SMD/Policy/4296/96

Oct 04, 1996

Circulars

SMD/Policy/4296/96
October 04, 1996

Executive Directors/President/
Managing Director of all Stock Exchanges.

Dear Sir,

In the meeting held on September 18, 1996 at SEBI, where representative of all Stock Exchanges were present, the bad delivery cell procedures were finalized. It was unanimously agreed that bad-delivery cell at all Stock Exchanges would start functioning within one month.

Please find enclosed the procedure for operation of bad-delivery cell so as to make it operational with effect from October 15, 1996.

Yours faithfully,
sd/-

M.D. PATEL
(ED.SMD)

Encl : as above

Copy to :

DC (NP)

DC (RCG)

DC (AA)

DC (RVN)

DDC (RKK)

DC (SR)

DC (DC)

DC (UN)

DC (AB)

DC (PB)

DC (RG)

DC (SCK)

DC (PKN)

Procedure for Handling Intra Exchange & Inter Exchange Company Objections through

Bad Delivery Cell (B

SECURITIES AND EXCHANGE BOARD OF INDIA

CONTENTS :

1: Procedure for handling Local Exchange Objections

1.1 :Procedure to be followed by the Member for reporting Local Exchange Objections to the BDC of the local exchange

1.2 :Incorrect reporting of Company Objections

1.3 :Non Rectification of Shares or Bad delivery of rectified/replaced shares submitted Under Objection.

1.4 :Second Time Objections.

1.5 :Close Out Procedures

1.6 :Corporate Benefits

2 :Procedure for handling Inter Exchange objections.

2.1 :Procedure to be followed by a Member for reporting Inter Exchange objections to Bad Delivery Cell ( In case the shares have been transacted on more than one exchange ).

2.2 :Incorrect reporting of Company Objections

2.3 :Non Rectification of Shares or Bad delivery of rectified/replaced shares submitted Under Objection.

2.4 :Second Time Objections.

2.5 :Close Out Procedure.

2.6 :Corporate Benefits.

3 :General Instructions.

4 : Annexures.

Terminology :

The terms used to explain the procedure for reporting objections to Bad Delivery Cell are defined below :

BDC : Bad Delivery Cell

First Introducing Exchange (FIE) : The exchange where the shares were first introduced .

Last Exchange (LE): The exchange where the shares were traded for the last time before they were sent for transfer to the company.

Local Exchange : The exchange where the receiving member bought the shares.

First Introducing Member (FIM) : The member who has introduced the shares on the First Introducing Exchange.

Last Introducing Member (LIM) : The member who introduced the shares on the last exchange.

Receiving Member : The last member of the last exchange who has last received the shares before the shares were sent for transfer to the company.

1: Procedure for handling Local Exchange Objections

1.1 :Procedure to be followed by the Member for reporting Local Exchange Objections to the BDC of the local exchange

1. The shares under objection are required to be lodged by the receiving member of the local exchange with the BDC of the local exchange in the prescribed form BDC-1A. Claims for corporate benefits (if any) should also be made in Form BDC- 1A. Members will be required to report such objections to the exchange on the days specified by the exchange (see schedule )

2. The following documents are required to be enclosed.

Form BCD - 1A in triplicate
Original Transfer Deed
Share Certificate
Original Company Objection Memo or Certified copy of the memo.
In case of fake / forged /stolen / missing shares, all documents as given in SEBI Good /Bad Delivery guidelines no. 108 / 109.(as per annexure - C)

3. All the documents as given in point 2 are required to be lodged by the receiving member of the local exchange with the BDC of the local exchange in a sealed plastic pouch. Form BDC-1A is required to be submitted in triplicate, of which one copy should be attached on the pouch, and the remaining two copies should be attached to the documents and placed inside the pouch.

4. The local exchange will give an acknowledgement to the receiving member on the third copy of Form BDC - 1A which is attached outside the pouch. This acknowledgement will be given by using a rubber stamp and will bear the words " subject to verification / counting ".

5. The BDC of the local exchange will retain one copy of Form BDC - 1A for its records, while the copy of Form BDC - 1A attached to the documents will be handed over to the introducing member of the last exchange.

6. If all the shares (pertaining to the same company), have been introduced by the same introducing member, then the receiving member must report this as one objection ( i.e in one form BDC-1A). On the other hand, if the shares have been introduced in the local exchange by more than one introducing member, then the receiving member must report the objections separately for each introducing member using a separate form BDC-1A and in separate pouches.

7. The BDC of the local exchange will allot a unique serial number (BDC Inward No.) to each objection case reported by the receiving member.

8. The BDC of local exchange will verify/count the documents enclosed by the member. If the contents of the pouch are not in order the same will be returned to the receiving member of the exchange.

9. a. In the event that the BDC is not equipped to carry out the verification/counting the BDC will sort the documents introducing memberwise and handover the documents to the introducing member within 24 hours of receipt of such objections.

b. The introducing member will count the securities on the counter and give an acknowledgement to the BDC for the number of securities received. The verification for the correctness of the objection will be done later. During the process of verification, if the introducing member finds that the objection is incorrect, he will return the objection to the BDC within 7 days alongwith form BDC-3A. The BDC will give an acknowledgement on form BDC-3A to the introducing member.

c. If the BDC is satisfied with the claim of the introducing member regarding the invalidity of the objection , then the documents will be returned to the receiving member. If the BDC finds that the objection is valid then the introducing member will be required to accept and rectify the objection.

10. The BDC of the local exchange will sort all the objections received, in the order of introducing member.

11. The BDC of the local exchange will forward the pouch containing the objections to the introducing member of the exchange within 3 days of receipt of such objections. The introducing member will acknowledge the receipt of such objections by affixing his rubber stamp and initials on the copy of Form BDC - 1A retained by the exchange. The BDC will stamp the date by which the shares are to be rectified or replaced by the introducing member (i.e. 21 days). The stamp will be put on form BDC 1A / 1B in a different colour while giving acknowledgement copy to the introducing member.

12. The first introducing member is required to rectify/ replace the shares within 21 days. If the introducing member fails to rectify/ replace the shares within 21 days, the local exchange will close out the transaction without going through the auction process. (see close-out procedures)

13. The first introducing member will enclose the following documents while rectifying / replacing the shares under objection.

Prescribed Form BDC - 2A in triplicate
Rectified / replaced shares
Benefits ( if any ) due
Copy of Form BDC - 1A
Copy of the company objection memo
Cheque for value of transfer stamps or corporate benefits

14. The introducing member of the exchange will hand over the documents mentioned in point 12 above in a plastic pouch on the rectification day to the BDC of the last exchange. The BDC of the local exchange will return one copy of Form BDC - 2A to the introducing member after acknowledging the receipt of rectified shares by affixing a rubber stamp bearing the words " subject to verification/counting ". One copy of Form BDC - 2A will be retained by the local exchange and the last copy of Form BDC - 2A alongwith the rectified documents will be returned to the receiving member of the local exchange.

15. The cheque shall be in favour of the receiving member who has reported this objection to the BDC of the local exchange for rectification.

16. The BDC of the local exchange will handover the rectified/replaced shares/ cheque and corporate benefits back to the receiving member of the local exchange within 7 days of the rectification day.

17. If the introducing member of the exchange fails to rectify / replace the shares under objection by the prescribed rectification day the exchange will close the transaction without conducting any auction.( see close-out procedures)

1.2 :Incorrect reporting of Company Objections

1. If the introducing member of the local exchange finds that the objection / corporate benefits has been wrongly reported against him, the member should report such cases to the BDC of the local exchange by filling in form BDC - 3A alongwith a copy of the form BDC - 1A. The shares received under objection along with form BDC - 3A should be handed over to the BDC of the local exchange.

2. The introducing member of the local exchange is required to report such cases to the BDC of the local exchange within a period of 7 days from the date of receipt of such objections, failing which it will be understood that the introducing member has accepted the objections / corporate benefits reported against him and will be required to rectify / replace the shares by the rectification day or else the exchange will close-out the shares as per the exchange procedures.

3. The BDC of the local exchange will return the shares wrongly reported as objection back to the receiving member of the last exchange.

4. In case of invalid claim of Corporate Benefits the introducing member must submit only the form BDC - 3A duly authorised by the BDC official (Verification Officer) of the Exchange alongwith a copy of form BDC - 1A. In such cases the introducing member shall retain the shares and rectify the same within the stipulated time. The BDC of the exchange will verify that the claim for Corporate Benefit is invalid before authorising the claim as invalid. After authorising that the claim is invalid, the BDC of the local exchange will forward one copy of form BDC-3A to the receiving member.

1.3 :Non Rectification of Shares or Bad delivery of rectified/replaced shares submitted Under Objection.

1. If the receiving member of the exchange finds that the shares received by way of rectification or replacement are not correctly rectified or the shares are bad delivery, the receiving member is required to report such cases in prescribed form BDC - 4A (in triplicate) to the BDC of the local exchange alongwith a copy of Form BDC-1A and 2A within 48 hours of receipt of such shares.

2. If the receiving member finds that the benefits claimed are not correctly rectified then the receiving member should accept the rectified shares and report only the non-rectified benefits claim to the BDC of the local exchange.

3.The BDC of the local exchange will verify these shares/benefits and if the shares/benefits are genuinely found to be bad delivery then the exchange will close - out such cases as per exchange procedures. The introducing member will be intimated that the deal is being closed out and that his account will be debited accordingly. The intimation will contain full details regarding the close out.

1.4 :Second Time Objections.

1. If the rectified / replaced shares are again returned under objection by the company such shares will be deemed as " Second time objections ".

2. The receiving member of the local exchange will report the shares under second time objection to the BDC of the local exchange in the form for second time objections. Form for Second Time Objections will be the same format as BDC - 1A/1B but will be of a different colour (pink colour) and have the words " SECOND TIME OBJECTION " written in bold on the top of the form.

3. The following documents are required for reporting second time objections.

Fresh copy of form for Second Time objections ( in triplicate)
Transfer deed and share certificates returned by the company
Company objection memo
A copy of Form BDC - 1A and 2A which have been used for reporting the first time objection.

4. The documents mentioned in point 3 above are required to be submitted in a plastic pouch.

5. All the Second Time objections will be straightaway closed out . ( see close out procedures)

1.5 :Close Out Procedures

In case the introducing member fails to rectify/replace the shares within the stipulated time the deal will be closed out at the following price :

highest of six months price or highest of ex-date price, whichever is later OR
20% over the closing price on the last rectification day

whichever is higher.

In such cases, the introducing member is required to forward a cheque equivalent to the close-out amount and the benefits claim amount ( if any) to the BDC of the local exchange in favour of the receiving member of the last exchange.

1.6 :Corporate Benefits

1. Members are required to claim corporate benefits while submitting the shares for company objection in form BDC - 1A. Once the claim for benefits has been made by a member, the member cannot refuse to accept the corporate benefits.

2. If the market rate of the corporate benefit is less than the cost of procurement of the benefit then such benefit will not be taken up for settlement.

3. If the member is not in a position to submit the corporate benefit in the form of shares then he should submit a cheque as per the valuation given in Annexure - A alongwith form BDC - 2A.

4. Rectified company objections will be accepted by the BDC of the local exchange only if they are accompanied with the corporate benefits ( either in the form of shares or equivalent value in the form of cheque in favour of the receiving member) claimed as per form BDC-1A.

2 :Procedure for handling Inter Exchange objections.

2.1 :Procedure to be followed by a Member for reporting Inter Exchange objections to Bad Delivery Cell ( incase the shares have been transacted on more than one exchange ).

The procedure consists of 2 parts :

In Part 1 the receiving member will approach BDC of last exchange and submit his objections using form BDC-1A ,which will have to be rectified by the introducing member of the last exchange as per the procedures laid down for handling local exchange objections.

In the Second Part ,when the introducing member of the last exchange wants to rectify the shares that have come under objection, the following procedure will have to be followed :

Option 1 : In case of Inter Exchange objections the introducing member of the last exchange may handover the documents under objection to the previous member through whom he has purchased the shares under objection. The introducing member of the last exchange thus has an option to settle his objection directly without going through the BDC.

Option 2 : In the alternative, the introducing member of the last exchange can approach the Bad Delivery Cell of the last exchange for rectification / replacement of the shares under company objection. In case the introducing member of the last exchange approaches the BDC of the last exchange, the BDC of the last exchange will forward the shares to the BDC of the first exchange who will in turn forward the same to the introducing member of the first exchange. The procedure to be followed for reporting such cases to the BDC of the last exchange is given below :

1. The shares under objection are required to be lodged by the introducing member of the last exchange with the BDC of the last exchange in the prescribed Form BDC - 1B in quadruplet. Claims for corporate benefits (if any) should also be made in Form BDC- 1B.

2. The following documents are required to be enclosed.

Form BCD - 1B (in quadruplet)
Original Transfer Deed
Share Certificate
Company Objection Memo or Certified copy of the memo.
In case of fake / forged /stolen / missing shares, all documents as given in SEBI Good /Bad Delivery guidelines no. 108 / 109.( as per Annexure C)

3. Two sets of photo copies of the documents mentioned in point 2 above are required to be submitted at the time of reporting of objection. One copy of the this set will be retained by the BDC of last exchange. The second set along with the original documents will be forwarded to BDC of first exchange.

4. All above documents are required to be lodged with the BDC of last exchange in a sealed plastic pouch. The original documents along with one set of photocopies should be enclosed in one pouch, while the second set of photocopies should be enclosed in a separate pouch. An additional copy (fourth copy ) of Form BDC - 1B will be attached outside the pouch containing the second set of photocopies.

