Mittal Court, A Wing, Gr. Floor,
224, Nariman Point, Mumbai 400 021

September 14, 1999


The Executive Directors /Managing Directors of all the Stock Exchanges .

Dear Sir,

Negotiated Deals

Please refer to our earlier circulars dated March 31, 1997, August 04&12, 1998 and January 14, 1999 relating to negotiated deals. The following decisions have been taken based on the recommendations of the Committee on Negotiated Deals, which met on September 01, 1999:

2. All negotiated deals (including cross deals) shall not be permitted in the manner prescribed in circulars mentioned above and all such deals shall be executed only on the screens of the exchanges in the price and order matching mechanism of the exchanges just like any other normal trade.

Provided, however, that Foreign Institutional Investors (FIIs) can avail of the provisions of the special bargains on the exchanges in accordance with their bye-laws or obtain suitable exemptions from exchanges for purchases or sales between FIIs in such companies where the ceiling of FII investment of 24% or 30 % as the case may be, has been reached.

The above decision was taken as negotiated deals avoid transparency requirements, do not contribute to price discovery and some investors do not have benefit of the best possible price and militate against the basic concept of stock exchanges, which are meant to bring together a large number of buyers and sellers in an open manner.

Similarly, negotiated deals in listed corporate debt securities shall not be permitted and all such trades will have to be executed on the price and order matching mechanism of the stock exchanges as in the case of equities.

Currently, trading in the debt market takes place largely over the telephone and through the mechanism of negotiated deals. The world over the trend is to move away from a telephone based debt market to a screen based trading system of the exchanges which allows greater transparency, better price discovery, reduction in transaction cost and benefits the investors. As government debt securities and money market instruments are under the regulatory jurisdiction of RBI and do not fall within the purview of SEBI, the aforesaid decision will not apply to such securities.The above decisions comes into effect from the settlement subsequent to the date of the SEBI Press Release issued in this regard on September 01, 1999, a copy which is enclosed.

Yours faithfully,
Secondary Market, Depository
Research & Publication

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