April 17, 2008

SECURITIES LENDING AND BORROWING SCHEME (SLBS)

To

All Members and Custodians

With reference to BOISL’s circular – Notice no: 20080128-3 dated January 28, 2008 and Notice No. 20080130-38 dated January 30, 2008 regarding the Securities Lending and Borrowing Scheme (SLBS), all Members/Custodians of Bombay Stock Exchange Ltd. are further notified of the following with respect to SLBS:

Transactions cleared and settled by Custodians

Members will be allowed to enter the 6A 7A entry for custodian confirmation up to 1.30 p.m. on the lending/borrowing day (T day).  And the Custodians will be required to confirm the 6A 7A entries by 2.00 p.m. on the same day.

Where transactions input by members in SLBS are being cleared and settled by Custodians, the Custodians shall be required to provide a Base Minimum Capital of Rs.10 lacs for meeting the obligations and liabilities of the Custodian on account of SLBS.  The deposit should be by way of cash and cash equivalent, favouring BSE.

The custodians will open a POOL/Principal account with CDSL DP and Pool account in NSDL. The provision to use the existing accounts in Cash Segment for SLB settlement purposes may be examined at the Depository level. The details of these accounts along with the client master copies should be forwarded to BOISL.

The Custodians will be required to take Custodian Participant (CP) codes from BOISL, for those clients whose SLBS transactions they would clear and settle. BOISL shall allot a CP code and intimate the same to the Custodian.

Margins and other levies shall become applicable to the Custodians on confirmation of the transactions by the Custodians. The custodians shall be required to adhere to the specified procedures for clearing and settlement as specified by BOISL from time to time and shall be bound by the BOISL rules, regulations, byelaws as amended from time to time.

Auto Delivery

Auto Delivery Out facility has been provided to members/custodians wherein the securities available in the principal/pool account of CDSL/NSDL will be utilized towards the pay-in delivery obligations. The facility shall be provided only to those members /custodians who have requested for the said facility. Members/custodians desirous of availing this facility shall send a letter to BOISL..

Early pay-in of securities

Early pay-in of securities facility to avail margin benefits shall be made available to all members/custodians. Members/custodians can make early pay-in through either of the depositories viz. NSDL and CDSL. Members/custodians desirous of making early pay-in of securities through CDSL need to transfer the securities in a separate account no. 1100002400000011 opened for the purpose by BOISL in CDSL. While in NSDL the Members/Custodians need to give irreversible delivery out in their POOL account. Early pay-in of security can be made for the first leg and reverse leg obligations.

Close out rate in case lender fails to deliver:

In case lender fails to deliver the security, the transaction will be closed out at a price, which shall be higher of:

25% of closing price of the security on T+1 day (closing price of the security in the Cash segment of BSE

                                                                         Or

The difference between the maximum traded price of the security in the Cash segment of BSE on T and T+1 day and the closing price of the security on the T+1 day in the Cash segment of BSE

Close out rate in case No Offer is received in Buy-in auction, when borrower fails to return

In case of borrower fails to return the securities and in case of non-availability of securities in buy-in auction, such transactions would be closed out at a price which shall be higher of:

The maximum traded price in the Cash segment of BSE from T+1 day to T+8 day,

                                                           Or

25% above the closing price of the security in the Cash segment of BSE on the T+8 day

In the case of failure to give delivery in Auction Market

When the auction offeror fails to deliver in part or full on auction pay-in day (T+9 day), the transaction will be closed out at a price, which shall be higher of:

The maximum traded price in the Cash segment of BSE from T+1 day to T+8 day,

                                            Or

25% above the closing price of the security in the Cash segment of BSE on the T+8 day

Client direct payout facility:

The facility of crediting the payout of securities directly to the member’s/custodian’s client account shall be made available. In order to avail of this facility, members / custodians are required to provide a file in the specified format containing details of the beneficiary accounts to which direct credit is to be given. 

COLLATERAL DEPOSITS

Trading members/custodians may deposit collateral in SLBS in form of:

Cash

Fixed Deposit Receipts (FDRs).

Bank Guarantee (BGs).

All SLB Members are required to maintain with the Exchange a Base Minimum Capital (BMC) of Rs. 10 lacs (per membership right) in the form and proportion of 12.5% in cash (minimum) and balance by way of cash / FDRs  / bank guarantees. The deposit towards Base Minimum Capital will not be available for adjustment towards margins.

In addition to the Base Minimum Capital the SLB Members may deposit additional capital in form of cash or cash equivalent only (i.e., Fixed Deposit Receipts of Banks and Bank Guarantee).

Procedure for deposit of collaterals:

Cash:

For depositing of cash as additional capital the procedure would be the same as followed in Cash Segment, i.e., SLB Members would be required to give instructions to their respective Clearing Banks for enhancement of capital.  The benefit of such cash deposit would be given subject to receipt of confirmation from respective Clearing Banks. The format of instruction letter to the Clearing Bank is enclosed as Annexure-I

Fixed Deposit Receipts (FDRs):

The FDR(s) deposited by the SLB Members towards BMC and additional capital should be issued by any branch of a scheduled commercial bank and should be for a minimum period of three months. The FDRs deposited by the members towards BMC + AC have to be issued in favour of “BSE Ltd. A/c – Trade name of the member" and are required to be duly discharged by the SLB Member himself or an authorized signatory of the member, on the reverse of the FDRs by affixing revenue stamp and signing across it.