5. The BDC of last exchange will give a subject to verification/counting acknowledgement to the introducing member of the last exchange on the fourth copy of Form BDC - 1B by affixing a rubber stamp.

6. The BDC of the last exchange will retain the pouch containing one set of photocopies for its records, while the pouch containing the original documents and one set of photocopies will be forwarded to the BDC of the first exchange after verification of the objections.

7. The member is required to report objections pertaining to shares of different companies and different first introducing members in separate forms and in separate pouches. ( i.e each pouch shall contain one objection pertaining to one company and one introducing member).

8. The BDC of last exchange will affix a unique serial number called the BDC inward number on Form BDC-1B. The BDC inward no. will be an eight digit reference serial no. The first two digits will be the exchange code of the last exchange followed by a six digit serial number. All future communications pertaining to an objection should be done by using the BDC Inward No. as the reference number.

9. The BDC of last exchange will verify/count the documents enclosed by the member. If the contents of the pouch are not in order the same will be returned to the last introducing member.

10. The BDC of the last exchange will sort all the objections received, in the order of the first introducing exchange. All objections pertaining to the first introducing exchange will be sent in one parcel to the first introducing exchange alongwith a list of all objections enclosed.

11.The BDC of the last exchange will forward the pouch containing the objections (along with original transfer deed, share certificate, company objection memo, other documents and one set of photocopies of all the documents ) to the BDC of the first exchange within 7 days of receipt of such objections.

12.The BDC of the first exchange will verify / count the contents of the pouch received from the BDC of the last exchange before handing over the same to the introducing member of the first exchange.

13.The BDC of first exchange will hand over the objection to the introducing member of the first exchange on the day specified by the exchange (as per the objection schedule followed by the exchange). The BDC of the first exchange will retain the second set of photocopies for its reference after obtaining an acknowledgement on the copy of Form BDC - 1B from the introducing member of the first exchange. The introducing member of the first exchange is required to rectify/ replace the shares within 21 days of receipt of shares under objection. If the introducing member fails to rectify/ replace the shares within 21 days, the first exchange will close-out the shares without going through the auction process.(see close out procedures).

14.The introducing member of the first exchange will enclose the following documents while rectifying / replacing the shares under objection.

Prescribed Form BDC - 2B ( four copies )
Rectified / replaced shares
Benefits ( if any ) due
Copy of Form BDC - 1B
Copy of the company objection memo
Demand draft for value of transfer stamps or benefits

15. The introducing member of first exchange will hand over the documents mentioned in point 15 above in a plastic pouch on the rectification day to the BDC of the first exchange. The BDC of the first exchange will return one copy of Form BDC - 2B to the introducing member after giving a subject to verification/counting acknowledgement by affixing a rubber stamp on Form BDC - 2B. One copy of Form BDC - 2B will be retained by the first exchange and the rectified documents alongwith third and fourth copies of Form BDC - 2B will be returned to the BDC of the last exchange.

16. BDC of first exchange will verify all the documents and return the rectified/replaced shares/ demand draft and corporate benefits back to BDC of last exchange within 7 days of rectification/replacement.

17. BDC of last exchange will hand over the rectified/replaced shares/demand draft for transfer stamps / close-out amount and corporate benefits back to introducing member of last exchange after verification.

18. The introducing member of the last exchange will duly acknowledge the rectified shares received by affixing the rubber stamp on the copy of Form BDC - 2B retained by BDC of last exchange.

19. The demand draft shall be in favour of the introducing member of the last exchange.

20. If the introducing member of the first exchange fails to rectify / replace the shares under objection by the prescribed rectification day the first exchange will close -out the shares without going through the auction process. (see close out procedure)

21. In case of close-out by the exchange , the BDC of the first exchange will have to collect the demand draft from the introducing member of first exchange, in favour of the introducing member of the last exchange and forward the same to the BDC of the last exchange.

2.2 :Incorrect reporting of Company Objections

1. If the introducing member of the first exchange finds that the objection has been wrongly reported, the member should report the invalid objection by submitting form BDC - 3B in quadruplicate along with a copy of the form BDC - 1B. The shares received under objection along with form BDC - 3B should be handed over to BDC of first exchange.

2. The introducing member of the first exchange is required to report such cases to the BDC of the first exchange within a period of 7 days from the date of receipt of such objections, failing which it will be understood that the first introducing member has accepted the objections / corporate benefits reported against him and will be required to rectify / replace the shares by the rectification day or else the exchange will close-out the shares as per the close out procedure.

3. BDC of first exchange will verify the validity of the objections and return the shares back to BDC of last exchange who in turn will again verify and hand over the shares to the introducing member of the last exchange alongwith a copy of the form BDC - 3B and 1B.

4. In case of invalid claim of Corporate Benefits the introducing member must report such cases to the BDC of the First Exchange by submitting form BDC - 3B in quadruplicate alongwith a copy of form BDC - 1B within 7 days of receipt of the claims . In such cases the introducing member of first exchange shall retain the shares and rectify the same within the stipulated time. The BDC of the first exchange will verify that the claim for Corporate Benefit is invalid before forwarding the forms BDC - 3B and 1B only to the BDC of the last exchange.

2.3 :Non Rectification of Shares or Bad delivery of rectified/replaced shares submitted Under Objection.

1. If the introducing member of the last exchange finds that the shares received by way of rectification or replacement are not correctly rectified or the shares are bad delivery, the member is required to report such cases in the prescribed form BDC-4B (in quadruplicate) to the BDC of the last exchange alongwith a copy of Form BDC - 1B and 2B within 48 hours of receipt of such shares.

2. If the introducing member of last exchange finds that the benefits claimed are not correctly rectified then the introducing member should accept the rectified shares and report only the non-rectified benefits claim to the BDC of the last exchange.

3. The BDC of the last exchange will verify these shares/benefits and if the shares/benefits are genuinely found to be bad delivery then the BDC of the last exchange will report such cases to the BDC of the first exchange within a period of 7 days from reporting of such cases. The BDC of the first exchange will verify the claims and in case of valid claims, close - out such cases as per close out procedures. The introducing member will be intimated that the deal is being closed out and that his account will be debited accordingly. The intimation will contain full details regarding the close out.

2.4 :Second Time Objections.

1. If the rectified / replaced shares are again returned under objection by the company such shares will be deemed as " Second time objections ".

2. The introducing member of the last exchange will report the shares under second time objection to the BDC of the last exchange in the form for Second Time objections. The form for such objections will be of the same format as that of Form BDC - 1B but the form will be of a different colour (pink colour) and the words " Second time objection " will be written in bold on the top of the form.

3. The following documents are required for reporting second time objections.

Transfer deed and share certificates returned by the company
Company objection memo
Second Time Objection form ( in quadruplet)
A copy of Form BDC - 1B and 2B which have been used for reporting the first time objection.

4. The documents mentioned in point 3 above are required to be submitted in a plastic pouch.

5. The BDC of the last exchange will forward the shares under second time company objections to the BDC of the first exchange. The BDC of the first exchange will, on receipt of second time company objections, close-out such shares as per the close out procedures and forward the demand draft for the close-out amount to the BDC of the last exchange who will in turn forward the same to the introducing member of last exchange.

2.5 :Close Out Procedures

In case the introducing member of first exchange fails to rectify/replace the shares within the stipulated time, the first exchange will directly close out the shares. The introducing member of first exchange will be debited with the amount and the Demand Draft for the close out amount will be forwarded by the BDC of the first exchange to the BDC of the Last Exchange who will in turn hand over the same to the introducing member of the last exchange.

In case the shares are not available in the auction conducted, the deal would be closed out at the

highest of six months price or highest of ex-date price on the last exchange, whichever is later OR
20% over the closing price on the last rectification day

whichever is higher.

In such cases, the introducing member of first exchange is required to forward a demand draft equivalent to the close-out amount to the BDC of the first exchange in favour of the introducing member of the last exchange.

In case the introducing member of first exchange fails to forward the demand draft to the BDC, the exchange will initiate action against the member as per rules and regulations of the exchange.

2.6 :Corporate Benefits

1. Members are required to claim corporate benefits while submitting the shares for company objection in form BDC - 1B. Once the claim for benefits has been made by a member, the member cannot refuse to accept the corporate benefits.

2. If the market rate of the corporate benefit is less than the cost of procurement of the benefit then such benefit will not be taken up for settlement.

3. If the member is not in a position to submit the corporate benefit in the form of shares then he should submit a demand draft as per the valuation given in Annexure - alongwith form BDC - 2B.

4. Rectified company objections will be accepted by the BDC of the first exchange only if they are accompanied with the corporate benefits ( either in the form of shares or equivalent value in the form of demand draft in favour of the introducing member of last exchange) claimed as per form BDC-1B.

3 :General Instructions

1. The exchange should arrange for well equipped and trained manpower to carry out the activities of the BDC, further it should have a verification officer who will decide the validity of objections. Since the quality of decision is critical, the verification officer should be a senior qualified person.

2. The plastic pouches to be used for reporting objections should be of good quality and transparent so that the contents can be viewed from outside.

3. The BDC forms should be placed on top of all documents inside the pouch so that the details on the form are clearly visible from outside the pouch.

4. Members/ stock exchanges should strictly adhere to the formats of the BDC forms (as given in the Annexure).

5. In case the BDC of the last exchange does not receive the rectified/replaced shares or the close-out amount within the specified time frame, such cases should be referred to the Inter Exchange Arbitration Panel.

6. The exchange should maintain a register which would contain the details (as per Annexure B1 and B2) pertaining to all objections reported to the BDC. Separate register should be maintained for local and inter exchange objections.

7. The exchange should forward to SEBI monthly status reports giving details on the objections received, objections resolved, objections referred for arbitration, value of objections, reasons for objections, list of companies and Registrar and Transfer agents related to the objections reported.

8. Stock exchanges should get into a contract with a reliable courier agency for couriering objection documents from one BDC to the other.

9. Stock exchanges are also required to arrange for adequate insurance covers for the documents which might be reported as lost in transit.

10. In cases where odd lot shares reported as objection are not rectified, such cases will be closed as per close out procedures.

11.In case the shares reported as objection fall in the no delivery period, then such shares will not be rectified within 21 days but will become due for rectification only on expiry of the no delivery period.

12.The members delivering the rectified shares should ensure that the shares are good delivery as per the Good/Bad delivery guidelines issued by SEBI. The rectified shares should have a new transfer deed so that the party receiving the rectified shares can sell the rectified shares in the market if he so desires, and not necessarily send the shares for transfer back to the company.

13. BDC will verify the validity of all objections being sent for rectification or being received after rectification in case of inter exchange objections.

14. In case shares are lodged after Book Closure or Record Date and such shares are returned under company objection then such objections can be reported to the BDC but no claim can be made for Corporate Benefits accruing from such shares. Claim of corporate benefits will be considered only as request matter.

15. In case it is not possible to attach the original objection memo, a copy of the memo duly certified by the receiving member should be used.

16. In case where the first introducing member is the member of a exchange who has put first stamp on the transfer deed, and he has entered into a trade through a member of another exchange (meaning that the first introducing member has a relationship of client to the second introducing member), in such cases the objection should be reported against the second member and not against the first introducing member.

3.1 :Fee Structure for processing objections through the Bad Delivery Cell

The exchange may collect from the members a service charge for processing objections through the BDC. Such service charges may be collected through pre-paid coupons attached to the objection or through computerised billing. The service charge will be payable per objection submitted by a member. Preferably the charges should be marginally higher to help BDC to develop their own reserve of recyclable funds over a period of time.

3.2 :Instructions for filling of BDC forms

1. Since the processing of objections will involve stock exchanges form various parts of the country, it is suggested that the BDC forms should be filled in English which is accepted by all the Stock Exchanges as the common business language.

2. The BDC inward no. will be an eight digit number. The first two digits will the exchange code of the last exchange followed by a six digit unique serial number.

3. The BDC inward no. assigned to an objection should be used as a reference number by all the BDCs for all future communications related to that particular objection.

4. Members are required to use the relevant objection codes based on the reason for objection as given on the reverse of the form.

3.3 :Introducing Member being declared a defaulter

Local Exchange :

In case the introducing member of the local exchange has been declared as a defaulter, the receiving member has to file a claim with the Defaulter’s Committee/Clearing Corporation for resolving the claim for company objection.

Inter Exchange :

In case the introducing member of the first exchange has been declared as a defaulter, the receiving member of the last exchange will report the objection for rectification to the introducing member of the last exchange. The introducing member will rectify/replace the objection and return the same to the BDC of the last exchange within 21 days as is the normal practice.

The introducing member of the last exchange will in turn report the objection for rectification to the BDC of the last exchange. The BDC of the last exchange will forward the documents under objection to the BDC of the first exchange. The BDC of the first exchange will forward the documents to the last member of the first exchange for rectification within 21 days. The last member of the first exchange will then file a claim with the Defaulter’s Committee/Clearing Corporation of the first exchange for resolving the company objection.

3.4 :Partial rectification of company objection

In case introducing members are not able to rectify the complete lot of objections reported, they will be allowed to submit rectified objections in part provided the rectified quantity is in a market lot.

In case an odd lot is reported as an objection, the introducing member is required to rectify/replace either the entire odd lot or in case of partial rectification, the member is required to rectify in a market lot.

The introducing member will settle the benefit claimed in proportion to the quantity of shares rectified/replaced by the member.

