TMI BlogMaster Circular on Matters relating to Exchange Traded DerivativesX X X X Extracts X X X X X X X X Extracts X X X X ..... v@sebi.gov.in MASTER CIRCULAR ON EXCHANGE-TRADED DERIVATIVES APRIL 2013 SECURITIES AND EXCHANGE BOARD OF INDIA Table of Contents 1 Index Futures ............................................................................................................. 11 1.1 Product Design ...................................................................................................... 11 1.1.1 Underlying ..................................................................................................... 11 1.1.2 Eligibility Criteria .......................................................................................... 11 1.1.3 Trading Hours ................................................................................................ 11 1.1.4 Size of the Contract ........................................................................................ 11 1.1.5 Quotation........................................................................................................ 11 1.1.6 Tenor of the contract ...................................................................................... 11 1.1.7 Available C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........ 21 1.3.4 Surveillance System ....................................................................................... 23 1.4 Eligibility Criteria for Derivative Exchange / Derivative Segment of the Exchange, Trading Members, Clearing Corporation/House for Equity Derivatives ....... 25 2 Index Options ............................................................................................................. 27 2.1 Product Design ...................................................................................................... 27 2.1.1 Underlying ..................................................................................................... 27 2.1.2 Eligibility Criteria .......................................................................................... 27 2.1.3 Trading Hours ................................................................................................ 27 2.1.4 Size of the Contract ........................................................................................ 27 2.1.5 Quotation........................................................................................................ 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ....... 31 2.3.3 Monitoring of Position Limits ....................................................................... 32 2.3.4 Surveillance System ....................................................................................... 32 3 Stock Futures .............................................................................................................. 33 3.1 Product Design ...................................................................................................... 33 3.1.1 Underlying ..................................................................................................... 33 3.1.2 Eligibility Criteria .......................................................................................... 33 3.1.3 Trading Hours ................................................................................................ 35 3.1.4 Size of the Contract ........................................................................................ 35 3.1.5 Quotation........................................................................................................ 35 3.1.6 Tenor of the contract ........................ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ................................................................................. 41 3.3.3 Monitoring of Position Limits ....................................................................... 43 3.3.4 Surveillance System ....................................................................................... 43 4 Stock Option ............................................................................................................... 44 4.1 Product Design ...................................................................................................... 44 4.1.1 Underlying ..................................................................................................... 44 4.1.2 Eligibility Criteria .......................................................................................... 44 4.1.3 Trading Hours ................................................................................................ 44 4.1.4 Size of the Contract ........................................................................................ 44 4.1.5 Quotation........................................................................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .......................... 48 4.3.3 Monitoring of Position Limits ....................................................................... 48 4.3.4 Surveillance System ....................................................................................... 48 5 Currency Futures ....................................................................................................... 49 5.1 Product Design ...................................................................................................... 49 5.1.1 Underlying ..................................................................................................... 49 5.1.2 Trading Hours ................................................................................................ 49 5.1.3 Size of the contract ......................................................................................... 49 5.1.4 Quotation........................................................................................................ 49 5.1.5 Tenor of the contract ...................................................................................... 49 5.1.6 Available contracts ............. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............................................................................................. 55 5.3.3 Surveillance system ....................................................................................... 57 5.4 Eligibility Criteria of the Segment, Exchanges and Trading Members ................ 59 5.4.1 Eligibility criteria of currency futures segment ............................................. 59 5.4.2 Eligibility criteria for the Clearing Corporation of the currency futures segment ........................................................................................................................ 60 5.4.3 Eligibility criteria for members in the currency futures segment .................. 61 5.4.4 Regulatory and legal aspects .......................................................................... 62 6 Currency options ........................................................................................................ 63 6.1 Product Design ...................................................................................................... 63 6.1.1 Underlying .............................................................. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets................................................................................................... 66 6.2.10 Margin collection and enforcement ............................................................... 66 6.2.11 Safeguarding client s money .......................................................................... 66 6.2.12 Periodic risk evaluation report ....................................................................... 66 6.3 Surveillance and Disclosures ................................................................................ 66 6.3.1 Unique client code ......................................................................................... 66 6.3.2 Position limits ................................................................................................ 66 6.3.3 Surveillance system ....................................................................................... 67 6.4 Eligibility Criteria of the Segment, Exchanges and Trading Members ................ 67 6.4.1 Eligibility criteria of currency options segment ............................................. 67 6.4.2 Eligibility criteria for the Clearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ......................... 71 7.1.17 Initial Margin ................................................................................................. 71 7.1.18 Extreme Loss Margin ..................................................................................... 72 7.1.19 Calendar Spread Margin ................................................................................ 72 7.1.20 Model for Determining Standard Deviation .................................................. 72 7.1.21 Formula for Determining Standard Deviation ............................................... 72 7.1.22 Position Limits ............................................................................................... 75 7.2 Risk Management Measures ................................................................................. 76 7.2.1 Introduction .................................................................................................... 76 7.2.2 Portfolio Based Margining ............................................................................. 76 7.2.3 Real-Time Computation ................................................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ....................... 82 8.1.4 Quotation...................................................................................................... 82 8.1.5 Tenor of the contract .................................................................................... 82 8.1.6 Contract months ........................................................................................... 82 8.1.7 Settlement mechanism ................................................................................. 82 8.1.8 Contract value ............................................................................................... 82 8.1.9 Daily Contract Settlement value .................................................................... 82 8.1.10 Expiry/Last trading day/Final settlement day ................................................83 8.1.11 Final Contract Settlement value ................................................................... 83 8.1.12 Initial margin .................................................................................................. 83 8.1.13 Extreme Loss margin ............................................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ................................. 87 9.1.13 Extreme Loss margin ..................................................................................... 87 9.1.14 Calendar spread margin ................................................................................. 87 9.1.15 Formula for determining standard deviation .................................................. 87 9.1.16 Position Limits ............................................................................................... 88 9.1.17 Settlement Mechanism ................................................................................... 90 9.1.18 Worked out Example of Settlement price calculation: .................................. 91 9.2 Regulatory and Legal aspects ................................................................................ 92 9.2.1 Exchange ........................................................................................................ 92 10 Interest Rate Futures on 5 Year Notional Coupon Bearing Government of India (GoI) Security ............................. 93 10.1 Product Design, Margins and Position Limits ............................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........................... 99 11 Derivative Contracts on Foreign Indices ............................................................... 100 11.1 Underlying ....................................................................................................... 100 11.2 Eligibility Criteria ............................................................................................ 100 11.3 Failure to meet Eligibility Criteria................................................................... 101 11.4 Currency Denomination .................................................................................. 101 11.5 Risk Management Framework......................................................................... 101 11.6 Position Limits ................................................................................................. 101 11.7 Information Sharing ......................................................................................... 101 11.8 Legal Compliance ............................................................................................ 101 11.9 Enforcement.................................................................. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..................................................... 117 13.2 ANNEXURE II................................................................................................ 118 13.2.1 ANNEXURE II(A) ...................................................................................... 130 13.3 ANNEXURE III ............................................................................................ 