Tag Archives: clearing corporation

complaints against stock exchanges

SEBI has vide its circular dated 23rd November, 2021 mandated that all stock exchanges (excluding commodity derivates exchanges) and depositories and clearing corporations should display on their respective website, data on the complaints received against them and their redressal thereof, by 7th of the succeeding month. There is a format given for that purpose. This requirement will come into effect from the 1st of January, 2022 onwards.

https://www.sebi.gov.in/legal/circulars/nov-2021/disclosure-of-complaints-against-the-stock-exchanges-excluding-commodity-derivatives-exchanges-depositories-clearing-corporations_54165.html

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complaints against SE and clearing corpn

SEBI has vide its circular dated 4th October, 2021 mandated that stock exchanges and clearing corporation will have to disclose on their websites, complaints received against them and redressed each month by the 7th of next month. This will come into effect from 1st January, 2022.

Read on

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bullion trading/ clearing members in IFSC

IFSCA has vide its circular dated 17th September, 2021 allowed all members of stock exchanges and clearing corporation in the IFSC to become automatic members of the bullion exchange and bullion clearing corporation. All new members will have to follow the registration criteria and make fresh applications in this regard.

The existing members will be added subject, of course, to fulfilling the net worth criteria as is specified by the bullion exchange.

https://ifsca.gov.in/Viewer/Index/230

On-Boarding of existing registered members in GIFT-IFSC

  1. IFSCA has received representation from market participants requesting for all registered trading members and clearing members of the stock exchanges and clearing corporations respectively to be grandfathered as members of the Bullion Exchange and Bullion Clearing Corporation. Accordingly, it has been decided to permit all members of the stock exchanges and clearing corporations in GIFT-IFSC to be enabled as Bullion Trading/ Clearing Members subject to the fulfilment of requisite net worth criteria as specified by the Authority.
    New entities desirous of operating as Bullion Trading/Clearing Members
  2. New entities who intend to become Bullion Trading/Clearing Members shall follow the membership criteria and registration process for membership as determined by the Bullion Exchange /Bullion Clearing Corporation, subject to eligibility criteria as specified in IFSCA circular No. 415/IFSCA/Consolidated Operating Guidelines/2021-22 dated August 25, 2021.
    Net-Worth criteria
  3. The net worth requirement for initial 6 months from the date of operationalization of
    Bullion Exchange shall be as under:

  1. Base Minimum Capital
  2. The Base Minimum Capital for initial 6 months from the date of operationalization of Bullion Exchange shall be as under:
  1. Additional Requirements
  2. Any entity desirous of operating as Bullion Trading/Clearing Member shall be a body corporate, incorporated in India or in a foreign jurisdiction.
  3. Any entity desirous of functioning as a trading member / clearing member under the branch structure in GIFT-IFSC shall adequately ring fence the operational, technology and financial aspects of its branch in IFSC from its overseas operations.

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clearing membership

IFSCA has vide its circular dated 15th September, 2021 allowed IFSCA recognized non bank custodians who have set up entity through their branch in IFSC GIFT City to become a clearing member. Earlier they had allowed overseas entities to operate as a clearing member through their branch office. So this i guess is for the Indian non bank custodians to operate as a clearing member through their branch office. Some conditions are stipulated as under:

https://ifsca.gov.in/Viewer/Index/228

Non-Bank Entity recognised as a custodian by IFSCA

  1. Any non-bank entity recognised as a custodian of assets/securities by IFSCA through the branch structure, shall be permitted to become a Clearing Member of a Clearing Corporation in GIFT-IFSC. For this purpose, the entity shall comply with the following conditions:
    a) The entity can clear and settle trades only of its custodial clients
    b) The entity should be ring fenced financially, technologically, and operationally from its parent company and its functions, as a clearing member, shall be limited only to clearing and settlement services of its custodial clients.
    c) The entity shall ensure financial segregation by allocating funds to the tune of USD 1,500,000 (USD 1.5 mn) towards its clearing and settlement operations. The entity shall submit a declaration to the Authority in this regard.
    d) The entity shall participate in the Settlement Guarantee Fund contribution (SGF), as decided by the clearing corporation from time to time.
    e) The total exposure which the entity shall take on behalf of its registered clients shall be determined by its Board.
    Additional requirements
  2. All the other fees applicable to a clearing member in GIFT-IFSC shall be applicable to such an entity.
  3. The entity shall comply with all the necessary rules, bye-laws and guidelines prescribed by the clearing corporation with which it is registered as a clearing member and the Authority from time to time.
  4. The entity shall have adequate mechanisms for the purposes of reviewing, monitoring, and evaluating the controls, systems, procedures and safeguards.

