SEBI directs stock exchanges, depositories and registered intermediaries to implement the UAPA (Unlawful Activities (Prevention) Act, 1967) Order

The Unlawful Activities (Prevention) Act, 1967 (UAPA) was enacted for the prevention of certain unlawful activities of individuals and associations and for matters connected therewith. UAPA has been amended by the Unlawful Activities (Prevention) Amendment Act, 2008. The Government issued an Order dated August 27, 2009 detailing the procedure for implementation of Section 51A of the UAPA, relating to the purpose of prevention of, and for coping with terrorist activities. In terms of Section 51A, the Central Government is empowered to freeze, seize or attach funds and other financial assets or economic resources held by, on behalf of or at the direction of the individuals or entities Listed in the Schedule to the Order, or any other person engaged in or suspected to be engaged in terrorism and prohibit any individual or entity from making any funds, financial assets or economic resources or related services available for the benefit of the individuals or entities listed in the Schedule to the Order or any other person engaged in or suspected to be engaged in terrorism.

SEBI vide circular ISD/AML/CIR-2/2009 dated October 23, 2009 has directed stock exchanges, depositories and registered intermediaries to ensure expeditious and effective implementation of the procedure laid down in the UAPA Order dated August 27, 2009.

The procedure to be followed by Stock Exchanges and Intermediaries

(1) Ministry of External Affairs will sent the updated list of individuals/ entities (designated individuals/ entities) subject to UN sanction measures to SEBI.

(2) SEBI will forward the same to stock exchanges, depositories and registered intermediaries.

(3) Stock exchanges, depositories and registered intermediaries will have to maintain an updated list of designated individuals/ entities in electronic form based on the list sent by SEBI. They should run a check on the given parameters on a regular basis to verify whether designated individuals/ entities are holding any funds, financial assets or economic resources or related services held in the form of securities with them.

(4) If the particulars of any of customer/s match with the particulars of designated individuals/entities, stock exchanges, depositories and intermediaries should immediately, not later than 24 hours from the time of finding out such customer, inform full particulars of the funds, financial assets or economic resources or related services held in the form of securities, held by such customer on their books to the Joint Secretary (IS.I), Ministry of Home Affairs, at Fax No.011-23092569 and also convey over telephone on 011-23092736. The particulars apart from being sent by post should necessarily be conveyed through e-mail at jsis@nic.in. Stock exchanges, depositories and registered intermediaries should also file a Suspicious Transaction Report (STR) with FIU-IND covering all transactions in these accounts. In case the details of any of the customers match the particulars of designated individuals/entities beyond doubt, stock exchanges, depositories and registered intermediaries should prevent designated persons from conducting financial transactions, under intimation to Joint Secretary (IS.I), Ministry of Home Affairs, at Fax No. 011-23092569 and also convey over telephone on 011-23092736. The particulars apart from being sent by post should necessarily be conveyed through e-mail at jsis@nic.in.

(5) Stock exchanges, depositories and registered intermediaries should send the particulars of the communication through post/fax and through e-mail (sebi_uapa@sebi.gov.in) to the UAPA nodal officer of SEBI, Officer on Special Duty, Integrated Surveillance Department, Securities and Exchange Board of India, SEBI Bhavan, Plot No. C4-A, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai 400 051 as well as the UAPA nodal officer of the state/UT where the account is held, as the case may be, and to FIU-IND.

Earlier, SEBI had issued a Master Circular on Anti-Money Laundering (covered in this blog here) and an updated list of individuals and entities (covered in this blog here) which are subject to various sanction measures such as freezing of assets/accounts, denial of financial services etc., as approved by UN Security Council Committee.

A copy of the circular is available here.

SEBI allows extended trading hours

SEBI vide circular SEBI/DNPD/Cir-47/2009 dated October 23, 2009 has permitted the Stock Exchanges to set their trading hours (in the cash and derivatives segments) between 9 AM and 5 PM. It also states that the exchanges should have in place risk management system and infrastructure commensurate to the trading hours. The markets are currently open from 9:55 AM to 3:30 PM.

A brief history

Earlier this year, SEBI had published a discussion paper on the 'Increase in market hours of trading in exchanges'. SEBI observed that 'while the Asian markets are ahead of Indian time zone, the European and American markets extend much beyond the Indian market timings. Some of the exchanges in these countries have adopted longer trading hours, sometimes even extending up to 23 hours. This has facilitated market participants in these countries to hedge their risk that might arise due to global information flow'. Extending the trade timings of the domestic exchanges may, therefore, enable the domestic market participants to take advantage of such global information flows. Additionally, Indian markets have been in the pursuit of matching the best international standards and practices, and the extension of market hours would, perhaps, be a further step in this direction.