131 13.4 ANNEXURE-IV .............................................................................................. 151 13.5 ANNEXURE V ............................................................................................... 153 1 INDEX FUTURES 1.1 Product Design 1.1.1 Underlying The benchmark indices and the various sectoral indices are permitted as per eligibility criteria. 1.1.2 Eligibility Criteria The Exchange may consider introducing derivative contracts on an index, if weightage of constituent stocks of the index, which are individually eligible for derivatives trading, is atleast 80%. However, no single ineligible stock in the index shall have a weightage of more than 5% in the index. The index on which futures and options contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of investors and smooth and orderly trading, e. the infrastructure of the exchange and the surveillance system to effectively monitor trading in such contracts, and f. details of settlement procedures systems with regard to Index Futures. 1.2 Risk Management Liquid Net Worth and Exposure Limits of a Clearing Member The Liquid Net Worth is defined as under: total liquid assets deposited with the exchange / clearing corporation / house towards initial margin and capital adequacy, LESS initial margin applicable to the total gross open positions at any given point of time on all trades to be cleared through the clearing member. The clearing member s liquid net worth must satisfy both the conditions given below on a real time basis: Condition 1: Liquid Net Worth shall not be less than ₹ 50 lacs at any point of time. Condition 2: The mark to market value of gross open positions at any point of time of all trades cleared through the clearing member shall not exceed 33 1/3 (thirty three one by three) times his liquid networth. The notional value of gross open positions at any point in time in the case of Index Futures shall not exceed 33 1/3 (t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and dated government securities. Liquid Assets for the purposes of initial margins as well as liquid net worth would include cash, fixed deposits, bank guarantees, Treasury bills, government securities or dematerialized securities (with prescribed haircuts) pledged in favour of the exchange / clearing corporation or bank guarantees as defined hereunder. Units of money market mutual funds and units of gilt funds may be accepted towards cash equivalent component of the liquid assets of a clearing member. The unit shall be valued on the basis of its Net Asset Value after applying a hair cut of 10% on the NAV and any exit load charged by the mutual fund. The valuation or the marking to market of such units shall be carried out on a daily basis. 1.2.2 Bank Guarantees The clearing corporation / house would set an exposure limit for each bank, taking into account all relevant factors including the following: a. The Governing Council or other equivalent body of the clearing corporation / house shall lay down exposure limits either in rupee terms or as percentage of the trade guarantee fund that can be exposed to a single bank directly or indirectly. The total exposure would in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he debt or equity securities of any company shall not exceed 75% of the trade guarantee fund or 15% of the total liquid assets of the clearing corporation / house whichever is lower. Exposure for this purpose means the mark to market value of the securities less the applicable haircuts. All securities deposited for liquid assets shall be pledged in favour of the clearing corporation. Reserve Bank of India (RBI) vide A. P. (DIR Series) Circular no. 2 dated July 19, 2007 has permitted clearing corporations and clearing members a. to open and maintain demat accounts with foreign depositories and to acquire, hold, pledge and transfer the foreign sovereign securities, offered as collateral by FIIs; b. to remit the proceeds arising from corporate action, if any, on such foreign sovereign securities; and c. to liquidate such foreign sovereign securities if the need arises. Further, Reserve Bank of India vide RBI/2012-13/439 A.P. (DIR Series) Circular No. 90 dated March 14, 2013 has permitted FIIs to use, in addition to already permitted collaterals, their investments in government securities and corporate bonds as collaterals in the F O segment. In light of the above, FII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a vendor shall be considered for valuation. The prices shall be converted into rupee terms on a daily basis. The rupee value so used for conversion shall be the RBI Reference rate . The RBI reference rate shall be disclosed by the clearing corporation to the clearing members, so as to enable them to report the value of the margins collected from FIIs. The sovereign securities tendered as collateral shall be treated as part of the cash component of the liquid assets of the clearing member, and shall be subject to the condition that the value of the sovereign securities shall not be more than 10% of the total value of the cash component of the liquid assets of the clearing member. The existing procedure for acceptance and release of collateral tendered by domestic investors in the case of domestic securities shall be adopted mutatis mutandis for the sovereign securities tendered by FII, except to the extent specifically provided otherwise. Further, Clearing Corporations while enabling the framework for acceptance of corporate bonds as collateral for transactions of any entity, shall ensure that: i. The bonds shall have a rating of AA or above (or with similar rating nome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading the formula given above would require a value of t-1, i.e. the estimated volatility at the end of the day preceding the first day of index futures trading. This would be obtained as follows: a. Calculate the standard deviation of returns in the cash index during the last one year. b. Set the volatility estimate at the beginning of that year equal to this average value. c. Move forward through the year, one day at a time, using the formula above to get the estimated volatility at the end of that day using cash index prices. d. The estimated volatility by this method at the end of the day preceding the first day of index futures trading would be the value of t-1 to be used in the formula given above at the end of the first day of futures trading. Thereafter each day s estimate t becomes the t-1 for the next day. For the first six months of index futures trading, a parallel estimation of volatility would be done using the cash index prices and the index futures prices and the higher of the two volatility measures would be used to set margins, however, during the first six months, in no case shall the initial margin be less than 5%. The v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be updated at least 5 times in the day, which may be carried out by taking the closing price of the previous day at the start of trading and the prices at 11:00 a.m., 12:30 p.m., 2:00 p.m., and at the end of the trading session. 1.2.8 Cross Margining The positions of clients in both the cash and derivatives segments to the extent they offset each other shall be considered for the purpose of cross margining as per the following priority: a. Index futures position and constituent stock futures position in derivatives segment, b. Index futures position in derivatives segment and constituent stock position in cash segment, and c. Stock futures position in derivatives segment and the position in the corresponding underlying in cash segment A basket of positions in index constituent stock/stock futures, which is a complete replica of the index in the ratio specified by the Exchange/Clearing Corporation, shall be eligible for cross margining benefit. The positions in the derivatives segment for the stock futures and index futures shall be in the same expiry month to be eligible for cross margining benefit. A spread margin of 25% of the total applicable margin o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt day, i.e., T+0, or b. on the next day, i.e., T+1. If the member opts for payment of MTM by T+1, then correspondingly higher initial margin shall be collected by the clearing corporation/house before the start of the trading on the next day to cover the potential losses over the time elapsed in the collection of margins. The clearing corporation/clearing house should lay down operational guidelines for collection of margin and standard guidelines for back office accounting at the level of clearing member and trading member to facilitate the detection of non-compliance at each level. The accounting guidelines shall be in conformity with the guidelines, if any, issued by SEBI from time to time. The initial margin (or the worst scenario loss) plus the calendar spread charge shall be adjusted against the available Liquid Net worth of the member who, in turn, shall collect the initial margin from their clients. 1.2.10 Reporting and Disclosure The derivatives exchange and clearing corporation shall submit quarterly reports to SEBI regarding the functioning of the risk estimation methodology highlighting the specific instances where price moves have been beyond the estimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition to the position limits above, Mutual Funds/FIIs may take exposure in equity index derivatives subject to the following limits: a. Short positions in index derivatives (short futures, short calls and long puts) shall not exceed (in notional value) the Mutual Fund s/FIIs holding of stocks. b. Long positions in index derivatives (long futures, long calls and short puts) shall not exceed (in notional value) the Mutual Fund s/FIIs holding of cash, government securities, T-Bills and similar instruments. 1.3.3 Monitoring of Position Limits 1.3.3.1 NRI/Clients The Exchange shall monitor the NRI position limits. The NRI would be required to notify the names of the Clearing Member/s through whom it would clear its derivative trades to the Exchange. The Exchange would then assign a unique client code to the NRI. The Exchange shall monitor the NRI position limits in the manner similar to that specified for FIIs and sub-accounts. 1.3.3.2 FII /Sub Accounts The FII shall report to the Clearing Member (Custodian) the extent of FII s holding of stocks, cash, government securities, T-Bills and similar instruments before the end of the day. The Clearing Member (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould ensure that the sub-account does not take any fresh positions in any derivative contracts in that underlying. However the sub-account would be permitted to execute off-setting transactions so as to reduce its open position. The exchanges may assign unique sub-account codes on the lines of unique client codes to each sub-account of a FII, which would enable the derivative segment of the exchange and their Clearing House/Clearing Corporation to monitor the position limits specified for subaccounts. The position limits would be computed on a gross basis at the level of a FII and on a net basis at the level of sub-accounts and proprietary positions. The open position for all derivative contracts would be valued as the open interest multiplied with the closing price of the respective underlying in the cash market. 1.3.3.3 Mutual Funds The Mutual Fund shall notify the names of the Clearing Member/s for each scheme through whom it would clear its derivative contracts to the Stock Exchange. The Stock Exchange would then assign a unique client code to each scheme of the Mutual Fund. The Stock Exchange shall monitor the scheme-wise position limits in the manner similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rns d. For integration of surveillance in cash and derivatives markets, the persons who carry out monitoring/analysis in the derivatives market should have access to data of the underlying security in cash market and vice versa. The co-ordination between surveillance and derivatives segment should ensure monitoring of positions at broker/client level across cash and derivatives market with a view to identifying possible fraudulent or manipulative activity. e. Examination of derivatives trading details should be taken up on the basis of cash market surveillance also, and vice versa. f. While the surveillance system may be able to generate a large amount of information, it is only the first step towards analysing market behaviour to identify potential problems. The exchange surveillance staff should be able to carry out quick and effective analysis of information generated by the surveillance system, and should document this analysis properly. The documentation should be properly authenticated and verified by a designated authority of the stock exchange. g. The information and feedback received from broker inspections is vital input for effective surveillance. For this it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erivative Segment of the Exchange, Trading Members, Clearing Corporation/House for Equity Derivatives The exchanges fulfilling the eligibility criteria as prescribed in the Dr. L.C. Gupta Committee Report (Chapter 3 of the suggestive Byelaws) may apply to SEBI for grant of recognition under Section 4 of the Securities Contract Regulation Act, 1956. The derivatives exchange/segment should have a separate governing council and representation of trading/clearing members shall be limited to maximum of 40% of the total members of the Governing Council. The exchange shall regulate the sales practices of its members and will obtain prior approval of SEBI before start of trading in any derivatives contract. The Clearing and settlement of derivatives trades shall be through a SEBI approved Clearing Corporation/House. Clearing Corporations / Houses complying with the eligibility conditions as laid down by the Dr. L.C. Gupta Committee (Chapter 5 of the Suggestive Bye- laws) may apply to SEBI for approval. Derivative Brokers/Dealers and clearing members are required to seek registration from SEBI. This shall be in addition to their registration as brokers of existing stock exchanges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy and plan for selecting members to be inspected. The inspection strategy should lay down: a. The criteria for identifying the top members (in terms of level of activity) to be taken up for compulsory inspection. b. The percentage of remaining members to be inspected selected on a sampling basis. c. Mechanisms should ensure that active members do not go un-inspected for several years in succession. The inspection policy and plan for the year shall be submitted to SEBI for approval. 