3.5 :Benefit Claims

Claims for benefits can be made in the following cases:

a. where the book closure/record date (BC/RD) for the corporate benefit claimed has passed before the reporting day, or

b. where BC/RD for the corporate benefit claimed falls after the reporting day

but before the rectification pay-out day, or

c. where the BC/RD for the corporate benefit claimed falls after the

rectification pay-out day but within 15 days from rectification pay-out day.

Illustration :

Sr. No.	Reporting Day	Rectification Pay-out Day	Book Closure/ Record Date	Remarks
a.	11/3/96	1/4/96	1/3/96	Benefits can be claimed
b.	11/3/96	1/4/96	20/3/96	Benefits can be claimed
c.	11/3/96	1/4/96	15/4/96	Benefits can be claimed
d.	11/3/96	1/4/96	16/4/96 and later	Benefits cannot be claimed

3.6 :Stamp Duty

In case objection quantity is replaced, the receiving member is entitled to claim the stamp duty already paid by him on the original document. The introducing member will be required to pay the stamp duty amount based on the official closing price on the last rectification day or original stamp duty paid by the receiving member, which ever is higher. The amount of stamp duty paid will have to be specified on the BDC form by the receiving member at the time of reporting of objections.

3.7 :Schedule for Reporting / Rectified Company Objection.

A typical schedule for reporting and rectification of objection is given below. The exchanges may design their own schedule using the typical schedule.

Reporting of Objections and Claiming Corporate Benefits	Wednesday
Date of Intimation to the IM	Friday	Day 1
Pick up of Objections by the IM	Saturday
Reporting Invalid Objections and Corporate Benefit Claims (if any) by the IM	Thursday	Day 7
Rectification/Replacement of Objections along with corporate benefits by the IM	Thursday/ Friday	Day 21
Rectified Objection Pay-Out to the RM	Monday
Reporting non rectified objections or objection bad delivery by the RM	Wednesday

IM : Introducing member / Introducing Member of First Exchange

RM: Receiving Member / Introducing Member of Last Exchange

3.8 :Reporting of Objections by custodians to the BDC

Custodians who have received the delivery of securities through the clearing house are entitled to report such objections for rectification directly to the BDC of the exchange. In the alternative, if the custodians do not wish to report objections for securities received through the clearing house to the BDC, they could handover the securities for rectification to the members through whom the shares were purchased without collecting any collateral for such shares.

3.9 :Resolution of disputes arising between BDCs of two exchanges

SEBI will constitute an Inter-Exchange Arbitration Panel for settlement of disputes arising between BDCs of two exchanges. The detailed working of the panel will be intimated to the stock exchanges in due course.

Sr. No.	Corporate Benefit	Valuation
1	Dividend	Member has to submit the dividend cheque along with rectified company objection. If not submitted, the rectified objections will not be accepted, the original shares under objection will be closed out, and the dividend amount will be debited.
2	Bonus	Bonus shares or cheque for equivalent value should be submitted alongwith rectified company objection failing which the rectified objections will not be accepted by the BDC, the original shares under objection will be closed out, and the equivalent value of benefits will be debited to the account of IM.
3	Rights- Equity	Rights due or cheque/demand draft for equivalent value less rights issue amount should be submitted alongwith rectified company objection failing which the rectified objections will not be accepted by the BDC, the original shares under objection will be closed out, and the equivalent value of benefits will be debited to the account of IM.
4	Rights - FCD,PCD-convertible part (which are traded on NSE)	Rights due or cheque/demand draft for equivalent value less rights issue amount should be submitted alongwith rectified company objection failing which the rectified objections will not be accepted by the BDC, the original shares under objection will be closed out, and the equivalent value of benefits will be debited to the account of IM.
4	Rights - NCD PCD-Non Convertible Part	No Valuation
5	Others Rights - FCD,PCD-convertible part (if not traded on NSE)	Will be handled directly between members as is the current practice

IM : Introducing Member/First Introducing Member

RM : Receiving Member/Last Introducing Member

Computation of equivalent value : The equivalent value of a scrip will be the closing price of Day 19. The date of intimation of objection is taken as Day 1. In case there is no trading on Day 19 then the closing price of the day preceding Day 19 on which trading took place will be taken as equivalent value.

Annexure -B 1

Objection Register for BDC of __ Stock Exchange

The BDC of all Stock Exchanges are required to maintain a Register containing details in the following format when shares are given for Intra - Exchange Company Objections:

Format of Register Details when shares are given out for rectification: (Local Exchange)

BDC Inward No.	Date Given for rectification	Receiving Member Code	Introducing Member Code	Scrip	No. of shares	Date Recd. after rectification

Annexure - B 2

Objection Register for BDC of __ Stock Exchange

The BDC of all Stock Exchanges are required to maintain a Register containing details in the following format while sending and receiving shares for Inter-Exchange Company Objections:

Format of Register Details when shares are sent for rectification to the other Exchange:

BDC Inward No.	Stock Exch.	Date Sent (shares for rectification)	Member Code (First Int Mem of Last Exch)	Member Code (First Int Mem of First Exch)	Scrip	No. of shares	Date Recd. (rectified shares)

Format of Register Details when shares are received for rectification from the other Exchange:

BDC Inward No.	Stock Exch.	Date Recd. (for rectification)	Member Code (First Int Mem of Last Exch)	Member Code (First Int Mem of First Exch)	Scrip	No. of shares	Date Sent (rectified shares)

Annexure - C

SEBI Good/Bad Delivery guidelines :

108. For reporting fake/forged shares as company objection, the following documents are required:

A. If they are returned as objection from the company due to above reason :

company objection memo stating that the shares are fake/forged
copies of both sides of the transfer deeds
copies of both sides of the share certificates

B. Otherwise one of the following documents are required :

public notice given by the company /registrar
notification from any stock exchange
letter of intimation from the company to stock exchange

109. For reporting missing/lost/stolen shares as company objection the following documents are required :

A. If they are returned as objection from the company due to above reason :

company objection memo stating that the shares are missing/lost/stolen accompanied by a copy of Court Order or FIR
copies of both sides of the transfer deeds
copies of both sides of the share certificates

B. Otherwise one of the following documents are required :

public notice given by the company /registrar
notification from any stock exchange
letter of intimation from the company to stock exchange

Form No. : BDC - 1A

(To be filled in triplicate for submitting Local Exchange Company Objections)

The BDC/Clearing House BDC Inward No:

Security Name ( in full ) SECURITY CODE (SYMBOL) Series Eq./Deb Face Value Mkt. Lot

Close Out Price (see note I) :

Settl. Type Settl. & Del No. No. of Certs No. of
Shares
Cert Nos. Distinctive Nos.From To Objection Code Stamp Amount

TOTAL :

--------------------------------------------------------------------------------------------------------------------------------

CLAIM FOR CORPORATE BENEFITS

BDC INWARD NO. __ Security Name of Benefits:

STAMP & SIGN OF BDC STAMP AND SIGN OF RECEIVING

OF STOCK EXCHANGE MEMBER/CUSTODIAN

SEBI REGN. NO.( Receiving Member )

Note I : Indicate the close out price as per close out procedure.

Additional Details :

Buyer Custodian Name :

Seller Custodian Name :

Obj Code Reason

1. Transferor Signature not matching with the records of the company. Attestation required.

2. Fake/Forged/Stolen shares.

3. Alterations/Corrections on the Transfer Deed needs to be authenticated by the Transferor

4. Signature of the transferor not properly witnessed.

5. Stop Transfer instructions received by the Company.

6. Power of Attorney of authorised signatory not registered with the Company. Certified true copy of Board Resolution/Power of Attorney required.

7. Memorandum & Articles of association of the Company required.

8. Others (Specify the reason on the Form BDC - 1A)

Form No. : BDC - 1 B

(To be filled in quadruplicate for submitting Inter-Exchange Company Objections)

The BDC (First Introducing Exchange) BDC Inward No:

Date of Introducing the shares on the First Introducing Exchange : _

We enclose the company objections received by us as per details given below :

First Introducing Member of First Exchange SEBI REGN. NO. ( First Introducing Member )

Security Name of Benefits: _

PAYABLE AT dated for Rs. _ drawn on __ Clearing No.:_

Form No. : BDC - 2B

Part - A

( To be filled in quadruplicate by the First Introducing Member/ Custodian for submitting rectified Company Objections)

To,

The BDC(Last Exchange) BDC Inward No. _ (quoted by Last Exchange on form BDC- 1B)

Last Introducing Member/Custodian SEBI REGN. NO.(Last Introducing Member/ Custodian)

_ Clearing No._ payable at dated for Rs. _ drawn on (name of bank) in favour of __ Clearing No._Stock Exchange DATE:

Receiving Member/Custodian : SEBI REGN. NO. (Receiving Member/Custodian)

_ Equity share(s)/Debenture (s) of _
Security Name of Benefits: _

Part - A

Re: NON - ACCEPTANCE OF COMPANY OBJECTION

BDC Inward No. :

(quoted by Last Exchange on form BDC- 1B)

We are in receipt of the above company objection along with _Ltd. and relative transfer deed(s), which are being returned for reason(s) marked below :

1. We have not introduced these securities.

2. The delivering member stamp affixed on the reverse of the TD is fake. *

3. Objection reason not valid.

4. Objection due to transferee error.

5. Company memo not proper.

6. Copy of Court order /FIR required.

7.Others(specify): Security Name of Benefits: _ .

Authorised by:

The BDC Stamp & Sign of First Introducing Member of Last Exchange:

(Stamp & Sign of Last Introducing Exchange) SEBI REGN. NO.(First Introducing Member of Last Exchange)

Note : Members must submit a photocopy of Form BDC - 1B and BDC - 2B alongwith a copy of the Company Objection Memo while submitting shares for Bad Delivery.

DIVISION CHIEF

SECONDARY MARKET DEPARTMENT

SMD/RCG/4908/96

October 11, 1996

The Executive Directors/Managing Directors,

All Stock Exchange.

Dear Sir,

Concentration Ratio Margin

Please refer to our letter no. SMD/RCG/2782/96 dated 16.07.96 and letter no. SMD/RCG/3737/96 dated 13.08.96 wherein the Exchanges were advised to impose the concentration ratio margin as per Para.(iii) of letter dated 16.07.96 and Para. 1A(iii) of letter dated 13.08.96.

We have received references from various Stock Exchanges seeking certain clarifications regarding the period of the quarter to be adopted as base for calculating concentration ratio margin as well as regarding the adjustment of concentration ratio margin against other margins. As the issues raised by the Exchanges require further discussion in the Inter-Exchange Coordination Group of Stock Exchanges, we advise all the Exchanges to temporarily suspend the implementation of the concentration ratio margin.

The matter will be taken up in the next meeting of the Executive Committee of the Inter -Exchange Co-Ordination Group of Stock Exchanges and the decision taken by SEBI thereafter will be communicated to the Stock Exchanges.

Thanking you,

Yours faithfully,

sd/-

R.C.GUPTA

SR.EXECUTIVE DIRECTOR

SECONDARY MARKET DEPARTMENT

SMD/RCG/NI/4937/96

October 15, 1996

The Managing Directors/

Executive Directors of all

Stock Exchanges

Dear Sir,

Please find enclosed a copy of the Minutes of the meeting of the Executive Committee of the Inter Exchange Coordination group of Stock Exchanges held on September 27, 1996, which may please be gone through carefully.

As was decided at the meeting, all the stock exchanges are required to initiate immediate action on the following points:

i). Implementation of Mark to market Margin:

All Stock Exchanges to ensure that while calculating Mark to Market Margin netting of gains and losses is not permitted and 100% margin from Broker Members on notional losses incurred on each scrip are collected.

ii) Segregation of Broker and Client Transactions:

All Stock Exchanges to ensure that henceforth at the time of order entry, the broker will state whether the transaction is on his own account or for his client.

iii) Unique Order Code Number :

All Stock Exchanges to ensure that a system is put in place whereby each transaction is assigned a Unique Order Code Number which is intimated by the Broker Member to his client and once the order is executed this order Code Number is printed on the Contract Note.

iv) Database of profile of brokers

All Stock Exchanges to ensure that a database of all broker members is maintained. SEBI will forward shortly a format in which member booker’s data will be maintained.

v) Short Selling :

All Stock Exchanges to send their comments on whether it would be possible to declare Short Sale transactions at the time of order entry by the Member brokers.

A compliance report may please be sent to SEBI by October 31, 1996. On point no. ii) above, the information may also be included in the forthcoming Monthly Development Report which are being submitted to SEBI by all Stock exchanges.

Yours faithfully,

sd/-

O.P. GAHROTRA

encl : a/a

cc :1. All SR.Eds/Eds of SEBI.

Regional Managers of NRO,SRO and ERO.

All SEBI Officers who are on the Boards of various SEs. With a request to please ensure compliance of the above decisions by their respective SEs.

All officers of SMD.

MINUTES OF THE MEETING OF

THE EXECUTIVE COMMITTEE OF INTER EXCHANGE COORDINATION GROUP OF STOCK EXCHANGES

HELD AT SEBI, BOMBAY, ON SEPTEMBER 27, 1996.

The list of participants is as per Annexure ‘A’

Sr. Executive Director (IEMI) welcomed the participants and informed that several defaults have taken place in the exchanges, which require a review of the existing surveillance system. The need for setting up of a common "Stock Watch" system for all exchanges was discussed. The existing surveillance needs to be strengthened by imposing suitable margins, improving reporting and monitoring systems etc. so that any default in the future may be noticed and could be averted. The purpose of the meeting is to review the surveillance system of the exchanges and if need be to suitably strengthen the same.

