EQUITY CASH SEGMENT DETAILED CONSOLIDATED CIRCULAR CONTENTS

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1 EQUITY CASH SEGMENT DETAILED CONSOLIDATED CIRCULAR CONTENTS Sr. No. Particulars Page No. 1. DEALS 3 2. LIQUID ASSETS Composition of Liquid Assets Additional Liquid Assets Procedure for depositing collaterals towards Liquid Assets Procedure for release of Liquid Assets Transfer of collateral from one segment to another segment 7 3. MARGINS Margin process Value at Risk (VaR) margin Extreme Loss Margin (ELM) Mark to Market (MTM) margin Additional margins Collection of margins Exemption from margins Release of blocked margins Margin shortfall Maintenance of capital cushion Cross Margining CLEARING & SETTLEMENT Settlement Schedule Settlement Process Securities Pay-in and Pay-out Process Funds Pay-in and Pay-out Process Physical Securities Settlement Objection Company Objections Clearing Bank GUIDELINES FOR GOOD/BAD DELIVERY MAINTENANCE OF DEPOSITORY ACCOUNT CORE SETTLEMENT GUARANTEE FUND Core Settlement Guarantee Fund Contribution towards Core Settlement Guarantee Fund 37 1

2 8. ANNEXURES I Format of letter from Clearing Member for submission of 39 FDR receipt II Fixed Deposit Receipts (FDRs) confirmation by bank 40 III Renewal of Fixed Deposit Receipts (FDRs) by bank 41 IV Format of letter from Clearing Member for submission of 42 renewal of FDR V Format for Bank Guarantee 44 VI Format of letter from Clearing Member for depositing Bank 49 Guarantee VII Format for Renewal of Bank Guarantee by bank 50 VIII Format of letter from Clearing Member for submission of 53 renewal of Bank Guarantee IX Deed of Pledge 54 X Procedure for deposit and withdrawal of Government of 62 India Securities (G-Sec)/T-Bills as collateral towards Liquid Assets in Equity Cash Segment XI Extension of Bank Guarantee to Different trading segment 66 XII Example of member s gross open position for the purpose of 68 VaR & ELM margins XIII Methodology for computation of MTM Margin 69 XIV Procedure for early pay in 70 XV Norms for imposing fines/penalties on Clearing Members in 72 case of de-activation of trading terminals XVI List of Clearing Banks 73 XVII Format of authorization letter to clearing bank for debiting 74 settlement account XVIII Norms for imposing late fees/fines/penalties on members for 75 non-fulfilment of funds obligations XIX Format of letter from Clearing Member regarding shifting 76 settlement account from one designated Clearing Bank to another 2

3 1. DEALS Deals executed on the Equity Cash Segment of BSE Ltd. are eligible to be cleared and settled through Clearing Corporation in the Equity Cash Segment unless specifically deferred or not allowed to, or rejected from admission by the relevant authority. 3

4 2. LIQUID ASSETS (Collateral Deposits) The liquid assets for trading in equity Cash Segment are to be maintained separately. 2.1 Composition of Liquid Assets Clearing Members of the Equity Cash Segment may deposit liquid assets in form of cash and cash equivalent i.e. Bank Guarantees, Fixed Deposit Receipts of scheduled commercial banks, eligible Government Securities, eligible Liquid Mutual Fund Units and non-cash equivalent i.e. eligible securities, eligible Mutual Fund Units (other than Liquid Mutual Fund) and in any other form of collateral as may be prescribed by the Indian Clearing Corporation Ltd. (ICCL / Clearing Corporation) from time to time. List of eligible securities and mutual fund units is available on web-site of BSE Ltd. (BSE) / ICCL. The cash/cash equivalent component should be at least 50% of the total liquid assets. Further, the Liquid Assets deposited in form of cash equivalent and non-cash equivalent are subject to applicable norms in respect of haircuts, single bank and single issuer exposure limits, etc. as per the guidelines issued by Securities and Exchange Board of India (SEBI), BSE and ICCL as well as any other circulars/guidelines that may be issued in respect of the same from time to time. 2.2 Additional Liquid Assets Clearing members may deposit additional liquid assets at any point of time based on the composition of Liquid Assets as detailed in 2.1 above. 2.3 Procedure for depositing various types of collateral deposits towards Liquid Assets Cash Deposits For depositing cash towards liquid assets, the Clearing Members need to send their online instruction in respect of the same through the BSE Electronic Filing System (BEFS) Module to their respective Clearing Banks for confirmation of such request for enhancement of cash collateral. ICCL has provided an on-line facility (BEFS) to members for sending instructions to Clearing Banks for enhancement of cash collateral. Through the said BEFS facility, Members can place their on-line requests to their designated Clearing Bank during the specified timings for enhancement of cash collateral for the relevant segment of the Exchange. The concerned Clearing Banks have also been provided the on-line webbased facility (BEFS) for confirmation of such cash collateral enhancement requests. Based on the request forwarded by the Member, the respective Clearing Banks may confirm or reject the enhancement of cash collateral request received by them. Fixed Deposit Receipts (FDRs) Clearing Members can deposit FDR(s) of a scheduled commercial bank towards liquid assets. The FDRs deposited by the Clearing Members should be issued in 4

