The Securities and Exchange Board of India (SEBI) has released a new Master Circular for the Commodity Derivatives Segment. Dated August 4, 2023, the circular collates all vital information from various circulars related to the commodity derivatives market, ensuring a consolidated resource for stakeholders.
The Master Circular signifies SEBI’s endeavor to provide an integrated framework for the commodity derivatives market. The document includes updates from regulations repealed till March 31, 2023, and important terms have been redefined for improved clarity. The circular has been issued in compliance with Section 11 (1) of the SEBI Act, 1992, to ensure the protection of investors and the development of the securities market.
Notably, the Master Circular will supersede the ones listed in Annexure –ZG, including the circular SEBI/HO/CDMRD/DMP/P/CIR/2022/64 dated May 17, 2022. Nevertheless, any action taken or application made under the rescinded circulars will remain valid under the new one.
MASTER CIRCULAR FOR COMMODITY DERIVATIVES SEGMENT
Master Circular No. SEBI/HO/MRD/MRD-PoD-1/P/CIR/2023/136 Dated: August 04,2023
The Managing Directors/Chief Executive Officers
All Stock Exchanges and Clearing Corporations with Commodity Derivatives Segment
Dear Sir / Madam,
Sub: Master Circular for Commodity Derivatives Segment
1. In order to ensure availability of comprehensive information mentioned in various circulars pertaining to commodity derivatives market or segment at one place, the Securities and Exchange Board of India (“SEBI”) has been issuing Master Circulars. This Master Circular has covered various circulars issued till March 31, 2023. The references in this circular to the Statutes/Regulations which now stand repealed have been suitably updated.
2. The terms “National Commodity Derivatives Exchanges” or “Regional Commodity Derivatives Exchanges” or “Commodity Derivatives Exchanges” may be read as stock exchanges and stock exchange(s) shall mean recognized stock exchange(s) having commodity derivatives segment.
3. This Master Circular shall come into force from the date of its issuance. The Circulars mentioned in Annexure –ZG of this Master Circular shall stand rescinded with the issuance of this Master Circular, including Master Circular SEBI/HO/CDMRD/DMP/P/CIR/2022/64 dated May 17, 2022. With respect to the directions or other guidance issued by SEBI, as specifically applicable to National Commodity Derivative Exchanges, the same shall continue to remain in force in addition to the provisions of any other law for the time being in force.
4. Notwithstanding such rescission,
4.1. anything done or any action taken or purported to have been done or taken under the rescinded circulars, including registrations or approvals granted fees collected, registration suspended or cancelled, any inspection or investigation or enquiry or adjudication commenced or show-cause notice issued prior to such rescission, shall be deemed to have been done or taken under the corresponding provisions of this Master Circular,
4.2. any application made to SEBI under the rescinded circulars, prior to such rescission, and pending before it shall be deemed to have been made under the corresponding provisions of this Master Circular
4.3. the previous operation of the rescinded circulars or anything duly done or suffered thereunder, any right, privilege, obligation or liability acquired, accrued or incurred under the rescinded circulars, any penalty, incurred in respect of any violation committed against the rescinded circulars, or any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty as aforesaid, shall remain unaffected as if the rescinded circulars have never been rescinded.
5. This Master Circular is issued in exercise of the powers conferred by Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market and shall come into force from the date of its issue. All Stock Exchanges and Clearing Corporations with Commodity Derivatives Segment shall ensure compliance with this Master Circular including any subsequent amendment thereto or supersession through any circular/ master circular.
6. This Master Circular is issued with the approval of the Competent Authority.
7. This Master Circular is available on SEBI Website at www.sebi.gov.in under the category “Legal – Master Circulars” and “Info for Commodity Derivatives.”
Yours faithfully,
Naveen Sharma
General Manager
Policy and Development (POD) -1 (Commodity)
Market Regulation Department
Email: naveens@sebi.gov.in
CHAPTER 1. TRADING
1.1. Trading Hours and Holidays 1
1.1.1. Trading Hours
i. Trading shall be permitted only from Monday to Friday.
ii. Trading hours shall be fixed by the stock exchanges within the time limits as mentioned in the table below 2:
|
S. No |
Commodity category | Trade start time | Trade end time | |
| After start of US day light savings in spring season | After end of US day light savings in fall season | |||
| 1 | Non-agricultural commodities | 09:00 AM | 11:30 PM | 11:55 PM |
| 2 | Agricultural and agri-processed commodities | 09:00 AM |
09:00 PM |
|
iii. Any extension of the trade timing within the specified limit shall be subject to the stock exchanges and its clearing corporation(s) putting in place adequate risk management system, surveillance system and infrastructure commensurate with the increased trading hours.
iv. Regarding Muhurat Trading on Diwali (Lakshmi Poojan) day, all stock exchanges shall jointly decide the common trade timing and notify the same to the market under prior intimation to SEBI.
v. Stock exchanges shall ensure that they have necessary risk management system and infrastructure in place commensurate to their trading hours.
