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Securities and Exchange Board of India


Market Regulation Department


SEBI/MRD/SE/Cir- 25/2004

July 22, 2004

The Executive Directors / Managing Director/Administrators

of All Stock Exchanges

Dear Sir / Madam,

 Sub: Membership Card Value for Networth Calculations of Members

1. SEBI vide Circulars No SMD/SED/9012/93 dated May 14, 1993 and SMD/SED/CIR/93/22570 dated October 21, 1993 had specified, interalia, that the value of the membership card of the stock exchange would be considered as a non allowable asset and would not be considered for the computation of net-worth.

2. The issue of including the value of membership card as part of capital of the stock broker, (in the context of demutualization), was discussed in the meeting of the Advisory Committee on Derivatives and Market Risk Management (RMG). Further to the recommendations of the RMG, it has been decided that pending demutualization of stock exchanges, in those stock exchanges where the card based membership is in place, the value of the membership card may be included as part of the member’s capital for the computation of networth subject to the suitable haircut and the conditions specified in para 3, 4, 5 and 6 below.

3. The value of the card would be arrived at on the basis of the latest price obtained in auction/sale with a haircut based on the period when auction/sale of the card last took place as given in the table below. The card will be included in the non-cash component of the capital.

 Sr.No.  Period in which auction/sale last took place  Percentage of haircut
1 0 to ≤ 6 months 50 %
2 > 6 months to < 12 months 75 %

4. If the auction/sale of card has not taken place in the last 12 months then the card value shall not be considered for calculation of net-worth of the stock brokers.

5. While the card value as stipulated above may be considered for calculation of the net-worth of the stock brokers, the same should not be reckoned as part of the capital deposited by the stock brokers with the exchange for the purpose of intra-day trading and gross exposure limits or for adjustment against margins.

6. The Exchange shall maintain an amount equivalent to atleast 50% of the aggregate card value of all members in the form of cash and liquid assets.

7. The circulars dated May 14, 1993 and October 21, 1993 referred to above would stand modified accordingly, with regard to calculation of net-worth of the members.

8. The Stock Exchanges are advised to

8.1 make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision immediately.

8.2 bring the provisions of this circular to the notice of the member brokers/clearing members of the Exchange and also to disseminate the same on the website.

8.3 communicate to SEBI, the status of the implementation of the provisions of this circular in Section II, item no. 13 of the Monthly Development Report for the month of August 2004.

9. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Yours faithfully,


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