1.0 IMPLEMENTATION OF MARK TO MARKET MARGIN

Chairman showed his concern over the functioning of the surveillance departments of the exchanges. He stated that inspite of having separate surveillance department directly reporting to the Executive Director (E.D) of the exchange, problems continue to exist and effective steps are not being taken in time. In the Governing Board meetings, surveillance is not the standard agenda as directed by SEBI. The Chairman reviewed the implementation of daily Mark to Market Margin system by the Stock Exchanges. He directed that all SEBI nominees on the Exchanges were to confirm the implementation of these margins. He also warned that if an Exchange fails in implementing the SEBI directive, trading in such exchanges could be suspended. Further he directed that SEBI nominees on the exchanges should ensure that market surveillance is a standard point of discussion in all Governing Board meetings.

Sr. Executive Director, (SMD), informed that certain exchanges are permitting netting for calculating Mark to Market Margin. It has been clarified that netting is not permissible and 100% margin is to be collected by the exchange on losses incurred in each scrip.

2.0 SEGREGATION OF BROKER AND CLIENT TRANSACTIONS

The possibility of identifying the order on client’s account or on broker’s own account was discussed. Though this information is available in the brokers’ books, it does not flow up to the exchange. It has been decided that henceforth at the time of order entry, the broker will state whether the transaction is on his own account or for his client.

Presently at NSE a system is followed whereby all orders received by member brokers from their clients are assigned a unique Order Code Number. This is intimated to the client at the time of placing the order. Once the order is executed this Order Code Number is printed on the Contract Note. It was decided that in the first phase all exchanges should be advised to put in place a similar system. At a later date the possibility of including unique Client Code Number will be examined by SEBI.

3.0 DATABASE OF PROFILE OF BROKERS

It was desired that a profile of each member broker should be maintained at Stock Exchanges. This database would broadly include two parts:-

(i) Fiscal History ( Asset base, Capital etc.)

(ii) Commercial Deals ( Volumes generated, no. of previous defaults, client complaints etc.)

SEBI would forward a format in which member broker’s data will be maintained by all Stock Exchanges.

4.0 SHORT SELLING

Sr. E.D, SMD, presented a discussion paper on Short Selling. It was discussed whether it would be possible to make a disclosure at the time of order entry as to whether the order is for a short sale or not. This would automatically place a curb on short selling. It was decided that Stock Exchanges will give feedback to SEBI whether it would be possible to declare Short Sale transactions at the time of order entry.

ANNEXURE ‘A’

LIST OF PARTICIPANTS

1. CHAIRMAN - SEBI

2. SR. EXECUTIVE DIRECTOR (SMD) - SEBI

3. SR. EXECUTIVE DIRECTOR (IEMI) - SEBI

4. EXECUTIVE DIRECTOR (SMD) - SEBI

5. EXECUTIVE DIRECTOR - THE STOCK EXCHANGE, MUMBAI

6. EXECUTIVE DIRECTOR - AHMEDABAD STOCK EXCHANGE

7. EXECUTIVE DIRECTOR - DELHI STOCK EXCHANGE

8. DEPUTY MANAGING DIRECTOR - NATIONAL STOCK EXCHANGE

9. DEPUTY SECRETARY - CALCUTTA STOCK EXCHANGE

10. EXECUTIVE DIRECTOR - OTCEI

11. DIVISIONAL CHIEFS OF SMD & IEMI

Circular

IMID/RG/3404/96

October 15, 1996

To

The President/Managing Director/Executive Director

All Recognized Stock Exchange

Dear Sir,

DISCLOSURE NORMS FOR INVESTOR PROTECTION –

COMMENTS OF REGIONAL STOCK EXCHANGES

In the post CCI era, when issue of securities by companies has been liberalized, disclosure norms have become the hall mark of regulatory policy in so far as public issues in the primary market are concerned. SEBI has been endeavoring constantly to improve the quality of the disclosures in the offer documents through various guidelines/ clarifications.

It has been observed that the Regional Stock Exchanges (RSE), with whom the issuer companies file a copy of the draft offer document, can also help improve the quality of the disclosures made in the offer documents. Since RSEs do monitor the activities of listed companies, any input from them would be of value. Even in case of Initial Public Offerings, the RSE may have inputs relating to the promoters, their Associates, group companies etc.

Therefore, it has been decided that it shall be mandatory for the RSE concerned, effective from November 1, 1996 to submit their comments/views on the draft offer document within 15 days of receipt of the document from the company. If there are no comments/views to be offered, a ‘nil’ report should be submitted. The comments/views should be sent to the office of SEBI where the offer document has been filed.

Yours faithfully,

sd/-

(R. GANDHI)

DIVISION CHIEF

L.K. SINGHVI

Sr. Executive Director

IEMI

IEMI/4982/96

October 18, 1996

To,

The Executive Directors/Managing Director

All Stock Exchanges.

Discussions at the Inter-Exchange Market Surveillance Group Meeting (ISG) held on September 27, 1996, at SEBI Mumbai.

Dear Sir,

Please find enclosed a copy of the Minutes of the Inter-Exchange Market Surveillance Group held on September 27, 1996.

As was decided at the meeting, all Stock Exchanges are required to initiate immediate action on the following points:

Stock Watch System

The Exchanges which are members of the ISG should submit a paper on the minimum required parameters for a Stock Watch System to SEBI. The above mentioned paper should be sent to the undersigned by November 4, 1996. This would be discussed further in the next meeting of the ISG and formalised. A note on the Stock Watch System, prepared by SEBI is also enclosed for reference.

Circuit Filters

With a view to keep abnormal price variation of traded scrips on different Exchanges in check, a weekly cap of 25% in the band is to be maintained for scrips that are traded above par. However, Exchanges are free to fix daily price bands at their own discretion. Further, this weekly band need not apply to scrips traded below par.

Daily and Settlement Reports

The following additions will be made to the monitoring reports sent to the surveillance department of SEBI by the Exchanges. In the daily report, top ten scrips by fluctuations in volumes will be included, whereas in the settlement report, comparison of the close price of the scrip in the present settlement with that of the settlement (a) one month back and (b) two months back will be made.

Yours faithfully,

sd/-

L.K.SINGHVI

(Sr. Executive Director)

MINUTES OF THE INTER EXCHANGE MARKET SURVEILLANCE GROUP HELD AT SEBI, MUMBAI ON SEPTEMBER 27, 1996

The meeting of the Inter Exchange Market Surveillance Group (ISG) was held on September 27, 1996. It was attended by the following:

Members :

Mr. R.C. Mathur - Executive Director, The Stock Exchange Mumbai

Mr. Ravi Narain - Deputy Managing Director, NSE

Mr. Tapas Dutta- Duputy Secretary, CSE

MR. G.S. Sodhi - Executive Director, DSE

Executive Director, MSE could not attend the meeting,

Special Invitees :

Mr. M.L. Soneji - Executive Director, ASE

Mr. Ajeet Prasad - Managing Director, OTCEI

Mr. Joseph Massey - Executive Director, Vadodara SE

The meeting was chaired by Sr. Executive Director Shri L.K. Singhvi and was attended by Sr. Executive Director Shri O.P. Gahrotra and Divisional Chiefs with officers of SMD and IEMI.

Shri D.R. Mehta, Chairman SEBI also addressed the meeting.

Opening Remarks :

Shri L.K. Singhvi, Sr. E.D., welcomed all the participants and initiated the meeting by mentioning about the various defaults that have occurred recently on Ahmedabad Stock Exchange, Vadodara Stock Exchange, and The Stock Exchange Mumbai. It was felt that the Exchanges should introduce such measures in their market monitoring and surveillance system which will enable them to detect any likely defaults promptly. The need to review the present surveillance system and necessity to develop and install a "Stock Watch" system was brought out. Chairman Stated that the Exchanges should make their surveillance system more effective to enable them to detect any defaults.

The Agenda of the Meeting was as follows :

The Stock Watch System

Norms relating to Circuit filters and price bands etc., and the need for a co-ordinated approach especially for scrips traded at multiple exchanges

Strengthening of monitoring systems to detect and minimize the possibility of default by brokers.

Review of existing surveillance mechanism in the stock exchanges including the review of the monitoring reports

Establishment of Stock Watch System

Sr. E.D., Shri L.K. Singhvi said that as the stock markets grow more complex, sophisticated systems that would ensure detection of abuses like market manipulation, insider trading, etc. Were needed. It was agreed that the time has come to put into place such system for monitoring the market, in the lines of the "Stock Watch" system operational at NYSE, and other similar system operational in developed markets.

The components of such a system can be broadly classified into three specific segments based on price volume variations :

1. Alert Segment

2. Data Analysis Segment

Report Generation Segment

The System would trigger alert signals based on abnormal price or volume fluctuations of any scrip traded on the Exchange on an on-line basis. System should be security specific ideally, however, in the beginning it could be slightly broader.

It was agreed to formulate along with SEBI’s surveillance Department the minimum required parameters for a Stock Watch System (SWS) which could be implemented by the Stock Exchanges which are already on line and the others which are in the Final process of becoming on-line.

Circuit Filters

It was observed that prices of some of the actively traded stocks at the major Exchanges showed huge variations on different exchanges. In volatile situations leading to manipulation by operators. The members were of the view that fixing uniform filter bands on daily basis may not be advisable and it should be left to the discretion of the Exchanges. However, weekly price filter should be fixed at 25% for all scrips quoting above par. This would keep abnormal variations in check. For scrips quoting below par, the Exchange can consider relaxing the bandwidth of 25%.

Defaults

The recent defaults on the Vadodara, Ahmedabad and The Stock Exchange, Mumbai were discussed along with the actions taken by the respective Stock Exchanges. It was informed to the Group that the various defaulters had put up their margin payments promptly but had failed to bring in finances on the pay-in day and hence the surveillance department of the exchanges were unable to avert the default. However, it was felt that surveillance machinery of the Exchanges should monitor margin systems properly and also take steps to avert such defaults. In this context, it was felt that the exchanges were in a better position to assess the situation and they should consider putting trading limits on brokers especially in illiquid stocks to avoid broker taking abnormal positions leading to possible defaults.

Revamping exercise on the Stock Exchange Mumbai

The group was informed that The Stock Exchange, Mumbai was in the process of revamping its A, B1 and B2 group of stocks such that all illiquid stocks could be placed in one group. This exercise would enable the Exchange to have a better in its monitoring and reporting capability.

Daily and Settlement Reports

While reviewing the daily and settlement reports, it was observed that in some cases prices of scrips have not broken their circuit barrier, yet they have risen significantly. In this manner a scrip may rise nearly 2.5 times by the end of the settlement period (five trading days) before the activity is noticed. It is decided to make the following changes in the settlement formats:

Close price comparison between the present settlement and settlement one month back.

Close price comparison between the present settlement and settlement two

Daily reports also have to now include top ten scrips by fluctuation in volume.

CC:
Sr. Executive Directors

Executive Directors

Division Chiefs

STOCK WATCH SYSTEM

A Stock Watch system is a system designed for surveillance of market activity by the utilization of computers programmed to identify aberrations from historical patterns that are identified and followed up on by specially trained analysts and investigators. The system thus enables identification of cases for further investigation.

The Stock Watch system should be capable of identifying abnormal stock price behaviors as well as aberrant member broker trading patterns. While statistical models can be built for pinpointing abnormal stock behaviors, necessary precautions must be taken to plug the inherent weakness of using statistics. A statistically programmed market surveillance system is not the be all and end all to market surveillance. All a system does is to raise red flags as to the possibility of an improper or unusual activity and this is the case irrespective of the sophistication of the system. There is always a necessity to develop additional data to support subsequent actions. This can be obtained only by follow-up and, in most cases, by field investigations after the red flag has been raised.

Other systems storing related information should complement such a system which should be designed with the peculiarities of the particular market in mind.

The main objectives of the system are :

Provision of on-line and historical data

Generation of alerts and freezes for unusual trading activity based on definable parameters

Dynamic updation of information-security wise and member broker wise

Graphical representation of data for analysis

Provision of various mathematical and statistical tools for analysis

Components of a Stock Watch System

The components of a stock watch system can be broadly classified into three specific segments:

Alert Segment

Data Analysis Segment

Report Generation segment

Alert Segment

The parameters for the generation of alerts should be defined by the Exchange on a periodic basis. The alerts proposed for the system are detailed underneath :

Scrip Alert

These alerts could be based on the following pre-set parameters

High low difference for a day or for consecutive days.

Open close difference- The absolute value of one day’s closing price minus the next day’s opening price.

Close-close difference for a day / consecutive days, or for any two days.

Trade price having seen a major difference in various market segments.

Member Broker Alert

These alerts could be raised based on the following

The day’s activity for a member(s)

The day’s activity for a User Id for a member(s)

Change in turnover of a Member broker between two days or periods

The difference in pay-in amounts between two settlement periods.

Trade Alert

These alerts could be raised based on the following

Traded volume for a particular member being greater than a certain percentage of the total volume traded for the scrip

Traded price being greater than a certain percentage of the last traded price

Once an alert is generated, the system must be capable of generating a complete audit trail for all kinds of deals (negotiated/normal/institutional/trade for trade/spot etc.) deals done by the brokers.

The system must also be able to identify those member brokers whose activity was responsible for the unusual activity in the stock for further inspection.

Over and above the trading data, the Exchange must be able to retrieve pertinent security specific corporate action for the relevant period. This way, false alerts generated, by say, declaration of good results etc. can be ignored.