5 favour of Indian Clearing Corporation Ltd. A/c Trade Name of the Clearing Member" and should be duly discharged by the Clearing Member himself or an authorised signatory of the member on the reverse of the FDRs. The FDRs need to be deposited alongwith a covering letter of the Clearing Member in the format given in Annexure - I, and also with a letter from the concerned bank addressed to ICCL in the format given in Annexure - II. Renewal of FDRs Clearing Members may renew the FDRs deposited towards Liquid Assets by submitting a renewal letter from the concerned bank in the prescribed format given in Annexure III. The renewal letter should be submitted along with a covering letter by the Clearing Member in the prescribed format given in Annexure - IV. Bank Guarantee (BGs) Clearing Members can deposit Bank Guarantees (BGs) issued by Scheduled Commercial Banks towards Liquid Assets requirements in the prescribed format given in Annexure - V. The BG may be deposited alongwith a covering letter of the Clearing Member in the format given in Annexure - VI. Clearing Members can deposit bank guarantee(s) with/without the claim period. In cases where bank guarantee(s) are submitted without a claim period, the amount of the bank guarantee(s) would be removed from the liquid assets of the member at least seven days before the expiry date of the bank guarantee(s) or such other period as may be decided by ICCL from time to time. In cases where bank guarantee(s) are submitted with a claim period, the amount of the bank guarantee(s) would be removed on the expiry date of the bank guarantee(s) or such other date as may be decided by ICCL from time to time. Clearing Members are required to ensure the following at the time of deposit of bank guarantees: The bank guarantee should be strictly as per the formats prescribed by the Clearing Corporation. No relevant portion of the bank guarantee should be left blank All irrelevant portions struck off on the printed format should be authenticated by the bank by affixing the bank seal / stamp duly authorised. All handwritten corrections and blanks should be attested by the bank by affixing the bank seal / stamp duly authorized. Each page of the bank guarantee should bear the bank guarantee number, issue date and should be signed by at least two authorised signatories of the bank. That the bank guarantee should be free from any discrepancy before the same is submitted to ICCL. Renewal of BGs Clearing Members may renew the BGs deposited towards Liquid Assets by submitting a renewal letter from the concerned bank in the prescribed format given in 5

6 Annexure VII. The renewal letter should be submitted along with a covering letter by the Clearing Member in the prescribed format given in Annexure - VIII. Eligible securities and units by way of pledge towards Liquid Assets Clearing Members can deposit eligible securities and units in dematerialised form towards liquid assets by way of pledge. The list of eligible securities and units is available on BSE/ICCL web-site. These securities and units shall be pledged in favour of ICCL in the designated depository accounts. The valuation of the securities and units deposited towards Liquid Assets shall be in accordance with the norms and limits as prescribed by ICCL from time to time. The value of the securities shall be subject to such haircut as may be prescribed by ICCL from time to time to arrive at the collateral value of the securities. The valuation of securities and units will be done on a periodic interval by ICCL and benefit to the extent of net value of the securities/units after haircut shall be considered. ICCL may revise the list of approved securities/units and the norms in respect of same from time to time. Clearing Members shall regularly monitor their valuation of securities/units lying towards Liquid Assets and replace/replenish the same based on the revised list of approved securities/units and change in norms. Clearing Members shall also ensure that only eligible securities are pledged and lying towards their Liquid Assets with ICCL and that the said securities are not subject to any lock in period, buy back scheme any charge or lien, encumbrance of any kind, or such other limitations or title is questioned before the court or any regulatory body. Procedure for pledging of demat securities/units towards Liquid Assets Clearing Members need to follow the following procedure for availing the facility to pledge demat securities /units towards Liquid Assets : Clearing Members need to execute a deed of pledge in favour of ICCL, for deposit of approved securities towards liquid assets with ICCL for the concerned segment in the prescribed format given in Annexure - IX. The said deed of pledge should be: signed and stamped on all pages and where manual changes have been carried out by (i) Clearing Member in case of individual, (ii) all partners in case of a Partnership Firm (iii) by any two of the following persons (Managing Director, Whole-time Director, Directors) in case of a company. accompanied with a certified true copy of the Board Resolution, authorising the signatory to sign this deed, to be submitted in case of a company. By Authorized Signatory as approved by the Bank, in case of a Bank. Accompanied with a copy of the authority letter addressed by the member to its Clearing Bank authorising them to carry out the debit in respect of charges levied by ICCL/ICCL s custodian. The said copy of letter shall be duly acknowledged by their Clearing bank. 6