1.1.2. Trading Holidays
i. All stock exchanges shall jointly decide upon the common holiday list within the broad framework of the Negotiable Instruments Act, 1881 and also taking into consideration Central/State/Local holidays and notify the same to the market well in advance under prior intimation to SEBI.
ii. On such trading holidays, the stock exchanges may permit trading of internationally reference able commodities in evening session i.e. post 5:00 PM, in case the corresponding international market(s) are open.
iii. While finalizing the list of trading holidays, the stock exchanges shall suitably consider the views of market participants. Frequent changes in the list of trading holidays shall be avoided i.e. once decided, same holidays should be followed every year irrespective of the holidays falling on a working day or a non-working day in that year.
1.2. Transaction Charges 3
1.2.1. The stock exchanges collect transaction charges from the members for the trades executed on their trading platform. In order to promote competition in the market and bring in greater efficiencies and lower transaction costs to market participants, following norms shall be applicable while levying transaction charges-
i. The stock exchanges may levy different transaction charges for different commodities’ contracts, even in the case of contracts of the same commodity.
ii. The stock exchanges shall ensure that the ratio between highest to lowest transaction charges in the turnover slab of any contract is not more than 2:1.4
iii. In the slab system the concessional transactional charges shall be charged only on the incremental volume/turnover and not on the entire volume/turnover.
iv. The transaction charges shall be charged-on post-facto basis, i.e., after the trades are executed.
1.2.2. While revising the transaction charges, the stock exchanges shall ensure that its systems are capable of handling the additional load and that the revising of transaction charges:
i. does not affect the existing risk management system,
ii. does not favour selective trades or selective category of investor,
iii. does not encourage generation of artificial demand,
iv. does not result in any market irregularities,
v. is uniformly applied to trades of similar nature,
vi. is imposed in fair and transparent manner.
1.3. Spot Price Polling 5
1.3.1. The stock exchanges have been using a ‘Spot Price Polling Mechanism’ to arrive at the prevailing spot prices. Transparent discovery of spot prices is a critical factor in smooth running of futures market as the same are used as reference prices for settlement of contracts traded on the stock exchange platform. To arrive at the prevailing spot prices, the stock exchanges are polling the spot prices from various spot price polling participants. Some stock exchanges undertake this activity themselves whereas some have outsourced this work to an external agency.
1.3.2. In order to maintain the transparency of spot price polling process and dissemination of spot prices arrived at through spot price polling process, the stock exchanges shall:
i. have a well laid down and documented policy for the spot price polling mechanism.
ii. display the spot price polling mechanism adopted for every contract on its website along with following details:
|
S. No. |
Particulars | Details |
| 1. | Details of the contract | |
| 2. | Mechanism of spot price polling | |
| 3. | How spot prices are arrived at | |
| 4. | Whether these prices include or exclude taxes and other levies / costs | |
| 5. | Whether spot prices polling has been outsourced to any external agency and if so, the details thereof. | |
| 6. | Criteria for selection of these polling participants | |
| 7. | Any other information that the Exchange may consider |
iii. disclose, for every contract, following details with respect to individual spot price polling participants on its website:
|
Participants |
Location | Profession | Price quoted | Time, Date |
| A1 | ||||
| A2 | ||||
|
||||
iv. endeavor in increasing the sample size used for fixing the daily spot prices during the last 15 days of the contract.
v. review on a monthly basis the prices polled by the participants to identify participants habitually polling unrealistic prices. These participants could be put under watch and subsequently removed from the panel if such instances reoccur despite appropriate communications.
vi. provide a separate feedback window for receiving complaints in this regard. The stock exchanges shall address such complaints in a time-bound manner. Further the stock exchanges shall keep the audit trail of all such complaints received and the steps taken for redressal.
