Executive Summary:
This circular, issued by SEBI, outlines guidelines for stock exchanges to identify and select locations for commodity derivatives contract delivery centers. It aims to bring uniformity to the process and considers factors like demand/supply, liquidity, value chain participants, and infrastructure. Stock exchanges must review existing delivery centers based on these guidelines for the financial year 2019-20 within three months from May 26, 2020, and the provisions are effective from August 1, 2020.
Key Points / Main Content:
* **Purpose:** Provide uniform guidelines for stock exchanges in identifying and selecting delivery centers for commodity derivatives contracts.
* **Selection Guidelines:** Locations should be chosen based on a combination of factors:
* Demand/Supply Dynamics: Adequate consumption demand and/or supply in and around the location. Sizeable production catchment area and arrivals. Active consumption/trading center.
* Liquidity: High potential to attract trading and delivery participation.
* Value Chain Participants: Adequate representation from farmers, traders, processors, etc.
* Infrastructure Support: Sufficient warehouses (WDRA registration where applicable), transport links, assaying and testing facilities.
* Trade Feedback: Consider feedback from stakeholders (Farmers, FPOs, Traders, VCPs, Corporates, MSMEs, Processors, Exporters etc.).
* **Review of Delivery Centers:**
* Stock exchanges must review existing and potential delivery centers based on the guidelines.
* Assessment to be submitted to the Product Advisory Committee (PAC) for consideration.
* **Timeline and Reporting:**
* Review for FY 2019-20 to be completed within 3 months from May 26, 2020.
* PAC comments/suggestions to be shared with SEBI within 1 month of review completion.
* Information highlighted at Para 3 & 4 to be part of PAC submission for consideration.
* **PAC and Contract Approval:**
* Information related to delivery center selection to be submitted to the PAC as per SEBI circular SEBI/HO/CDMRD/DNPMP/CIR/P/2019/89.
* Information must also be submitted to SEBI during contract approval or renewal.
* **Effective Date:** The provisions of this Circular shall be effective from August 01, 2020.
* **Stock Exchange Responsibilities:**
* Amend relevant byelaws, rules, and regulations if required.
* Inform stock brokers and disseminate information on their website.
* Communicate implementation status to SEBI.
Impact Analysis:
* **Recognized Stock Exchanges and Clearing Corporations (with Commodity Derivatives Segment):**
* *Impact:* Must adhere to the new guidelines for identifying and selecting delivery centers, review existing centers, and submit reports to PAC and SEBI.
* *Action Required:* Review existing delivery centers, assess potential centers, submit assessment reports to PAC, share PAC feedback with SEBI, amend internal regulations, and inform stock brokers.
* **Product Advisory Committee (PAC):**
* *Impact:* Responsible for considering and advising on the stock exchanges' assessments of delivery centers.
* *Action Required:* Review assessment reports submitted by stock exchanges and provide comments/suggestions.
* **Commodity Value Chain Participants (Farmers, Traders, Processors, Exporters, etc.):**
* *Impact:* The selection of delivery centers can affect their ability to participate in physically delivered commodity derivatives contracts.
* *Action Required:* Provide feedback to stock exchanges on potential delivery center locations.
* **Stock Brokers:**
* *Impact:* Need to be aware of the new guidelines to advise their clients.
* *Action Required:* Familiarize themselves with the circular and its implications.
Key Entities Referenced
Securities and Exchange Board of India SEBI: Regulatory body for securities and commodity markets in India, responsible for issuing the circular.
Commodity Derivatives Advisory Committee CDAC: Committee that provided recommendations for the guidelines on delivery centers.
Commodity Derivatives Segment: The segment of stock exchanges and clearing corporations dealing with commodity derivatives.
International Financial Services Centre: A jurisdiction that provides financial services to non-residents and residents, often with special regulations.
Warehousing Development and Regulatory Authority WDRA: Regulatory authority for warehouses in India, responsible for registration of warehouses.
Product Advisory Committee PAC: Committee constituted by stock exchanges to review and advise on commodity-related products, including delivery centers.
Securities and Exchange Board of India Act, 1992: The act that empowers SEBI to protect investors and regulate the securities market.
Financial Year 201920: The financial year for which stock exchanges must complete the review of delivery centers.
CIRCULAR
SEBI/HO/CDMRD/DNPMP/CIR/P/2020/89 May 26, 2020
To,
The Managing Directors / Chief Executive Officers
All Recognized Stock Exchanges and Clearing Corporations having
Commodity Derivatives Segment (except those in International Financial
Services Centre)
Dear Sir / Madam,
Sub: Guidelines for identification and selection of location as a delivery
centre(s) for commodity derivatives contract
1. The delivery centre(s), whether basis or additional, plays an important role in
the pricing and settlement of the physically delivered commodity derivatives
contract. The choice of delivery centre(s) is of vital importance to help the
buyers/sellers in taking informed decisions about taking or giving deliveries. In
the absence of a well-defined laid down criteria for identification and selection
of a location as a delivery centre, it is observed that each stock exchange has
adopted different criteria for different commodities as per their internal policy
decision.