7 A covering letter of the Clearing Member enclosing details of the aforesaid and requesting for opening of a pledgee account of ICCL in whose favour the said demat securities/units towards Liquid Assets of the member shall be pledged. Clearing Members can initiate pledging of securities/units in favour of ICCL for deposit of same towards their Liquid Assets, and requisite benefits in respect of same will be available after receipt of confirmation of the pledge from the Depository system. Government of India Securities towards Liquid Assets Clearing Members may deposit eligible securities of Central Government of India (G-Sec) and Treasury bills (T-bills). The list of such eligible securities is available on BSE/ICCL web-site. The procedure for deposit of eligible securities in form of G-Sec and T-Bills shall be as prescribed in Annexure X 2.4 Procedure for submission of release request of Liquid Assets Clearing Members can place their on-line requests for release of Liquid Assets deposited by them with ICCL to the extent of available collateral which is not utilised/blocked towards margins and/or other obligations of the member through the collateral module provided to them. Such requests may be considered by ICCL, inter alia, subject to availability of un-utilised collateral of the member after due adjustments for the fulfilment of all obligations and liabilities of the member towards ICCL as per the Bye Laws, Rules and Regulations of ICCL or anything done in pursuance thereof. Clearing Members can log-in to the web-based Collateral Module of ICCL and submit their requests for release of available collaterals. No separate letter would be required to be submitted for the same. 2.5 Transfer of collateral from one segment to another segment Clearing Members, who intend to transfer collateral across segments need to send their on-line instruction in respect of same through the Collateral Module. Members can log-in through specific user-ids and passwords into the Collateral Module. Clearing Members can avail facility of on-line transfer of collateral across segments to the extent of the available amount of unutilised collateral (collateral which is not utilised/blocked towards margins and/or other obligations of the member). The transfer requests received from Clearing Members through the Collateral Module shall be treated as request from the member and no separate letter would be required to be submitted. In case of collateral lying in form of bank guarantees issued by banks the same would be available for transfer from one trading segment to another, only after submission of 7

8 letter from the concerned bank regarding transfer of scope of the bank guarantee in the specified format given in Annexure - XI, to ICCL. The evaluation of collateral transfer across the segments will be subject to hair-cut and other criteria/norms in respect of the concerned segments as specified by SEBI/BSE/ICCL in this behalf from time to time. Clearing Members may verify the details of their request for transfer and its status in the Collateral Module. 8

9 3. MARGINS 3.1 Margining Process As stipulated by SEBI vide its various circulars, the core of the risk management system followed in Equity Cash Segment is based on the Liquid Assets deposited by members with the Exchange/Clearing Corporation and is, inter alia, intended to cover mainly the requirements of Base Minimum Capital, VaR Margin, Extreme Loss Margins and Mark to Market (MTM) losses. The liquid assets deposited by members at all points of time should be adequate to cover the aforesaid requirements. The margining process in equity cash segment is based on the categorization of securities traded in the said segment based on its liquidity. The Liquidation criteria of the securities in the said segment is based on the trading frequency and impact cost as detailed below : Liquidity Categorization of Securities The securities traded in the Equity Cash Segment are categorized into three groups viz, Group I, Group II and Group III based on their trading frequency and impact costs as detailed below : Group Trading Frequency Impact Cost Liquid Securities (Group I) At least 80% of the days Less than or equal to 1% Less Liquid Securities (Group II) At least 80% of the days More than 1% Illiquid Securities (Group III) Less than 80% of the days Not Applicable The trading frequency and impact cost are computed on the 15 th of each month on a rolling basis considering the pervious six months trading frequency and impact cost respectively. Based on the trading frequency and impact cost, the securities are moved from one group to another in the next month. In case of securities which have been listed for less than six months, the trading frequency and the impact cost are computed using the entire trading history of the security. In case of newly listed securities, for the first month and till the monthly review as mentioned above, such securities are categories in that group where the market capitalization of the newly listed security exceeds or equals the market capitalization of 80% of the securities in that particular group. Subsequently, after one month the actual trading frequency and impact cost of the security is computed to determine the liquidity categorization of said security. Further, in case of any corporate action declared by the company results in change in ISIN of the said security with new ISIN is treated as a newly listed security for group categorization Computation of Mean Impact Cost The mean impact cost is calculated in the following manner : The impact cost is calculated by taking four snapshots in a day from the order book in the past six months. These snapshots are randomly chosen from with four fixed timing spread through the day. 9

10 The impact cost is the percentage price movement caused by an order size of Rs.1 Lakh from the average of the best bid and offer price in the order book snapshot. The impact cost is calculated for both, the buy and the sell side in each order book snapshot. The methodology for computation of the impact cost adopted is disseminated on the website of the BSE/ICCL. The categorization of securities into various groups for the applicable period is also disseminated on the website of the Exchange. 3.2 Value at Risk (VaR) Margin The VaR (Value at Risk) Margin is a margin intended to cover the largest loss that can be encountered on 99% of the days (99% Value at Risk). For liquid securities, the margin covers one-day losses while for illiquid securities; it covers three-day losses so as to allow the Clearing Corporation to liquidate the position over three days. This leads to a scaling factor of square root of three for illiquid securities. For liquid securities, the VaR margins are based only on the volatility of the security while for other securities, the volatility of the market index is also used in the computation. Computation of the VaR margin requires the following definitions : Scrip sigma means the volatility of the security computed as at the end of the previous trading day. The computation uses the exponentially weighted moving average method applied to daily returns in the same manner as in the derivatives market. Scrip VaR means higher of 7.5% or 3.5 security sigma. Index sigma means the daily volatility of the market index (S&P BSE Sensex or CNX Nifty) computed as at the end of the previous trading day. The computation uses the exponentially weighted moving average method applied to daily returns in the same manner as in the derivatives market. Index VaR means higher of 5% or 3 index sigma. The higher of the Sensex VaR or Nifty VaR is used for this purpose. The VaR Margins for different groups of securities are specified as follows : Liquidity Categorization Liquid Securities (Group I) Less Liquid Securities (Group II) Illiquid Securities (Group III) One-Day VaR Scaling factor for VaR Margin illiquidity Scrip VaR 1.00 Scrip VaR Higher of Scrip VaR and three times Index VaR 1.73 (square root of 3.00) Five times Index VaR 1.73 (square root of 3.00) Higher of 1.73 times Scrip VaR and 5.20 times Index VaR 8.66 times Index 10