1.4. Unique Client Code (UCC) and Mandatory Requirement of Permanent Account Number 6
1.4.1. It shall be mandatory for the members of the stock exchanges to use Unique Client Code (“UCC”) for all clients. The stock exchanges shall not allow execution of trades without uploading of the UCC details by the members of the stock exchange. For this purpose, members shall collect after verifying the authenticity and maintain in their back office the copies of Permanent Account Number (“PAN”) issued by the Income Tax (IT) Department, for all their clients. However, in case of e-PAN, members shall verify the authenticity of e-PAN with the details on the website of IT Department and maintain the soft copy of PAN in their records.7
1.4.2. PAN shall be the sole identification number and mandatory for all entities/persons who are desirous of transacting on the stock exchanges.
However, the investors residing in the State of Sikkim are exempted from the mandatory requirement of PAN. The stock exchanges should, however, ensure a system of proper verification to verify that such members / investors are residents of the State of Sikkim.
Further, PAN may not be insisted in the case of Central Government, State Government, and the officials appointed by the courts e.g. Official liquidator, Court receiver etc. (under the category of Government) for transacting in the securities market. The member of the stock exchange shall verify the veracity of the claim of the specified organizations, by collecting sufficient documentary evidence in support of their claim for such an exemption.
1.4.3. 8The stock exchanges shall ensure that their members shall:
i. collect copies of PAN cards issued to their existing as well as new clients after verifying with the original.
ii. cross-check the aforesaid details collected from their clients with the details on the website of the Income Tax (IT) Department. However, in case of e-PAN, verify the authenticity of e-PAN with the details on the website of IT Department and maintain the soft copy of PAN in their records.”
iii. upload details of PAN or e-PAN so collected to the stock exchanges as part of the UCC.
iv. verify the documents with respect to the unique client and retain a copy of the document.
1.4.4. The member shall also be required to furnish the above particulars of their clients to the stock exchanges and the same shall be updated on a monthly basis. Such information for a specific month should reach the stock exchanges within 7 working days of the following month.
1.4.5. The stock exchanges shall impose penalty on the member at the rate of 1% of the value of every trade that has been carried out by the member without uploading the UCC details of the clients. The penalty so collected by the stock exchanges shall be transferred to the Investor Protection Fund (“IPF”) of that stock exchange. Further, the member shall be liable to be suspended if the client details are not uploaded within a month of the trade.
1.4.6. The stock exchanges shall be required to maintain a database of client details submitted by its members. Historical records of all such submissions shall be maintained for a period of 7 years by the stock exchange.
1.5. Modification of Client Codes Post Execution of Trades 9
1.5.1. The 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. It is also re-emphasized here that this facility is expected to be used more as an exception rather than a routine.10
1.5.2. For this purpose, the following shall be classified as genuine errors:
i. Error due to communication and / or punching or typing such that the original client code / name and the modified client code / name are similar to each other.
ii. Modification within relatives (‘Relative’ for this purpose would mean as defined under Companies Act, 2013)
1.5.3. Error Account
i. Shifting of trades to the ‘Error account’ of stock broker would not be treated as modification of client code, provided that trades in ‘Error account’ are subsequently liquidated in the market and not shifted to some other code.
ii. Further, stock broker shall disclose the codes of accounts which are classified as ‘Error accounts’ to the stock exchanges. Each stock broker shall have a well-documented error policy approved by the management of the stock broker. The stock exchanges shall periodically review the trades flowing to the ‘Error accounts’ of the stock brokers.
1.5.4. If stock exchange wishes to allow its members to modify client codes of non-institutional trades, it shall
i. lay down strict objective criteria (in line with the Para ‘1.5.2’ above), with the approval of its Governing Board, for identification of genuine errors in client codes which may be modified, and disclose the same to market in advance,
ii. set up a mechanism to monitor that its members modify client codes only as per the strict objective criteria, and
iii. ensure that modification of client codes is covered in the internal audit of its members.
iv. not allow proprietary trades to be modified as client trades and vice versa.
v. shall levy a penalty and collect from its members and credit the same to its IPF as under:
| ‘a’as % of ‘b’ | Penalty as % of ‘a’ |
| ≤5 | 1 |
| > 5 | 2 |
| Where
a = Value (turnover) of non-institutional trades where client codes have been modified by a trading member in a segment during a month. b = Value (turnover) of non-institutional trades of the trading member in the segment during the month |
|
vi. shall undertake stringent disciplinary actions against its members who undertake frequent client code modifications. If ‘a’ as % of ‘b’, as defined above, exceeds 1% during a month, then the stock exchange shall conduct a special inspection of the member to ascertain whether the modifications of client codes are being carried on as per the strict objective criteria set by the stock exchange. Appropriate disciplinary action shall be taken by the stock exchange, if any deficiency is observed.