Data Analysis Segment

This is complimentary to the Alert segment. In this segment analytical information and graphs will be generated for scrips/ members where unusual activity is observed.

Report Generation segment

This segment will provide report on an on-line basis. These reports mat be of two kinds -

Routine Reports : Daily and settlement wise reports

Special Reports : These reports prepared in a particular format on a case to case basis as and when required .

O.P. GAHROTRA

SENIOR EXECUTIVE DIRECTOR

SMD/POLICY/5325/96

October 30, 1996

All the Executive Directors/Presidents of Stock Exchanges and

Managing Directors of NSE and OTCEI

Dear Sir,

EXPANSION OF BOLT (BSE ON-LINE TRADING )

TO CITIES OTHER THAN MUMBAI

As you are aware, the Stock Exchange, Mumbai (BSE) had requested SEBI to permit its members to open trading terminals at locations outside Mumbai. It has been decided that in the larger interest of the investors and to have a level playing field and to provide healthy competition in the Secondary market, the proposal of the BSE expansion of BOLT terminals to the cities other than Mumbai and also any other such proposal of any other Stock Exchanges for expansion of their On-line Screen Based trading to locations outside the city where such Stock Exchanges are located would be allowed/considered by SEBI subject to the following conditions:-

The Stock Exchange would be free to expand the trading terminals to those cities, where no Stock Exchange is located. The service to the clients would be provided by the brokers either by directly opening branch at such places or through an agent duly authorised and registered with SEBI for this purpose. The contracts/orders would be executed at the city where the concerned Stock Exchange is located. The investors’ grievances in such cases would be resolved by the concerned Stock Exchanges.

The Stock Exchange proposing to install the terminals to those cities, where other Stock Exchanges are located, would be required to reach an understanding with other Exchanges permitting it to install its terminals in their jurisdictional areas.

The Exchange proposing such expansion plan would also keep their membership open to the brokers of the other Stock Exchanges. The terms of the membership including a reasonable price would be decided by the concerned Stock Exchange, but would not exceed what is being offered to its own new members at the city, where the Stock Exchange is located.

The concerned Stock Exchange, in terms of MOU, would have to ensure that there are adequate arrangements for resolving the investors’ grievances and timely settlement of arbitration cases arising out of trades which are executed on the extended terminals.

General conditions:

The Exchange would ensure that there is adequate monitoring and surveillance mechanism for such outstation terminals in order to oversee the trades.

All such trades would be subject to usual margin, capital adequacy and intra-day trading limits fixed for the brokers by the Exchange.

The Exchange would ensure that investors eventually do not pay the brokerage on such trades exceeding the maximum brokerage permitted as per the rules of the Exchange; and

The Exchange would introduce the system of guaranteeing trades or set up a Clearing Corporation.

It may please be noted that while considering any such proposal for expansion, SEBI will also look into the overall effectiveness of the Exchange Management, Degree of professionalism in the working of the exchange and satisfaction level of self regulation. Similarly, compliance of various directives of SEBI, e.g. directives regarding margins, Capital Adequacy, Arbitration Mechanism, Investors Grievance, Redressal Mechanism, etc. by the concerned Stock Exchange would also be seen before permitting any expansion.

Yours faithfully,

sd/-

O.P. GAHROTRA

SMD/MDP/ST/5201/96

November 5 1996

To,

Executive Directors/Managing Directors/

Presidents of all exchanges.

Dear Sir,

It is observed that of late, exchanges are delaying implementation of decisions taken in the Inter Exchange Co-ordination Group (IECG) meeting under the pretext of seeking clarifications from SEBI. In this connection it may be noted that decisions ought to be implemented in time as advised/directed by SEBI and clarifications, if any, can be sought separately. Generally, adequate time is given for implementation of the decisions and therefore it should normally suffice for seeking clarifications, if any from SEBI before the specified date of implementation. If still there is any grey are left to be clarified, this can be referred to without holding back the implementation of directives/advice issued by SEBI.

In view of the forgoing, you are advised that the Stock Exchanges have no choice in the implementation of the directions/instructions issued by SEBI and there should not be any slackness in the implementation.

Please acknowledge receipt.

Yours faithfully,

sd/-

M.D. Patel

(ED-SMD)

O.P. GAHROTRA

SENIOR EXECUTIVE DIRECTOR

SMD/POLICY/SS/5448/96

November 28, 1996

Executive Directors/Presidents

Managing Director of all Stock Exchange

Dear Sir,

As recommended by the B.D. Shah Committee appointed by SEBI to examine and recommended and the suitable modalities for proper regulation of "Short-Selling" in the Indian stock market, all the Stock Exchanges are directed to mandatorily obtain from each of its member broker, his scripwise net Short-Sale position at the end of each trading day. Short Sale for this purpose would mean selling the shares without having the physical possession of the shares unless it is for squaring up of an earlier purchase in the same settlement and in the same Stock Exchange. This information would be required in respect of 60 actively traded scrips as per the enclosure.

The Stock Exchanges would compile the scripwise cumulative Short Sale position and would make it public latest by the next day. The Exchanges which are computerised would give this information both on the notice boards and on the screen before opening of the next trading session and the Exchanges which are not yet computerised would display this information on the notice boards before commencement of the trading on the next day. This information would also be made available to the media.

Thanking you,

Yours faithfully,

sd/-

O.P. GAHROTRA

Encl. : as above.

Associated Cement Cos. Ltd.

Andhra Valley power Supply Co. Ltd.

Apollo Tyres Ltd.

Arvind Mills Ltd.,

Ashok Leyland Ltd.

Asian Paints (India) Ltd.

Bajaj Auto LTd.,

Ballarpur Industries LTd.

Bharat Petroleum Corpn. Ltd.

Bharat Heavy Electricals Ltd.

Bombay Dyeing & Mfg. Ltd.,

Brittannia Industries Ltd.,

Brooke Bond Lipton India LTd.

BSES Ltd.

Cadbury India Ltd.

Castrol India Ltd.

Century Textiles & Industries Ltd.,

Colgate-Palmolive (India) Ltd.,

Dr. Reddy’s Laboratories Ltd.,

East India Hotels Ltd.,

Escorts Ltd.

Great Eastern Shipping CO. Ltd.,

Glaxo (India) Ltd.,

Grasim Industries Ltd.,

Gujarat Ambuja Cements Ltd.,

Hindustan Lever Ltd.,

Hindustan Motors Ltd.,

Hindustan Petroleum Corpn. Ltd.,

Hindalco Industries Ltd.,

Housing Development Finance Corp. Ltd.

Industrial Credit & Inv. Corp. of India

Industrial Development Bank of India

Indian Hotels Co. Ltd.

Indian Rayon & Industries Ltd.

Indo Gulf Fertilizers & Chem. Ltd.

Industrial Finance Corp. of India Ltd.

Indian Petrochemicals Corpn. of India

ITC Ltd.,

ITC Bhadrachalam Paperbaords ltd.

Larsen & Toubro LTd.

Mahindra & Mahindra Ltd.,

Mahanagar Telephone Nigam Ltd.

Nestle India Ltd.

Oriental Bank of Commerce

Ranbaxy Laboratories Ltd.

Raymond Limited.

Reliance Industries Ltd.

SCICI Ltd.

Siemens Ltd.

State Bank of India

Steel Authority of India Ltd.

Sterlite Industries (India) Ltd.,

Tata Power Co. Ltd.,

Tata Engg. & Loco Co., Ltd.

Tata Power Co.Ltd.

Tata Iron & Steel Co. Ltd.

Tata Tea Ltd.,

Thermax Ltd.

United Phosphorus Ltd.

Unit Trust of India

M.D. PATEL

EXECUTIVE DIRECTOR

SMD/POLICY/SS/5452/96

November 29, 1996

Executive Directors/Presidents

Managing Director of all Stock Exchange

Dear Sir,

In continuation of our letter SMD/POLICY/5448/96 dated November 28, 1996, it is clarified that as mentioned in the press release dated November 27, 1996, the directives regarding scripwise net sale position are to implemented with effect from November 29, 1996.

Thanking you,

Yours faithfully,

sd/-

M.D. PATEL

M.D. PATEL

EXECUTIVE DIRECTOR

SMD/POLICY/SC(R)A/5476/96

November 29, 1996

Executive Directors/Presidents

Managing Directors of all Stock Exchange

Dear Sir,

Amendment in the Articles, Bye-laws, Rules,Regulations

under Listing Agreement of the Stock Exchanges.

Most of the powers under the provisions of the Securities Contracts (Regulation) Act has been given to SEBI either by amendment of the provisions of the SC(R)A or by delegation of powers by the Central Government under Section 29A of the SC(R)A. However, consequent changes in the Articles, Bye-laws, Rules, Regulations and Listing Agreement of the Stock Exchanges has not been Carried out. The name of Central Government still appears in such Bye-laws, Regulations., etc.

It is therefore proposed to amend the Articles, Bye-laws, Rules, Regulations and Listing Agreement of the Stock Exchanges to make them in consonance with the provisions of the Act and enable SEBI to exercise its powers more effectively. It is therefore advised that in the Articles, Bye-laws, Rules, Regulations and the listing Agreement of Stock Exchanges wherever the words "Central Government" occur, they shall be substituted by the words "Securities and Exchange Board of India".

You are accordingly advised to take necessary steps for amendment of Articles, Rules, Regulations, etc. A copy of the draft Articles, Bye - laws etc. to be amended as above be sent to SEBI for its approval.

Yours faithfully,

sd/-

M.D. PATEL

EXECUTIVE DIRECTOR

cc : 1. Chairman’s Secretariat, Sr. EDs/EDs

SEBI officers who are on the Boards of various Stock Exchanges

Regional Managers

All officers of SMD

Shri Paul Joseph - Ministry of Finance

DIVISION CHIEF

SECONDARY MARKET DEPARTMENT

SMD/POLICY/IECG/5548/96

December 09, 1996

The Managing Director/

Executive Director of all Stock Exchanges.

Dear Sir,

Please find enclosed a copy of the Minutes of the meeting of the Executive Committee of the Inter Exchange Co-ordination Group of Stock Exchanges held on December 02, 1996. As was decided at the meeting all Stock Exchanges are required to initiate immediate action on the following points:

1.Standardisation of Close out Procedure

All Exchanges shall amend their Byelaws relating to Close out procedure for Short deliveries pertaining to the settlement as given below.

"The close out Price will be the highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and upto the date of auction/close out

OR

20% above the official closing price on the exchange on the day on which auction offers are called for (and in the event of there being no such closing price on that day, then the official closing price on the immediately preceeding trading day on which there was an official closing price),

WHICHEVER IS HIGHER."

In addition the following conditions are also to be complied with:

1. In no case the auction would be held more than once unless the same is approved by a special resolution of the Governing Board. The outstanding position at the end of the first auction cycle shall be automatically closed out.

2. In no case the auction shall be held beyond a period of one week from the pay in day of the settlement in which the concerned contract had been entered into.

2 Database of Profile of Member Brokers:

All Exchanges are advised to maintain a database of Member brokers in the standard format which is prescribed by SEBI and finalised at the meeting of IECG. (Annexure `1')

You are advised to implement the above with immediate effect.

Yours sincerely,

sd/-

N. PARAKH

encl: a/a

cc: 1. All Sr. Eds/Eds of SEBI

2. Regional Managers of NRO, SRO & ERO.

3. All SEBI Officers who are on the Board of various SEs, with a request to please ensure compliance of the above decisions by their respective SE

4. All officers of SMD.

MINUTES OF THE MEETING OF THE EXECUTIVE COMMITTEE OF INTER EXCHANGE CO-ORDINATION GROUP (IECG OF STOCK EXCHANGES HELD AT SEBI, BOMBAY, ON DECEMBER 02,1996.

The list of participants is as per Enclosure `A'

The Agenda for the Meeting is as per Enclosure`B'

The IECG in the morning met the B.D. Shah Committee appointed by the SEBI for suggesting modalities for regulation of Short Selling in India and in the afternoon discussion was held on the various topics of the agenda. Executive Director (SMD) welcomed the participants and commenced the discussion. The issues were discussed and following are the list of discussion and consensus that emerged in the group:

1.0 STANDARDISATION OF CLOSE OUT PROCEDURE (IN CASE OF SETTLEMENT SHORT DELIVERY)

SEBI had received various representation from the Exchanges for changing the Bye-laws relating to Close out procedure. In this regard SEBI examined the possibility of having uniform Close out procedure for all Stock Exchanges in case shares are not offered during auction (i.e. in cases of Settlement Short delivery). The Close out procedure in case of settlement of bad deliveries is prescribed separately in Bad Delivery Cell procedure.

The Close out procedure followed by Bombay, National and Delhi Stock Exchanges were examined. A suggestion was made to consider the weighted average price of the settlement rather than the highest price during the settlement i.e settlement period till the date of auction as the Closing out price. It was then considered that if weighted average price is taken there is a possibility that the buyer would suffer a loss in the event he had purchased the shares at a higher price than the average price. Further the weighted average price does not penalise the delivering shares.

It was then unanimously agreed to adopt the following Close out procedure that is similar to that followed by the Stock Exchange, Mumbai:

CLOSE OUT PROCEDURE:

The Close out Price will be highest price recorded in that scrip on the exchange in the settlement in which the concerned contract was entered into and upto the date of auction/close out

OR

20% above official closing price on the exchange on the day on which auction offers are called for (and in the event of there being no such closing price on that day, then the official closing price on the immediately preceding trading day on which there was an official closing price),

WHICHEVER IS HIGHER"

In addition the following conditions were also agreed to systematise the entire Close Out procedure.