2 INDEX OPTIONS 2.1 Product Design 2.1.1 Underlying The benchmark indices and the various sectoral indices are permitted as per the eligibility criteria. 2.1.2 Eligibility Criteria The eligibility criteria for an index to qualify for introduction of options, as specified in Section 1.1.2. 2.1.3 Trading Hours Same as that for index future contracts as specified in Section 1.1.3. 2.1.4 Size of the Contract Same as that for index future contracts as specified in Section 1.1.4. 2.1.5 Quotation Same as that for index future contracts as specified in Section 1.1.5. 2.1.6 Tenor of the contract Same as that for index futures contracts as speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of all short index option has been prescribed. The Initial Margin requirement shall be netted at level of individual client and it shall be on gross basis at the level of Trading/Clearing Member. The Initial margin requirement for the proprietary position of Trading/Clearing member shall also be on net basis. 2.2.2 Portfolio Based Margining A portfolio based margining approach shall be adopted which will takes an integrated view of the risk involved in the portfolio of each individual client comprising of his positions in index futures and index options contracts. The parameters for such a model should include- 1. Worst Scenario Loss The worst case loss of a portfolio would be calculated by valuing the portfolio under several scenarios of changes in the index and changes in the volatility of the index. The scenarios to be used for this purpose would be: Risk Scenario Number Price Move in Multiples of Price Range Volatility Move in Multiples of Volatility Range Fraction of Loss to be Considered 1. 0 +1 100% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tfolio to compute the portfolio values and the Worst Scenario Loss. For computational ease, exchanges are permitted to update the Scenario Contract Values only at discrete time points each day. However, the latest available Scenario Contract Values would be applied to member/client portfolios on a real time basis. 3. Calendar Spread The margin for calendar spread would be the same as specified for the index futures contracts. However, the margin shall be calculated on the basis of delta of the portfolio in each month. Thus, a portfolio consisting of a near month option with a delta of 100 and a far month option with a delta of 100 would bear a spread charge equal to the spread charge for a portfolio which is long 100 near month futures and short 100 far month futures. The Calendar Spread Margin would be charged in addition to the Worst Scenario Loss of the portfolio. 4. Short Option Minimum Margin The Short Option Minimum Margin equal to 3% of the Notional Value of all short index options shall be charged, if sum of the Worst Scenario Loss and the Calendar Spread Margin is lower than the Short Option Minimum Margin. In this circular, Notional Value of option posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.3.2.2 Customer Level/ NRI/Sub Accounts Same as that for index future contracts as specified in Section 1.3.2.2. 2.3.2.3 Trading Member/FII/Mutual Fund Same as that for index future contracts as specified in Section 1.3.2.2. This limit would be applicable on open positions in all option contracts on a particular underlying index. 2.3.3 Monitoring of Position Limits 2.3.3.1 NRI Same as that for index future contracts as specified in section 1.3.3.1. 2.3.3.2 FII /Sub Accounts Same as that for index future contracts as specified in section 1.3.3.2. 2.3.3.3 Mutual Funds Same as that for index future contracts as specified in section 1.3.3.3. 2.3.4 Surveillance System Same as that of index future contracts as specified in section 1.3.4. 3 STOCK FUTURES 3.1 Product Design 3.1.1 Underlying The stocks listed on exchanges which conform to the eligibility criteria are permitted. 3.1.2 Eligibility Criteria A stock on which stock option and single stock future contracts are proposed to be introduced shall conform to the following broad eligibility criteria:- a. The stock shall be chosen from amongst the top ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separately for the buy side and the sell side. The average of the median order size for the buy and the sell side shall be taken as the median quarter sigma order size. The details of calculation methodology and relevant data shall be made available to the public at large on the website of the exchange. The quarter sigma order size in a stock shall be calculated on the 15 th of each month, on a rolling basis, considering the order book snapshots in the previous six months. Similarly, the average daily market capitalization and the average daily traded value shall also be computed on the 15 th of each month, on a rolling basis, to arrive at the list of top 500 stocks. The number of eligible stocks may vary from month to month depending upon the changes in quarter sigma order sizes, average daily market capitalization average daily traded value calculated every month on a rolling basis for the past six months. Options and futures may be introduced on new stocks when they meet the eligibility criteria subject to SEBI approval. Exit criteria for stocks in equity derivatives The criteria for retention of stock in equity derivatives segment are as under: a. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 401 to 800 500 201 to 400 1,000 101 to 200 2,000 51 to 100 4,000 25 to 50 8,000 Less than 25 A multiple of 1000 Explanation: The lot size for an underlying with a price of ₹ 250, i.e., in the price band of ₹ 201-400, shall be 1000 units. The Stock Exchanges shall review the lot size once in every 6 months based on the average of the closing price of the underlying for last one month and wherever warranted, revise the lot size by giving an advance notice of at least 2 weeks to the market. If the revised lot size is higher than the existing one, it will be effective for only new contracts. In case of corporate action, the revision in lot size of existing contracts shall be carried out as given in the Chapter 8. The Stock Exchanges shall ensure that the lot size is same for an underlying traded across Exchanges. 3.1.5 Quotation Same as that for index future contracts as specified in section 1.1.5. 3.1.6 Tenor of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified in section 1.1.9. 3.1.10 Final Settlement Day Same as that for index future contracts as specified in section 1.1.10. 3.1.11 Application The Derivative Exchange/Segment shall submit their proposal for approval of the Single Stock Futures Contracts to SEBI which shall include: a. the details of proposed derivative contract to be traded on the exchange which would include: 1. Symbol 2. Underlying 3. Multiplier 4. Last Trading Day 5. Margins 6. Methodology for calculating closing price for mark to market settlement. 7. Methodology for calculating closing price at time of expiry 8. Trading Hours b. the economic purpose it is intended to serve, c. likely contribution to market development, d. the safeguards and the risk protection mechanism adopted by the exchange to ensure market integrity, protection of investors and smooth and orderly trading, e. the infrastructure of the exchange and the surveillance system to effectively monitor trading in Single Stock Futures contracts, f. details of settlement procedures systems with regard to Single Stock Futures. 3.2 Risk Management 3.2.1 Initial margin or worst sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of a member. Therefore, the exchanges would be required to ensure that higher of 5% or 1.5 (standard deviation) of the notional value of gross open position in Single Stock Futures contracts is collected /adjusted from the liquid net worth of a member on a real time basis. Exposure limits are in addition to the initial margin requirements. For the purpose of computing 1.5 standard deviations, the standard deviation of daily logarithmic returns of prices in the underlying stock in the cash market in the last six months shall be computed. This value shall be applicable for a month and shall be re-calculated at the end of the month by once again taking the price data on a rolling basis for the past six months. 3.2.4 Real Time Computation The computation of Worst Scenario Loss has two components. The first is the valuation of the portfolio under sixteen scenarios. At the second stage, these Scenario Contract Values are applied to the actual portfolio positions to compute the portfolio values and the initial margin (Worst Scenario Loss). For computational ease, exchanges are permitted to update the Scenario Contract Values only at discrete time points each day and the latest a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 1% or less. Such changes will be applicable on all existing open position within three days from the 15 th of each month. 3.2.5 Cross Margining Same as that for index future contracts as specified in section 1.2.9. 3.2.6 Margin Collection and Enforcement Same as that for index future contracts as specified in section 1.2.10. It is clarified that for stocks which have a mean value of impact cost greater than 1%, in addition to the price scanning range, the minimum initial margin for single stock futures contracts shall also be scaled up by square root of three. In the absence of trading in the last half an hour the theoretical price would be taken for the collection of MTM margin. The Derivative Exchanges/Segment shall define the methodology of calculating the theoretical price at the time of making an application for approval of the stock futures contract to SEBI and methodology for calculating the theoretical price would also be disclosed to the market. In addition, the exchange shall also specify the methodology for arriving at the closing price at the time of expiry. 3.2.7 Liquid Net Worth and Exposure Limits of a Clearing Member Same as that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The normal trading in the scrip shall be resumed after the open outstanding position comes down to 80% or below of the market wide position limit. With a view to operationalise implementation of monitoring of Market Wide Position Limits across Exchanges, the following procedure shall be followed: At the latest on the Trading Day Activity 6.30 PM Each Exchange to disseminate on web the following for every security: a. ISIN of the security, b. Name and symbol of the security, c. MWPL (in terms of no. of shares) of the security, and d. Open Interest (in terms of no. of shares) of the security. 7.00 PM Each Exchange to disseminate on web the following for every security, after aggregating across Exchanges: a. ISIN of the security, b. Name and symbol of the security, c. MWPL (in terms of no. of shares) of the security, d. Open Interest (in terms of no. of shares) of the security, and e. Permissible limits for next day in terms of SEBI Circular SEBI/DNPD/Cir-26/2004/07/16 dated July 16, 2004. 7.15 PM Each Exchange to report any discre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the eligibility criteria are permitted. 4.1.2 Eligibility Criteria Same as that for stock future contracts as specified in 3.1.2. 4.1.3 Trading Hours Same as that for index future contracts as specified in 1.1.3. 4.1.4 Size of the Contract Same as that for stock future contracts as specified in 3.1.4. 4.1.5 Quotation Same as that for index future contracts as specified in 1.1.5. 4.1.6 Tenor of the contract Same as that for stock future contracts as specified in 3.1.6. 4.1.7 Available Contracts Same as that for stock future contracts as specified in 3.1.7. Each maturity shall have minimum of three strikes (in the money, at the money and out of the money) 4.1.8 Settlement Mechanism Same as that for index future contracts as specified in 1.1.8. The Exchanges shall introduce Premium Settled American / European Style Stock Options. 4.1.9 Settlement Price Same as that for index future contracts as specified in 1.1.9. 4.1.10 Final Settlement Day Same as that for index future contracts as specified in 1.1.10. 4.1.11 Application The Derivative Exchange/Segment shall submit their proposal for approval of the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that 5% of the notional value of gross open position in the case of stock option contracts is collected /adjusted from the liquid net worth of a member on a real time basis. It is further clarified that the notional value of the options contract would be calculated on the basis of the previous day s closing value of the underlying. 4.2.4 Real Time Computation Same as that for stock future contracts as specified in 3.2.3. 