1.5.5. Waiver of Penalty
i. The stock exchanges may waive penalty for a client code modification where the member is able to produce evidence to the satisfaction of the stock exchange to establish that the modification was on account of a genuine error. However, not more than one such waiver per quarter may be given to a member for modification in a client code
Explanation: If penalty wavier has been given with regard to a genuine client code modification from client code AB to client code BA, no more penalty waivers shall be allowed to the stock broker in the quarter for modifications related to client codes AB and BA.
ii. The stock exchanges shall submit a report to SEBI every quarter regarding all such client code modifications where penalties have been waived.
1.6. Disclosure of Proprietary Trading by Broker to Client 11
1.6.1. With a view to increase the transparency in the dealings between the stock broker and the client, every stock broker shall disclose to his client whether he does client based business or proprietary trading as well.
1.6.2. The stock broker shall disclose this information upfront to his new clients at the time of entering into the KYC agreement.
1.6.3. In case of a stock broker who at present does not trade on proprietary account, chooses to do so at a later date, he shall be required to disclose this to his clients before carrying out any proprietary trading.
1.7. “Pro – account” Trading Terminals 12
1.7.1. Facility of placing orders on “pro-account” through trading terminals shall be extended only at one location of the members as specified / required by the members.
1.7.2. Trading terminals located at places other than the above location shall have a facility to place orders only for and on behalf of a client by entering client code details as required / specified by the stock exchange / SEBI.
1.7.3. In case any member requires the facility of using “pro-account” through trading terminals from more than one location, such member shall be required to submit an undertaking to the stock exchange stating the reason for using the “pro-account” at multiple locations and the stock exchange may, on case to case basis after due diligence, consider extending the facility of allowing use of “pro-account” from more than one location.
1.7.4. Stock exchanges shall take necessary disciplinary action wherever such facility is being misused by any of its member.
1.8. Sharing of Information in Case of Declaration of Member as Defaulter in case of Multiple Membership 13
1.8.1. Whenever a member of any segment is declared defaulter, the concerned stock exchange/clearing corporation shall immediately declare it a defaulter in all its segments. It shall also immediately inform all other stock exchanges/clearing corporations the details of the defaulter member such as name of the member, the names of the proprietors/ partners/ promoters/ dominant shareholders, as applicable.
1.8.2. Immediately on receipt of the information about default of a member, the other stock exchange / clearing corporation shall declare the said member defaulter on all its segments.
1.8.3. The stock exchanges / clearing corporations shall take appropriate action against the associates of defaulter member. For this purpose, the term ‘associate’ shall include a person:
i. who, directly or indirectly, by itself, or in combination with other persons, exercises control over the member, whether individual, body corporate or firm or holds substantial share of not less than 15% in the capital of such entities; or
ii. in respect of whom the member, individual or body corporate or firm, directly or indirectly, by itself or in combination with other persons, exercises control; or
iii. whose director or partner is also a director or partner of the member, body corporate or the firm, as the case may be.
Explanation: The expression “control” shall have the same meaning as defined under clause (e) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
1.9. Liquidity Enhancement Scheme (LES) 14
1.9.1. The stock exchanges may introduce Liquidity Enhancement Scheme (“LES”) in commodity derivatives segment subject to the following:
i. The scheme shall have the prior approval of the board of directors of the stock exchange and its implementation and outcome shall be monitored by them at quarterly intervals.
ii. The scheme shall be objective, transparent, non-discretionary and non-discriminatory.
iii. The scheme shall specify the incentives available to the market makers/ liquidity providers and such incentives may include discount in fees, adjustment in fees in other segments, cash payment or issue of shares, including options and warrants.
iv. The scheme shall not compromise market integrity or risk management.
v. The effectiveness of the scheme shall be reviewed by the exchange every six months and the exchange shall submit half-yearly reports to SEBI.
vi. The scheme, including any modification therein or its discontinuation, shall be disclosed to the market at least 15 days in advance.
vii. Outcome of the scheme (incentives granted, and volume achieved – market maker wise and security wise) shall be disseminated monthly.
viii. The scheme shall comply with all the relevant laws.