The member, who desires to submit a FDR towards capital, has to submit a written request on his letterhead to CSD along with the original FDR document.  The FDR should be accompanied with a letter from the bank issuing the FDR and addressed to the Exchange in the format given in Annexure - II

In case of renewal of FDR, the aforesaid instruments the same should be submitted in the prescribed format as given in Annexure - III

Bank Guarantee(s):

As in the case of FDRs, the SLB Members are required to submit a written request on their letterhead to CSD along with the original Bank Guarantee(s) document(s). The bank guarantees deposited towards BMC and additional capital should be from any branch of a scheduled commercial bank only and should have a minimum validity period of three months. The bank guarantees should be strictly as per the format as prescribed by the Exchange separately for SLBS. Incidentally, the members have been permitted to furnish the bank guarantee(s) to the Exchange towards BMC+ AC without the claim period. In such cases i.e., where Bank Guarantee(s) are submitted without a claim period, the amount of the bank guarantee(s) is removed from the capital of the members, ten working days before the respective expiry date(s) of the bank guarantee(s).

The FDR(s)/bank guarantees deposited by the members towards BMC+AC issued by branches of scheduled commercial outside Mumbai are accepted provided the same should be payable at any of the branches.

Procedure for withdrawal of collaterals:

Cash:

For withdrawal of cash from AC, the members have to submit a written request, in the format prescribed by the Exchange (enclosed as Annexure-IV). The request in this regard can be submitted to CSD on any working day by 04:00 p.m.

These requests are processed by CSD on the next trading day and the least of three amounts, viz., amount requested for withdrawal, cash deposited towards AC and unutilized capital, is released to the members by crediting the same in their settlement account with their designated clearing banks on the subsequent trading day. 

Fixed Deposit Receipts (FDRs) and Bank Guarantees (BGs):

For withdrawal of FDRs/BGs, members have to submit a written request to CSD, mentioning details like amount, issuing bank, FDR / BG no's, date of issue etc, on any working day of the Exchange by 04:00 p.m.

The FDR /BG is released to a member only if the amount requested for release is less than or equal to the unutilized AC of the member.

Besides the aforesaid, all other procedures followed in respect of deposit and withdrawal of collaterals in Cash Segment of BSE will also be followed in SLBS. 

POSITION LIMITS

Market Wide Position Limits for SLBS transactions:  

Market Wide Position Limits for SLBS transactions shall be 10% of the free-float capital of the company in terms of number of shares i.e. 10% of the number of shares held by non-promoters in the relevant security.

BOI Shareholding Ltd. (BOISL) shall specify the market wide position limits on the last trading day of the month, which shall be reckoned for this purpose during the next month.

The market wide position limit shall be monitored on the combined position across exchanges.

SLB trading member wise Position Limits for SLBS transactions:  

The SLB member position limits in a security shall be lower of:

10% of the market-wide position limits (in terms of number of shares)

                         OR

Rs. 50 crores   

BOISL shall specify the Participant wise position limits on the last trading day of the month, which shall be reckoned for this purpose during the next month.

FII/MF Position limits:

The position limits applicable for Foreign Institutional Investor (FII), Mutual Funds (MF) shall be same as of a SLB member i.e. lower of:

10% of the market-wide position limits

                       OR

Rs. 50 crores

Client Level Position Limits:

The client level position limits for a security for each specific client shall not be more than 1% of the market-wide position limits.

Client level position limits security-wise, shall be made available to Members on BSE’s website (www.bseindia.com).

Unique Client ID Position Monitoring:

The client level positions limits shall be monitored at the unique client code level based on the unique client ID allotted by BOISL to the Members. The client level position limits shall be applicable on the combined positions for the same clients transacting through different Members, as well.

In all the above cases, Members shall ensure that client-level position limits are kept within the permissible limits. In the event of a violation, the SLB member shall be required to ensure that the client does not take fresh positions.

DEALINGS WITH CLIENTS

Confirmation memos

Members shall issue confirmation memos as per the format specified in, for all the transactions executed on order matching platform, on the date of transaction and shall maintain proof of delivery of the same to the clients. Format of confirmation memo is enclosed as Annexure V

Members may also issue confirmation memos in digital format with the consent of the client. It should be in encrypted, non-tamperable format and digitally signed as per the IT Act, 2000 and shall be delivered to the email id provided by the client. Further, logs of the same should be preserved.

Funds and Securities: 

Client’s Funds and Securities: -     

Members shall route clients’ funds / securities through client bank / constituents demat account only. Clients’ funds / securities shall be used for the purpose of respective clients only.

Receipt and delivery of Securities

Members shall ensure that securities are received from / delivered to the respective clients’ demat accounts only.

Receipt and Payment of Funds

Members shall ensure that funds shall be received from / paid to the respective clients’ bank accounts only. Further, receipt and payment of funds should be made by account payee crossed cheques / demand drafts or by way of direct credit in to the bank account through EFT or any other mode allowed by RBI.

Quarterly Statement of accounts for funds and securities

Members shall send complete statement of accounts for both funds and securities in respect of each of its clients in such periodicity not exceeding three months (calendar quarter) within a month of the expiry of the quarter. The statement shall also state that the client shall report errors, if any, in the statement within thirty days of receipt thereof, to the SLB member.

Books of accounts, Records and Documents

Members shall maintain and preserve books of account, records and registers separately as may be necessary and make them available to BOISL as and when required.

A.C.Gautam

Managing Director