11 As stipulated by SEBI, VaR margin rates are applied at beginning of day and also applied intra-day based on the prices at a.m., p.m., 2.00 p.m., and 3.30 p.m. everyday. In addition to the above a VAR rate files are also generated at end of day. 3.3 Extreme Loss Margin (ELM) Extreme Loss Margin (ELM) covers the expected loss in situation that go beyond those envisaged in the 99% Value At Risk (VaR) estimates used in the VaR margin. The Extreme Loss Margin for any security is the higher of 5% or 1.5 times the standard deviation of daily logarithmic returns of the security price in the last six months. The said computation is done at the end of each months by taking the price data on a rolling basis for the past six months and the resulting value is applied for the next month. 3.4 Mark to Market (MTM) margin The MTM margin is computed after trading hours on T day on the basis of closing price of that day. MTM margins are also recomputed in respect of all the pending settlements on the basis of closing prices and the difference due to increase/decrease in MTM margins on account of such recomputation is adjusted in the MTM obligation of the member for the day. The MTM margins are collected on the gross open position of the member. The gross open position for this purpose means the gross of all net positions across all the clients of a member including his proprietary positions. For this purpose, the position of a client are netted across his various securities and the positions of all the clients of a broker are grossed. Further, there is no netting of the positions and setoff against MTM profits across two different settlements. However, for computation of MTM margins for the day MTM profits are set-off against MTM losses at client level. 3.5 Additional margins As a risk containment measure, ICCL may require clearing members to pay additional margins as may be decided from time to time. This would be in addition to the above mentioned margins 3.6 Collection of Margins The VaR margin and ELM are collected/adjusted on an upfront basis from the Liquid Assets of the Clearing Member on an on-line real time basis. The said margins are collected on the gross open position of the member. The gross open position for this purpose means the gross of all net positions across all the clients of a member including its proprietary position. For this purpose, there is no netting of positions across different settlements. Example of member s gross open position for the purpose of VaR & ELM margins is given in Annexure XII. The MTM margin is collected from the members first by adjusting the same from the available cash and cash equivalent component of the liquid assets and the balance MTM is collected in form of cash from the members through their clearing banks before the start of the trading of the next day. Methodology for computation of MTM Margin is given in Annexure XIII. 11

12 In case of institutional transactions the aforesaid margins (VaR, ELM and MTM) are collected on T+1 day, subsequent to confirmation of the transactions by the custodians. The margins are levied on the custodial clearing members in respect of those institutional transactions confirmed by them. In respect of the institutional transactions rejected/not confirmed by the custodians the margins on same are levied on the concerned member who has done the transaction. For the purpose of aforesaid, institutional investors, inter alia shall include : FIIs/FPIs registered with SEBI. Mutual Funds registered with SEBI. Public Financial Institutions as defined under Section 4A of the Companies Act, Banks, i.e., a banking company as defined under Section 5(1)(c) of the Banking Regulations Act, Insurance companies registered with IRDA. Any other entity as may be specified by SEBI from time to time. 3.7 Exemption from margins The exemption from margins are given in cases where early pay-in of securities and funds is made, the outstanding position to the extent of early pay-in are not considered for margin purposes. Clearing Members have the facility to do pre-trade/post-trade early pay-in of securities and funds trade. For availing the aforesaid facility Clearing Members are required to follow the early pay-in procedure as specified in Annexure XIV which also include the necessary file formats. 3.8 Release of blocked margins The margins are released on completion of pay-in of the respective settlement. 3.9 Margin Shortfall Clearing Members shall maintain adequate liquid assets with ICCL at all point of time to cover their margin requirements. In case de-activation of trading terminal during trading session in the Equity Cash Segment on account of margin shortfall, the same shall attract fines / penalties or such disciplinary action as may be specified from time to time. The present norms for imposing fines/penalties on Clearing Members in case of de-activation of trading terminals during trading session in the Equity Cash Segment is enclosed as Annexure - XV Maintenance of Capital Cushion For the purpose of monitoring those members having high collateral utilisation, the following methodology or such other methodology as may be specified by the relevant authority from time to time is adopted to encourage members to hold capital cushions: 12