1.9.2. The stock exchange shall formulate its own benchmarks for selecting the commodity derivative product for liquidity enhancement with the broad objective of enhancing liquidity in illiquid securities.
i. The stock exchanges shall introduce LES on any commodity derivative product for a maximum period of three years. Once the scheme is discontinued, the scheme can be re-introduced on the same commodity derivative product provided it is less than the three-year period since the introduction of scheme on that security.
ii. Further, a stock exchange may introduce LES in commodity derivative product where LES has been introduced in another stock exchange. Such schemes cannot be continued beyond the period of LES of the initiating stock exchange.
iii. The list of commodity derivative product eligible for liquidity enhancement shall be disseminated to the market.
iv. Any commodity that is classified as ‘Sensitive Commodity’ by the Exchange, shall not be eligible for LES.
v. If any commodity derivative product is ‘liquid’ on any of the exchanges i.e. there is at least one exchange where the average daily turnover in Options or/and Futures on similar underlying commodity is more than or equal to INR 200 crore for agricultural and agri-processed commodity, and INR 1000 crore for non-agricultural commodity during the last six months, then no other exchange is eligible to launch LES on the same derivative product, unless the exchange where the product is liquid, has itself also launched a LES on said product.
1.9.3. The incentives under LES shall be transparent and measurable, and may take either of the following:
i. Discount in fees, adjustment in fees in other segments or cash payment – The incentives during a financial year shall not exceed 25% of the net profits or 25% of the free reserves of the exchange, whichever is higher, as per the audited financial statements of the preceding financial year.
ii. Shares, including options and warrants, of the stock exchange – The shares that may accrue on exercise of warrants or options, given as incentives under all liquidity enhancement scheme, during a financial year, shall not exceed 25% of the issued and outstanding shares of the stock exchange as on the last day of the preceding financial year. Further, the stock exchange shall ensure that this is in compliance with the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (“SECC Regulations”) at all times.
1.9.4. Any stock exchange, in early years of its formation /commencement of business, may not be able to generate profits or have free reserves from business operations. In this regard, such stock exchanges are exempted, during their first five years of operation from the date of SEBI’s approval for commencement/recommencement of their business, from the applicability of abovementioned para (clauses given in 1.9.3 above)15 subject to adherence to the following conditions:
i. The yearly incentives that such a stock exchange can earmark for LES shall not exceed 25% of the audited net-worth of the said stock exchange as on the last day of the previous financial year.
ii. Such stock exchange shall create a reserve specifically to meet its LES incentives/expenses and transfer funds to such reserve accordingly. However, such reserves shall not be included in the calculation of the net worth of that stock exchange.
iii. Such stock exchange shall continuously comply with the minimum net-worth requirements as per SECC Regulations.
1.9.5. Market integrity – The stock exchange shall ensure the following:
i. The stock exchanges shall put in place a mechanism to ensure that the LES does not create artificial volumes, does not take away liquidity form the market, is not manipulative in nature and shall not lead to mis-selling of the product in the market.
ii. The stock exchange shall have systems and defined procedures in place to monitor collusion between stock brokers indulging in trades solely for seeking incentives and prevent payment of incentives in such cases.
iii. Incentives shall not be provided for the trades where the counterparty is self, i.e., same UCC is on both sides of the transaction.
iv. Any violations of clauses in this para shall be viewed most seriously.
1.9.6. Market maker / liquidity enhancer – The stock exchange shall prescribe and monitor the obligations of liquidity enhancers (liquidity provider, market-maker, maker-taker or by whatever name called)
i. All market maker / liquidity enhancer orders / trades should be identifiable by the stock exchange.
ii. A conflict of interest framework shall be put in place by the stock exchange for the liquidity enhancement scheme. Such a framework shall provide for obligation on the part of the market maker / liquidity enhancer to disclose any conflict of interest while participating in the scheme. The same shall be disclosed by the stock exchange on their website.
1.9.7. For the present, schemes which incentivize brokers based on activation of new UCC, number of trades or open interest shall not be permissible under LES.
1.10. Framework for Utilization of Regulatory Fee Forgone by SEBI 16
1.10.1. With a view to encourage the participation by Farmers/Farmer Producer Organizations (“FPOs”) in agricultural commodity derivatives markets, SEBI has reduced the regulatory fee on stock exchanges with respect to turnover in agricultural commodity derivatives. The objective was to reduce the cost burden on Farmers/FPOs from the amount saved by the stock exchanges due to reduction of regulatory fee.
