**Summary:**
This circular, reference number SEBI/HO/CDMRD/DRMP/CIR/P/2021/619, issued by the Securities and Exchange Board of India (SEBI) on August 17, 2021, addresses the issue of repeated delivery defaults within the Commodity Derivatives Segment. The circular aims to strengthen the delivery mechanism and ensure market integrity by introducing a deterrent for repeated defaults.
Effective one month from the date of issuance, the circular stipulates that in cases of repeated default by a seller or buyer, an additional penalty of 3% of the value of the delivery default will be imposed for each instance of repeated default. A "Repeated Default" is defined as a delivery default occurring three or more times during a six-month period on a rolling basis. The penalty levied will be transferred to the Settlement Guarantee Fund (SGF) of the Clearing Corporation.
This directive is issued under the authority granted by Section 11(1) of the Securities and Exchange Board of India Act, 1992, and Section 10 of the Securities Contracts Regulation Act, 1956, to protect investor interests and regulate the securities market.
The circular is applicable to all Clearing Corporations having Commodity Derivatives Segments. Further information can be found on the SEBI website (www.sebi.gov.in). For inquiries, contact Vishal V. Nair, Deputy General Manager, Division of Risk Management, Commodity Derivatives Market Regulation Department, at vishaln@sebi.gov.in.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): Regulatory body for the securities market in India, which issued the circular.
Clearing Corporations (CCs): Entities consulted with SEBI regarding the penalty for repeated delivery default.
Commodity Derivatives Segment: The specific market segment to which the circular applies.
Settlement Guarantee Fund (SGF): The fund of the Clearing Corporation to which the penalty for repeated delivery default will be transferred.
Securities and Exchange Board of India Act 1992: The Act under which SEBI derives its powers to issue the circular.
Securities Contracts Regulation Act, 1956: Another Act under which SEBI derives its powers to regulate the securities market.
SEBIHOCDMRDDRMPCIRP202135: Previous circular issued by SEBI on delivery default norms, dated March 23, 2021
Vishal V. Nair: Deputy General Manager at SEBI, who issued the circular.
CIRCULAR
SEBI/HO/CDMRD/DRMP/CIR/P/2021/619 August 17, 2021
To,
The Managing Directors / Chief Executive Officers,
All Clearing Corporations having Commodity Derivatives Segment
Sir / Madam,
Sub: Penalty for Repeated Delivery Default
1. SEBI had stipulated delivery default norms vide Circular
SEBI/HO/CDMRD/DRMP/CIR/P/2021/35 dated March 23, 2021. It is felt that there
is a need to put in place a suitable deterrent mechanism to address instances of
repeated delivery defaults. This is expected to further strengthen the delivery
mechanism and ensure market integrity.
2. In view of the above, in consultation with Clearing Corporations (CCs), the following
has been decided:
2.1. In the case of repeated default by a seller or a buyer, for each instance of
repeated default, an additional penalty shall be imposed, which shall be 3 % of
the value of the delivery default.
2.2. Repeated Default shall be defined as an event, wherein a default on delivery
obligations takes place 3 times or more during a six months period on a rolling
basis.
2.3. The penalty levied shall be transferred to Settlement Guarantee Fund (SGF)
of the Clearing Corporation.
3. The circular shall be effective after one month from the date of issuance of the
circular.
4. This circular is issued in exercise of the powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act 1992, read with Section 10 of the
Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in
securities and to promote the development of, and to regulate the securities
market.
5. This circular is available on SEBI website at www.sebi.gov.in.
Yours faithfully,
Vishal V. Nair
Deputy General Manager
Division of Risk Management
Commodity Derivatives Market Regulation Department
vishaln@sebi.gov.in
Page 1 of 1