13 At the end of each calendar month, Clearing members who have exceeded 90% of utilization of capital/limits during the day for more than 7 days in the current month are identified. In Equity Cash segment, the utilisation is monitored after considering VaR margin, ELM, Additional Margins (if any) and MTM margin. The capital requirement to bring the utilisation to a level of 85% at the time of violating the trigger point of 90% on each of those occassions are noted for the members. The highest of such amounts for the identified members during the month is collected as additional capital. The requirement is communicated to Clearing Members on the first day of the subsequent month. The Clearing Members is provided a time limit of three working days to provide the amount of additional capital in the form of Cash, FDRs and Bank Guarantees only. The additional capital so collected is retained with ICCL for a period of one calendar month. No benefit including exposure, margin etc. is available to the Clearing Member on the amount of additional capital so collected. In case of non- payment of additional capital within the stipulated time limit a penalty as applicable for funds shortage is levied for the period of default. In case a Clearing Member is liable to provide additional capital in the subsequent month, the amount of additional capital is recomputed and the excess /deficit is refunded /called for Cross Margining As per SEBI Circular Ref No: SEBI/DNPD/Cir- 44 /2008 dated December 02, 2008 on the cross margining benefit across Exchange traded Equity (Cash) and Exchange traded Equity Derivatives (Derivatives) segments is available to members. The salient features of the cross margining facility are detailed below : Positions eligible for cross-margin benefit The positions of clients in both the cash and derivatives segments to the extent they offset each other are considered for the purpose of cross margining as per the following priority: 1. Index futures position and constituent stock futures position in derivatives segment 2. Index futures position in derivatives segment and constituent stock position in cash segment 3. 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, is 13

14 eligible for cross margining benefit. The number of units is changed only in case of change in share capital of the constituent stock due to corporate action or issue of additional share capital or change in the constituents of the index. The positions in the derivatives segment for the stock futures and index futures should be in the same expiry month to be eligible for cross margining benefit Computation of cross margin A spread margin of 25% of the total applicable margin on the eligible offsetting positions, as mentioned above, is levied in the respective cash and derivative segments. Cross margining benefit is computed at client level on an online real time basis and provided to the trading member / clearing member / custodian, as the case may be. The positions in the Equity Cash segment and Derivatives segment is considered for cross margining only till time the margins are levied on such positions. While reckoning the offsetting positions in the Equity Cash segment, positions in respect of which margin benefit has been given on account of early pay-in of securities or funds is not be considered. 14

15 4. CLEARING & SETTLEMENT Trades done by the members in the Equity Cash Segment of BSE Ltd. are cleared and settled through Indian Clearing Corporation Ltd. (ICCL) as per the norms/guidelines issued by Securities and Exchange Board of India (SEBI) and as per the provisions of Rules, Bye-Laws and Regulations of ICCL and BSE as well as any other norms/circulars/guidelines which may be issued by BSE/ICCL in respect of the same from time to time. The members need to participate in the settlement process as per the guidelines and settlement schedule prescribed by ICCL from time to time for settlement of trades. Facility is also available for Custodial Participants to settle their trades through Custodian Members of ICCL. For this purpose, the members need to give-up the trades to the Custodian Members for confirmation within such time and through such facility as may be provided from time to time by ICCL. 4.1 Settlement Schedule The Settlement Schedule for Equity Cash Segment is as under: The trading and settlement periods are specified by the relevant authority from time to time. The pay-in and pay-out of securities and funds pertaining to trades done in various groups of securities in the Equity Cash Segment on BSE are to be effected in accordance with the settlement schedule issued by ICCL periodically. Clearing Members should maintain clear balance of securities in their respective depository accounts and funds in their settlement accounts with the their respective designated Clearing Banks towards their settlement pay-in obligation at the scheduled pay-in time on the settlement day. In case of transactions in securities to be cleared in physical form the Clearing Members should deposit the required securities towards their settlement pay-in obligation with ICCL at the scheduled pay-in time on the settlement day. The pay-out of demat securities are credited to the respective designated depository accounts or directly credited to the respective client s demat accounts as specified by Clearing Members to ICCL and the funds pay-out are credited to the receiving Clearing Member s settlement account maintained with their designated Clearing Bank. In case of pay-out of securities in physical form, the members should collect such pay-out securities from ICCL before the stipulated time on the scheduled settlement day. 4.2 Settlement Process Trades done in the securities under various groups in the Equity Cash Segment on BSE are settled through ICCL on a T+2 basis i.e. the settlement of transactions done on T day i.e., trade day takes place on second business day (excluding Saturdays, Sundays and bank holidays) after the trade day. The settlement calendar, providing the settlement schedule of the various settlement 15

16 related activities, is drawn by ICCL in advance and circulated among the market participants. The settlement of trades done in the Equity Cash Segment is settled either on nettingoff basis (i.e. netting of buy and sell positions of a member-broker in the same scrip and same settlement) or on trade to trade basis (i.e. on gross basis - no netting of buy and sell positions) depending on the applicable norms/categorisation of the securities as decided by BSE /ICCL from time to time. The funds obligations for the members are netted for transactions across all groups of securities. The following table summarises the trading and settlement cycle for scrips in Equity Cash Segment : Day T Activity Trade Day. 6A/7A (give-up/take-up)* entry by the member-brokers/confirmation by the custodians. Daily downloading of statements showing details of transactions and margins at the end of each trading day. Downloading of provisional securities and funds obligation statements to members. Confirmation of 6A (give-up) data by Custodians. T+1 Downloading of final securities and funds obligation statements to members. Pay-in of funds and securities T+2 T+3 Pay-out of funds and securities. Auction session. Auction - pay-in and pay-out of funds and securities). 4.3 Securities pay-in and pay-out process The pay-in and pay-out of settlement obligations for securities in equity cash segment is to be done by members in demat mode or physical mode depending on the type/group of securities (i.e. compulsory demat, optional demat or physical mode) in which the member has traded. The pay-in and pay-out process in the demat mode and 16