1.10.2. In order to pass on the desired benefits from reduction of regulatory fees on agricultural commodity derivatives, the stock exchanges dealing with agricultural commodity derivatives shall create a separate fund earmarked for the benefit of Farmers/FPOs in which, the regulatory fee forgone by SEBI shall be deposited and utilized exclusively for the benefit of and easy participation by Farmers and FPOs in the agri-commodity derivatives market. Any income on investments from the fund shall also be ploughed back into the same fund.
1.10.3. In this regard, the stock exchanges shall follow the guiding principles outlined below for the purpose of utilization of the earmarked fund –
i. The fund shall be used exclusively for the benefit of and for easy participation by Farmers and FPOs in the agri-commodity derivatives market.
ii. It shall be the endeavor of the exchange to utilize the earmarked fund primarily for reducing cost of transaction and for facilitating ease of trading by farmers/FPOs.
iii. The stock-exchange shall draw an action plan for full utilization of regulatory fee foregone by SEBI in any financial year to be utilized during the succeeding financial year. Such action plan shall be drawn up by the 10th of April (of the year in which the fund must be utilized) keeping in view the amount of fund available for the purpose.
iv. The stock exchange shall disseminate the details of the action plan including the financial assistance proposed to be rendered to farmers/FPOs, activities to be subsidized/facilitated with respect to participation by farmers/FPOs during the financial year on their website under intimation to SEBI.
v. The aforesaid earmarked fund shall not be clubbed with any other funds such as Investor Protection Fund (“IPF”) /Investor Services Fund (“ISF”) /Corporate Social Responsibility (“CSR”) Funds etc.
vi. The stock exchange shall ensure that the participating farmers/FPOs are treated in a fair and equitable manner while utilizing the proceeds of the fund for their benefit. Accordingly, the choice of activities for utilizing the fund and the rate of benefit should be such that benefits with respect to the activity are imparted to all farmers/FPOs participating during the year and are not restricted to a select few farmers/FPOs.
1.10.4. While preparing the action plan for a financial year, the stock exchanges may consider one or more of the following activities for utilization of the fund for benefit of farmers/FPOs –
i. Funding of Warehousing and/or Assaying charges – Waiver/subsidy in warehousing and/or assaying charges for agricultural commodities deposited for delivery on the platform of the stock exchange by the farmers/FPOs.
ii. Cost of bags and transportation for the Farmers / FPOs for delivery on exchange platform– The cost of bags may be reimbursed or bags may be provided to farmers / FPOs for deposits on the stock exchange platform. To incentivize delivery-based participation by farmers/FPOs, certain percentage of transportation expenses may also be considered for reimbursement to farmers/FPOs.
iii. Cost of Mark to market (MTM) funding – The cost of or a part of the cost of MTM funding by the stock exchange/clearing corporation on the sell positions of the farmers/FPOs who make early pay-in of the commodities in approved warehouses.
iv. Broker fee – Stock Broker fee for farmers/FPOs may be subsidized.
v. Delivery fee/charge– As delivery fee is one of the largest constituents of the overall transaction costs in the delivery based agri-commodity derivatives markets, the stock exchanges may reduce/subsidize this cost head.
vi. Repository related fee – Stock exchanges may subsidize repository related charges for farmers/FPOs – account opening, maintenance and transfer charges or any other similar charges.
vii. 17Reimbursement of Mandi tax: Reimbursement of Mandi tax including any other mandi cess or whatever name it may be called, levied against the goods deposited in warehouses accredited with Clearing Corporations for the purpose of delivering on the stock exchange platform for which exchange specific Electronic Negotiable Warehouse Receipt (“eNWR”) is generated.
viii. 18Reimbursement of assaying, cleaning, drying, sorting, storage and transportation charges: Farmers/FPOs may be reimbursed the charges incurred towards assaying, cleaning, drying, sorting, storage and transportation in respect of goods deposited in warehouses accredited with Clearing Corporations with an intention to deliver them on stock exchange Platform for which exchange specific eNWR is generated.
ix. 19Incentivizing Option Premium: The farmers / FPOs may be incentivized to participate in “options in goods”. For this purpose, the farmers / FPOs may be reimbursed a certain percentage or fixed amount of the premium paid by them, for purchasing “options in goods” on the stock exchange platform.
x. 20Reimbursement of fees levied by Clearing Corporation: Fees/cost levied by Clearing Corporation, if any, on farmers/FPOs in the process of their participation in commodity derivatives trading may be reimbursed.
xi. Any other activity as may be permitted by SEBI.
