spread margin benefit in commodity futures contracts
57. March 21, 2018 Risk Management norms for commodity derivatives
58. March 26, 2018 Guidelines for Liquidity Enhancement Schemes (LES) in
Commodity Derivatives Contracts
59. April 03, 2018 Orders per second limit and requirement of empanelment of
system auditors for algorithmic trading in commodity
derivatives
60. June 11, 2018 Disclosure by Exchanges related to Deliverable Supply and
Position Limits Calculation for Agricultural Commodity
Derivatives
61. July 11, 2018 Core SGF and standardized stress testing for credit risk for
commodity derivatives
62. October 09, 2018 Participation of Eligible Foreign Entities (EFEs) in the
commodity derivatives market
63. October 16, 2018 Uniformity in the procedure for obtaining samples of goods
at the Exchange accredited warehouses
64. November 15, 2018 Disclosures regarding commodity risks by listed entities
65. November 27, 2018 Interoperability among Clearing Corporations
66. November 30, 2018 Trading hours for commodity derivatives segment
67. January 04, 2019 Disclosures by Stock Exchanges for commodity derivatives
68. January 23, 2019 Alignment of Trading Lot and Delivery Lot size
69. February 11, 2019 Framework for utilization of Financial Security Deposit
(FSD)
70. March 20, 2019 Framework for Utilization of Regulatory Fee Foregone by
SEBI
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S. No. Date Title
71. June 18, 2019 Design of Commodity Indices and Product Design for
Futures on Commodity Indices
72. June 20, 2019 Credit of Penalty for short-collection/non-collection of
Margins on Commodity Derivatives Segments to Core SGF
73. July 26, 2019 Guidelines for Liquidity Enhancement Scheme (LES) in
Commodity Derivatives Contracts
74. July 26, 2019 Staggered Delivery Period in Commodity futures contracts
75. August 07, 2019 Product Advisory Committee
76. September 13, 2019 Additional commodities as Eligible Liquid Assets for
Commodity Derivatives Segment
77. November 14, 2019 Modifications in the contract specifications of commodity
derivatives contracts
78. November 29, 2019 Cut-off Time for Determining Minimum Threshold of Margins
to be Collected from Clients
79. January 16, 2020 Options in Goods - Product Design and Risk Management
Framework
80. January 27, 2020 Review of Margin Framework for Commodity Derivatives
Segment
81. February 04, 2020 Performance review of the commodity derivatives contracts
82. March 03, 2020 Review of Norms regarding Regaining Matched Book for
Commodity Derivatives Segment
83. May 26, 2020 Guidelines for identification and selection of location as a
delivery centre(s) for commodity derivatives contract
84. July 20, 2020 Eligibility Criteria for Selection of Underlying Commodity
Futures for Options on Commodity Futures
85. July 21, 2020 Review of Stress Testing Methodology for Positions with
Early Pay-in
86. September 21, 2020 Alternate Risk Management Framework Applicable in case
of Near Zero and Negative Prices
87. October 19, 2020 Utilization of Fund Created out of the Regulatory Fee
Forgone by SEBI – Additional Guidelines
88. December 21, 2020 Review of inclusion of Historical Scenarios in Standardized
Stress Testing in Commodity Derivatives Segment
89. January 11, 2021 Review of Volatility Scan Range (VSR) for Option contracts
in Commodity Derivatives Segment
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S. No. Date Title
90. January 11, 2021 Revision in Daily Price Limits (DPL) for Commodity Futures
Contracts
91. February 23, 2021 Pre-Expiry Margin on commodities under Alternate Risk
Management Framework
92. March 08, 2021 Amendments to provisions in SEBI Circular dated
September 16, 2016 on Unique Client Code (UCC) and
mandatory requirement of Permanent Account Number
(PAN)
93. March 23, 2021 Review of Delivery Default Norms
94. April 16, 2021 Circular on Guidelines for warehousing norms for
Agricultural and Agri-processed goods and non-agricultural
goods (only base and industrial metals)
95. June 29, 2021 Cross Margin in Commodity Index Futures and its
underlying constituent futures or its variants
96. July 08, 2021 Review of Advance Intimation timelines for modifications in
the contract specifications of commodity derivative contracts
97. Aug 09, 2021 Calendar Spread margin benefit in commodity futures
contracts
98. Aug 17, 2021 Penalty for Repeated Delivery Default
99. Oct 04, 2021 Disclosure of Complaints against the Stock Exchanges and
the Clearing Corporations
100. Oct 22, 2021 Amendment to SEBI Circular pertaining to Investor
Protection Fund (IPF)/Investor Service Fund (ISF) and its
related matters
101. Oct 22, 2021 Amendment to SEBI Circulars pertaining to Investor
Grievance Redressal System and Arbitration Mechanism
102. Dec 16, 2021 Cut-off Time for generation of last Risk Parameter File
(RPF) for client’s margin collection purpose and modification
in framework to enable verification of upfront collection of
margins from clients in commodity derivatives segment
103. Jan 03, 2022 Options on Commodity Futures – Modification in Exercise
Mechanism
104. Mar 17, 2022 Revision in Orders Per Second limit for algorithmic trading
in Commodity Derivatives Segment of the Stock Exchange
105. Mar 24, 2022 Introduction of Options on Commodity Indices - Product
Design and Risk Management Framework
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S. No. Date Title
106. May 17, 2022 Master Circular for Commodity Derivatives Market
107. September 27, 2022 Modification in Daily Price Limits (DPL) for Commodity
Futures Contracts
108. September 29, 2022 Participation of SEBI registered Foreign Portfolio Investors
(FPIs) in Exchange Traded Commodity Derivatives in India
109. January 11, 2023 Allowing stock exchanges to launch multiple contracts on
the same commodity in commodity derivatives segment
******
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