17 physical mode is as under : Securities pay-in in demat mode Clearing Members can effect pay-in of demat securities to ICCL through either of the Depositories i.e. Central Depository Services India Ltd. (CDSL) or National Securities Depository Ltd. (NSDL). Clearing Members are required to give instructions to their respective Depository Participants (DPs) specifying details viz, settlement no., effective pay-in date, quantity, etc. for effecting pay-in of the demat securities to ICCL by the stipulated time on the scheduled settlement day Auto delivery facility for pay-in of demat securities Members can avail the auto delivery facility for pay-in of demat securities whereby delivery instructions to the concerned depositories are automatically generated on behalf of the Clearing Members for transfer of demat securities from their Pool account/principal account maintained with the depositories. The auto delivery facility is available for Normal, Trade for Trade and Auction settlements Pay-in of securities in physical mode In case of delivery of securities in physical mode, the Clearing Members are required to deliver the securities to ICCL in special closed pouches along with a soft copy of file (in prescribed format) containing the relevant details viz, settlement no. distinctive numbers, scrip code, quantity, etc., of such physical securities obligation. A hard copy of the details of securities pay-in is also required to be submitted by the Clearing Member alongwith the physical securities Securities pay-in shortages In case of shortfall/failure by the members to deliver securities to ICCL in a settlement, the same are auctioned (in case of securities which are traded/settled on netting-off basis as aforesaid) or directly closed-out (in case of securities which are traded/settled on trade to trade - gross basis as aforesaid) as may be specified by ICCL from time to time. On scheduled pay-in/pay-out day of respective settlement, a statement of securities short delivered/received is provided to Clearing Members. The value of un-delivered securities is recovered from the Clearing Members through their Clearing Banks Auction and Close-out of securities settlement shortages The auction / close-out are conducted as per the auction/ close-out schedule declared from time to time. Currently auctions are conducted on T+2 day. Auction Settlement is done on T+3 day. The selling members who have failed to deliver securities in particular settlement are not allowed to offer the same securities in the auction pertaining to that settlement. In case of pay-in/pay-out of multiple settlements are scheduled on same day, then the auction in respect of first settlement is conducted on the same day and the auction in respect of second settlement is conducted on the next trading day. In cases where a particular scrip could not be bough-in the auction or in 17

18 case where members fail to deliver securities offered in auction then the same are closed out Securities Pay-out in demat and physical mode After completion of the settlement pay-in process by ICCL, the pay-out of demat securities are credited by ICCL to the depository Pool / Principal Accounts of the Clearing Members. In case of pay-out of demat securities to Clearing Members, ICCL has provided facilities to members for (a) direct pay-out of demat securities to clients demat accounts and (b) pay-out of securities in pool account of the concerned member with selected Depository Direct pay-out of demat securities to clients beneficiary account ICCL has provided a facility of direct pay-out of demat securities to clients demat accounts, whereby pay-out of demat securities of the members are directly released to their respective clients demat beneficiary accounts. For availing the said facility of direct pay-out of demat securities to the clients beneficiary account, the concerned members are required to upload the settlement-wise client - wise break-up file to ICCL. Based on the details provided in the said uploaded file by the members to ICCL, the pay-out of demat securities is released to the demat accounts of the respective clients of the members Pay-out of securities in member s pool account with selected Depository ICCL has provided a facility to Clearing Members to receive their demat securities pay-out in their pool account with selected depository. Accordingly, Clearing Members can receive pay-out of demat securities in their specified pool account in either of the depositories, viz, NSDL or CDSL. In case of pay-out of securities in physical mode, the receiving members are required to collect the same from ICCL as per the time schedule on the pay-out day. 4.4 Funds pay-in and pay-out process The pay-in and pay-out of funds in equity segment is done through banks designated as Clearing Banks by ICCL. The list of Clearing Banks currently available for settlement is provided in Annexure XVI. Clearing Members of Equity Cash Segment need to maintain and operate a separate settlement account with any one of the designated Clearing Banks. The said settlement account shall be exclusively used for clearing & settlement operations viz, for settlement of funds obligation, payment of margins, obligations to ICCL, fines, penalty charges, etc., or as may be specified by ICCL from time to time. Format of letter to be submitted by the member to the clearing bank for the above purpose is enclosed as Annexure XVII. 18

