6th October 2005
Members are
hereby informed that the Exchange has received a circular no. MRD/ DoP/
SE /Cir-17/2005 dated September 2, 2005 from SEBI. The said circular,
which is self explanatory, is reproduced below.
Quote
General Manager
Market Regulation Department
Email:-sundaresanvs@sebi.gov.in
MRD/DoP/SE/Cir- 17/2005
September 2, 2005
The Executive Directors/Managing Director/
Administrators of All Stock Exchanges
Dear Sir / Madam,
Sub: Discontinuation of Hand Delivery Bargains/Delivery Versus Payment (DVP)
1.
It has been observed that some of
the institutional investors are still relying on Hand
Delivery Bargains/Delivery Versus Payment (DVP) for settlement of some of their
transactions. These Hand Delivery Bargains/DVP are
essentially bilateral settlement mechanisms.
2.
Since the stock exchanges have been acting as central
counter party and providing trade/settlement guarantee through the Clearing
Corporation/ Clearing House and all trades on the stock exchanges are settled
through the depository system, such Hand Delivery Bargains/DVP have outlived
their purpose. The use of central counter
party provided by the Clearing Corporation/ Clearing House of the stock
exchanges not only reduces the settlement risk but also the transaction costs. The recommendations of IOSCO CPSS Task Force also
encourage settlement guaranteed by Clearing Corporation/House of the stock exchanges.
3.
It has, therefore, been decided in consultation with stock
exchanges, custodians and other market participants that all transactions
executed on the stock exchanges will, henceforth, be settled through the
Clearing Corporation/House of the stock exchanges. In order to give the
institutional investors, custodians and other market participants some time to
change over to this practice, the above will come into effect from September
19, 2005.
4.
It has been represented to SEBI by the stock exchanges and
the custodians that it might be necessary to retain Hand Delivery Bargains/DVP
under very exceptional circumstances. Accordingly, the following are
exceptional circumstances under which Hand Delivery Bargains/DVP may be
permitted by the stock exchanges without attracting any margins and any
penalty:
5.
a. In the event of
rejection of a institutional trade by the custodian after the trade has been
executed, the stock exchange would consider the trade as an institutional trade
only if evidence to that effect is available with or made available to the
stock exchange and permit the trade to be settled through the Hand Delivery
Bargain on a DVP basis, without imposing any margin. Such trades would however
be subject to penalties as may be imposed by the stock exchanges.
b.
In case evidence as above is not available with the stock
exchange, the stock exchange, while allowing the trade to be settled through
Hand Delivery Bargain on a DVP basis will however impose both margin and
penalties.
6. The stock exchanges are advised to:
a.
make necessary amendments to
the bye-laws, rules and regulations for the implementation of the above
decision immediately, as may be applicable ;
b.
bring the provisions of this
circular to the notice of the member brokers/clearing members of the stock
exchange and also to disseminate the same on the website ; and
7. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Yours
faithfully,
Members are advised to note and ensure compliance with the provisions
of the aforesaid circular .
(Secretary)