4.2.5 Margin Collection and Enforcement Same as that for index future contracts as specified in section 1.2.10. It is clarified that for stocks which have a mean value of impact cost greater than 1%, in addition to the price scanning range, the short option minimum charge for stock option contracts shall also be scaled up by square root of three. 4.2.6 Liquid Net Worth and Exposure Limits of a Clearing Member Same as that for index future contracts as specified in section 1.2.1. 4.2.7 Liquid Assets: Same as that for index future contracts as specified in section 1.2.2. 4.2.8 Bank Guarantees: Same as that for index future contracts as specified in section 1.2.3. 4.2.9 Securities Same as that for index future contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts All monthly maturities from 1 to 12 months would be made available. 5.1.7 Settlement mechanism The currency futures contract shall be settled in cash in Indian Rupee. 5.1.8 Settlement price The settlement price would be the Reserve Bank Reference Rate on the date of expiry for US$ and Euro and Exchange rate published by the Reserve Bank in its Press Release captioned - RBI Reference Rate for US$ and Euro for Pound Sterling and Japanese Yen. The methodology of computation and dissemination of the Reference Rate may be publicly disclosed by RBI. 5.1.9 Final settlement day The last day for trading of the contract shall be two working days prior to the final settlement day. The currency futures contract would expire on the last working day (excluding Saturdays) of the month. The last working day would be taken to be the same as that for Interbank Settlements in Mumbai. The rules for Interbank Settlements, including those for known holidays and subsequently declared holiday would be those as laid down by FEDAI. 5.1.10 Participants To begin with, FIIs and NRIs would not be permitted to participate in currency futures market. To enable Banks to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgin shall be deducted from the liquid net worth of the clearing member on an online, real time basis. 5.2.2 Formula for determining standard deviation The empirical tests of different risk management models in the Value at Risk (VaR) framework in the Re/$ exchange rate were examined. Data for the period January 2, 1998 to April 7, 2008 was analyzed. GARCH-GED (Generalized Auto-Regressive Conditional Heteroscedasticity with Generalized Error Distribution residuals), GARCH-normal and GARCH-t at 3 and 3.5 sigma levels were found to perform well even at 1% risk level, while the EWMA(Exponentially Weighted Moving Average) model used in J.P. Morgan s Risk Metrics methodology was found to work well at 1 % risk level only at 3.5 sigma levels. Given the computational ease of the EWMA model and given the familiarity of the Exchanges with this particular model (it is currently being used in the equity derivatives market), the Committee, after considering the various aspects of the different models, recommends the following:- The exponential moving average method would be used to obtain the volatility estimate every day. The estimate at the end of time period t ( t ) is estim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portfolio values and the initial margin. The exchanges shall update the scenario contract values at least 5 times in the day, which may be carried out by taking the closing price of the previous day at the start of trading and the prices at 11:00 a.m., 12:30 p.m., 2:00 p.m. and at the end of the trading session. The latest available scenario contract values would be applied to member/client portfolios on a real time basis. 5.2.5 Calendar spread margins A currency futures position at one maturity which is hedged by an offsetting position at a different maturity would be treated as a calendar spread. The calendar spread margin shall be at a value of ₹ 400 for a spread of 1 month; ₹ 500 for a spread of 2 months, ₹ 800 for a spread of 3 months and ₹ 1000 for a spread or 4 months or more for the US Dollar Indian Rupee (US$-INR) contract; the calendar spread margin shall be at a value of ₹ 700 for a spread of 1 month; ₹ 1000 for a spread of 2 months and ₹ 1500 for a spread of 3 months or more for the Euro- Indian Rupee (EUR-INR) contract; the calendar spread margin shall be at a value of ₹ 1500 for a spread of 1 month; ₹ 180 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trading in the last half an hour the theoretical price would be taken. The eligible exchanges shall define the methodology for calculating the theoretical price at the time of making an application for approval of the currency futures contract to SEBI. The methodology for calculating the theoretical price would also be disclosed to the market. 5.2.10 Margin collection and enforcement The client margins (initial margin, extreme loss margin, calendar spread margin and mark to market settlements) have to be compulsorily collected and reported to the Exchange by the members. The Exchange shall impose stringent penalty on members who do not collect margins from their clients. The Exchange shall also conduct regular inspections to ensure margin collection from clients. 5.2.11 Safeguarding client s money The Clearing Corporation should segregate the margins deposited by the Clearing Members for trades on their own account from the margins deposited with it on client account. The margins deposited on client account shall not be utilized for fulfilling the dues which a Clearing Member may owe the Clearing Corporation in respect of trades on the member s own account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with every executed trade. Further, the objective of the position limits in the currency futures market would be more to detect market manipulation in the futures market rather than to address the threat of short squeeze in the underlying. Therefore, the following is being proposed with respect to monitoring and enforcement of position limits in the currency futures market: a. Ideally, position limits have to be monitored on an online, real-time basis. However, the exchanges have represented that open interest of both the participant and the market are dynamic and therefore, monitoring on a realtime basis would be difficult. Therefore, to begin with, positions during the day shall be monitored based on the total open interest at the end of the previous day s trade. b. The above monitoring should be for both client level positions (based on the unique client code) and for trading member level positions. c. The exchange shall treat violation of position limits as an input for further surveillance action. Upon detecting large open positions, the exchange shall conduct detailed analysis based on the overall nature of positions, the trading strategy, positions in the underlyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest or EUR 50 million, whichever is higher. Clearing Member Level : No separate position limit is prescribed at the level of clearing member. However, the clearing member shall ensure that his own trading position and the positions of each trading member clearing through him is within the limits specified above. Pound Sterling Indian Rupee (GBP-INR) Contract Client Level : The gross open positions of the client across all contracts shall not exceed 6% of the total open interest or GBP 5 million whichever is higher. The Exchange will disseminate alerts whenever the gross open position of the client exceeds 3% of the total open interest at the end of the previous day s trade. Trading Member Level : The gross open positions of the trading member across all contracts shall not exceed 15% of the total open interest or GBP 25 million whichever is higher. However, the gross open position of a Trading Member, which is a bank, across all contracts, shall not exceed 15% of the total open interest or GBP 50 million, whichever is higher. Clearing Member Level : No separate position limit is prescribed at the level of clearing member. However, the clearing member sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... athered by the risk management departments/clearing corporations while enforcing the risk management measures and settlement processes are critical inputs. Such information could include pattern of defaults related to specified contracts and special risk management measures taken keeping in view the market conditions. e. The exchanges should call for information from members in a standard form, and preferably in electronic form, to facilitate faster analysis as well as building up of databases. It may also be ensured that duly authenticated information is submitted by the member or his designated agent. f. While implementing a stock watch type of system for currency futures, the system should be designed to provide online access to relevant historical data on derivatives trading for at least a year. g. In the interest of better surveillance, it is necessary that relevant information obtained through surveillance at one exchange should be shared with other exchanges. Exchanges are, therefore, advised to share information on positions in currency futures and any extraordinary movement in price / volume or concentration periodically or upon specific request by any stock excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trades, quantities, and quotes should be disseminated by the exchange in real time to at least two information vending networks which are accessible to investors in the country. f. The per-half-hour capacity of the computers and the network should be at least 4 to 5 times of the anticipated peak load in any half hour, or of the actual peak load seen in any half-hour during the preceding six months, whichever is higher. This shall be reviewed from time to time on the basis of experience. g. The segment should have at least 50 members to start currency derivatives trading. h. The exchange should have arbitration and investor grievances redressal mechanism operative from all the four areas/regions of the country. i. The exchange should have adequate inspection capability. j. If already existing, the exchange should have a satisfactory record of monitoring its members, handling investor complaints and preventing irregularities in trading. A recognized stock exchange where other securities are also being traded may set up a separate currency futures segment in the following manner: a. The trading and the order driven platform of currency futures should be separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o cover the potential for losses over the time elapsed in collection of mark to market margin. For example, if two days lapse in moving funds, then the value at risk should be calculated based on the prospective two-day loss. f. In the event of a member s default in meeting his liabilities, the Clearing Corporation should have processing capability to require either the prompt transfer of client positions and assets to another member or to close-out all open positions. The currency futures segment of the Clearing Corporation should be governed by a separate Clearing Council which should not have any member representation. A separate settlement guarantee fund should be created and maintained for meeting the obligations arising out of the currency futures segment. A separate investor protection fund should also be created and maintained for the currency futures market. 5.4.3 Eligibility criteria for members in the currency futures segment The membership of the currency futures segment shall be separate from the membership of the equity derivative segment or the cash segment of a recognized stock exchange. The trading member will be subject to a balance sheet net worth r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading in such contracts. The trading members and clearing members of the currency futures segment should be registered as such with SEBI. This would be in addition to their registration as members of a segment of a stock exchange. A SEBI-RBI constituted committee would meet periodically to sort out issues, if any, arising out of overlapping jurisdiction of the currency futures market. 6 CURRENCY OPTIONS 6.1 Product Design 6.1.1 Underlying US Dollar Indian Rupee (US$-INR) spot rate. 6.1.2 Trading Hours Same as that for currency future contracts as specified in Section 5.1.2. 6.1.3 Size of the contract US$ 1000 6.1.4 Quotation The premium would be quoted in rupee terms. However, the outstanding positions would be in USD terms. 6.1.5 Tenor of the contract Same as that for currency future contracts as specified in Section 5.1.5. 6.1.6 Available contracts Three serial monthly contracts followed by three quarterly contracts of the cycle March/June/September/December. Minimum of three in-the-money, three out-of the-money and one near-the-money strikes would be provided for all available contracts. 6.1.7 Settlement m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100% 8. +2/3 -1 100% 9. -2/3 +1 100% 10. -2/3 -1 100% 11. +1 +1 100% 12. +1 -1 100% 13. -1 +1 100% 14. -1 -1 100% 15. +2 0 35% 16. -2 0 35% The price range for generating the scenarios would be 3.5 standard deviation and volatility range for generating the scenarios would be 3%. While computing the worst scenario loss, it shall be assumed that the prices of futures of all maturities on the underlying move up or down by the same amount. The maximum loss under any of the scenario (considering only 35% of the loss in case of scenarios 15 and 16) is referred to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deducted from the liquid assets of the clearing member on an on line, real time basis. Notional Value would be calculated on the basis of the latest available Reserve Bank Reference Rate for USD-INR. 6.2.7 Net Option Value The Net Option Value is the current market value of the option times the number of options (positive for long options and negative for short options) in the portfolio. The Net Option Value would be added to the Liquid Net Worth of the clearing member. Thus, mark to market gains and losses would not be settled in cash for options positions. 