19 4.4.1 Funds pay-in shortages In case of non-fulfillment of funds pay-in obligations pertaining to normal pay-in, securities shortages pay-in, auction pay-in and for failure to deposit additional capital towards capital cushion requirements as per SEBI norms within stipulated time to ICCL, the same are treated as violations and/ or non-performance of obligations and attract late fees / fines / penalties or such disciplinary action as may be specified from time to time. The present norms for imposing late fees/fines/penalties on member brokers, inter alia, for non-fulfilment of funds obligations in the Equity Cash Segment is enclosed as Annexure XVIII. 4.5 Physical securities settlement objections Clearing Members are required to check the physical securities received in pay-out for good delivery as per the norms of good and bad delivery of documents prescribed by SEBI/BSE/ICCL while collecting the same from ICCL. In case, the documents received in pay-out are not considered good delivery, the receiving Clearing Member should participate in "Settlement-wise Objection Cycle" as per the schedule published by ICCL from time to time. The following table summarises the settlement objection cycle followed by ICCL in respect of securities received in physical mode in the settlement for Equity Cash Segment : Patawat arbitration session : Receiving member to obtain Arbitration award from official of the Bad Delivery Cell of ICCL. T+3 day Receiving member to submit the securities received under objection to ICCL. Delivering member to collect such securities under objection from ICCL. Delivering member may obtain Arbitration awards for invalid objection from members of the Arbitration Review Committee. T+4 day T+5 day Delivering member to submit rectified securities, confirmation forms and invalid objections to ICCL. Receiving Member to collect the rectified securities from ICCL. Receiving member to obtain arbitration awards for invalid rectifications (documents not rectified as per the specified norms) from official of the Bad Delivery Cell of ICCL and deposit such securities (invalid rectifications) back to ICCL. Delivering member to collect the said securities returned by Receiving member from ICCL. 19

20 The securities not rectified by the delivering members as per the specified norms as per the scheduled time table are returned back to the delivering member and the transaction is directly closed-out as per the procedure. A Rs.100 per Delivery Order is debited by ICCL on the delivering member for delivering shares, which are not in order. 4.6 Company Objections Company objections are the bad deliveries arising out of rejection of physical securities and/or documents (pertaining to securities) sent to the companies by the buyers for getting them transferred in their names. Clearing Members have been provided the facility for resolving such company objections through ICCL as per the BDC settlement schedule declared by it from time to time and based on the norms for /Bad Deliveries formulated by SEBI/BSE/ICCL. ICCL follows a weekly BDC settlement schedule for acceptance of Objections and Rectifications. Each BDC settlement schedule follows a 21 day cycle, commencing every Tuesday of the week. The physical documents alongwith the soft copy details of company objections are required to be submitted to ICCL by buyer Clearing Members in the settlement cycle commencing every Tuesday of the week. ICCL shall accept the bad delivery documents only if the soft copy details pertaining to such company objection have been successfully uploaded in its BDC system. The introducing member is required to rectify the said company objections and submit the same back to ICCL within the 21 day settlement schedule, failing which auction/close-out would be carried out as per procedure Valuation Price for Bad Delivery The valuation price for securities which constitute bad deliveries, shall be the closing price of such securities, on the trading day preceding the settlement day unless prescribed otherwise from time to time by the relevant authority. For the purpose of this clause, the closing price shall be the price as announced by the Stock Exchange and the day of valuation shall be the day as decided by the Clearing Corporation from time to time Valuation Price for failure to deliver The valuation price for securities which were not delivered on the settlement day for securities, shall be the closing price of such securities, on the immediate trading day preceding the pay-in day for the securities unless prescribed otherwise from time to time by the relevant authority. For the purpose of this clause, the closing price shall be the price as announced by the Stock Exchange and the day of valuation shall be the day as decided by the Clearing Corporation from time to time. 4.7 Clearing Bank Every Clearing Member shall maintain and operate a distinct settlement account for the Equity Cash Segment with any one of the designated Clearing Banks. The 20

21 settlement account shall be used exclusively for clearing & settlement operations i.e., for settling funds obligations, payment of margins, fines, penalty charges, etc. as may be specified by ICCL from time to time Operation of settlement Account Clearing Members shall irrevocably authorise their designated clearing banks to access their settlement accounts for debiting and crediting their settlement accounts as per the instructions of ICCL, reporting of balances and other information as may be required by ICCL from time to time. Clearing Members shall maintain clear balance of funds in their settlement accounts with their designated clearing banks towards their funds obligations to ICCL. Clearing Members shall not seek to close or de-activate the settlement accounts without the prior written consent of ICCL. The Clearing Banks shall debit/credit the settlement accounts of Clearing Members as per instructions received by them from ICCL from time to time. Any request from the Clearing Members for revoking the authorisation furnished by them shall not be considered by the Clearing Banks. The Clearing Banks shall not close the settlement accounts or permit deactivation of the same without the prior written consent of ICCL Procedure for change in designated Clearing Bank : In case a Clearing Member wishes to shift their settlement account from one designated Clearing Bank to another, the following procedure shall be followed : 1. The Clearing Member shall submit their request letter (on their letterhead) to ICCL regarding their intent to shift their settlement account from one designated Clearing Bank to another, as per the format enclosed as Annexure XIX. 2. On completion of the necessary formalities, ICCL will inform the member in writing about the date from which they can start their clearing and settlement operations from new designated Clearing Bank. However, till such time, ICCL will continue to debit /credit the member s existing clearing bank account as aforesaid. 21