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recovery of assets of defaulter member

SEBI circular dated 28th September, 2020 on the subject of recovery of assets of a defaulter member in the stock exchange from the debit balance clients of the defaulting member.

  1. SEBI vide circular SEBI/HO/MIRSD/DOP/CIR/P/2018/153 dated December 17, 2018 had specified Early Warning Mechanism to prevent diversion of client’s securities and consequential action(s) to be initiated by the Stock Exchanges (“SEs”), Clearing Corporations (“CCs”) and Depositories were also specified in the said Circular.
  2. Further, SEBI vide circular SEBI/HO/MIRSD/DPIEA/CIR/P/2020/115 dated July 01, 2020 (“SOP Circular”) had specified Standard Operating Procedure in the cases of Trading Member (“TM”) / Clearing Member (“CM”) leading to default. SEBI circular CIR/ HO/ MIRSD/ MIRSD2/ CIR/ P/ 2017/64 dated June 22, 2017 and the SOP Circular have inter alia specified that all SE/CC shall initiate the process to settle debit balance client accounts by selling their securities if such clients fail to clear
    their debit balance after giving notice period for 5 days.
  3. As per Section 2(j) of the Securities Contracts (Regulation) Act, 1956 (“SCRA”) a stock exchange is an entity which is established for the purposes of assisting, regulating or controlling the business of buying, selling or dealing in securities. A Stock Exchange is recognised by SEBI in terms of Section 4 of SCRA. In terms of provisions of SCRA, a recognised stock exchange acts as a first level regulator in the securities market, in so far as trading on its platform by its members. In terms of Section 9 of SCRA, a recognised stock exchange has been empowered to frame bye laws for the regulation and control of contracts in securities entered into by its members. Sub-section (2) of Section 9, lays down a list of matters relating to different aspects of contract in securities, for which Stock Exchanges can make bye laws. These bye laws inter alia provide for admission of members, listing of securities, declaring a member defaulter, resolution of disputes between member and client through arbitration and annulment of trade, etc. These provisions also
    apply to a Clearing Corporation in terms of Section 8A of SCRA.
  4. In the case of default by TM/CM, it has been noted that in certain cases there is shortfall of funds/securities with defaulter member to meet the obligation of clients / SE / CC. The bye-laws of SE/CC provide for the procedure for declaring a member as defaulter when, amongst other reasons, the member is not able to fulfil its obligations and also provide for initiation of proceedings in a court of law whenever a member is declared as a defaulter and there is a shortfall of funds/securities with
    the defaulter member.
  5. The SE/CC are advised to initiate suitable actions for liquidating the assets (movable and immovable) of defaulter member including that of debit balance clients (to the extent of debit balance), within six months of declaration of defaulter, for recovery of the assets not in possession of the SE/CC, before appropriate court of law.
  6. Stock Exchanges and Clearing Corporations are further advised to:
    a) draw attention of the provisions of this circular to the notice of their members and participants, as the case may be, and disseminate the same on their websites;
    b) make amendments to their bye-laws, rules, regulations wherever necessary;
    c) communicate to SEBI, the status of the implementation of the provisions of this circular in their monthly development report.
  7. This circular is being 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.

https://www.sebi.gov.in/legal/circulars/sep-2020/recovery-of-assets-of-defaulter-member-and-recovery-of-funds-from-debit-balance-clients-of-defaulter-member-for-meeting-the-obligations-of-clients-stock-exchange-clearing-corporation_47695.html

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faqs on Indian Stamp Act amendments

Frequently Asked Questions (FAQs) on Indian Stamp Act, 1899 Amendments and Rules made thereunder

