Executive Summary:
SEBI Circular No. SEBI/HO/MRD/MRD-PoD-1/P/CIR/2023/68, dated May 10, 2023, permits stock exchanges to extend Direct Market Access (DMA) to SEBI-registered Foreign Portfolio Investors (FPIs) for participation in Exchange Traded Commodity Derivatives (ETCDs). This decision follows representations and deliberations by the Commodity Derivatives Advisory Committee (CDAC). Stock exchanges must amend byelaws and inform members, with immediate effect.
Key Points / Main Content:
* **DMA Extension to FPIs:**
* Stock exchanges can now offer DMA facilities to FPIs for trading in ETCDs.
* **Conditions and Compliance:**
* Stock exchanges and brokers must adhere to the guidelines in SEBI Circulars MRD/DoP/SE/Cir-7/2008, MRD/DoP/SE/Cir-03/2009 and CIR/MRD/DP/20/2012, concerning DMA application procedures, operational specifications, client authorization, broker-client agreements, and risk management.
* The provisions of Circular No. SEBI/HO/MRD/MRD-RAC-1/P/CIR/2022/131 dated September 29, 2022, which allows FPIs to participate in ETCDs, remain applicable.
* **Implementation and Reporting:**
* The circular takes effect immediately.
* Stock exchanges must amend relevant byelaws, rules, and regulations.
* Exchanges must inform their members about the provisions of this circular and display it on their website.
* Exchanges must report on the implementation status in the Monthly Development Report to SEBI.
Impact Analysis:
Stock Exchanges:
* Impact: Required to enable DMA facility for FPIs in ETCDs, amend byelaws, and ensure compliance with existing DMA and FPI participation circulars.
* Action Required: Amend byelaws, rules, and regulations; inform members; disseminate the circular on their website; and report implementation status to SEBI in the Monthly Development Report.
Brokers:
* Impact: Need to provide infrastructure for FPIs to directly access the exchange trading system, adhering to existing DMA guidelines and broker-client agreements.
* Action Required: Ensure compliance with DMA guidelines, update client agreements as necessary, and manage risks associated with DMA for FPIs.
Foreign Portfolio Investors (FPIs):
* Impact: Can now access ETCDs through DMA, allowing for direct order placement and execution, potentially improving efficiency and control.
* Action Required: Familiarize themselves with the DMA facility, adhere to relevant regulations, and establish necessary agreements with brokers.
SEBI Registered Custodians:
* Impact: Indirectly impacted as they provide custodial services to FPIs. May need to adjust processes to accommodate DMA.
* Action Required: No direct action stated but may need to update internal processes and controls to align with DMA implementation for FPI clients.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): A regulatory body for securities and commodity market in India. It is responsible for protecting the interests of investors in securities and promoting the development of, and regulating the securities market.
Foreign Portfolio Investors (FPIs): Investors registered with SEBI who invest in the Indian securities market without directly managing the companies.
Direct Market Access (DMA): A facility that allows clients of a broker to directly access the exchange trading system to place orders without manual intervention by the broker.
Exchange Traded Commodity Derivatives (ETCDs): Commodity derivatives that are traded on exchanges.
Commodity Derivatives Advisory Committee (CDAC): A committee of SEBI that provides advice on matters related to commodity derivatives.
Securities and Exchange Board of India Act, 1992: An act of the Parliament of India that established the Securities and Exchange Board of India (SEBI).
All Recognized Stock Exchanges: Stock exchanges recognized by SEBI and having commodity derivatives segment.
Custodians: Entities registered with SEBI who provide custodial services for securities.
CIRCULAR
SEBI/HO/MRD/MRD-PoD-1/P/CIR/2023/68 May 10, 2023
To
All Recognized Stock Exchanges having Commodity Derivatives Segment
All Foreign Portfolio Investors registered with SEBI
All Custodians registered with SEBI
Sir/Madam,
Sub: Direct Market Access (DMA) to SEBI registered Foreign Portfolio Investors
(FPIs) for participating in Exchange Traded Commodity Derivatives (ETCDs)
1. In order to promote institutional participation in ETCDs, SEBI, vide Circular No.
SEBI/HO/MRD/MRD-RAC-1/P/CIR/2022/131 dated September 29, 2022
permitted FPIs to participate in ETCDs subject to certain conditions specified
therein.
2. SEBI vide Circular No MRD/DoP/SE/Cir-7/2008 dated April 3, 2008, Circular No
MRD/DoP/SE/Cir-03/2009 dated February 20, 2009 and Circular No
CIR/MRD/DP/20/2012 dated August 2, 2012 laid down framework of DMA facility
for institutional investors or through investment manager, as the case may be.
3. DMA facilitates the clients of a broker to directly access the exchange trading
system through the broker’s infrastructure to place/execute orders without manual
intervention by the broker. DMA enables the clients of a broker to have advantages
viz. direct control over orders, faster execution of orders, reduced risk of errors
associated with manual order entry, maintaining confidentiality, lower impact costs
for large orders and implementing better hedging and arbitrage strategies.
4. Based on representations received for enabling DMA facility to FPIs in ETCDs and
deliberations by Commodity Derivatives Advisory Committee (CDAC) of SEBI, it
has been decided to allow stock exchanges to extend DMA facility to FPIs for
participation in ETCDs subject to the following conditions:
Page 1 of 24.1. Stock exchanges/brokers shall adhere to the provisions stipulated in SEBI
Circulars mentioned at Paragraph 2 above which include procedure for
application for DMA, operational specifications, Client authorization and
broker-client agreement, risk management, etc.
4.2. The provisions of Circular No. SEBI/HO/MRD/MRD-RAC-1/P/CIR/2022/131
dated September 29, 2022 allowing FPIs to participate in ETCDs shall remain
applicable.
5. The provisions of this circular shall come into immediate effect.
6. This circular is issued with the approval of competent authority.
7. The stock exchanges are advised to:
7.1 Take steps to make necessary amendments to the relevant bye-laws, rules
and regulations for the implementation of this circular,
7.2 Bring the provisions of this circular to the notice of the members of the stock
exchange and also disseminate the same on their website.
7.3 Communicate to SEBI, the status of implementation of the provisions of this
circular in the Monthly Development Report.
8. This circular is issued in exercise of the powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act, 1992 to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
9. The circular is available on SEBI website at www.sebi.gov.in under the category
“Circulars” and “Info for - Commodity Derivatives”.
Yours faithfully,
Naveen Sharma
General Manager
Market Regulation Department
Tel No. +91-22-2644 9709
Email: naveens@sebi.gov.in
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