1. In no case the auction would be held more than once unless the same is approved by a special resolution of the Governing Board. The outstanding position at the end of the first auction cycle shall be automatically closed out.

2. In no case the auction shall be held beyond a period of one week from the pay in day of the settlement in which the concerned contract had been entered into.

2.0 ACCEPTANCE OF DEPOSITS BY MEMBER BROKERS

The issue related to eligibility of broking companies to accept public deposits and inter-corporate deposits (as per RBI guidelines applicable to loan and investment companies) was taken out for discussion.

It was unanimously accepted that such a step would benefit the corporate brokers and would help broking companies in improving their liquidity position. It was decided that the matter may be taken with RBI for further action.

However it was pointed out that by acceptance of deposits. the broker would enhance their exposure but the participants felt that no additional risk would arise on account of acceptance of deposits.

3.0 ELIGIBILITY OF CORPORATE BROKER MEMBERS TO BECOME MEMBERS OF THE GOVERNING BOARD ON STOCK EXCHANGES.

SEBI has been receiving representations from various Stock Exchanges regarding eligibility for Corporate Broker Members to become members of the Governing Board on the Stock Exchanges.

In view of encouraging corporatisation of broker members the above issue was considered. A suggestion was made that person eligible for appointment to the Governing Board must have a minimum stake of 26% of the paid up capital of the company. However it was argued that in the case of public limited companies the whole time director may not hold such a high stake even though he is responsible for the say to day affairs of the company. It was also stated that such persons should have a minimum of three years experience as director/member in the securities market. It was noticed that each exchange had different eligibility criteria. It was decided that SEBI may lay down the following uniform criteria for individual as well as corporate members.

In case of INDIVIDUAL members:

"No member shall be eligible to be elected as a member of the Governing Board if-

he is not a citizen of India;

he has been member for less than three years standing on the 1st day of January of the year in which the election takes place;

iii) he has at any time been declared a defaulter or failed to meet his liabilities in ordinary course or compounded with his creditors.

In case of a CORPORATE member, one of its whole time directors subject to the following conditions to the above may be eligible to be elected as a member of the Governing Board:

1. In case the director resigns/retires from the board of the company, or is removed from the Board of the Company the post on the Governing Board will fall vacant. The vacancy will be filled as per Rules of the exchange and corporate members will not have a right to replace the member.

2. In case of conversion of individual member/partnership firm into a corporate member, and the individual/partner(s) are whole time director(s) of the corporate then the previous experience of such member(s) would be considered for meeting eligibility norms to become member of the Governing Board.

In the event of cancellation of the registration as stock broker because of any disciplinary action taken against the member by Exchange/SEBI, the member will not be eligible to be elected and/or to continue on the Governing Board.

In the event of suspension of the registration as stock broker because of any disciplinary action taken against the member by Exchange/SEBI, the member will not be eligible to be elected and/or to continue on the Governing Board of the exchange during the period of his suspension.

4.0 BROKER DATABASE TO BE MAINTAINED BY ALL EXCHANGES

In the last Inter Exchange Co-ordination Group meeting it was decided that SEBI will prescribe a format of the broker database to be maintained by all the Exchanges. The format was developed and put forth to the participants. The format was accepted with following modifications:

To exclude details regarding the main institutional/retail clients.

.Inclusion of details of inspections conducted by the Exchanges/SEBI.

.Details of fees paid payable to SEBI.

ENCLOSURE`A'

LIST OF PARTICIPANTS

1. EXECUTIVE DIRECTOR (SMD) SEBI

2. DIVISION CHIEF (SMD) SEBI

3. PRESIDENT- DELHI STOCK EXCHANGE

4. GENERAL MANAGER- COCHIN STOCK EXCHANGE

5. EXECUTIVE DIRECTOR- DELHI STOCK EXCHANGE

6. VICE-PRESIDENT- CALCUTTA STOCK EXCHANGE

7. PRESIDENT- AHMEDABAD STOCK EXCHANGE

8. EXECUTIVE DIRECTOR- PUNE STOCK EXCHANGE

9. EXECUTIVE DIRECTOR- AHMEDABAD STOCK EXCHANGE

10. GENERAL MANAGER- OTCEI

11. OFFICERS (SMD)- SEBI

ENCLOSURE`B'

AGENDA

1. CLOSE OUT PROCEDURE.

2. ACCEPTANCE OF DEPOSITS BY MEMBER BROKERS.

3. ELIGIBILITY OF CORPORATE BROKER MEMBERS TO BECOME MEMBERS OF THE GOVERNING BOARD ON STOCK EXCHANGES.

4. DATABASE OF BROKER MEMBERS TO BE MAINTAINED BY STOCK EXCHANGES.

ANNEXURE `I'

SECURITIES AND EXCHANGE BOARD OF INDIA

SECONDARY MARKET DEPARTMENT

As stated by SEBI following is the format of database to be maintained by the Stock Exchanges for Broker Members:

BROKER DATABASE TO BE MAINTAINED BY ALL STOCK EXCHANGES

(1) HISTORICAL DETAILS ABOUT THE BUSINESS FROM DATE OF

ESTABLISHMENT:

. Name of Firm.

. Registered/Corporate Address, Telephone Number,Fax Number.

. Date of Establishment of Business.

. Details of Directors/Partners/Proprietor (whichever applicable).

i) Name

ii) Addresses

iii) Qualifications

iv) Work Experience

. Names and addresses of Authorised Signatories of the Firm/Brokerage.

. Whether Broker is a Member in any other Exchange, if yes specify which Exchange.

. Number of Cities where Firm has Offices, specify where

. Whether Back Office Computerised at the Offices.

. Staff strength at each Office.

. Qualifications of Key Staff members

Graduates

Post Graduates

Chartered Accountants

Cost Accountants

Company Secretaries

MBAs

Other

. Number of Sub Brokers attached with the Firm/Brokerage.

. Number of above Sub Brokers registered with SEBI.

. Names and Addresses of Sub Brokers.

(II) FISCAL HISTORY

. Capital Contribution (whichever applicable).

(i) Corporate Brokers-Authorised,Issued and Paid Up.

(ii) Partnership Firms-Partners Paid Up Capital.

(iii) Individual Brokers-Capital.

. Free Reserves (in case of companies).

. Total Net Worth.

. Amount of Base Minimum Capital Deposited with the Exchange.

(i) Cash

(ii) Fixed Deposit (pledged in the name of the Exchange).

(iii) Securities.

(III) COMMERCIAL DEALS (FOR THE LAST THREE YEARS):

. Volume of Turnover during the Month.

. Volume of Turnover in the Settlement.

. Average Daily Turnover.

. Delivery as a percentage of Turnover.

. Amount traded on own account and on account of Clients.

. Number of times Broker Member has defaulted in Settlement(Yearwise)

. Details of any Disciplinary Action taken by the Exchange (Yearwise).

. Details, if any, of default in paying of Margin Money to the Exchange.

. Cumulative number of Investor Complaints, as on 31st March of every year.

. Number of pending Investor Complaints, if any, as on 31st March of every year.

. Cumulative number of Arbitration Cases.

(i) Against other Members.

(ii) Against Investor.

. Number of pending Arbitration Cases, if any, as on 31st March of every year.

(i) Against other Members.

(ii) Against Investor.

. Number of Bad Deliveries reported against the Broker.

. Number of times Broker-Member's cheques bounced.

. Details of delays and irregularities, if any, in submission of Audited Report to the Exchange.

. Details of last inspection conducted by the Exchanges/SEBI and any comments made in this regard.

. Details of fees paid/payable to SEBI.

SMD/POLICY/BDC/5547/96

December 09, 1996.

To

The Executive Directors-All Exchanges/

MD-NSE and OTCEI/Administrator- PSE

Dear Sir,

Amendments to the Bad Delivery Cell procedure.

Please refer to our Circular no. SMD/POLICY/4296/96 dated 04.10.96 on the above subject. After issue of circular, certain clarifications were sought from the market intermediaries relating to some issues. Some amendments have been made to certain clauses and you are requested to take note of the same. The amendments will be effective from the date of this circular i.e 09 December 1996. The following clauses have been amended:

1. Clause 1.4(1) and 2.4(1) related to Second Times Objections.

2. Clause 1.5 and 2.5 related to Close Out procedures.

3. General Instruction No.7 related to details to be maintained in the Register.

4. General Instruction No 17 regarding defaulters.

5. Clause 3.1 regarding Fee structure.

6. Clause 3.4 regarding defaulters.

7. Clause 3.6 regarding Stamp Duty.

8. Clause 3.9 regarding custodians.

9. Form no. BDC 3A and BDC 3B.

Thanking you,

Yours sincerely,

sd/-

O. P. GAHROTRA

SR. EXECUTIVE DIRECTOR

CC: 1. All Sr. Eds/Eds of SEBI

2. Regional Managers of NRO, SRO & ERO

3. Officers of SMD.

Procedure for Handling Intra Exchange & Inter Exchange Company Objections through

Bad Delivery Cell (BDC)

SECURITIES AND EXCHANGE BOARD OF INDIA

CONTENTS :

1: Procedure for handling Local Exchange Objections

1.1 :Procedure to be followed by the Member for reporting Local Exchange Objections to the BDC of the local exchange

1.2 :Incorrect reporting of Company Objections

1.3 :Non Rectification of Shares or Bad delivery of rectified/replaced shares submitted Under Objection.

1.4 :Second Time Objections.

1.5 :Corporate Benefits

2 :Procedure for handling Inter Exchange objections.

2.1 :Procedure to be followed by a Member for reporting Inter Exchange objections to Bad Delivery Cell ( incase the shares have been transacted on more than one exchange ).

2.2 :Incorrect reporting of Company Objections

2.3 :Non Rectification of Shares or Bad delivery of rectified/replaced shares submitted Under Objection.

2.4 :Second Time Objections.

2.5 :Corporate Benefits.

3 :General Instructions.

4 : Annexures.

Terminology :

The terms used to explain the procedure for reporting objections to Bad Delivery Cell are defined below :

BDC : Bad Delivery Cell

First Introducing Exchange (FIE) : The exchange where the shares were first introduced .

Local Exchange (LE) : The exchange where the shares were traded for the last time before they were sent for transfer to the company.

First Introducing Member (FIM) : The member who has introduced the shares on the First Introducing Exchange.

Last Introducing Member (LIM) : The member who introduced the shares on the local exchange.

Receiving Member (RM) : The last member of the local exchange who has finally received the shares before sending them for transfer to the company.

Previous Member (PM) : The member from whom LIM purchased the shares. (i.e the member who has delivered the shares to the LIM).

1: Procedure for handling Local Exchange Objections

1.1 :Procedure to be followed by the Member for reporting Local Exchange(LE) Objections to the BDC (where the RM and the FIM are of the same exchange).

1. The shares under objection are required to be lodged by the RM of the LE with the BDC in the prescribed form BDC-1A. Claims for corporate benefits (if any) should also be made in Form BDC- 1A. RMs will be required to report such objections to the BDC on the days specified by the exchange (see schedule)

2. The following documents are required to be lodged :

Form BDC - 1A in triplicate

Original Transfer Deed

Share Certificates

Original Company Objection Memo or Certified copy of the memo.

In case of fake / forged /stolen / missing shares, all documents as given in SEBI Good /Bad Delivery guidelines no. 108 / 109.(as per annexure - C)

3. All the documents as given in point 2 are required to be lodged by the RM with the BDC in a sealed plastic pouch. Form BDC-1A is required to be submitted in triplicate, of which one copy should be attached on the pouch, and the remaining two copies should be attached to the documents and placed inside the pouch.

4. The BDC will give an acknowledgment to the RM on the third copy of Form BDC - 1A which is attached outside the pouch. This acknowledgment will be given by using a rubber stamp and will bear the words " subject to verification / counting ".

5. The BDC will retain one copy of Form BDC - 1A for its records, while the copy of Form BDC - 1A attached to the documents will be handed over to the FIM.

If all the shares (pertaining to the same company), have been introduced by the same FIM, then the RM must report this as one objection ( i.e in one form BDC-1A). On the other hand, if the shares have been introduced in the exchange by more than one FIM, then the RM must report the objections separately for each FIM using a separate form BDC-1A and in separate pouches.

7. The BDC will allot a unique serial number (BDC Inward No.) to each objection case reported by the RM.

8. The BDC will verify/count the documents enclosed by the member. If the contents of the pouch are not in order the same will be returned to the RM of the exchange.

9. a. In the event that the BDC is not equipped to carry out the verification/counting the BDC will sort the documents first introducing memberwise and handover the documents to the FIM within 24 hours of receipt of such objections.

b. The FIM will count the securities on the counter and give an acknowledgment to the BDC for the number of securities received. The verification for the correctness of the objection will be done later. During the process of verification, if the FIM finds that the objection is incorrect, he will return the objection to the BDC within 7 days alongwith form BDC-3A. The BDC will give an acknowledgment on form BDC-3A to the FIM.

c. If the BDC is satisfied with the claim of the FIM regarding the invalidity of the objection , then the documents will be returned to the RM. If the BDC finds that the objection is valid then the FIM will be required to accept and rectify the objection.

10. The BDC will sort all the objections received, in the order of FIM.

11. The BDC will forward the pouch containing the objections to the FIM within 3 days of receipt of such objections. The FIM will acknowledge the receipt of such objections by affixing his rubber stamp and initials on the copy of Form BDC - 1A retained by the exchange. The BDC will stamp the date by which the shares are to be rectified or replaced by the FIM (i.e. 21 days from the date of submitting objection to FIM). The stamp will be put on form BDC 1A in a different colour while giving acknowledgment copy to the FIM.