2. Based on the market feedback and in the interest of the stakeholders there is a
need to bring in uniformity in the guidelines to be followed by the stock
exchanges for identification and selection of a location as a delivery centre.
Based on the recommendations of Commodity Derivatives Advisory Committee
(CDAC) and in consultation with the stock exchanges, it has been decided to
lay down guidelines that are to be followed by the stock exchanges while
identifying and selecting a location as a delivery centre.
3. Considering the inter-play of various factors, a particular location can be
identified and selected as a delivery centre by a stock exchange based on all
or combination of the following guidelines.
Page 1 of 43.1. Demand/supply dynamics:
3.1.1. There should be adequate consumption demand throughout the
year and/or adequate supply at least during the expiry month(s) in
and around the location;
3.1.2. The location should have a sizeable production catchment area and
arrivals;
3.1.3. The location should be an active consumption centre/trading centre
attracting adequate supplies from other production centres to fulfil
demand for processing, consumption, trade, etc.
3.2. Liquidity of the contract: The location should have high potential to attract
trading and delivery participation in the derivatives contract.
3.3. Value chain participants: There should be adequate participation or
representation from different segments of the commodity value chain of the
commodity viz., farmers/producers, traders, millers, processors, exporters,
users, etc. who are interested in trading / delivering the commodity at such
location proposed to be designated as a delivery centre.
3.4. Infrastructure Support:
3.4.1. There should be presence of sufficient and sizeable number of
warehouses in and around the location capable of handling the
deliveries on expiry of the contract and capable of getting
registration with Warehousing Development and Regulatory
Authority (WDRA) wherever applicable, before the launch of the
contracts.
3.4.2. There should be adequate transport links (road or rail connectivity),
presence of assaying and testing facilities, processing plants, etc.,
for effecting smooth deliveries.
3.5. Trade Feedback: Feedback from all the stake holders including Farmers/
Farmer Producers Organization (FPOs)/ Traders/ Value Chain Participants
(VCPs)/ Corporates/ Micro, Small & Medium Enterprises
(MSMEs),Processors, Exporters etc., should be obtained and duly
considered before selecting a location for designating as delivery centre(s)
of a particular commodity.
Page 2 of 44. Review of delivery centre:
4.1. The stock exchanges shall carry out a review of the delivery centre(s)
already designated and notified for the existing commodity derivatives
contracts, based on the aforesaid guidelines.
4.2. The review shall also include those locations which though satisfy the
above mentioned guidelines but have not been selected as the delivery
centre(s) by the stock exchanges and examine reasons for not selecting
these locations as delivery centre.
4.3. The stock exchanges shall submit their assessment in the form of a
comprehensive review report to their Product Advisory Committee (PAC)
constituted for respective commodity for consideration and advice.
5. The stock exchanges shall undertake and complete the aforesaid Review
stated at Para 4 above for Financial Year 2019-20 within 3 months from the
date of this Circular. Comments/ observations/ suggestions from PAC leading
to change/replacement in any of the existing delivery centre(s) may be shared
with SEBI for information purpose, within 1 month of completion of the said
Review.
6. SEBI vide Circular no. SEBI/HO/CDMRD/DNPMP/CIR/P/2019/89 dated August
07, 2019 has issued guidelines about the PAC in which the terms of reference,
inter-alia, includes choice of basis and additional delivery centre, review of the
delivery centres etc. Henceforth, the requisite information highlighted at Para 3
and 4 above shall form part of the information to be submitted to PAC for their
consideration in terms of the reference provided in the aforesaid Circular. All
the above stated information shall also be submitted by the stock exchanges to
SEBI while submitting application for contract approval or renewal.
7. The provisions of this Circular shall be effective from August 01, 2020.
8. This Circular is issued in exercise of powers conferred under Section 11 (1) of
the Securities and Exchange Board of India Act, 1992, to protect the interests
of investors in securities and to promote the development of, and to regulate
the securities market.
9. The Stock Exchanges and Clearing Corporations are advised to:
9.1. to make necessary amendments to the relevant bye-laws, rules and
regulations, if required.
9.2. bring the provisions of this Circular to the notice of the stock brokers of
the Exchange and also to disseminate the same on their website.
Page 3 of 49.3. communicate to SEBI, the status of the implementation of the provisions
of this Circular.
10. This Circular is available on SEBI website www.sebi.gov.in under the category
“Circulars” and “Info for Commodity Derivatives”.
Yours faithfully,
Vikas Sukhwal
General Manager
Division of New Products and Market Policy
Commodity Derivatives Market Regulation Department
Email: vikass@sebi.gov.in
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