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General Manager
Secondary Market Department
e-mail :

May 17, 2002

The Executive Directors/Managing Directors Of all the Stock Exchanges 

Dear Sir/Madam,

Pursuant to the discussions in the meeting of the Group on Risk Management Systems for the Equity Markets held on April 2002, the following decisions have been taken:-

Currently, in terms of press releases dated March 05, 2001 and circular no. SMDRP/Policy/Cir-34/2001, the financial institutions, FIIs, banks, and mutual funds were required to pay margins on their sale position in scrips where there is a positive differential between the minimum VaR(1.75 times Index VaR) and the actual scrips VaR.

This margin was imposed as a temporary measure. Since the imposition of this margin, the market structure and the overall margin system have undergone a major change. The market has moved from an account period settlement to rolling settlement on T+5 basis and further reduced to T+3. Considering this, the Group in its meeting has decided to withdraw margins on the sale side applicable on the financial institutions, FIIs, banks and mutual funds.
Pursuant to the events of September 11, 2001, a price band of 10% was imposed on 53 stocks on which derivatives products are available.

This was as a temporary preventive measure to address excessive market volatility. The Group in its meeting decided that since this was a temporary measure, the price band of 10% as imposed earlier be withdrawn.
Vide circular no SMDRP/POLICY/CIR-33/2000 dated July 27, 2000, it was directed that all the clients, excluding FIs, FIIs, MFs shall maintain a deposit with the broker in the form of cash, bank guarantees, FDRs or approved securities which shall not be less than 10% of the net open positions of the client at any point of time. It was stipulated in circular no. SMDRP/Policy/Cir-6/2001 that to ensure compliance with this requirement, the stock exchanges
would obtain an auditors’ certificate to this effect from all brokers on a quarterly basis and that the brokers in turn, shall obtain a similar certificate from their sub-brokers.

It has been decided that for the collection of 10% upfront margin from clients only trades which would result in a margin of Rs 50,000 or more should be considered. In other words, if clients position exceeds Rs. 5 lacs the broker would be necessarily required to collect 10% margin from the clients. Further, It has also been decided that the certification of the collection of this upfront margin will be done by the compliance officer as appointed in terms of regulation 18A of the Securities and Exchange Board of India, (Stock Brokers and Sub-Brokers) Regulations, 1992.

You are advised to take steps for the implementation of the above decisions immediately.

Yours faithfully,
P K Bindlish

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