PR No.111/2005
Discontinuation of Hand Delivery Bargains/Delivery Versus Payment (DVP) and Revision of Activity Schedule
It has been observed that institutional investors are still relying on mechanism of Hand Delivery Bargains/Delivery Versus Payment (DVP) for settlement of some of their transactions. Hand Delivery Bargains/DVP trades, being bilateral settlement mechanisms, have outlived their purpose as the stock exchanges have been acting as central counter party for all transactions.
It has, therefore, been decided by SEBI in consultation with stock exchanges, custodians and other market participants that henceforth, all transactions executed on the stock exchanges will be settled through the clearing corporation/clearing house of the stock exchanges and hand delivery bargains will be allowed by the stock exchanges only under exceptional circumstances indicated below. The requirement to settle transactions through the clearing corporation or clearing house is also in accordance with the international standards of clearing and settlement laid down by the Task Force for the Central Payment and Settlement Systems (CPSS) and the International Organisation of Securities Commissions (IOSCO).
The circumstances under which the hand delivery bargains will be allowed are as follows:
- Total connectivity failure to the exchange/STP. (Specific connectivity issues of the custodians and members shall not be considered as valid exceptions).
- International holidays that may be decided upfront by the stock exchanges in consultation with the custodians.
- Closing down of national/international centres due to calamities.
- In the event of rejection of a institutional trade by the custodian after the trade has been executed, the stock exchange would consider the trade as an institutional trade only if evidence to that effect is available with or made available to the stock exchange and permit the trade to be settled through the Hand Delivery Bargain on a DVP basis, without imposing any margin. Such trades would, however, be subject to penalties as may be imposed by the stock exchanges. In case evidence as above is not available with the stock exchange, the stock exchange, while allowing the trade to be settled through Hand Delivery Bargain on a DVP basis will however impose both margin and penalties.
Revision to the activity schedule
In order to provide more time for the custodians to confirm the trades following the decision to discontinue hand delivery bargains/DVP trades, the time limit for the custodians to confirm the trades to the clearing corporation/clearing house on T+1 day is being extended from 11.00 a.m. to 1.00 p.m. Consequently, the time limit for processing and downloading the obligation files by the clearing corporation/clearing house to the brokers and custodians is also being revised accordingly from 1.30 p.m. to 2.30 p.m. There will not be any modification to the activities scheduled on T+2.
In order to give the institutional investors, custodians and other market participants adequate time to make changes in their back office/communicate the decision to their clients, the above will come into effect from the Monday following the two weeks from the date of the issuance of the circular by SEBI, i.e. from September 19, 2005.
The circulars issued by SEBI to the stock exchanges in this regard are available on the website: www.sebi.gov.in
Mumbai
September 02, 2005