12. The FIM will enclose the following documents while rectifying / replacing the shares under objection.

Prescribed Form BDC - 2A in triplicate

Rectified / replaced shares

Benefits ( if any ) due

Copy of Form BDC - 1A

Copy of the company objection memo

Cheque for value of transfer stamps and/or corporate benefits

13. The FIM will hand over the documents mentioned in point 12 above in a plastic pouch on the rectification day to the BDC. The BDC will return one copy of Form BDC - 2A to the FIM, acknowledging the receipt of rectified shares by affixing a rubber stamp bearing the words " subject to verification/counting ". One copy of Form BDC - 2A will be retained by the BDC and the last copy of Form BDC - 2A alongwith the rectified documents will be returned to the RM.

14. In the event of closeout, the cheque shall be in favour of the RM who has reported this objection to the BDC for rectification.

15. The BDC will handover the rectified/replaced shares/ cheque and corporate benefits to the RM within 7 days of the rectification day.

16. If the FIM fails to rectify / replace the shares under objection by the prescribed rectification day the exchange will auction/close out the transaction as per the closeout procedure laid down in para 3.1.

1.2 :Incorrect reporting of Company Objections

1. If the FIM finds that the objection /corporate benefits has been reported wrongly against him, the FIM will report such cases to the BDC by filling in form BDC - 3A and will return the shares received under objection to the BDC alongwith copy of form BDC 1A.

2. If no such objection has been raised by the FIM within 7 days of receiving the objection, it will be understood that the FIM has accepted the objections / corporate benefits reported against him and will be required to rectify / replace the shares by the rectification day.

3. The BDC will return the shares wrongly reported as objection back to the RM.

4. In case of invalid claim for Corporate Benefits the FIM must submit only the form BDC - 3A duly authorised by the BDC official (Verification Officer) of the Exchange alongwith a copy of form BDC - 1A. In such cases the FIM shall retain the shares and rectify the same within the stipulated time. The BDC will verify the validity of claim for Corporate Benefit. If the claim is found to be invalid, the BDC will forward one copy of form BDC-3A to the RM.

1.3 :Non Rectification of Shares or Bad delivery of rectified/replaced shares submitted Under Objection.

1. If the RM finds that the shares received after rectification or replacement are not good delivery, the RM will report such cases in prescribed form BDC - 4A (in triplicate) to the BDC alongwith a copy of Form BDC-1A and 2A within 48 hours of receipt of such shares.

2. If the RM finds that the benefits claimed by him are not settled then the RM will accept the rectified shares and will report only the unsettled claim to the BDC.

3.The BDC will verify the shares/benefits and if the shares/benefits are found to be bad delivery/unsettled then the BDC will straightaway close - out such cases (without going through auction) as per the closeout procedures laid down para 3.1. The FIM will be intimated that the deal is being closed out and that his account will be debited accordingly.

1.4 :Second Time Objections.

1. In the case where same shares are rectified and if the rectified shares are again returned under objection by the company these shares will be deemed as "Second time objections" and the shares will be straightaway closedout (without going through the auction process) as per the closeout procedure in para 3.1. However, in the cases where shares have been replaced or procured under auction and these shares again come under objection, these shares will not be considered as second time objections and will be treated as fresh objections and dealt with accordingly.

2. The RM will report the shares under second time objection to the BDC in the form for second time objections. Form for Second Time Objections will be the same format as BDC - 1A/1B but will be of a different colour (pink colour) and have the words " SECOND TIME OBJECTION " written in bold on the top of the form.

3. The following documents are required for reporting second time objections.

Fresh copy of form for Second Time objections ( in triplicate)

Transfer deed and share certificates returned by the company

Company objection memo

A copy of Form BDC - 1A and 2A which have been used for reporting the first time objection.

4. The documents mentioned in point 3 above are required to be submitted in a plastic pouch.

5. All the Second Time objections will be straightaway closed out without going through the auction process. ( see close out procedures in para 3.1)

1.5 :Corporate Benefits

1. Members are required to claim corporate benefits while submitting the bad delivery to BDC in form BDC - 1A. Once the claim for benefits has been made by a member, the member cannot refuse to accept the corporate benefits.

2. If the market rate of the corporate benefit is less than the cost of procurement of the benefit then such benefit may not be taken up for settlement.

3. If the member is not in a position to submit the corporate benefit in the form of shares then he should submit a cheque as per the valuation given in Annexure-A alongwith form BDC - 2A.

4. Rectified/replaced shares shall be accepted by the BDC only if they are accompanied with the corporate benefits ( either in the form of shares or equivalent value in the form of cheque in favour of the receiving member) claimed as per form BDC-1A.

2 :Procedure for handling Inter Exchange objections.

2.1 :Procedure to be followed by a Member for reporting Inter Exchange objections to BDC ( incase the shares have been transacted on more than one exchange ).

The procedure has been split into 2 parts :

In Part 1 the RM will approach BDC of LE and submit his objections using form BDC-1A ,which will have to be rectified by the LIM as per the procedures laid down for handling local exchange objections.

In the Second Part ,LIM may opt for any of the following two options :

Option 1 : In case of Inter Exchange objections the LIM may handover the documents under objection to the PM (who has delivered the shares to him) directly without going through the BDC.

Option 2 : LIM can approach the BDC of the LE for rectification / replacement of the shares under company objection. In that case the BDC of LE will forward the shares to the BDC of the FIE who will in turn forward the same to the FIM. The detailed procedure in case of Option 2 will be as under :

1. The shares under objection are required to be lodged by the LIM with the BDC of the LE in the prescribed Form BDC - 1B in quadruplet. Claims for corporate benefits (if any) should also be made in Form BDC- 1B.

2. The following documents are required to be enclosed.

Form BDC - 1B (in quadruplet)

Original Transfer Deed

Share Certificate

Company Objection Memo or Certified copy of the memo.

In case of fake / forged /stolen / missing shares, all documents as given in SEBI Good /Bad Delivery guidelines no. 108 / 109.( as per Annexure C)

3. Two sets of photo copies of the documents mentioned in point 2 above are required to be submitted at the time of reporting of objection. One copy of the this set will be retained by the BDC of LE. The second set along with the original documents will be forwarded to BDC of FIE.

4. All above documents are required to be lodged with the BDC of LE in a sealed plastic pouch. The original documents along with one set of photocopies should be enclosed in one pouch, while the second set of photocopies should be enclosed in a separate pouch. An additional copy (fourth copy ) of Form BDC - 1B will be attached outside the pouch containing the second set of photocopies.

5. The BDC of LE will give a subject to verification/counting acknowledgment to the LIM on the fourth copy of Form BDC - 1B by affixing a rubber stamp.

6. The BDC of the LE will retain the pouch containing one set of photocopies for its records, while the pouch containing the original documents and one set of photocopies will be forwarded to the BDC of the FIE after verification of the objections.

7. The members are required to report objections pertaining to shares of different companies/different FIMs separately. (i.e each pouch shall contain one objection pertaining to one company and one introducing member).

8. The BDC of LE will affix a unique serial number called the BDC inward number on Form BDC-1B. The BDC inward no. will be an eight digit reference serial no. The first two digits will be the exchange code of the LE followed by a six digit serial number. All future communications pertaining to an objection should be done by using the BDC Inward No. as the reference number.

9. The BDC of LE will verify/count the documents enclosed by the member. If the contents of the pouch are not in order the same will be returned to the LIM.

10. The BDC of the LE will sort all the objections received, in the order of the first introducing exchange. All objections pertaining to the FIE will be sent in one parcel to the FIE alongwith a list of all objections enclosed.

11. The BDC of the LE will forward the pouch containing the objections (along with original transfer deed, share certificate, company objection memo, other documents and one set of photocopies of all the documents ) to the BDC of the FIE within 7 days of receipt of such objections.

12. The BDC of the FIE will verify / count the contents of the pouch received from the BDC of the LE before handing over the same to the FIM.

13. The BDC of FIE will hand over the objection to the FIM on the day specified by the exchange (as per the objection schedule followed by the exchange). The BDC of the FIE will retain the second set of photocopies for its reference after obtaining an acknowledgment on the copy of Form BDC - 1B from the FIM. The FIM is required to rectify/ replace the shares within 21 days of receipt of shares under objection. If the FIM fails to rectify/ replace the shares within 21 days, the first exchange will auction/close-out the shares as per the procedure laid down in para 3.1.

14. The FIM will enclose the following documents while rectifying / replacing the shares under objection.

Prescribed Form BDC - 2B ( four copies )

Rectified / replaced shares

Benefits ( if any ) due

Copy of Form BDC - 1B

Copy of the company objection memo

Demand draft for value of transfer stamps or benefits

15. The FIM will hand over the documents mentioned in point 15 above in a plastic pouch on the rectification day to the BDC of the FIE. The BDC of the FIE will return one copy of Form BDC - 2B to the FIM after giving a subject to verification/counting acknowledgment by affixing a rubber stamp on Form BDC - 2B. One copy of Form BDC - 2B will be retained by the BDC of FIE and the rectified documents alongwith third and fourth copies of Form BDC - 2B will be returned to the BDC of the LE.

16. BDC of FIE will verify all the documents and return the rectified/replaced shares/ demand draft/pay order and corporate benefits back to BDC of LE within 7 days of rectification/replacement.

17. BDC of LE will hand over the rectified/replaced shares/demand draft for transfer stamps / close-out amount and corporate benefits back to LIM after verification.

18. The LIM will duly acknowledge the rectified shares received by affixing the rubber stamp on the copy of Form BDC - 2B retained by BDC of last exchange.

19. The demand draft/pay order shall be in favour of the LIM.

20. In case of close-out by the exchange , the BDC of the FIE will have to collect the demand draft/pay order from the FIM, in favour of the LIM and forward the same to the BDC of the LE.

2.2 :Incorrect reporting of Company Objections

1. If the FIM finds that the objection has been wrongly reported, the member should report the invalid objection by submitting form BDC-3B in quadruplate along with a copy of form BDC - 1B and the shares received to BDC of FIE. This should be done within a period of 7 days from the date of receipt of such objections, failing which it will be understood that the FIM has accepted the objections / corporate benefits reported against him and will be required to rectify / replace the shares by the rectification day or else the exchange will auction/close-out the shares as per the close out procedure in para 3.1.

2. In case of invalid claim for Corporate Benefits the FIM must report such cases to the BDC of the FIE by submitting form BDC - 3B in quadruplate alongwith a copy of form BDC - 1B within 7 days of receipt of the claims . In such cases the FIM shall retain the shares and rectify the same within the stipulated time. The BDC of the FIE will verify whether the claim for Corporate Benefit is invalid, before forwarding the forms BDC - 3B and BDC-1B only to the BDC of the LE.

3. BDC of FIE will verify the validity of the objections raised by the FIM and return the shares back to BDC of LE who in turn will verify the objections received and will hand over the shares to the LIM alongwith a copy of the form BDC - 3B and BDC-1B.

2.3 :Non Rectification of Shares or Bad delivery of rectified/replaced shares submitted Under Objection.

1. If the LIM finds that the shares received by way of rectification or replacement are not good delivery, the LIM will report such cases in the form BDC-4B (in quadruplate) to the BDC of the local exchange alongwith a copy of Form BDC - 1B and 2B within 48 hours of receipt of such shares.

2. If the LIM finds that the benefits claimed are not correctly settled then the LIM will accept the rectified shares and will report only the unsettled benefits to BDC of the LE.

3. The BDC of the LE will verify these shares/benefits and if the shares/benefits are found to be bad delivery/unsettled then the BDC of the LE will report such cases to the BDC of the FIE within a period of 7 days from reporting of such cases. The BDC of the FIE will verify the claims and in case of valid claims, will straightaway close-out such cases (without going through the auction process) as per close out procedures in para 3.1. The FIM will be intimated that the deal is being closed out and that his account will be debited accordingly.

2.4 :Second Time Objections.

1. In the case where same shares are rectified and if the rectified shares are again returned under objection by the company these shares will be deemed as "Second time objections" and the shares will be straightaway closedout (without going through the auction process) as per the closeout procedure in para 3.1. However, in the cases where shares have been replaced or procured under auction and these shares again come under objection, these shares will not be considered as second time objections and will be treated as fresh objections and dealt with accordingly.

2. The LIM will report the shares under second time objection to the BDC of the LE in the form for Second Time objections. The form for such objections

will be of the same format as that of Form BDC - 1B but the form will be of a different colour (pink colour) and the words " Second time objection " will be written in bold on the top of the form.

3. The following documents are required for reporting second time objections.

Transfer deed and share certificates returned by the company

Company objection memo

Second Time Objection form ( in quadruplet)

A copy of Form BDC - 1B and 2B which have been used for reporting the first time objection.

4. The documents mentioned in point 3 above are required to be submitted in a plastic pouch.

5. The BDC of the LE will forward the shares under second time company objections to the BDC of the FIE. The BDC of the FIE will, on receipt of second time company objections, straightaway close-out such shares (without going through the auction process) as per the close out procedures in para 3.1 and forward the demand draft/closeout for the close-out amount to the BDC of the LE who will in turn forward the same to the LIM.

2.5 :Corporate Benefits

1. Members are required to claim corporate benefits while submitting the bad delivery in form BDC - 1B. Once the claim for benefits has been made by a member, the member cannot refuse to accept the corporate benefits.