6.2.8 Liquid net worth Same as that for currency future contracts as specified in Section 5.2.7. 6.2.9 Liquid assets Same as that for currency future contracts as specified in Section 5.2.8. 6.2.10 Margin collection and enforcement Same as that for currency future contracts as specified in Section 5.2.10. 6.2.11 Safeguarding client s money Same as that for currency future contracts as specified in Section 5.2.11. 6.2.12 Periodic risk evaluation report Same as that for currency future contracts as specified in Section 5.2.12. 6.3 Surveillance and Disclosures Same as tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Product Design, Margins and Position Limits 7.1.1 Underlying 10-Year Notional Coupon-bearing Government of India (GoI) security 7.1.2 Coupon The notional coupon would be 7% with semi-annual compounding. 7.1.3 Trading Hours The Trading Hours would be from 9 a.m. to 5.00 p.m on all working days from Monday to Friday. 7.1.4 Size of the Contract The Contract Size would be ₹ 2 lakh. 7.1.5 Quotation The Quotation would be similar to the quoted price of the GoI security. The day count convention for interest payments would be on the basis of a 360-day year, consisting of 12 months of 30 days each and half yearly coupon payment. 7.1.6 Tenor of the Contract The maximum maturity of the contract would be 12 months. 7.1.7 Available Contracts The Contract Cycle would consist of four fixed quarterly contracts for entire year, expiring in March, June, September and December. 7.1.8 Delivery Month and Delivery Period The delivery month shall be the last month of the expiring contract, i.e., March, June, September and December Exchanges to set any period of time during the delivery month as the delivery period for the deliverabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prices of the illiquid previous as well as the subsequent quarter contracts. The cost of carry for the above purpose shall include the financing cost @ 91-day treasury bill rate and the coupon of the particular security. The exchanges will be required to disclose the model/methodology used for arriving at the theoretical price. 7.1.10 Settlement Mechanism The contract would be settled by physical delivery of deliverable grade securities using the electronic book entry system of the existing Depositories (NSDL and CDSL) and Public Debt Office (PDO) of the RBI. The delivery of the deliverable grade securities shall take place from the first business day of the delivery month till the last business day of the delivery month. The owner of a short position in an expiring futures contract shall hold the right to decide when to initiate delivery. However, the short position holder shall have to give intimation, to the Clearing Corporation, of his intention to deliver two business days prior to the actual delivery date. 7.1.11 Deliverable Grade Securities Exchanges shall select their own basket of securities from the eligible Deliverable Grade Securities, viz., GoI se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 nd September 2009. Along with the notice, he shall provide the notional face value (equal to its short position in the expiring contract), security ISIN, coupon, maturity date, issuance date, coupon convention, and other details as may be sought by the CC. Based on these details, the CC shall calculate the invoice price. Allocation : The CC shall identify the eligible long positions for allocation and assign the deliveries to long position holders at client level starting with the highest vintage till the allocation is over. Vintage data shall be computed and maintained at client level for every contract and shall be tracked by the CC on end of day basis. For a given vintage, if the contracts to be allocated (Short) are less than the total long positions, the allocation to such long position holders shall be done on a random basis. Based on the client level allocations as above, CC shall compute CM level deliverable/receivable obligations using multilateral netting and intimate the identified long position holders, by 8 pm IST on the date of receipt of notice, the details of the securities that they would be receiving and the invoice price. The seller CM shall not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on line, real time basis. 7.1.19 Calendar Spread Margin Interest rate futures position at one maturity hedged by an offsetting position at a different maturity would be treated as a calendar spread. The calendar spread margin shall be at a value of ₹ 2000/- per month of spread. The benefit for a calendar spread would continue till expiry of the near month contract. 7.1.20 Model for Determining Standard Deviation The Committee examined the results of empirical tests carried out using different risk management models in the Value at Risk (VaR) framework in the 10-year GoI security yields. Data for the period January 3, 2000 to September 16, 2008 was analyzed. GARCH (1,1)-normal and GARCH (1,1)-GED (Generalized Auto- Regressive Conditional Heteroskedasticity) at 3 and 3.5 sigma levels were not found to perform well at 1% risk level, as the actual number of violations were found to be statistically much higher than the expected number of violations. The EWMA (Exponentially weighted moving average) model used by J.P.Morgan s Risk Metrics methodology was found to work well at 3 and 3.5 sigma levels at 5% risk level and not at 1% risk level. Given the computationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he price of the security, P is the par value of the bond, n is the number of periods for coupon payment, m is the frequency of coupon payments and C is the coupon payment per period. t is the yield of 10-year Notional Coupon-bearing GoI security futures at time t; and yt (sigma) is the standard deviation of daily logarithmic returns of yield of 10- year Notional Coupon-bearing GoI security futures at time t. The percentage margin on long position would be equal to 100 (D*3.5 yt * Y t ) and the percentage margin on short position would be equal to 100 (D*(-3.5 yt )* Y t ). The Modified Duration for 10-Year Notional Coupon-bearing GoI security futures shall be 10. Methodology B . The potential price change corresponding to 99% VAR can be computed by multiplying the appropriate yield change by the modified duration. That is, Alternatively, the exchanges can adopt uniform margins for both short and long positions, equivalent to the higher of the two values derived above. An illustration of the two methodologies discussed above is enclosed at Annex A. iii. The volatility estimation and margin fixation methodology should be clearly made known to all market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... futures contracts across different maturities. The clientwise margins would be grossed across various clients at the Trading / Clearing Member level. The proprietary positions of the Trading / Clearing Member would be treated as that of a client. 7.2.3 Real-Time Computation The computation of worst scenario loss would have two components. The first is the valuation of the portfolio under the various scenarios of price changes. At the second stage, these scenario contract values would be applied to the actual portfolio positions to compute the portfolio values and the initial margin. The exchanges shall update the scenario contract values at least 6 times in the day, which may be carried out by taking the closing price of the previous day at the start of trading and the prices at 11:00 a.m., 12:30 p.m., 2:00 p.m., 3.30 p.m. and at the end of the trading session. The latest available scenario contract values would be applied to member/client portfolios on a real time basis. 7.2.4 Liquid Networth The initial margin and the extreme loss margin shall be deducted from the liquid assets of the clearing member. The clearing member s liquid net worth after adjusting for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... client purpose only. The following process is to be adopted for segregating the client s money vis- -vis the clearing member s money: i At the time of opening a position, the member should indicate whether it is a client or proprietary position. ii Margins across the various clients of a member should be collected on a gross basis and should not be netted off. iii When a position is closed, the member should indicate whether it was a client or his own position which is being closed. iv In the case of default, the margins paid on the proprietary position would only be used by the Clearing Corporation for realizing its dues from the member. 7.2.9 Periodic Risk Evaluation Report The Clearing Corporation of the Exchange shall on an ongoing basis and atleast once in every six months, conduct back testing of the margins collected vis- -vis the actual price changes. A copy of the study shall be submitted to SEBI along with suggestions on changes to the risk containment measures, if any. 7.3 Regulatory and Legal aspects 7.3.1 Exchange: The Interest Rate Derivative contracts shall be traded on the Currency Derivative Segment of a recognized Stock Exchange. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the RBI Report on Interest Rate Futures, it has been recommended that the time limit on short selling be extended so that term / tenor / maturity of the short sale is co-terminus with that of the futures contract and a system of transparent and rulebased pecuniary penalty for SGL bouncing be put in place, in lieu of the regulatory penalty currently in force. 7.4.3 Penalties In case there is a failure to honour the settlement obligation by the CM, the following action shall be followed: 7.4.3.1 Selling CM fails to deliver the securities T +0 day : Selling CM gives intention to deliver the securities T+2 day : Buying CM pays-in funds and the selling CM fails to deliver the securities T+2 or T+3 day : CC shall conduct buy-in auction of the securities. In case of successful auction, the defaulting CM shall be debited by: the actual auction price, difference in invoice price and auction price, if the auction price is less than the invoice price, and a penalty of 2% of the face value of security short delivered. In case of unsuccessful auction, transaction shall be closed out wherein the defaulting CM shall be debited by: invoice price, and a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue along with mark to market adjustments based on the underlying closing prices of the costliest security from the deliverable basket shall be charged on both buying client and selling client. The margins shall be levied from the last trading day till the day of receipt of intention to deliver. Action in case no intent to deliver is provided : In case no intent is provided by the selling CM till two business days prior to the last delivery date, it shall be presumed that selling CM has failed to deliver the security and the auction mechanism, as specified for security shortages, shall be activated. The auction shall take place one business day prior to the last delivery date. 8 INTEREST RATE FUTURES ON 91-DAY GOVERNMENT OF INDIA (GOI) TREASURY-BILL (T-BILL) 8.1 Product Design, Margins and Position Limits 8.1.1 Underlying 91 - day GoI T-bill. 8.1.2 Trading hours 9 a.m. to 5 p.m. 8.1.3 Size of the contract ₹ 2 lakh. 8.1.4 Quotation 100 minus futures discount yield (i.e. for a yield of 5% the quote would be 100- 5=95). The value of 1 basis point change in the futures discount yield would be ₹ 5. 8.1.5 Tenor of the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the liquid assets of the clearing member on an on line, real time basis. 8.1.14 Calendar spread margin Interest rate futures position at one maturity hedged by an offsetting position at a different maturity would be treated as a calendar spread. The calendar spread margin shall be at a value of ` 100/- for spread of one month, ` 150 for spread of two month, ` 200/- for spread of three month and ` 250/- for spread of four month and beyond. The benefit for a calendar spread would continue till expiry of the near month contract. For a calendar spread position, the extreme loss margin shall be 0.01% of the notional value of the far month contract. 8.1.15 Formula for determining standard deviation The exponential moving average method would be used to obtain the volatility estimate every day. The estimate at the end of time period t ( ydt ) is estimated using the volatility estimate at the end of the previous time period. i.e. as at the end of t-1 time period ( ydt-1), and the return (r ydt ) observed in the futures market during the time period t. The formula would be as under: ( ydt ) 2 = ( ydt-1 ) 2 + (1 - ) (r ydt ) 2 where is a parameter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensure that his own trading position and the positions of each trading member clearing through him is within the limits specified above. 