22 5. GUIDELINES FOR GOOD/BAD DELIVERY /Bad Delivery Norms Transfer Deeds No. Description /Bad 1. Transfer Deeds in the prescribed form and printed with the words "For the Stock Exchange." Stock Exchange emblem may or may not be printed. Month and year of printing may or may not be put on the reverse of the Transfer Deed. 2. Mutilated Transfer Deed with the signatures of the transferor, Bad witness, Directors and officer of the Company/ distinctive numbers/any material portion badly torn overwritten, or defaced Typical Cases: A) Material portion defined here only pertains to the material portions at the time of delivery and not prospective one. For a buyer Consideration column, Specimen signature column, Name, Address, Occupation will also be the Material portion. Material portion includes of transferor's name and signature, company name, folio no., certificate number, distinctive nos., number of shares, name and signature of the transferee, specimen signature of transferee B) Transfer Deed torn in the prospective material portion Torn and pasted with self-adhesive tape on which the required Details can be filled in without any difficulty. Transfer Deed torn in non material portion and held together by a transparent tape 22. Transfer Deed torn end-to-end in any angle. Bad 3. Transfer Deeds with correction like erasure, overwriting, alteration or crossing out in the material portion Under noted corrections / alterations are not considered as correction in material portion : A) Minor spelling mistake in the following fields are valid without the transferor's authentication provided the word can be properly identified : a. Name of the Company. b. Number of shares in words if properly authenticated under the full signatures of all the transferor

23 c. Names of the Shareholders Illustration Bad Telco Teelco Tisco Fifty Feefty Feefteen Ramesh Rameesh Rajesh B) Erasure, overwriting, alteration or crossing out in one or two characters in folio numbers. C) Erasure, overwriting, alteration or crossing out in one or two characters of ' Distinctive Numbers.' D) Erasure, overwriting, alteration or crossing out in one or two characters of ' Certificate Number '. E) Erasure, overwriting, alteration or crossing out in Number of Shares in figures F) Erasure, overwriting, alteration or crossing out in one or two characters in Number of shares in Words. G) List of certificates numbers and distinctive numbers and distinctive numbers attached to transfer deed signed by all the transferors 4. If the name of the transferor (s) in the share certificate & the name in the transfer deed(s) differs materially. if certificate number does contain any erasure, overwriting alteration, or crossing out. if distinctive number does not contain many erasure, over writing, alteration, or crossing out if Number in words does not contain any erasure, overwriting, alteration, or crossing out if Number of Shares in Figures does not contain any erasure, overwriting, alteration, Bad A) Addition or Deletion of 1 or 2 alphabets. B) Krishna Chandra Chelura - C C Krishna Bad C) Ashok Gupta - Gupta Ashok D) Corporation - Corpn/Corp. 23

24 5. Transfer Deeds signed as 'Choonilal' whereas in share certificate the name is spelt as 'Chunilal'. Other than any apparent difference in seller's signature must be accepted. In case of apparent difference like S Rao signing as David. In case S Rao signing as Subhash since the first letter of the signature matches with the initial. 6. Transferor's signature in English, Hindi or any one of the Scheduled languages in India.Assamese, Bengali, Gujarati,Hindi, Kannada, Kashmiri, Malayalam, Marathi, Oriya, Punjabi, Sanskrit, Tamil, Telugu and Urdu - as per Constitution of India - English Schedule ( Articles 314 (I) and 451). 7. Signature of the Transferor is in an Indian language other than the Scheduled languages of India or when the Transferor has affixed his thumb impression. If attested by any person authorised to attest signatures under the Seal/Stamp off his office 8. Transfer Deeds in respect of joint holdings signed by all the joint holders in any order. Provided the signatures are against the relative names filled up in the Transfer Deed. 9. Transfer Deeds without the name of the Company, name(s) of Transferor(s), Folio No., share certificate no., Distinctive no., and number of shares being written. 10. In one lot with one Transfer Deed name on one certificate reading as "Ramesh C Talati" and on another certificate as "Ramesh Chunilal Talati" but Register Folios same on both. In one lot, separate transfer deeds are required for each registered folio. If the transferor's name is identical and folios are different and there is only one transfer deed. 11. In one lot with one Transfer Deed names on different certificates reading as Ramesh Chunilal Talati and Talati Ramesh Chunilal but Register Folio is same. 12. Income Tax Authority or Collector signs as Transferor. (Number and Date of the relative Order necessary). 13. Instead of Executor's signature, his Agent's signature is put on the Transfer Deed. (Number and Date of Registration of Power of Attorney necessary). 14. Executor's signature without his rubber stamp.(number and Date of Registration of Power of Attorney necessary). 15. In the case of Units transfer deed in the name of a Minor and signed by natural Guardian. (In the case of Court Guardian, a court order is required). Shares cannot be held in the name of a Minor unless accompanied by Court Order granting permission for sales/purchase which is beneficial to the Minor. Bad Bad If accompanied by the 24

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