Circular No. FITTC/CUST/ 08 /1999To
December 22, 1999
All Custodians of Securities,
SUB: Hand Delivery Trades
Please refer to SEBI press release No. 218/99 dated September 23, 1999 proposing to restrict ‘Hand Delivery Trades’ (HDT) for institutional investors like Foreign Institutional Investors (FIIs) and Mutual Funds w.e.f. January 15, 2000. Subsequent to the above press release SEBI had received representations from some FIIs requesting SEBI to reconsider the decision as this system was akin to the ‘Delivery versus Payment’ (DVP) prevalent abroad. It was also mentioned that some of the FIIs were legally prevented from dealing except on DVP basis.
A meeting with some representatives of FIIs, custodians of securities, major stock exchanges, clearing houses and large brokers was held on December 10, 1999 to reconsider the issue of restricting Hand Delivery Trades. It was clarified that SEBI had never decided to disallow the DVP trades. The earlier decision of SEBI was meant to stop HDTs which were different from the DVP trades executed in the developed markets. In the DVP trade, delivery and payment are supposed to be simultaneous whereas in HDT this synchronisation was absent.
Besides, from the data made available by the custodians it was noticed that through the mechanism of hand delivery trades a large number of trades involving substantial funds remained unsettled for a long time. It was also pointed out that the cost of transactions involving hand delivery trade was higher that the cost incurred for a transaction conducted through clearing house/ corporation. SEBI also voiced its concerns regarding instances of delayed settlement of HDT as compared to clearing house deals and expressed its commitment to timely settlement of all deals.
After discussion with the various intermediaries, it was decided that FIIs may be allowed to settle the transactions through hand delivery mode subject to the following conditions: