ECURITIES AND EXCHANGE BOARD OF INDIA
SECONDARY MARKET DEPARTMENT
Mittal Court, A Wing, Gr. Floor,
224, Nariman Point, Mumbai 400 021
SMD/POLICY/CIR- /97
October 21, 1997
TO:
Executive Directors/Managing Directors
of All Stock Exchanges
Dear Sir,
Sub: Modified Carry Forward System
The Board of SEBI has appointed a Committee under the Chairmanship of Prof. J. R. Verma to review the Revised Carry-Forward System recommended by G. S. Patel Committee. The Modified Carry-Forward System recommended by J. R. Verma Committee has been considered by the Board of SEBI in their meeting held on October 15, 1997 and accordingly some of the conditions of the Revised Carry-Forward System as informed vide SEBI Circular No. SMD/SED/3703/95 dated October 16, 1995 stand modified as under :
a) The twin track system whereby carry forward transactions are segregated at the time of execution of the trade would continue. However, trades identified for carry forward would attract a daily margin of 10% instead of daily margin of 15% as at present. 50% of this 10% daily margin would be collected upfront either in cash or in the form of bank guarantee. The present requirement of 7.5% daily margin on transactions marked for delivery stand withdrawn. The broker would declare the value of transaction he proposes to carry-forward at the beginning of the trading cycle and will deposit the 50% of the 10% daily margin in the form of cash or bank guarantee with the Exchange.
b) The maximum limit of 90 days for carry-forward of transactions would continue. Carry-forward transactions should finally settled by delivery. However, the stock exchanges must ensure that no roll over / carry-forward of transaction is permitted beyond 90 days.
c) The overall carry-forward limit has been enhanced to Rs.20 crores per broker, per settlement. The present sub-limits for purchase / sale position and for individual scrips stands withdrawn.
d) The present maximum limit of Rs.10 crores for a financier as at present stand withdrawn. However, the shares received against the Vyaj Badla would continue to be kept deposited with the clearing house as at present. The stock exchange will arrange for proper insurance cover for aggregate value of shares lying in the clearing house.
SEBI Board also accepted the Verma Committee recommendations regarding strict enforcement of capital adequacy and other prudential safeguards and effective monitoring and Surveillance system. The Committee’s recommendation that scrips chosen for carry-forward should have sufficient floating stock and high liquidity has also been accepted by the SEBI Board. All the other conditions of the Revised Carry-Forward System would continue to apply for carry-forward of the trade under the proposed system.
Any Exchange desirous of following Modified Carry-Forward System should apply to SEBI for prior approval.
Yours faithfully,
O. P. GAHROTRA
SR. EXECUTIVE DIRECTOR