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January 14 , 1998
Presidents/Executive Directors
Managing Directors of all
Stock Exchanges
 Dear Sir,

A Meeting of the Heads of Stock Exchanges was held on December 17, 1997 to discuss various issues relating to Secondary Market.. In this connection, the following decisions have been taken in the Meeting which should be implemented by the Stock Exchanges expeditiously:

Rolling Settlement Cycle

All trades in the dematerialised segment will be settled on a Rolling Settlement of T + 5. This will come into effect from January 15, 1998.

Exposure Limit of Brokers

The upper limit for the gross exposure(aggregate of scripwise outstanding net purchases plus net sales) of the member broker of the stock exchange has been fixed at 20 times of his base minimum capital and additional capital. The Exchanges are free to set up stricter limits. This is in addition to the present capital adequacy and other margin requirements.

Mark to Market Margin System

It was advised to Stock Exchanges vide Circular No. SMD/RCG/3737/96 dated 13.08.96 that for mark to market margin, there will be a threshold limit of 25% of the base minimum capital (+) additional capital kept with the Stock Exchange or Rs.10 lakhs, whichever is lower. However, it has been noticed that some of the Exchanges have been treating this thresh hold limit as an exemption limit while collecting mark to market margins.

In view of this, it is clarified that if the mark to market margin exceeds the threshold limit as stated in the referred circular, total margin will be collected by the Stock Exchange.

Stop Loss Concept

The facility of “Stop Loss” will be provided by all the Stock Exchanges having Online Trading System, to help the investors.

Break down in Online Trading System

The Stock Exchange shall maintain transparency in disseminating information regarding slowdown/breakdown in Online Trading System

A Standing Committee shall be set up by each Exchange to investigate the problem of computerised trading system, such as hanging/slowdown/breakdown. The Standing Committee shall include an outside computer expert. The Committee will submit a report to the Governing Board/Council of Stock Exchange. The Board/Council will deliberate on the report and suitable action/remedial measure will be taken.

Any stoppage beyond five minutes will be explained and reported to the Board. The Exchange shall issue a press release specifying the reasons for the breakdown.

Risk Management in case of Multiple Membership

In case of multiple memberships by Brokers on various Stock Exchanges, the Stock Exchanges were limiting the inspections of Brokers’ books to their Exchange and also did not have information relating to its brokers including memberships held on other Stock Exchanges. It has now been decided that Joint inspections will be carried out by the Stock Exchanges in case of multiple memberships to the extent possible. SEBI will work out the modalities relating to such joint inspections and information sharing.

Yours faithfully,

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