SEBI permits currency futures on additional currency pairs

SEBI vide circular SEBI/DNPD/Cir- 52 /2010 dated January 19, 2010 has permitted currency futures on 3 more currency pairs. SEBI has now permitted stock exchanges to introduce currency futures on Euro-INR, Pound Sterling-INR and Japanese Yen-INR. Currently currency futures are permitted only on US Dollar-INR.

A copy of the circular is available here.

‘In person’ verification done by a DP to hold good for broker in certain cases

SEBI vide circular SEBI/MIRSD/Cir. No. 02/2010 dated January 18, 2010 has clarified that the ‘in person’ verification done for opening beneficial owner’s account by a Depository Participant (DP) will hold good for opening trading account by a stock broker and vice versa, if the stock broker and DP is the same entity or if one of them is the holding or subsidiary company of the other.

For example, if an applicant has already opened a demat account with ‘A Securities Ltd’ (wherein a proper ‘in person’ verification was conducted by ‘A Securities Ltd’ before the opening of the account), it can open a trading account for the applicant without doing a second ‘in person’ verification on him. A subsidiary or a holding company of ‘A Securities Ltd’ can also open a trading account for the same applicant without conducting a second ‘in person’ verification on him. It should also be noted that an ‘in person’ verification conducted for the opening of a trading account will also hold good for opening of a demat account in the above mentioned scenarios.

A copy of the circular is available here.

‘Mutual fund investments are subject to market risks’ to be printed in bold

SEBI vide SEBI/IMD/CIR No.2/191378 /2010 dated January 18, 2010 has directed all Asset Management Companies (“AMCs”) to print in bold, the various disclosures under the Advertisement Code. SEBI noted that the advertisements issued by the AMCs are generally lengthy and hence these disclosures are not bought to the attention of the investors. It is essential for the investors to be aware that the investments made in mutual funds are subjects to risk and that the scheme related documents should be read before investing. Thus in order to make these statements more prominent, the disclosures should be printed in bold.

A copy of the circular is available here.

SEBI revises the format for quarterly reports to be submitted by Venture Capital Funds (VCF)

SEBI vide circular SEBI/IMD/DOF-1/VCF/CIR-1/2010 dated January 11, 2010 has revised the format for the ‘quarterly report on venture capital activity’ to be submitted by VCF. The revised format is available here.

Streamlining of operationalisation of Market Wide Position Limits (MWPL) across stock exchanges

SEBI vide SEBI/DNPD/Cir- 51/2010 dated January 11, 2010 has decided to streamline the operationalisation of Market Wide Position Limits (MWPL) of the derivative contracts on individual securities traded across stock exchanges. This move is based on the on the recommendations of the Secondary Market Advisory Committee (SMAC) to streamline the operationalisation of MWPL.


On a trading day, by 6:30 pm, each exchange would have to disseminate the international securities identification number (ISIN), the name and the symbol of the security along with the MWPL of securities (in terms of number of shares) and open interest (in terms of number of shares) of the security. Open interest in a security is the outstanding futures and options contracts. At 7:00 pm, the exchanges, after consulting with each other, will have to put out the aggregate open interest, and the permissible positions that can be taken up by traders the following day, without breaching the MWPL.

News reports on this move are available here and here.

A copy of the circular is available here.

Standardized lot size for derivative contracts

SEBI vide circular SEBI/DNPD/Cir- 50/2010 dated January 8, 2010 has standardized the lot size for derivative contracts on individual securities.

Lot size is the number of underlying units that form a derivative contract. Lot size is multiplied by the share price to calculate the value of a derivative contract. Currently the SEBI rules require derivative (F&O) contracts, other than mini contracts, to have at least two lakh rupees in value. Based on this rule, stock exchanges fix lot sizes of the derivative contracts of individual securities. SEBI has now decided to determine the lot size based on the price band in which the individual securities trade (refer to the table provided in the circular). For example, if a particular stock trades at INR 700, it falls in the price band ‘401 – 800’ and correspondingly it will have a lot size of 500. Stock exchanges will review the lot size once in every 6 months based on the average of the closing price of the underlying for last one month and wherever warranted, revise the lot size by giving an advance notice of atleast 2 weeks to the market. This circular will come into effect from March 31, 2010.

A copy of the circular is available here.