1.10.5. The stock exchanges shall allow utilization of the fund for the activities mentioned above with certain conditions such as overall amount per activity, maximum amount per farmer/FPO, maximum period etc., as may be applicable from time to time, so as to ensure fair and equitable distribution of benefit to farmers/FPOs.
1.10.6. 21Further, in order to enhance transparency, the stock exchanges are advised to make disclosure regarding the corpus of the fund and its utilization, on their website, on a monthly basis.
1.10.7. The stock exchanges are further advised to include the details of the corpus of the fund and its utilization in the Monthly Development Report (“MDR”).
1.11. Price Dissemination through SMS / Electronic Communication Facility22
1.11.1. Exchanges shall make efforts for registration of subscribers of Price Dissemination services and disseminate derivatives prices to them on a daily basis. Such direct price dissemination service would provide information to subscribers instantly in an efficient and transparent manner and thus shall be of great benefit to market participants.
1.11.2. The Exchanges may provide price dissemination through SMS or any other electronic communication facility (instant messengers, email etc.) for all commodities.
1.11.3. The service is to be provided free of cost to the subscribers. However, the expenditure incurred for such price dissemination may be reimbursed from the interest accrued on the IPF.
1.12. Programmes Sponsored by the Exchanges through Media Channels23
1.12.1. The stock exchanges being neutral platforms, either as an institution or through their functionaries, shall not sponsor or associate themselves in any manner with programmes/seminars/workshops/ activities etc. at various fora including but not limited to TV/Radio/Social Networks/Websites or any other media in which the discussions/suggestions are related to the price behaviour, price outlook, trading strategy, buy/sell recommendations, or similar subjects related to commodity derivatives.
1.12.2. The stock exchanges shall also ensure that their staff members are not associated with such activities as mentioned above. The stock exchanges shall lay down a suitable code of conduct for their executives and other staff members in this regard.
1.13. Maintenance and Preservation of Records24
1.13.1. In terms of Rules 14 and 15 of Securities Contract (Regulation) Rules, 1957 (“SCRR”), every recognized stock exchange and its members are required to maintain and preserve the specified books of account and documents for a period ranging from two years to five years. Further, as per regulation 18 of the Securities and Exchange Board of India (Stock Brokers) Regulations, 1992 (“Stock Broker Regulations”), every stock broker shall preserve the specified books of account and other records for a minimum period of five years. In case such documents are maintained in electronic form, provisions of the Information Technology Act, 2000 in this regard shall be complied with.
1.13.2. Further, it has been noticed that enforcement agencies like the Central Bureau of Investigation (“CBI”), Police, Crime Branch etc. have been collecting copies of the various records/documents during the course of their investigation. The originals of such documents maintained either in physical or in electronic form or in both would be required by such enforcement agencies during trial of the case also.
1.13.3. In view of the above it is clarified that if a copy is taken by such enforcement agency either from physical or electronic record then the respective original is to be maintained till the trial or investigation proceedings have concluded.
1.14. Forward Segment25
1.14.1. Participants in Forward Segment are not allowed to enter into fresh contracts.
1.15. Disclosure Requirements for stock exchanges on their websites26
1.15.1. In order to promote transparency in the markets, the stock exchanges shall make following disclosures on their website:
i. Position of top 10 trading clients in buy side as well as sell side in order of maximum open interest in anonymous manner every day after the end of trading session.
ii. The delivery intent of the hedgers on a daily basis in an anonymous manner.
iii. The pay-in and pay-out of commodities made by top 10 clients including hedgers 10 days after completion of settlement, for the information of the market.
iv. Their members’ proprietary position on monthly basis. The disclosure shall include average daily proprietary position (during the month) as a percentage of member’s average daily total position (including clients) and average daily margin on proprietary position (during the month) as a percentage of margins on member’s average daily total position (including clients).
v. The percentage of proprietary trade and client trade done and also specify as to what percentage of this trade is by algorithmic trading/HFT. This information shall be displayed before opening of the markets on the next day.
vi. Members’ data (as mentioned in Annexure A on format for dissemination of member’s data on website).
vii. List of the members whose request of surrender has been approved by the Exchange, along with date of approval
viii. Break up of funds contributed into Settlement Guarantee Fund and will be updated on quarterly basis.
ix. Disclosure of information regarding trading activity during life cycle of contract (as mentioned in Annexure B on disclosure of information regarding trading activity during life cycle of contract).
