General Manager

Market Regulation Department

Email:-sundaresanvs@sebi.gov.in

MRD/DoP/SE/Cir- 17/2005

September 2, 2005

The Executive Directors/Managing Director/

Administrators of All Stock Exchanges

Dear Sir / Madam,

Sub: Discontinuation of Hand Delivery Bargains/Delivery Versus Payment (DVP)

1. It has been observed that some of the institutional investors are still relying on Hand Delivery Bargains/Delivery Versus Payment (DVP) for settlement of some of their transactions. These Hand Delivery Bargains/DVP are essentially bilateral settlement mechanisms.

2. Since the stock exchanges have been acting as central counter party and providing trade/settlement guarantee through the Clearing Corporation/ Clearing House and all trades on the stock exchanges are settled through the depository system, such Hand Delivery Bargains/DVP have outlived their purpose. The use of central counter party provided by the Clearing Corporation/ Clearing House of the stock exchanges not only reduces the settlement risk but also the transaction costs. The recommendations of IOSCO CPSS Task Force also encourage settlement guaranteed by Clearing Corporation/House of the stock exchanges.

3. It has, therefore, been decided in consultation with stock exchanges, custodians and other market participants that all transactions executed on the stock exchanges will, henceforth, be settled through the Clearing Corporation/House of the stock exchanges. In order to give the institutional investors, custodians and other market participants some time to change over to this practice, the above will come into effect from September 19, 2005.

4. It has been represented to SEBI by the stock exchanges and the custodians that it might be necessary to retain Hand Delivery Bargains/DVP under very exceptional circumstances. Accordingly, the following are exceptional circumstances under which Hand Delivery Bargains/DVP may be permitted by the stock exchanges without attracting any margins and any penalty:

Total connectivity failure to the exchange/STP. (Specific connectivity issues of the custodians and members shall not be considered as valid exceptions).
International Holidays that may be decided upfront by the stock exchanges in consultation with the custodians.
Closing down of national/international centres due to calamities.

5. a. In the event of rejection of a institutional trade by the custodian after the trade has been executed, the stock exchange would consider the trade as an institutional trade only if evidence to that effect is available with or made available to the stock exchange and permit the trade to be settled through the Hand Delivery Bargain on a DVP basis, without imposing any margin. Such trades would however be subject to penalties as may be imposed by the stock exchanges.

b. In case evidence as above is not available with the stock exchange, the stock exchange, while allowing the trade to be settled through Hand Delivery Bargain on a DVP basis will however impose both margin and penalties.

6. The stock exchanges are advised to:

a. make necessary amendments to the bye-laws, rules and regulations for the implementation of the above decision immediately, as may be applicable ;

b. bring the provisions of this circular to the notice of the member brokers/clearing members of the stock exchange and also to disseminate the same on the website ; and

c. Communicate to SEBI, the status of the implementation of the provisions of this circular in the Monthly Development Report.

7. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Yours faithfully,

V S SUNDARESAN

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General Manager Market Regulation Department Email:-sundaresanvs@sebi.gov.in MRD/DoP/SE/Cir- 17/2005 September 2, 2005 The Executive Directors/Managing Director/ Administrators of All Stock Exchanges Dear Sir / Madam, Sub: Discontinuation of Hand Delivery Bargains/Delivery Versus Payment (DVP) 1. It has been observed that some of the institutional investors are still relying on Hand Delivery Bargains/Delivery Versus Payment (DVP) for settlement of some of their transactions. These Hand Delivery Bargains/DVP are essentially bilateral settlement mechanisms. 2. Since the stock exchanges have been acting as central counter party and providing trade/settlement guarantee through the Clearing Corporation/ Clearing House and all trades on the stock exchanges are settled through the depository system, such Hand Delivery Bargains/DVP have outlived their purpose. The use of central counter party provided by the Clearing Corporation/ Clearing House of the stock exchanges not only reduces the settlement risk but also the transaction costs. The recommendations of IOSCO CPSS Task Force also encourage settlement guaranteed by Clearing Corporation/House of the stock exchanges. 3. It has, therefore, been decided in consultation with stock exchanges, custodians and other market participants that all transactions executed on the stock exchanges will, henceforth, be settled through the Clearing Corporation/House of the stock exchanges. In order to give the institutional investors, custodians and other market participants some time to change over to this practice, the above will come into effect from September 19, 2005. 4. It has been represented to SEBI by the stock exchanges and the custodians that it might be necessary to retain Hand Delivery Bargains/DVP under very exceptional circumstances. Accordingly, the following are exceptional circumstances under which Hand Delivery Bargains/DVP may be permitted by the stock exchanges without attracting any margins and any penalty: Total connectivity failure to the exchange/STP. (Specific connectivity issues of the custodians and members shall not be considered as valid exceptions). International Holidays that may be decided upfront by the stock exchanges in consultation with the custodians. Closing down of national/international centres due to calamities. 5. a. In the event of rejection of a institutional trade by the custodian after the trade has been executed, the stock exchange would consider the trade as an institutional trade only if evidence to that effect is available with or made available to the stock exchange and permit the trade to be settled through the Hand Delivery Bargain on a DVP basis, without imposing any margin. Such trades would however be subject to penalties as may be imposed by the stock exchanges. b. In case evidence as above is not available with the stock exchange, the stock exchange, while allowing the trade to be settled through Hand Delivery Bargain on a DVP basis will however impose both margin and penalties. 6. The stock exchanges are advised to: a. make necessary amendments to the bye-laws, rules and regulations for the implementation of the above decision immediately, as may be applicable ; b. bring the provisions of this circular to the notice of the member brokers/clearing members of the stock exchange and also to disseminate the same on the website ; and c. Communicate to SEBI, the status of the implementation of the provisions of this circular in the Monthly Development Report. 7. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. Yours faithfully, V S SUNDARESAN