2. If the market rate of the corporate benefit is less than the cost of procurement of the benefit then such benefit may not be taken up for settlement.

3. If the member is not in a position to submit the corporate benefit in the form of shares then he should submit a demand draft as per the valuation given in Annexure - A alongwith form BDC - 2B.

4. Rectified/replaced shares shall be accepted by the BDC of the FIE only if they are accompanied with the corporate benefits ( either in the form of shares or equivalent value in the form of demand draft/pay order in favour of the LIM) claimed as per form BDC-1B.

3 :General Instructions

1. The exchange should arrange for well equipped and trained manpower to carry out the activities of the BDC, further it should have a verification oficer who will decide the validity of objections. Since the quality of decision is critical, the verificaition officer should be a senior qualified person.

2. The plastic pouches to be used for reporting objections should be of good quality and transparent so that the contents can be viewed from outside.

3. The BDC forms should be placed on top of all documents inside the pouch so that the details on the form are clearly visible from outside the pouch.

4. Members/ stock exchanges should strictly adhere to the formats of the BDC forms (as given in the Annexure).

5. In case the BDC of the last exchange does not receive the rectified/replaced shares or the close-out amount within the specified time frame, such cases should be referred to the Inter Exchange Arbitration Panel.

6. The exchange should maintain a register which would contain the details (as per Annexure B1 and B2) pertaining to all objections reported to the BDC. Separate register should be maintained for local and inter exchange objections.

7. The exchange should forward to SEBI monthly status reports giving details on the objections received, objections resolved, objections referred for arbitration, value of objections, reasons for objections, list of companies and Registrar and Transfer agents related to the objections reported. The above details may be incorporated into the Register.

8. Stock exchanges should get into a contract with a reliable courier agency for couriering objection documents from one BDC to the other.

9. Stock exchanges are also required to arrange for adequate insurance covers for the documents which might be reported as lost in transit.

10. In cases where odd lot shares reported as objection are not rectified, such cases will be closed as per close out procedures.

11. In case the shares reported as objection fall in the no delivery period, then such shares will not be rectified within 21 days but will become due for rectification only on expiry of the no delivery period.

12. The members delivering the rectified shares should ensure that the shares are good delivery as per the Good/Bad delivery guidelines issued by SEBI. The rectified shares should have a new transfer deed so that the party receiving the rectified shares can sell the rectified shares in the market if he so desires, and not necessarily send the shares for transfer back to the company.

13. BDC will verify the validity of all objections being sent for rectification or being received after rectification in case of inter exchange objections.

14. In case shares are lodged after Book Closure or Record Date and such shares are returned under company objection then such objections can be reported to the BDC but no claim can be made for Corporate Benefits accruing from such shares. Claim of corporate benefits will be considered only as request matter.

15. In case it is not possible to attach the original objection memo, a copy of the memo duly certified by the receiving member should be used.

16. In case where the FIM is the member of a exchange who has put first stamp on the transfer deed, and he has entered into a trade through a member of another exchange (meaning that the FIM has a relationship of client to the second introducing member), in such cases the objection should be reported against the second member and not against the FIM.

17. In case of defaulters, 25 % of the total proceeds recovered from the deafulter should be kept aside for a period of 3 years from the date of declaring him as a defaulter to meet any future liability arising on account of bad delivery of shares introduced by defaulting member.

3.1 : Auction / Close Out Procedures :

1. Local Exchange :

AUCTION : In case the FIM fails to rectify/replace the shares within 21 days , the exchange will put up the unrectified/unreplaced shares in the immediate auction. The FIM will be debited with the auction amount and the shares procured in the auction will be handed over by the BDC to the RM. The amount equivalent to the stamp duty and benefits/claims (if any) will also be debited to the FIM’s account and will be paid to the RM by BDC directly.

CLOSEOUT : In case, the shares are not avilable in the auction conducted, the shares would be closed out at 20% over the official closing price on the exchange on the day on which auction offers are called for ( and in the event of there being no such closing price on that day , then the official closing price on the immediately preceeding day on which there was an official closing price) will be taken.

The FIM will be required to forward a cheque equivalent to the close-out amount,stamp duty and the benefits claimed amount ( if any) to the BDC in favour of the RM.

2. Inter Exchange :

AUCTION : In case the FIM fails to rectify/replace the shares within 21 days , the FIE will put up the unrectified/unreplaced shares in the immediate auction. The FIM will be debited with the auction amount and the shares procured in the auction will be handed over by the BDC of the FIE to the BDC of the LE who will in turn hand over the same to the LIM. The amount equivalent to the stamp duty and benefits/claims (if any) will also be debited to the FIM’s account.

CLOSEOUT : In case, the shares are not avilable in the auction conducted, the shares would be closed out at 20% over the official closing price on the exchange on the day on which auction offers are called for ( and in the event of there being no such closing price on that day , then the official closing price on the immediately preceeding day on which there was an official closing price) will be taken.

The FIM is required to forward a demand draft/pay order equivalent to the close-out amount, stamp duty and the benefits claim amount ( if any) to the BDC of the FIE in favour of the LIM.

In case the FIM fails to forward the demand draft to the BDC, the exchange will initiate action against the member as per rules and regulations of the exchange.

3.2 :Fee Structure for processing objections through the Bad Delivery Cell

The exchange will collect from the FIM/LIM a service charge for processing objections through the BDC. Such service charges may be collected through pre-paid coupons attached to the objection or through computerised billing. The service charge will be payable per objection submitted for the member. The charges should enable the BDC to develop their own reserve of recyclable funds over a period of time.

3.3 :Instructions for filling of BDC forms

1. Since the processing of objections will involve stock exchanges form various parts of the country, it is suggested that the BDC forms should be filled in English which is accepted by all the Stock Exchanges as the common business language.

2. The BDC inward no. will be an eight digit number. The first two digits will the exchange code of the last exchange followed by a six digit unique serial number.

3. The BDC inward no. assigned to an objection should be used as a reference number by all the BDC’s for all future communications related to that particular objection.

4. Members are required to use the relevant objection codes based on the reason for objection as given on the reverse of the form.

3.4 :Introducing Member being declared a defaulter

Local Exchange :

In case the FIM has been declared defaulter, the RM has to file a claim with the Defaulter’s Committee/Clearing Corporation for resolving the claim for company objection.

Inter Exchange :

In case the FIM has been declared defaulter, the RM will report the objection for rectification to the LIM. The LIM will rectify/replace the objection and submit the same to the BDC of LE within 21 days as is the normal practice.

The LIM will in turn report the objection for rectification to the BDC of the LE. The BDC of the LE will forward the documents under objection to the BDC of the FIE. The BDC of the FIE will forward the documents to the last member of the FIE for rectification within 21 days. The last member of the first exchange will then file a claim with the Defaulter’s Committee/Clearing Corporation of the first exchange for resolving the company objection.

In case LIM has been declared defaulter, the FIM will continue to be responsible for rectification of bad deliveries.

3.5 :Partial rectification of company objection

In case introducing members are not able to rectify the complete lot of objections reported, they will be allowed to submit rectified objections in part provided the rectified quantity is in a market lot.

In case an odd lot is reported as an objection, the introducing member is required to rectify/replace either the entire odd lot or in case of partial rectification, the member is required to rectify in a market lot.

The introducing member will settle the benefit claimed in proportion to the quantity of shares rectified/replaced by the member.

3.6 :Benefit Claims

Claims for benefits can be made in the following cases:

a. where the book closure/record date (BC/RD) for the corporate benefit claimed has passed before the reporting day, or

b. where BC/RD for the corporate benefit claimed falls after the reporting day but before the rectification pay-out day, or

c. where the BC/RD for the corporate benefit claimed falls after the

rectification pay-out day but within 15 days from rectification pay-out day.

Illustration :

Sr. No. Reporting Day Rectification Pay-out Day Book Closure/ Record Date Remarks

a. 11/3/96 1/4/96 1/3/96 Benefits can be claimed

b. 11/3/96 1/4/96 20/3/96 Benefits can be claimed

c. 11/3/96 1/4/96 15/4/96 Benefits can be claimed

d. 11/3/96 1/4/96 16/4/96 and later Benefits cannot be claimed

3.7 :Stamp Duty

In case objection quantity is replaced or in case of auction/close out, the receiving member is entitled to claim the stamp duty already paid by him on the original document. The introducing member will be required to pay the stamp duty amount based on the official closing price on the last rectificaion day or original stamp duty paid by the receiving member, which ever is higher. The amount of stamp duty paid will have to be specified on the BDC form by the receiving member at the time of reporting of objections.

3.8 :Schedule for Reporting / Rectified Company Objection.

A typical schedule for reporting and rectification of objection is given below. The exchanges may design their own schedule using the typical schedule.

Reporting of Objections and Claiming Corporate Benefits Wednesday

Date of Intimation to the LIM/FIM Friday Day 1

Pick up of Objections by the LIM/FIM Saturday

Reporting Invalid Objections and Corporate Benefit Claims (if any) by the LIM/FIM Thursday Day 7

Rectification/Replacement of Objections along with corporate benefits by the LIM/FIM Thursday/ Friday Day 21

Rectified Objection Pay-Out to the RM Monday

Reporting non rectified objections or objection bad delivery by the RM Wednesday

3.9 :Reporting of Objections by custodians to the BDC

Custodians who have received the delivery of securities through the clearing house are entitled to report such objections for rectification directly to the BDC of the exchange without collecting any collateral for such shares. In the alternative, if the custodians do not wish to report objections for securities received through the clearing house to the BDC, they could handover the securities for rectification to the members through whom the shares were purchased, in compliance with the guidelines issued to them from time to time in this regard.

3.10 :Resolution of disputes arising between BDC’s of two exchanges

SEBI will constitute an Inter-Exchange Arbitration Panel for settlement of disputes arising between BDC’s of two exchanges. The detailed working of the panel will be intimated to the stock exchanges in due course.

Annexure - C

SEBI Good/Bad Delivery guidelines :

108. For reporting fake/forged shares as company objection, the following documents are required :

A. If they are returned as objection from the company due to above reason :

company objection memo stating that the shares are fake/forged

copies of both sides of the transfer deeds

copies of both sides of the share certificates

B. Otherwise one of the following documents are required :

public notice given by the company /registrar

notification from any stock exchange

letter of intimation from the company to stock exchange

109. For reporting missing/lost/stolen shares as company objection the following documents are required :

A. If they are returned as objection from the company due to above reason :

company objection memo stating that the shares are missing/lost/stolen accompanied by a copy of Court Order or FIR

copies of both sides of the transfer deeds

copies of both sides of the share certificates

B. Otherwise one of the following documents are required :

public notice given by the company /registrar

notification from any stock exchange

letter of intimation from the company to stock exchange

Form No. : BDC - 3A

(To be filled in triplicate by the Introducing Member in case of Invalid Claim of Company Objections)

To,

The BDC /Clearing House

Part - A

Re: NON - ACCEPTANCE OF COMPANY OBJECTION

BDC Inward No. :

(quoted by Stock Exchange on form BDC- 1A)

We are in receipt of the above company objection along with _Ltd. and relative transfer deed(s), which are being returned for reason(s) marked below :

1. We have not introduced these securities.

2. The delivering member stamp affixed on the reverse of the TD is fake. *

3. Objection reason not valid.

4. Objection due to transferee error.

5. Company memo not proper.

6. Copy of Court order /FIR required.

7.Others(specify): Security Name of Benefits: _

Part - A

Re: NON - ACCEPTANCE OF COMPANY OBJECTION

BDC Inward No. :

(quoted by Last Exchange on form BDC- 1B)

We are in receipt of the above company objection along with _Ltd. and relative transfer deed(s), which are being returned for reason(s) marked below :

1. We have not introduced these securities.

2. The delivering member stamp affixed on the reverse of the TD is fake. *

3. Objection reason not valid.

4. Objection due to transferee error.

5. Company memo not proper.

6. Copy of Court order /FIR required.

7.Others(specify): Security Name of Benefits: _ __

* Note: In case of forged member stamps, the members should submit a letter along with this memo. The members must also submit a copy of the FIR filed with the police.

Security Name ( in full )	SECURITY CODE (SYMBOL)	Series Eq./Deb	Face Value	Mkt. Lot

Settl. Type	Settl. & Del No.	No. of Certs	No. of Shares	Cert Nos.	Distinctive Nos.From To	Objection Code	Stamp Amount

Obj Code	Reason
1.	Transferor Signature not matching with the records of the company. Attestation required.
2.	Fake/Forged/Stolen shares.
3.	Alterations/Corrections on the Transfer Deed needs to be authenticated by the Transferor
4.	Signature of the transferor not properly witnessed.
5.	Stop Transfer instructions received by the Company.
6.	Power of Attorney of authorised signatory not registered with the Company. Certified true copy of Board Resolution/Power of Attorney required.
7.	Memorandum & Articles of association of the Company required.
8.	Others (Specify the reason on the Form BDC - 1A)

Reporting of Objections and Claiming Corporate Benefits	Wednesday
Date of Intimation to the LIM/FIM	Friday	Day 1
Pick up of Objections by the LIM/FIM	Saturday
Reporting Invalid Objections and Corporate Benefit Claims (if any) by the LIM/FIM	Thursday	Day 7
Rectification/Replacement of Objections along with corporate benefits by the LIM/FIM	Thursday/ Friday	Day 21
Rectified Objection Pay-Out to the RM	Monday
Reporting non rectified objections or objection bad delivery by the RM	Wednesday