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Standard Operating Procedure in the cases of Trading Member / Clearing Member leading to default

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..... h the CC. To protect the interest of non-defaulting clients of a TM and /or non-defaulting clients / TM(s) of the CM, in the likely event of default by TM / CM, there is a need for Standard Operating Procedure ( SoP ) enumerating the steps to be taken by the SEs / CCs / Depositories in such cases where SE / CC is of the view that TM / CM is likely to default in repayment of funds or securities to its clients. 3. In order to harmonize the action amongst all SEs / CCs / Depositories in a time bound manner this SoP has been prepared in consultation with SEs, CCs and Depositories so as to achieve uniformity in implementation of actions. The SoP lays down the actions to be initiated by the SEs / CCs / Depositories within a time frame after detection of the early warning signals as laid out in the Circular dated December 17, 2018 and other triggers as laid down in this circular untill declaration of defaulter of TM / CM by the SE / CC. Once the TM is declared defaulter, the proceedings shall be in compliance with the bye-laws, rules and regulations of SE / CC respectively. 4. On analysis of early warning signals or any of the following triggers, if the SE / CC is of the view .....

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..... vice to CM(s) to square-off open positions of TM and its clients. Within 1 trading day of disablement 4.6 ISE shall inform the Depositories about the disablement immediately and advice Depositories to freeze the demat accounts of the TM (including TM Pool Accounts). (ISE shall give specific instructions along with PAN to the Depositories). Any debit in the demat account of TM shall be made under supervision of ISE. Within 1 trading day of disablement 4.7 ISE shall inform other SEs about the disablement immediately and the other SEs shall disable the said TM on receipt of information and the other SEs shall Issue a notice / circular in this regard. Within 1 trading day of receipt of intimation of disablement from ISE 4.8 TM may also stand suspended to act as a client with any other TM / CM in any other segment / SEs. Within 1 trading day of the date of receipt of information of disablement from ISE 4.9 In case of open positions of clients / TM, .....

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..... ken by the forensic auditor. The liabilities to the clients for funds and securities shall be established with demarcation of securities belonging to the fully paid clients or partly paid / unpaid clients. Within 15 trading days of disablement Within 3 weeks of appointment of forensic auditor 4.15 ISE shall also provide a report to SEBI on the reasons for trigger, the meetings held with directors of the TM / CM and the outcomes of limited purpose inspection, the details of actions taken and proposed to be taken under the SoP and any other information that the ISE may deem relevant. Within 30 trading days from the date of trigger Action by Depositories 4.16 Depositories to freeze the demat accounts of the TM (including TM Pool Accounts). Within 1 trading day from the receipt of information of disablement 4.17 Depositories shall not allow new account opening by the DP (Defaulting TM / CM) and shall suspend all Power of Attorney in favour of the defaulting TM given by its .....

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..... to clear their debit balance after giving notice period for 5 days. After reconciling the Register of Securities (ROS), the securities of the credit balance clients (fully paid clients) shall be restored to their respective demat accounts. In this regard, the related parties of the trading member shall not be considered for settlement, for which the TM shall provide an undertaking to the SEs / CC. Within 30 trading days from crystallization of balances 4.25 ISE / SEs / CCs shall endeavour to settle the claims of maximum number of clients by way of interim measures, under their supervision prior to issuing show cause notice (SCN) for declaring the TM a defaulter. The TM shall be instructed to pay small investors out of available funds and own resources (movable and immovable) under the supervision of the ISE / SEs. Further, the unencumbered deposits available with the SEs / CCs, after adjusting for any dues of the SE / CC and maintaining the minimum BMC, shall also be utilised for settling the credit balance of investors starting from the smallest amount. Also any surplus available with any SEs / C .....

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..... ier), no further Investor Grievance Redressal Committee (IGRC) / Arbitration meetings shall be conducted. 8. Default proceedings shall take place as per bye laws / rules / regulations of the SE / CC. If the member is also a DP, Depositories shall take action as per its bye laws for termination / transfer of its participant-ship based on record. SEs shall not expel the TM immediately until the default proceedings are completed. 9. The TM shall provide a list of all its bank accounts to the SEs /CCs and the SEs / CCs shall obtain an undertaking from the TM within 90 days from the date of issuance of this Circular, undertaking that the SEs / CCs shall be empowered to instruct the bank(s) of the TM to freeze the bank account(s) for debits. The draft of undertaking is enclosed at Annexure A. 10. The above SoP enumerates the minimum action which shall be initiated by the respective SEs / CCs / Depositories in accordance with law with effect from August 01, 2020. However, the respective SEs / CCs / Depositories are free to initiate any other actions as may be necessary in compliance with their bye laws / rules / regulations and / or to protect the interest of investors. The ISE / .....

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..... ar dated February ___, 2020 (date of circular to be inserted) on Standard Operating Procedure to be followed in the case of trading member/clearing member leading to default (hereinafter referred to as the said circular ). Whereas in terms of the said circular the .. [Name of the Stock Exchange / Clearing Corporation] has amended its bye-laws and is empowered .. [Name of the Stock Exchange / Clearing Corporation] to issue instructions to the concerned bank/s to freeze the bank account/s maintained by the Member, for all debits / withdrawal by the Member in the event of a potential default by the Member in meeting its obligations to Stock Exchange / Clearing Member / Clearing Corporation and / or repayment of funds / securities to his / its clients. Now, in consideration of the above, I / We do hereby agree and confirm unconditionally to undertake that: 1) [Name of the Stock Exchange / Clearing Corporation] is empowered to instruct the concerned banks to freeze my / our bank accounts for all debits / withdrawals from such accounts. The details of bank accounts held by me/ us are as follows: 2) Any debits to such bank account, post freezing by the b .....

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