SEBI mandates half yearly internal audit for credit rating agencies

SEBI vide circular SEBI/MIRSD/CRA/Cir-01/2010 dated January 06, 2010 has mandated a half yearly internal audit for credit rating agencies (“CRA”). This should be conducted by Chartered Accountants, Company Secretaries or Cost and Management Accountants who are in practice and who do not have any conflict of interest with the CRA. The scope of the audit includes all aspects of CRA operations and procedures, including investor grievance redressal mechanism, compliance with the requirements stipulated in the SEBI Act, rules and regulations made thereunder, and guidelines issued by SEBI from time to time.

The CRA should receive the report of the internal audit within two months from the end of the half-year. The Board of Directors of the CRA should consider the report and take steps to rectify the deficiencies, if any, and the CRA should send an ‘Action Taken Report’ to SEBI within next two months.

A copy of the circular is available here. 

SEBI makes PAN mandatory for transferring of shares to heir

SEBI vide circular SEBI/MRD/DoP/SE/RTA/Cir-03/2010 dated January 07, 2010 has clarified that it will be mandatory to furnish a copy of PAN in the following cases.

• Transmission of shares to the legal heir(s), where deceased shareholder was the sole holder of shares.
• Deletion of name of the deceased shareholder(s), where the shares are held in the name of two or more shareholders.
• Transposition of shares - When there is a change in the order of names in which physical shares are held jointly in the names of two or more shareholders.

Earlier in April, 2007 SEBI had made PAN mandatory for all securities market transactions. Thereafter in May, 2009 SEBI had clarified that for off-market/ private transactions involving transfer of shares in physical form of listed companies, it will be mandatory for the transferee(s) to furnish copy of PAN card to the company/ RTAs for registration of such transfer of shares.

A copy of the circular is available here.

Regulated financial companies need not maintain 100% asset cover for issue of unsecured debt instruments

SEBI vide circular SEBI/IMD/DOF-1/BOND/Cir-1/2010 dated January 07, 2010 has amended the simplified listing agreement for debt securities. SEBI has stated that regulated financial sector entities need not maintain 100% asset cover (sufficient to discharge the principal amount at all times for the debt securities) in case of unsecured debt instruments issued by them. It should be noted that these unsecured debt instruments should be eligible for meeting the capital requirements of the financial sector entities (as specified by their respective regulators).

SEBI had in May, 2009 issued the simplified listing agreement for debt securities as a part of its efforts to rationalize the disclosure norms for listing of debt issuances. Later, it was amended in November, 2009.

A copy of the circular is available here. 

SEBI modifies the Securities Lending and Borrowing (SLB) Framework

SEBI vide circular SEBI/MRD/DoP/SE/Dep/Cir- 01 /2010 dated January 06, 2010 has modified the Securities Lending and Borrowing (SLB) Framework. The framework for SLB was specified vide circular MRD/DoP/SE/Dep/Cir- 14/2007 dated December 20, 2007 and was operationalised with effect from April 21, 2008. The SLB framework was revised vide circular MRD/DoP/SE/Cir-31/2008 dated October 31, 2008.

Background

Securities Lending and Borrowing (SLB) is a scheme that has been launched to enable settlement of securities sold short. Short selling means selling of a stock that the seller does not own at the time of trade. Short selling can be done by borrowing the stock through Clearing Corporation/Clearing House of a stock exchange which is registered as Approved Intermediaries. SLB enables lending of idle securities by the investors through the clearing corporation/clearing house of stock exchanges to earn a return through the same.

Modified framework

Under the modified framework the tenure of the securities lending, borrowing (SLB) contract can be upto 12 months and the lender and borrower can recall repayment of shares in the SLB contract. Initially the SLB framework mandated tenure of 7 days for SLB. Later this was increased to 30 days and now to 12 months. These modifications are pursuant to the feedback received by SEBI from the from market participants.

A copy of the circular is available here.

Master Circular for Mutual Funds

SEBI vide circular SEBI/IMD/MC No.1/189241/2010 dated January 1, 2010 has come out with a ‘Master Circular for Mutual Funds’. This Master Circular is a compilation of all the circulars issued by SEBI, for regulation of the mutual fund industry, upto December 31, 2009. SEBI observed that the Master Circular would enable the industry and other users to have an access to all the applicable circulars at one place. It should be noted in this context that a master circular would go a long way in providing a clearer and definite view of the regulations.

Earlier in December 2008, SEBI had issued a Master Circular on Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) (covered in this blog here).

A copy of the 'Master Circular for Mutual Funds' is available here.