8.1.16.4 FIIs : In case of Foreign Institutional Investors, registered with Securities and Exchange Board of India, the total gross long (bought) position in cash and Interest Rate Futures markets taken together should not exceed their individual permissible limit for investment in government securities and the total gross short (sold) position, for the purpose of hedging only, should not exceed their long position in the government securities and in Interest Rate Futures, at any point in time. 8.2 Regulatory and Legal aspects 8.2.1 Exchange The Interest Rate Futures on 91-day T-Bill shall be traded on the Currency Derivative Segment of a recognized Stock Exchange. Eligible Stock Exchanges may introduce these contracts after obtaining prior approval from SEBI. 9 INTEREST RATE FUTURES ON 2 YEAR NOTIONAL COUPON BEARING GOVERNMENT OF INDIA (GOI) SECURITY 9.1 Product Design, Margins and Position Limits 9.1.1 Underlying Notional coupon bearing 2-year GoI security with a notional coupon of 7% paid semi-annually and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n range may initially be fixed at 3.5 standard deviation. The initial margin so computed would be subject to a minimum of 0.35 % of the notional value of the contract on the first day of trading in Futures on 2 Year Notional Coupon Bearing Government of India (GoI) Security and 0.3 % of the notional value of the contract thereafter. The initial margin shall be deducted from the liquid net worth of the clearing member on an online, real time basis. 9.1.13 Extreme Loss margin Extreme loss margin of 0.1 % of the notional value of the contract for all gross open positions shall be deducted from the liquid assets of the clearing member on an on line, real time basis. 9.1.14 Calendar spread margin 2 Year Notional Coupon Bearing Government of India (GoI) Security futures position at one maturity hedged by an offsetting 2 Year Notional Coupon Bearing Government of India (GoI) Security futures position at a different maturity would be treated as a calendar spread. The calendar spread margin shall be at a value of ₹ 300 for spread of one month and ₹ 450 for spread of two months. The benefit for a calendar spread would continue till expiry of the near month contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gross open positions of the trading member across all contracts should not exceed 15% of the total open interest or ₹ 1000 crores whichever is higher. 9.1.16.3 Clearing Member Level No separate position limit is prescribed at the level of clearing member. However, the clearing member shall ensure that his own trading position and the positions of each trading member clearing through him is within the limits specified above. 9.1.16.4 FIIs In case of Foreign Institutional Investors registered with Securities and Exchange Board of India the total gross long (bought) position in cash and Interest Rate Futures markets taken together should not exceed their individual permissible limit for investment in government securities and the total gross short (sold) position, for the purpose of hedging only, should not exceed their long position in the government securities and in Interest Rate Futures, at any point in time. 9.1.17 Settlement Mechanism a. Polling shall be carried out by the Fixed Income, Money Market and Derivatives Association, i.e., FIMMDA; b. The yields (Bid and Ask) of the GoI securities shall be polled from Primary Dealers (PDs) registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (6.0550) (6.0275) Dealer 6 (5.9725) 5.9525 (6.0175) 5.9975 (6.0575) 6.0375 Dealer 7 (5.9700) 5.9500 6.0100 (5.9900) 6.0475 (6.0275) Dealer 8 (5.9600) 5.9500 6.0100 (6.0000) 6.0500 (6.0400) Dealer 9 5.9625 (5.9475) 6.0050 5.9950 6.0450 6.0350 Dealer 10 5.9700 (5.9500) 6.0100 (5.9900) 6.0450 6.0350 11:30 AM Bond 1 Bond 2 Bond 3 Dealer Buy Yields Sell Yields Buy Yields Sell Yields Buy Yiel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.0450 Dealer 3 5.9750 (5.9650) 6.0175 (6.0075) 6.0575 (6.0475) Dealer 4 (5.9700) (5.9500) 6.0150 (5.9950) 6.0600 6.0400 Dealer 5 (5.9800) 5.9600 (6.0225) 6.0025 (6.0625) 6.0425 Dealer 6 (5.9750) (5.9550) 6.0200 6.0000 6.0600 (6.0400) Dealer 7 (5.9800) 5.9600 6.0200 (6.0000) 6.0600 (6.0400) Dealer 8 5.9800 5.9600 (6.0250) 6.0050 6.0625 6.0425 Dealer 9 5.9750 5.9650 (6.0150) 6.0050 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price * 2000 10.1.9 Daily Contract Settlement Value The Daily Contract Settlement Value would be: = 2000 * P w (Here P w is weighted average futures quote of last half an hour). In the absence of last half an hour trading, theoretical futures price would be considered for computation of Daily Contract Settlement Value. Exchanges would be required to disclose the model/methodology used for arriving at the theoretical price. 10.1.10 Expiry/Last trading day The expiry / last trading day for the contract would be the last Thursday of the expiry month. If any expiry day is a trading holiday, then the expiry/ last trading day would be the previous trading day. 10.1.11 Final Contract Settlement Value The Final Contract Settlement Value would be = 2000 * P f where P f is the settlement price of the notional bond. 10.1.12 Initial Margin The Initial Margin requirement shall be based on a worst case loss of a portfolio of an individual client across various scenarios of price changes. The various scenarios of price changes would be so computed so as to cover a 99% VaR over a one day horizon. In order to achieve this, the price scan range may initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r margins on short positions than on long positions. The derivatives exchange/clearing corporation may apply the higher margin on both the buy and sell side. iii. The volatility estimation and margin fixation methodology should be clearly made known to all market participants so that they can compute the margin for any given closing level of the interest rate futures price. Further, the trading software itself should provide this information on a real time basis on the trading workstation screen. iv. During the first time-period on the first day of trading in 5 Year Notional Coupon Bearing GoI Security futures, the sigma would be equal to 0.2 %. 10.1.16 Position Limits 10.1.16.1 Client Level The gross open positions of the client across all contracts should not exceed 6% of the total open interest or ₹ 300 crores whichever is higher. The Exchange will disseminate alerts whenever the gross open position of the client exceeds 3% of the total open interest at the end of the previous day s trade. 10.1.16.2 Trading Member Level The gross open positions of the trading member across all contracts should not exceed 15% of the total open interest or ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bond 2 Bond 3 Dealer Buy Yields Sell Yields Buy Yields Sell Yields Buy Yields Sell Yields Dealer 1 5.9600 5.9500 (6.0100) (6.0000) (6.0250) (6.0425) Dealer 2 5.9625 5.9500 6.0025 5.9925 6.0450 6.0300 Dealer 3 5.9650 (5.9550) 6.0050 5.9950 6.0450 6.0350 Dealer 4 (5.9600) (5.9550) (6.0025) 5.9975 (6.0425) 6.0375 Dealer 5 5.9625 5.9500 (6.0025) 5.9900 (6.0550) (6.0275) Dealer 6 (5.9725) 5.9525 (6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.0000 6.0550 (6.0350) Dealer 9 5.9750 (5.9550) 6.0150 6.0050 6.0600 6.0400 Dealer 10 (5.9700) 5.9600 (6.0050) (5.9950) (6.0500) 6.0400 12:00 PM Bond 1 Bond 2 Bond 3 Dealer Buy Yields Sell Yields Buy Yields Sell Yields Buy Yields Sell Yields Dealer 1 5.9750 (5.9650) 6.0200 (6.0100) (6.0650) (6.0550) Dealer 2 5.9750 5.9600 6.0175 6.0025 6.0575 6.0450 Dealer 3 5.9750 (5.9650) 6.0175 (6.007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change Americas 1. BM FBOVESPA 2. Chicago Board Options Exchange (CBOE) 3. CME Group 4. ICE Futures U.S. 5. International Securities Exchange (ISE) 6. MexDer 7. Montr al Exchange 8. NASDAQ OMX PHLX Asia Pacific 1. Australian Securities Exchange 2. Bursa Malaysia 3. Hong Kong Exchanges 4. Korea Exchange 5. Osaka Securities Exchange 6. Singapore Exchange 7. TAIFEX 8. Tokyo Stock Exchange Group Europe, Africa, Middle East 1. Borsa Italiana 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The stock exchange shall ensure compliance with any other legal provisions relating to introduction of derivatives on foreign stock indices and obtain requisite approvals from the concerned regulatory bodies. 11.9 Enforcement Any kind of market demeanor in the market for the derivatives on foreign stock indices shall be subject to the appropriate enforcement actions, as applicable to the market for any securities. 11.10 Trading Trading in derivatives on Foreign Stock Indices shall be restricted to residents in India. 12 MISCELLANEOUS 12.1 Corporate Action Adjustments: Options on common stock trade on both NSE BSE the corporate adjustment for the Option on the same underlying should be uniform across markets. While a uniform adjustment methodology could be adopted for certain corporate action, it would be difficult to specify any uniform policy for all corporate actions at this stage. For this purpose, it has been decided to constitute a group comprising NSE, BSE and other knowledgeable persons, which would decide a uniform course of action for adjusting stock option contracts on corporate actions, taking into account best practices followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjustment factor: (P-E)/P Where P = Spot price on last cum date E = (P-S) x A / (A+B) Strike Price: The new strike price shall be arrived at by multiplying the old strike price by the adjustment factor as under. Market Lot / Multiplier: The new market lot/multiplier shall be arrived at by dividing the old market lot by the adjustment factor as under. The above methodology may result in fractions due to the corporate action e.g. a bonus ratio of 3:7. With a view to minimizing fraction settlements, the following methodology is proposed to be adopted: a. Compute value of the position before adjustment b. Compute value of the position taking into account the exact adjustment factor c. Carry out rounding off for the Strike Price and Market Lot d. Compute value of the position based on the revised strike price and market lot The difference between a and d above, if any, shall be decided in the manner laid down by the group by adjusting Strike Price or Market Lot, so that no forced closure of open position is mandated. Dividends which are below 10% of the market value of the underlying stock would be deemed to be ordinary dividends and no adjustment in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... month and far month derivative contracts on the stock of the restructured company. b. In subsequent contract months, the normal rules for entry and exit of stocks in terms of eligibility requirements would apply. If these tests are not met, the exchange shall not permit further derivative contracts on this stock and future month series shall not be introduced. The Exchanges shall determine the manner of adjustment in derivative contracts at the time of corporate actions in conformity with the following principles:- a. The basis for any adjustment for corporate action shall be such that the value of the position of the market participants on cum and ex-date for corporate action shall continue to remain the same as far as possible. b. The exchanges shall take into account best practices followed internationally. c. The Exchanges shall consider the circumstances of a particular case and the general interest of investors in the market. d. The Exchanges shall ensure that the adjustment methodology for a corporate action is uniform across all exchanges. 12.2 Reporting and Disclosure 12.2.1 Monthly Activity Report The exchange is requested to submit inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mandatorily processed through the STP System. An institutional trade for the purpose of STP shall mean a trade which is settled through a custodian. Institutional trades where electronic contract note in the prescribed format is issued, no physical contract note (for such a trade) shall be issued by the brokers. The system flow of the STP framework would be as follows: a. A STP user intending to send an instruction would send the message to his STP service provider after digitally signing the same. b. The STP service provider would verify the signature of the STP user and forward it to the i) Recipient STP user, if the recipient STP user is availing services of the same STP service provider; or the ii) STP centralized hub if the recipient STP user is not with the same STP service provider. In such a case the STP service provider would be required to prepare a message as per the STP centralized hub prescribed message format, enclose the user s message, digitally sign the message and then send it to the STP centralized hub c. On receipt of the message by the STP centralized hub, the STP centralized hub would i) verify the signature of the sending STP service provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der shall include the provisions included in the model agreement. STP users shall be required to use IFN 515 messaging standard for issue of contract note, IFN 548 / 598 for confirmation of the contract note by the custodian / fund manager to the broker and messaging formats IFN 540 to 547 for settlement instructions and their confirmations between the fund manager and the custodians for settlement of such trades. The messaging formats prescribed for STP in India is based on the internationally accepted ISO 15022 messaging standards. However the descriptors for each messaging format had been formulated in a manner to describe the practices followed in the Indian securities market (from the perspective of settlement obligation of a stock broker). However it has been observed that that there has been some confusion in certain sections of the market with respect to the intended use of the messaging format on account of the messaging descriptors. Accordingly it is clarified that the descriptors shall mean the following: a. IFN 540: settlement instruction for a buy trade free of payment b. IFN 541: settlement instruction for a buy trade against payment c. IFN 542: set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action Tax Block shall be placed before the Settlement Amount Block in the stated Message Types. (IFN515, IFN540, IFN541, IFN542 and IFN543) e. Securities Transaction Tax block will be mandatory amount block in IFN515 and optional amount block in IFN540, IFN541, IFN542 and IFN543. f. If the Contract Note (issued by means of IFN 515) is rejected on the basis of Securities Transaction Tax amount then the reason for the rejection shall be specified in the Tag70D Narrative field and Tag 24B Reason specified should be NARR . SEBI has extended the facility of issuance of ECNs as a legal document using Straight Through Processing (STP) to the equity derivatives segment also. Accordingly a model contract note in electronic form (IFN 515 messaging format) and confirmation of electronic contract note (IFN 598 messaging format) are enclosed as Annexure III. The Exchanges are advised to modify/amend their byelaws, rules and regulations to; a. Permit issuance of electronic contract note including all the standard preprinted terms and conditions as given in the physical contract note. b. Permit signing of the electronic contract note with a digital signature so as to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.5.3 Bond Index It has been decided that, to begin with, Exchanges shall construct a Bond Index (both corporate GOI) and disseminate the same. The Exchanges are free to decide whether they want to adopt any of the Bond Index computation models available globally or may like to develop their own model for computation of Bond Index. The detailed methodology for computing the Bond Index shall be disseminated by the Exchange for the benefit of the market participants and investors. Based on experience gained and awareness generated, derivatives on Bond Index shall be considered for introduction in due course of time. 12.6 Modification of Client Codes of Non-institutional Trades Executed on Stock Exchanges (All Segments) 12.6.1 Modification of Client Codes 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 (derivatives as well as cash). The following shall be classified as genuine errors for the purpose of client code modification: a. Error due to communication and/or punching or typing such that the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collection of margins from clients in Equity and Currency Derivatives segments: For each member a %age of a ( ₹ 1 lakh) And ( 10% of applicable margin) 0.5 ( ₹ 1 lakh) Or ( 10% of applicable margin) 1.0 Where a = Short-collection/non-collection of margins per client per segment per day b. If short/non-collection of margins for a client continues for more than 3 consecutive days, then penalty of 5% of the shortfall amount shall be levied for each day of continued shortfall beyond the 3rd day of shortfall. c. If short/non-collection of margins for a client takes place for more than 5 days in a month, then penalty of 5% of the shortfall amount shall be levied for each day, during the month, beyond the 5th day of shortfall. d. Notwithstanding the above, if short collection of margin from clients in equity derivatives segment is caused due to movement of 3% or more in the index (close to close value of Nifty/Sensex for all equity derivatives) on a given day, (day T), then, the penalty for short collectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is objective, transparent, non-discretionary and non-discriminatory; e. does not compromise market integrity or risk management; f. complies with all the relevant laws; and g. is disclosed to market at least 15 days in advance and its outcome (incentives granted and volume achieved liquidity enhancer wise and security wise) is disseminated monthly within a week of the close of the month. 2. The LES can be introduced in any of the following securities: a. New securities permitted on the Stock Exchange after the date of this circular, b. Securities in case of a new Stock Exchange / new Segment, and c. Securities where the average trading volume for the last 60 trading days on the Stock Exchange is less than 0.1% of market capitalization of the underlying. 3. The LES can be discontinued at any time with an advance notice of 15 days. It shall, however, be discontinued as soon as the average trading volume on the Stock Exchange, during the last 60 trading days, reaches 1% of market capitalization of the underlying, or six months from introduction of the scheme, whichever is earlier. 4. If a Stock Exchange introduces LES on securities eligible under Para 2 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading and trading on behalf of Client without Algo 25 Lacs All Trading Members/Brokers with Algo 50 Lacs Explanation : The profiling of members may be explained with the following example A scenario may arise, wherein, a member has registration as a stock broker as well as a trading member and is engaged as a principal doing proprietary trading on cash segment and is also engaged as an agent and transacting only on behalf of the clients in the derivatives segment. Further, the member may not have availed facility for algorithmic trading. In such a case, the profile of such a member shall be assessed as Proprietary trading and trading on behalf of client without Algo . The applicable BMC deposit for such a member shall be INR 25 Lacs. b. This BMC deposit requirement stipulated in the table above, is applicable to all stock brokers / trading members of exchanges having nation-wide trading terminals. c. For stock brokers / trading members of exchanges not having nation-wide trading terminals, the deposit requirement shall be 40% of the above said BMC deposit requirements. d. The BMC deposit shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to final settlement through a STP system flow as may be determined by SEBI from time to time; (h) STP service provider means a person or entity providing STP service to STP users to the extent of conveying messages between a STP user and the STP centralised hub and/or between two STP users; (i) STP user means all the users of the STP service and includes such users as are stipulated by SEBI; and, (j) TRAI means the Telecom Regulatory Authority of India established under the Telecom Regulatory Authority of India Act, 1997. (2) Words and expressions used and not defined in these Guidelines, but defined in the Act or in the Securities Contracts (Regulation) Act, 1956 or in any rules or regulations made thereunder, shall have the meanings respectively assigned to them in such Acts, rules or regulations. 3) ELIGIBILITY CRITERIA FOR STP CENTRALISED HUB AND STP SERVICE PROVIDERS (1) No person shall act as an STP centralised hub or a STP Service provider unless it obtains approval from SEBI to provide such service. (2) For the grant of a certificate of approval SEBI shall take into account the following: i. whether the applicant is a person or entity wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hub shall maintain a complete record of the flow of messages processed. The records of the STP centralised hub shall be open for inspection by SEBI or any other person duly authorised by SEBI for this purpose. xiii. The STP centralised hub shall not modify / amend the communication protocol without consulting all the approved STP service providers. xiv. The STP centralised hub shall ensure that the message is not misused or tampered with while in its possession. xv. The STP centralised hub shall maintain confidentiality of information about its users and shall not divulge the same to other clients, the press or any other person except in accordance with law or as per the directions of any court of law or of SEBI. xvi. The STP centralised hub may charge reasonable fees from the STP service providers. 5) OBLIGATIONS AND RESPONSIBILITIES OF STP SERVICE PROVIDER (1)The STP Service provider shall comply with the following : i. The STP service provider shall at all times comply with the requirement of eligibility criteria, specified by SEBI. ii. The STP service provider shall establish connectivity with the STP centralised hub before providing STP service to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of the STP users connected to it. xvii. The STP service provider shall maintain a complete record of the flow of messages handled. The records of the STP service provider shall be open for inspection by SEBI or any other person duly authorised by SEBI for this purpose. xviii. The STP Service Provider shall verify the Digital signature on the message of the STP user connected to the STP Service Provider xix. The STP service provider shall ensure that the message from the STP user is in the specified messaging format. xx. The STP service provider shall promptly deliver messages to and from the STP user. xxi. In respect of inter STP service provider messages, the STP service provider shall perform all actions to the best of its ability in the same manner, diligence, speed and with all checks and balances as if the message is to be delivered / received by the same service provider. (2) Nothing in these guidelines shall exempt the STP service provider from discharging any obligations placed on it by any law, regulations and guidelines. 6) CONDITIONS OF APPROVAL FOR STP CENTRALISED HUB AND STP SERVICE PROVIDERS (1) Terms of approval: i. The approval by SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall abide by all the provisions of the Act, Rules, Regulations, Guidelines, Resolutions, Notifications, Directions, Circular, etc. as may be issued by the Government of India / Telecom Regulatory Authority of India / Department of Telecommunications and Securities and Exchange Board of India from time to time as may be applicable to the STP service provider. SCHEDULE II MODEL AGREEMENT BETWEEN STP CENTRALISED HUB AND STP SERVICE PROVIDER (Clause 8 of the Guidelines) THIS AGREEMENT is made at _______ on this the___ day of ______________ between _______________________ having its Registered office at ___________________________ (hereinafter referred to as the STP Centralised Hub which expression shall, unless it be repugnant to the context or the meaning thereof, be deemed to include its successors, legal representatives and assigns) of the First Part; And ____________________________________________________ a Company incorporated under the Companies Act, 1956 and having its registered office at________________ (hereinafter referred to as the STP Service Provider which expression shall unless it be repugnant to the context or the meaning thereof, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ROVIDER OBLIGATION 1. The STP Service Provider shall obtain a digital signature certificate from a Certifying Authority, which has been issued a license by the Controller of Certifying Authorities appointed under the Information Technology Act, 2000. A copy of the Certificate shall be submitted to STP centralised hub. 2. The STP Service Provider shall verify the Digital signature on the message of the STP User connected to the STP Service Provider before sending the message to the STP Centralized hub. 3. The STP Service Provider agrees to comply with the minimum specifications prescribed by STP centralised hub and as may be mutually agreed upon. 4. The STP Service Provider shall adhere to the guidelines prescribed by SEBI from time to time. 5. The STP Service Provider acknowledges that the software for STP Centralized Hub including the STP Centralized hub client software is the legal property of STP centralized hub. The permission given by STP centralised hub to access and use STP Centralized Hub through the STP Centralized hub client software will not convey any proprietary or ownership rights in the above software. The access of the STP Service Provider is limite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se specifications of STP Service Providers terminal equipment at Service Provider premises which are necessary for interfacing to network. 5. STP centralised hub shall abide by the guidelines issued by SEBI from time to time on the STP framework. 6. STP centralised hub shall confirm authenticity, integrity and non-repudiability of all messages submitted by the STP Service Provider. 7. The STP Centralized Hub would keep complete track of the flow of messages for record and audit. 8. STP centralised hub shall ensure that only the intended STP Service Provider receives the message. 9. STP centralised hub shall not misuse/ alter / reverse engineer / decompile the content of the messages submitted by the STP Service Providers. 10. STP centralised hub will digitally sign all messages sent from the STP Centralized Hub to the STP Service Provider. 11. STP centralised hub agrees to PKI enable the STP Hub client software within ------ months after the agreement would come into force. STP centralised hub shall digitally sign all messages at STP Centralized Hub prior to sending it to STP Service Providers. hub client software will maintain unsigned logs of such events. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r agrees that STP centralised hub will not be liable to any third party for any modification or discontinuance of the STP Centralized Hub. If STP centralised hub receives prior notice of such direction it shall be communicated to the service provider immediately. In order to maintain the security and integrity of the service STP centralised hub may also suspend the STP Service Provider s access to the STP Centralized Hub. The STP Service Provider agrees that STP centralised hub will not be liable to or any third party for any modification or discontinuance of the STP Centralized Hub. The Parties shall make every effort to resolve amicably by direct informal negotiation any disagreement or dispute arising between them under or in connection with the arrangement. In the case of any issues arising out of the security and integrity of the messages being exchanged through the hub, the same shall be resolved by mutual discussion. In the event the parties are not able to settle the same within the time frame agreed between the parties either party may, by written notice of 30 days sent to the other party, temporarily suspend the arrangements, in whole or in part, till the parties find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within a mutually agreed time frame in writing. 2. This agreement may, at any time during its Term, be terminated by either party by a written 90 days notice to the other party without prejudice to the rights, liabilities, interests and obligations that have accrued to the parties prior to the date of such termination. The grounds upon which this agreement may be terminated pursuant to this clause are as under: i) In case a Receiver has been appointed with respect to all or substantially all the assets of the parties. Provided that this clause shall not be applicable when winding up proceedings have been initiated to facilitate an amalgamation with another company proposing to carry on the same business ii) if one of the parties enters into an arrangement of composition with its creditors. 3. This agreement may, at any time during its Term, be terminated by STP centralised hub by a written notice in case the ISP license of STP centralised hub is revoked or the services are taken over by DoT / Telecom Authority in the event of an emergency or otherwise. If STP centralised hub receives prior notice of the same it shall be provided to the service provider immediately. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reted in accordance with the laws of India, SEBI Act, Regulations, Rules and SEBI (STP centralised hub and STP service providers) Guidelines, 2004. 2. If any term or provision of this agreement should be declared invalid by a court of competent jurisdiction, the remaining terms and provisions of this agreement shall remain unimpaired and in full force and effect. M. DISCLAIMER STP centralised hub shall use its best endeavor only to ensure that the services provided shall be in conformity with the terms of this agreement. STP centralised hub shall not be liable for bad/slow connection or any technical glitches on account of reasons beyond its control. N. CONFIDENTIALITY The Parties hereto shall at all times maintain and keep secret and confidential any knowhow, information and data which it has or may acquire from time to time relating to the business, ctivities or operations of the other Party and shall not disclose or divulge the same or any part thereof to any third party. The terms of this clause shall survive termination of the Agreement. The obligations shall not apply with respect to Information which: 1) is or becomes publicly available other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Status Field Field Name Content and Options Remarks Rules M 16R GENL Start of block M 20C Reference :4!c//16x Type of CN, Exchange number and CN No. Format: (Qualifier)/ (References) Qualifier: SEME (4 Uppercase Characters) References: (Contract Type/ Exchange No. / Contract Number) Contract Type: A or B (1 Character Set) Exchange number (2 digits e.g. Calcutta Stock Exchange will be 03 ) Contract Number: xxxxxxxxxx (13Characters) The reference should not start or end with slash / and must not contain two consecutive slashes // . M 23G 4!c To indicate new message or cancellation of a previous message Format: (Function) Function: NEWM O 98A Date :4!c//8!n Preparation Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98A Trade Date :4!c//8!n To give details of the trade date. Format: (Qualifier)//(Date) Qualifier: TRAD (4 Uppercase Characters) Date: YYYYMMDD (8 Digits) M 98A Settlement Date :4!c//8!n To give details of the settlement date. Format: (Qualifier) / (Date) Qualifier: SETT (4 Uppercase Characters) Date: YYYYMMDD (8 Digits) M 90B Price :4!c//4!c/3! a15d To indicate the trade rate Format: (Qualifier)/ /(Amount Type Code)/ (Currency Code) (Price) Qualifier: DEAL (4 Uppercase Characters) Amount Type Code: ACTU (4 Uppercase Characters) Currency Code: INR (3 Uppercase Alphabets) Price: Upto 15 digits (including decimal places and decimal sign) comma has to be used as decimal sign and is mandatory. Integer part of amount must contain atleast one digit. O 92A Price :4!c//[N]15 d To indicate brokerage rate per share Format: (Qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O 97A Account :4!c//35x To identify the safekeeping account. All clients need to obtain a code as specified in the circular Format: (Qualifier) //(Code as specified in the circular) Qualifier: SAFE (4 Upper Characters) Code as specified in the circular (35 characters) M 16S CONFPRT Y End of block End of Mandatory Subsequence C1 (Confirmation Parties) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M 16R SETDET Start of block M 22F Indicator :4!c//4!c Dummy (since mandatory) Format: (Qualifier) //(Indicator) Qualifier: SETR (4 Upper Characters) Indicator: TRAD (4 Upper Characters) Mandatory Subsequence D1 (Settlement Parties) M 16R SETPRTY Start of block M 95P Party :4!c//4!a2!a 2!c[3!c] Indicates the contracting broker Broker BIC code is used shall not be used case the BIC code doesn t exist 95Q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: REAG in case of a Sale DEAG in case of a Purchase - BOISL for BSE trades, or - NSCCL for NSE trades (For Clearing House Trades) and SEBI reg number of the broker (For Hand Delivery Trades) M 16S SETPRTY End of block End of Subsequence D1 (Settlement Parties) Mandatory Subsequence D3 (Amounts) M 16R AMT Start of block M 19A Amount :4!c//3!a15 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atleast one digit. M 16S AMT End of block M 16R AMT Start of block M 19A Amount :4!c//3!a15d To identify the settlement amount For Settlement Amount Qualifier: SETT (4 Upper case Characters) Narrative: INR (3 Upper Letters) Amount: upto 15 digits (including decimal places and decimal sign) comma has to be used as decimal sign and is mandatory. Integer part of amount must contain atleast one digit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... End of Sequence E Other Parties Message IFN 598 : Format Sequence Status Tag Generic Field Name Content/Options Purpose Rules Mandatory Sequence A General Information M 16R GENL Start of Block M 20C Reference :4!c//16x Sender's Reference Format: (Qualifier)//(Reference number)Qualifier: SEME Reference Number: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k M 25 D Status :4!c//4! c To display the status of the contract note (vis a vis Trade Instruction received from client) Format:(Qualifier)//(Status Code) Within the scope of this module, the status updates of matched / unmatched contract notes are being defined. The possible options are MTCH//MACH: The contract note matches with the trade instruction received from client MTCH//NMAT: The contract note has not been matched Optional Subsequence A2a Reason M 16R REAS Start of Block M 24B Reason. :4!c//4!c To display the reason for the status of the contract note [in case the contract note is not matched]. Format:(Qualifier)//(Reason Code) This block is option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d; incorrect buyer (receiver) or seller (deliverer). IIND- Disagreement common reference The instruction has not been matched; the counterparty disagrees with the common reference (for markets where a common reference is used as a matching criterion). LATE- Your Instruction Too Late for Matching The instruction has not been matched. Your instruction was too late for matching. NARR- Narrative Other (see narrative reason). NCRR- Disagreement Currency Settlement Amount The instruction has not been matched; the counterparty disagrees with the currency of the settlement amount. NMAS- No Matching Started The instruction has not been matched; the matching process did not yet start. PHYS- Disagreement Physical settlement The instruction has not been matched. The counterparty is for physical settlement, your instruction is not, or vice versa. PLCE- Disagreement Place of Trade Place of trade does not match. PODU- Possible Duplicate Instruction The instruction has not been matched. It is a possible duplicate instruction. REGD- Disagreement Registration Details The instruction has not been matched; there are discrepancies in the registrations details linked to the transaction. REPA- Disagreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M 16 S GENL End of Block End of Sequence A General Information Optional Sequence B Settlement Transaction Details M 16 R SETTR AN Start of Block Note: This sequence is to be used only in case of the contract being against payment. M 35 B Security [ISIN1! e12!c] [4*35x] Identification of the Financial Instrument Format: (Identification of Security)(Description of Security)Identification of Security: ISIN which will always be present. (ISIN of the security). Additionally, the first line (35 characters) of the description may be used if required and may contain the scrip code (4 lines of 35 Characters) . The contract descriptor shall be provided in the first line of 35 characters. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DVP Trades for against payment (4 Upper Characters) Or FREE for Clearing House trades (4 Upper Characters) M 98 A Settlement Date :4!c//8! n To give details of the settlement date. (as is given in the incoming MT515 Contract Note) Format: (Qualifier)//(Date) Qualifier: SETT (4 Uppercase Characters) Date: YYYYMMDD (8 Digits) Mandatory Subsequence B1 (Settlement Parties)* M 16 R SETP RTY Start of block M 95 Q Party :4!c//4* 35x Indicates the SEBI Reg. No. / MAP-IN id of contracting broker. This tag should contain the same informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading, hedging and investment strategies. Principles of clearing, margining, delivery and settlement and exercise. Risk management systems and procedures. Basics of Stock Index composition and calculation, including contract specifications. Existing regulatory and legal structure in the securities and futures market (including SCRA, SEBI Act, SEBI (Stock Broker and Sub-Broker) Regulations, 1992, Dr. L.C. Gupta Committee Report, Suggestive Byelaws and any other special regulatory requirements of the Derivatives market). Rules, Regulations and Byelaws of the Exchange (cash segment and derivatives segment). Broker-Client relationship (Rights and obligations). Accounting standards for derivatives. 3. Fully automated testing environment: The administration of the test and its subsequent evaluation should be computerised. The test should be online computer based where the candidate is required to answer multiple choice questions and forward them electronically. In such an environment the candidate s performance is also known instantaneously. Procedure for dispatch of Computerised test also avoid certain malpractices which may arise. 4. Nationwide access ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05, 2011-Modification of Client Codes of Non-institutional Trades Executed on Stock Exchanges (All Segments) 9. Jun 02, 2011-Liquidity enhancement schemes for illiquid securities in equity derivatives segment 10. May 13, 2011-Self Clearing Member in the Currency Derivatives Segment 11. March 7, 2011-Futures on 91-day Government of India Treasury-Bill (T- Bill) 12. Jan 11, 2011-Introduction of Derivative Contracts on Foreign Stock Indices 13. Oct 27, 2010- European Style Stock Options 14. Jul 30, 2010- Options on USD-INR Spot Rate 15. Jul 15, 2010- Physical Settlement of Stock Derivatives 16. Jul 07, 2010- Revised Exposure Margin for Exchange Traded Equity Derivatives 17. May 04, 2010- Introduction of Index options with tenure up to 5 years 18. Apr 27, 2010- Introduction of derivative contracts on Volatility Index 19. Jan 19, 2010- Currency Futures on Additional Currency pairs 20. Jan 11, 2010- Market Wide Position Limits across Stock Exchanges 21. Jan 08, 2010- Standardized lot size for derivative contracts on individual securities 22. Dec 22, 2009- Delivery Period for Interest Rate Futures 23. Nov 13, 2009- Expiry Date for Equity Deriva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 26, 2004- Straight Through Processing Service in the Indian Securities Market 48. Apr 01, 2004- Mandatory use of STP system for all institutional trades executed on the stock exchanges 49. Mar 09, 2004- Trading by FIIs and NRIs in Exchange Traded Interest Rate Derivative Contracts 50. Feb 25, 2004- Issuance of Electronic Contract Notes - Debt Market 51. Feb 23, 2004- Minimum contract size for Exchange traded derivative contracts 52. Feb 06, 2004- Recognition of credit ratings given by reputed foreign credit rating agencies 53. Feb 03, 2004- Issuance of Electronic Contract Notes 54. Jan 05, 2004- Scheme for introduction of Exchange Traded Interest Rate Derivative Contracts on a basket of Government Securities 55. Oct 29, 2003- Trading by FIIs and NRIs in Exchange Traded Derivative Contracts 56. Apr 29, 2003- Issuance of Contract Notes in electronic form 57. Apr 19, 2003 -Circular-Scheme for introduction of Exchange Traded Interest Rate Derivative Contracts 58. Mar 13, 2003- Monthly Reporting Format-Circular 59. Dec 18, 2002- Adjustment in stock option contracts and single stock future contracts at the time of corporate actions 60. Dec 18, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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