SECURITIES AND EXCHANGE BOARD OF INDIA
SECONDARY MARKET DEPARTMENT
Mittal Court, A Wing, Gr. Floor,
224, Nariman Point, Mumbai 400 021
SMD/POLICY/CIR-29/97
November 13, 1997
To
The Executive Directors / Presidents/
Managing Directors of all Stock Exchanges.
Dear Sir,
Sub : Warehousing of Trades by Institutional Clients
Please refer to SEBI circular no. SMD/SED/CIR/93/23321 dated November 18, 1993 regarding regulation of transactions between clients and brokers. As per item no. 6 of the circular under reference – Member brokers are required to issue the Contract Note for purchase/sale of securities to a client within 24 hours of the execution of the contract.
SEBI has received requests from Institutional Investors, FIIs, Stock Brokers, Stock Exchanges etc., to permit “Warehousing” of trades. i.e. execution of firm client order for a large quantity in parts during the same trading cycle and issue of one Contact Note at the weighted average price at the end of the trading cycle.
The matter has been examined and it has been decided to permit Warehousing transactions subject to following conditions :-
1. Warehousing may be allowed only against Institutional Client order and broker will not be eligible to execute any warehousing transaction on his own account.
2. Warehousing will be permitted only in cases of the order on behalf of Institutional clients and where registered custodian is involved for delivery/receipt of securities.
3. Warehousing shall be permitted for both ‘Purchase’ and ‘Sale’ orders through the Normal Book (General Segment) and it would not be permitted for transactions entered/executed through Negotiated Deal/ All or None or any other segment.
4. The trading system software of the stock exchanges will provide a unique order number for identifying warehousing orders a the time of order entry itself.
5. The executed Warehousing order will be parked in separate “Client-Warehousing” Account opened for this purpose.
6. Daily Margins would be charged for all warehousing trades as prescribed by stock exchanges from time to time.
7. Broker will issue a “Confirmation Note/Slip” at the end of each trading day to the client for the order executed on that day. The “Confirmation Note/Slip” should be issued within 24 hours of execution of order. All such notes will have the same client code, i.e. code of the client placing the order.
8. “Contract Note” will be issued within 24 hours of the end of trading cycle at the weighted average price. Details of all the trades executed for ariving a this weighted average price shall be given in the ‘Contract Note’ or as an Annexure to the contract note. The “Contact Note” should have the same client code as that on the Confirmation Notes/Slips.
9. The order may be executed over a number of days within the same trading cycle. The carry forward of the unexecuted/pending portion of the order to the next trading cycle would not be permitted and all the warehousing transactions must result in deliveries.
10. Adequate records would be maintained to establish a clear audit trail to trace proper compliance of the procedures in the cases where orders are executed through warehousing.
You may bring this to the notice of your members, however, warehousing of transactions may be permitted only after the exchange has modified its trading software to comply with the above conditions.
Yours faithfully,
O. P. GAHROTRA
SR. EXECUTIVE DIRECTOR
