SECURITIES AND EXCHANGE BOARD OF INDIA
SECONDARY MARKET DEPARTMENT
Mittal Court, A Wing, Gr. Floor,
224, Nariman Point, Mumbai 400 021
SMD/POLICY/CA/cir-17/97
July 31, 1997
To
Presidents/Executive Directors/
Managing Directors of all stock
exchanges.
Dear Sir
SEBI vide circular No. SMD/SED/CIR/93/22570 dated October 21, 1993 prescribed the base minimum capital for the members of the Stock Exchanges and vide circular No. SMD/SED/RCG/270/96 dated January 19, 1996 advised the Stock Exchanges to double their existing base minimum capital required to be deposited by their members.
In terms of our circular No.SMD/RCG/3737/96 dated August 13, 1996 the exchanges have to impose intra-day trading limit of 33.33 times of the base minimum capital deposited with the exchange. In case a broker exceeds the intra-day trading limit, he would be required to deposit additional capital (herein referred to as incremental capital) with the exchange to meet the intra-day trading limit. Incremental capital deposited by the members to satisfy the intra-day trading limit of 33.33 times is required to be in the same form as the base minimum capital and such incremental capital would not be permitted to be withdrawn for a period of six months which has been reduced to a period of one month vide circular No. SMD/POLICY/IECG/1 – 97 dated February 11, 1997.
It has been represented to SEBI that a number of members, particularly those doing jobbing and arbitrage business are finding it difficult to maintain the incremental base minimum capital in the form prescribed by SEBI. It has been decided that stock exchanges may accept bank guarantee towards incremental capital subject to the fulfillment of the following conditions :
1. The bank guarantees should be accepted only from those members who have deposited base minimum capital (vide circular No. SMD/SED/CIR/93/22570 dated October 21, 1993) and additional base minimum capital (vide circular No. SMD/RCG/3737/96 dated August 13, 1996) with the Exchange as stipulated by SEBI.
2. The stock exchanges may accept bank guarantee from members only for the purpose of meeting the incremental capital requirements, that is over and above the base minimum capital. The components of the base minimum capital should however be in the same form as prescribed by SEBI.
3. The following conditions should be ensured by the Exchange for the acceptance of bank guarantee as under :
4. The bank guarantee should be from a specified scheduled commercial bank and should be non-conditional.
5. Members ” No Objection” should not be the pre-condition for encashment of the bank guarantee by the Exchange.
6. The bank guarantee should be for a minimum period of six months and it should contain a clause which would enable any claim arising during the period of guarantee could be preferred within a period of six months from the expiry of the guarantee.
7. The bank guarantee should be made realisable within 24 hours of it’s presentation with the bank.
8. There should be a mechanism in place at the Stock Exchange to monitor the status of bank guarantees on a continuous basis.
Thanking You
Yours sincerely
O. P. GAHROTRA
SENIOR EXECUTIVE DIRECTOR
SECONDARY MARKET DEPARTMENT
SECURITIES AND EXCHANGE BOARD OF INDIA
SECONDARY MARKET DEPARTMENT
As approved by Sr ED, following is the draft of the circular to be issued to all the stock exchanges permitting them to accept bank guarantee towards incremental capital to be deposited by the members.
Submitted for kind approval.
SURJIT TINAIKAR
July 24, 1997
N. PARAKH
DC – SMD
M. D. PATEL
ED – SMD
O. P. GAHROTRA
Sr ED – SMD