Need for increased market hours (based on SEBI discussion paper)

1. With the increased integration of the global markets, information originating from one country / market has a bearing on the markets in other country / market and India is no exception to this phenomenon. It is important to align Indian markets, as far as possible, with those of the international markets to facilitate the assimilation of any economic information that may flow in from other global markets. One such alignment could be in the area of market timing.


2. Quick and effective assimilation of information makes markets more efficient in terms of better price discovery, reduction in volatility and impact cost. The extension of market hours may help in effectively assimilating information and thereby make Indian markets efficient, benefiting Indian investors.


3. In a world where different exchanges are competing with each other to increase participation, it is imperative that the Indian markets align themselves to global markets to attract such trading interest. Extension of market hours would enable market participants to execute trading strategies in Indian markets based on information flowing in, which otherwise would have been executed outside India.


4. The extension in market hours enables participants to take positions over a longer time window. This enables them to take advantage of market movements overseas.
   

Effect on traders

The good news is that intraday traders will have more time to play with the market volatility. But on the other side the bad news for stock brokers is that they will have to stay for more hours before they can go home.

A copy of the circular is available here.

Clearing and Settlement of trades in Corporate Bonds through Clearing Corporations

SEBI vide Circular SEBI/IMD/DOF-1/BOND/Cir-4/2009 dated October 16, 2009 has announced that all trades in corporate bonds between specified entities, namely, mutual funds, foreign institutional investors/ sub-accounts, venture capital funds, foreign venture capital investors, portfolio mangers, and RBI regulated entities as specified by RBI shall necessarily be cleared and settled through the National Securities Clearing Corporation Limited (NSCCL) or the Indian Clearing Corporation Limited (ICCL). This will be applicable to all corporate bonds traded Over the Counter (OTC) or on the debt segment of Stock Exchanges on or after December 01, 2009. However, the provisions of this circular shall not be applicable to trades in corporate bonds that are traded on the Capital Market segment/ Equity Segment of the Stock Exchanges and are required to be settled through clearing corporations/ clearing houses of Stock Exchanges.

History

In December 2005, the High Level Expert Committee on Corporate Bonds and Securitization submitted its report recommending the development of the corporate bond and securitization markets in India. The Government had set up this committee to look into legal, regulatory, tax and market design issues in the development of the corporate bond and securitization markets.

In February 2006, Finance Minister in his Budget speech of 2006-07 announced that the Government has accepted the recommendations of the Report of the High Level Expert Committee on Corporate Bonds and Securitization and that steps would be taken to create a single, unified exchange traded market for corporate bonds.

In December 2006, Government issued clarifications on regulatory jurisdiction over corporate bond market as the confusion over the same was attributed to be a reason for slow progress in implementation of the High Level Expert Committee’s recommendations. After hearing the views of RBI and SEBI and perusing the provisions in SCRA, SEBI Act and the RBI Act, Finance Minister said that the necessary clarifications may be provided to RBI and SEBI so that they could implement expeditiously the announcement in the Budget that steps would be taken to create a single, unified exchange traded market for corporate bonds.

In order to implement the Union budget proposal on creation of a unified platform for trading of Corporate Bonds, SEBI vide circular No. SEBI/CFD/DIL/ BOND/1/2006/12/12 dated December 12, 2006 authorized Bombay Stock Exchange Limited (BSE) to set up and maintain a corporate bond reporting platform to capture all information related to trading in corporate bonds as accurately and as close to execution as possible. In January 2007, BSE started its reporting platform to capture information related to trading in corporate bond market. In March 2007, SEBI permits NSE also to set up and maintain a reporting platform on the lines of BSE. In March 2007, NSE starts its reporting platform for corporate bonds and starts disseminating information as desired by SEBI.

In April 2007, SEBI permitted both BSE and NSE to have in place corporate bond trading platforms to enable efficient price discovery and reliable clearing and settlement facility in a gradual manner. To begin with, the trade matching platform shall be order driven with essential features of OTC market. It is also announced that eventually a system of anonymous order matching shall be established. BSE and NSE were advised to make use of the existing infrastructure available with them for operating the trade matching platforms for corporate bonds with necessary modifications. The exchanges were also advised that on the stabilization of the trade matching system, they may move to an anonymous order matching system for trading of bonds within an appropriate period of time. Accordingly, both the exchanges will indicate to SEBI an expected date on which they could move to anonymous order matching system for trading in corporate bonds. With the introduction of anonymous order matching platform, the clearing and settlement facility would be provided by BSE and NSE with a multilateral netting facility for trades executed on the platform. It is also simultaneously decided that orders executed through trading platforms of either BSE or NSE need not be required to be reported again on the reporting platforms. SEBI also advised that the stock exchanges may provide their services for clearing and settlement of corporate bonds traded or the entities trading in listed corporate debt securities may settle their trades bilaterally.

More details on development in the Corporate Bonds are available here.
A copy of the Circular is available here.