1.15.2. Disclosure of suspended /expelled /defaulter members: The stock exchanges which are suspending/expelling/declaring defaulter their members for irregularities/violation of regulatory measures and other various reasons, shall disclose following information on their website-
i. The details of member (Name, Address, Names of Promoters/ Owners/Partners/Directors of Company, Registration No. etc.)
ii. The details of disciplinary action taken by the stock exchange.
1.15.3. Disclosure of disablement of member terminals 27: The disablement of terminals of the members along with duration of disablement due to shortage of funds, margin money etc., shall be disclosed by the stock exchange on its website at the end of every quarter i.e., 30th June, 30th September, 31st December and 31st March.
1.15.4. Category-wise disclosure of Open Interest and turnover: All stock exchanges shall also make additional disclosures on their websites (as per the format at Annexure C on format for disclosure of Open Interest (OI) and turnover for various categories of market participants at individual commodity as well as overall market level and at Annexure D on commodity wise format of disclosure for top participants, members and market wide position limits ) 28. The Annexure on format for disclosure of Open Interest (“OI”) and turnover for various categories of market participants at individual commodity contains a disclosure format for OI and turnover for various categories of participants at Commodity as well as market level. While the Annexure D on Commodity wise format of disclosure for top participants, members and market wide position limits contains commodity wise format of disclosure for top participants, members and market wide position limits. In this regard the stock exchanges shall:
i. categorize the participants in the following six categories:
a) Farmers/FPOs: It includes participants such as farmers, farmers’ cooperatives, FPOs and such entities of like nature.
b) Value chain participants (VCPs): It includes participants such as Processors, Commercial users as Dal and Flour Millers, Importers, Exporters, Physical Market Traders, Stockists, Cash & Carry participants, Produces, SMEs/MSMEs & Wholesalers etc., but exclude farmers/FPOs.
c) Proprietary traders: It includes the members of stock exchanges trading in their proprietary account.
d) Domestic financial institutional investors: It includes participants such as Mutual Funds (“MFs”), Portfolio Managers, Alternative Investment Funds (“AIFs”), Banks, Insurance Companies and Pension Funds etc., which are allowed to trade in commodity derivatives.
e) Foreign participants: It includes participants such as Eligible Foreign Entities (“EFEs”), Non Resident Indians (“NRIs”) etc. which are allowed to trade in commodity derivatives markets.
f) Others: All other participants which cannot be classified in the above categories.
ii. The categorization of the clients/members shall be made on self-declaration basis for each commodity. However, the stock exchanges can re-classify any participant where it deems necessary to do so based on the information available with it. Stock exchanges shall be required to conduct periodical exercise to capture the above data. Thus, the stock exchange shall put in place necessary systems to capture the requisite information.
iii. In case self-declaration is not obtained for a particular client for a particular commodity, positions of such client in such commodity shall be clubbed with “Others” category.
iv. In case there are less than 10 participants in any category, the stock exchanges while disclosing the number of participants can disclose as “less than 10”.
v. Such Disclosures shall be made on daily basis by 6:00 PM on T+1 day.
vi. Stock Exchanges shall make disclosures on daily basis, latest within a month of the date of this circular. Such disclosures for any day are to be made before start of trading on the next day. The recognized stock exchange shall make necessary disclaimer that the grouping of clients is based on the “Guidelines on Clubbing of Open Positions” issued by it.
vii. Stock Exchanges shall also maintain complete historical data of the above disclosures on their website in spread sheet format.
1.16. Disclosures regarding commodity risks by listed entities 29
1.16.1. Regulation 34(3) read with clause 9(n) of Part C of Schedule V of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR Regulations”) mandates listed entities to make disclosures regarding commodity price risk and hedging activities in the Corporate Governance Report section of the Annual Report of a listed entity.
1.16.2. In order to benefit the shareholders and to bring further clarity in disclosures to be made in the annual reports by listed entities, all listed entities shall make the disclosures in the format as per the Annexure E on Disclosures regarding commodity risks by listed entities as part of the Corporate Governance Report in the Annual Report under clause 9(n) of Part C of Schedule V of the SEBI LODR Regulations.
To Read More https://www.sebi.gov.in/legal/master-circulars/aug-2023/master-circular-for-commodity-derivatives-segment_74974.html
