Cir. No. IIMARP/CUST/1/1996
To All Custodians of Securities,
October 3, 1996
Uniform Norms and Practices for Custodians of Securities.
1. Custodians of securities are an integral part of the securities
market and have an important role to play in the institutional segment
of the market. Their role is crucial in the effective functioning of the
securities clearing and settlement system. It is therefore, important that
the custodians follow uniform norms and practices in their dealing with
their clients, brokers, stock exchanges and depositories. With this end
in view, SEBI had held a series of meetings of the custodians, representatives
of the stock exchanges and share transfer agents and the last such meeting
was held on August 14, 1996. Based on the decisions taken at these meetings,
SEBI issues the following guidelines for compliance by the custodians.
2. Custodians must function as an integral part of the system and integrate
with the system. Therefore, no custodians shall have such norms and practices
as would result in their functioning in isolation of clearing and settlement
3. Custodians must become members of the clearing houses/ clearing corporations
of the stock exchange(s) by the end of October 1996 and participate in
the clearing and settlement process through the clearing house/clearing
corporation for all securities.
4. Custodians shall comply with the applicable rules of the exchanges
where they have become members of the clearing house/clearing corporation.
This would facilitate the operations of the clients, and also result in
reduction of cost of service for the client.
5. Custodians shall advise all the clients about the facility to settle
their trades through the clearing house/clearing corporation, stressing
the advantages such as :
time bound rectification of objections;
reduction of risk; and
6.Custodians shall also highlight that "DVP trades" (where delivery
of securities is not taken or given by the custodian through the clearing
house/clearing corporation) would not enjoy the attendant benefits of the
clearing house/clearing corporation.
7. Custodians shall adopt the Uniform Good/Bad Delivery Norms, including
norms for rectification of bad deliveries through Bad Delivery Cell, framed
by SEBI and circulated to all the stock exchanges, as amended from time
8.In cases of trades where the custodian does not take or give delivery
from or to the clearing house/clearing corporation ("DVP Trades"), the
custodians shall adopt the following norms :
The custodians shall accept partial delivery of shares arising from a trade
from the buying broker, irrespective of the value of the trade.
Custodians shall accept delivery of shares arising from a trade from the
buying broker in at least two partial deliveries, with the first partial
delivery accounting for at least 50 percent of the total trade size. The
delivery of shares of the second partial delivery shall be completed in
accordance with the bye-laws of the exchange on which the trade was executed.
In case any client expresses reservations about accepting partial settlement,
such exceptions shall be brought to the notice of SEBI by the custodians.
The custodians shall make payment for all shares delivered upto 5.30 p.m.
on day 1 by 10.00 am on day 3 so that high value clearing on day 3 is possible
for the broker.
Custodians shall deliver stocks to brokers within 24 hrs of availability
of clear funds from the broker or 48 hours of payment through a high value
cheque or pay order or demand draft by the broker, whichever is earlier.
Custodians shall deliver stocks to brokers by 12.00 p.m. on Monday for
which the high value cheque or payorder or demand draft is presented to
the custodian by the broker by 9.30 a.m. on the preceding Friday.
Where collateral is taken for shares which are released to the broker for
rectification of bad delivery, the collateral should be reasonable with
reference to the bad delivery portion; and for collateral in the form of
cash, interest shall be paid by the custodian to the broker.
9. The no delivery period observed by custodians should be in accordance
with the norms specified by the relevant exchange.