April 2, 2004
Sub: Margin Trading
Attention of the members is invited to Exchange Notice No. 20040325-19 dated March 25, 2004 wherein SEBI guidelines on Margin Trading and Securities Lending and Borrowing as per SEBI’s circular No. SEBI/MRD/SE/SU/Cir-15/04 dated March 19, 2004 were advised. SEBI has subsequently issued a circular No. SEBI/MRD/SE/SU/Cir-16/04 dated March 31, 2004 clarifying certain aspects in the matter. A copy of the said circular is enclosed as Annexure- A.
2. The members are advised that the Exchange has decided to permit the members of the Exchange to provide facility of Margin Trading to their clients within the aforesaid SEBI guidelines with immediate effect.
3. The modalities with respect to the Margin Trading facility by the members of the Exchange to their clients are given as under:
- Permission from the Exchange:
Corporate members with a Net-worth of Rs. 3.00 crores are eligible to provide the facility of Margin Trading to their clients. Such eligible members are required to make a request to the Membership Dept. on the 1st Floor of the Exchange seeking Exchange’s permission in this regard. The request could be faxed on 022 – 2272 3185 with original request delivered to the Dept. within 2 days from the date of faxed message. The members are required to submit Net-worth certificate from their auditor in the prescribed format alongwith their application. Draft formats of the request letter along-with the format for Net-worth certificate are enclosed as Annexure- B. The members can submit certificate confirming Net-worth as on September 30, 2003 or as on March 31, 2004, while making the request. However, in case the members who have given Net-worth Certificate as on September 30, 2003, they would be required to submit Net-worth Certificate as on March 31, 2004 latest by April 30, 2004. The Membership Dept. will grant permission to the members for providing Margin Trading to their clients.
The securities forming part of Group I securities for computation of VaR Margins would be eligible for margin trading facility. Currently, 367 scrips are included in Group 1. A list of these securities where the Margin Trading is permitted during April 2004 is enclosed as Annexure- C. A list of eligible securities would be periodically announced by the Exchange at the end of the month, which would be effective from the first date of the ensuing month.
- Reporting of Margin Trades:
The members are required to report Margin Trades latest by 12:00 noon on the following day. The members may please note the following:
- The members are required to report only the Margin Trades position where the transactions have been executed on the Exchange.
- The members would be required to report cumulative outstanding position of Margin Trading. The formats of reports specified by SEBI are enclosed as Annexure- D for information of the members.
- The Exchange has provided a system of reporting of these trades through Data Upload System (DUS). The details regarding mechanism of reporting Margin Trade in DUS system as well as file structures are given as Annexure- E.
- The members are required to report the Margin Trade position in the DUS system on the next trading day only between 9:00 a.m. and 12:00 noon.
- The members are required to place suitable internal systems to ensure that they are complying with the various SEBI stipulations relating to Maximum borrowing, total and single client exposure etc. as per the aforesaid SEBI circular and various other circular issued in this regard by SEBI from time to time.
- Utmost care should be taken to ensure accuracy of Margin Trade data in DUS system. The members may be liable for strict disciplinary action in case of wrong/ false Margin Trade data reporting.
- Disclosure of Margin Trade position by the Exchange:
Based on the reporting done by the brokers to the Exchange, the Exchange would disclose the Margin Trade position across the market (for all its members) at the end of the day.
- Half- yearly Certificates:
The members providing facility of Margin Trading to their clients would be required to submit the following certificates:
- Net-worth Certificate: The Net- worth certificate should be submitted in the format enclosed as Annexure–B to the Membership Dept of the Exchange. The members are required to submit Net-worth certificate in the prescribed format confirming Net-worth as on 30th September and 31st March latest by 31st October and 30th April.
- Margin Trading Compliance Certificate: The books of accounts, maintained by the members, with respect to margin trading facility offered by them would be audited. The member would be required to submit an auditor’s certificate certifying the extent of compliance with the conditions of Margin Trading facility. The members are required to submit such certificate for the half- year ending 31st March and 30th September latest by 31st October and 30th April to Inspection Department.
- Arbitration: It may be noted that the arbitration mechanism of the exchange would not be available for settlement of disputes, if any, between the client and members, arising out of the margin trading facility. However, any disputes relating to transactions done on the exchange, whether normal or through margin trading facility, shall be covered under the arbitration mechanism of the exchange.
- IPF/ TGF: The amounts lying in these funds would not be available for settling any loss suffered in connection with the margin trading facility. However, the aforesaid funds will continue to be available for all transactions done on the exchange, whether normal or through margin trading facility.
- Inspection by the Exchange: It may please be noted that the Exchange may inspect the books of the members to ensure compliance of the various SEBI guidelines for the Margin Trading. Also, the Exchange may advise a member to discontinue facility of Margin Trading to their clients in the overall interest of the market.
4. The detailed mechanism regarding Securities lending and Borrowing would be advised to the members in due course.
5. In case of any queries or clarifications the members may approach their Account Managers or the Helpdesk over extension 5000 or Shri Shirish Bhosle in ISD on DUS system over extension.No. 8718 .
(Kevin Desouza) (Sanjiv Kapur)
CGM - Membership & Inspection. GM – Clearing & Settlement
Encl. a.a.