  1. Why amendments in the Indian Stamp Act, 1899 have been made?
    Answer: The amendments have been carried out with respect to securities market transactions. The present system of collection of stamp duty on securities market transactions has led to multiple rates for the same instrument, resulting in jurisdictional disputes and multiple incidences of duty, thereby raising the transaction costs in the securities market and hurting capital formation.
  2. What is the basic framework being created through the amendments to the Indian Stamp Act, 1899?
    Answer: Through the said amendments, the Central Government has created the legal and institutional mechanism to enable States to collect stamp duty on securities market instruments at one place by one agency (through the Stock Exchanges or Clearing Corporations authorised by the Stock Exchange or by the Depositories) on one instrument. A mechanism for appropriate sharing the stamp duty with relevant State Government based on State of domicile of the buying client has also been included. In the extant scenario, stamp duty was payable by both seller and buyer whereas in the new system it is levied only on one side (payable either by the buyer or by the seller but not by both, except in case of certain instrument of exchange where the stamp duty shall be borne by both parties in equal proportion).
  3. What are the expected key benefits of amendments in the Indian Stamp Act, 1899?
    Answer: The amendments in the Indian Stamp Act, 1899 and Rules made thereunder will facilitate ease of doing business and will bring in uniformity and affordability of the stamp duty on securities across States and thereby build a pan-India securities market. Further, cost of collection would be minimised while revenue productivity is enhanced. Further, this system will help develop equity markets and equity culture
    across the length and breadth of the country, ushering in balanced regional development.
  4. The amended provisions of the Stamp Act and Rules made thereunder will come into force from which date?
    Answer: The amended provisions of the Indian Stamp Act, 1899 brought through Finance Act, 2019 and Rules made thereunder shall come into force w.e.f 1st July,
  5. What all instruments are covered under Part AA of Chapter II of the amended Stamp Act and the Rules made thereunder?
    Answer: Each security is charged with a duty as specified in Schedule I of the amended Stamp Act. Securities are defined to include all those instruments specified in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956; a “derivative” as defined in clause (a) of Section 45U of the Reserve Bank of India Act, 1934; a certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to one year as the Reserve Bank of India may specify from time to time; repo on corporate bonds; and any other instrument declared by the Central Government, by notification in the Official Gazette, to be securities for the purposes of this Act.
  6. Who will collect the Stamp Duty on behalf of the State Government?
    Answer: The stamp-duty on sale of securities, transfer of securities and issue of securities shall be collected on behalf of the State Government by the Stock Exchange or Clearing Corporation authorized or Depositories (authorized collecting agents). The Central Government has also notified the Clearing Corporation of India Limited (CCIL) and the Registrars to Issue and / or Share Transfer Agents to act as collecting agents.
  7. What is the manner of collection of stamp duty under new system?
    Answer: For all exchange based secondary market transactions in securities, Stock Exchanges shall collect the stamp duty; and for off-market transactions (which are made for a consideration as disclosed by trading parties) and initial issue of securities happening in demat form, Depositories shall collect the stamp duty.
  8. When and how will the stamp duty be transferred to each State?
    Answer: The collecting agents shall within three weeks of the end of each month and in accordance with the Rules made in this behalf by the Central Government, transfer the stamp-duty collected to the State Government where the residence of the buyer is located and in case the buyer is located outside India, to the State Government having the registered office of the trading member or broker of such buyer and in case where there is no such trading member of the buyer, to the State Government having the registered office of the participant. The collecting agent shall transfer the collected stamp-duty in the account of concerned State Government with the Reserve Bank of India or any scheduled commercial bank, as informed to the collecting agent by the
    Reserve Bank of India or the concerned State Government.
  9. What would be the fees for the collecting agent?
    Answer: The collecting agent may deduct 0.2 per cent of the stamp-duty collected on behalf of the State Government towards facilitation charges before transferring the same to such State Government.
  10. How the State Government will communicate regarding stamp duty matter?
    Answer: The State Government shall appoint a nodal officer for all official communications with the principal officers (appointed representatives of collecting agents) for the purposes of collection of stamp-duty in accordance with stamp duty Rules.
  11. What if collecting agents fails to transfer the duty to the State Government within the time period specified in the Stamp Act and Rules made thereunder?
    Answer: The collecting agents have to transfer collected stamp duty to the State Government within three weeks of the end of each month. Any collecting agent who fails to collect the stamp duty or fails to transfer stamp duty to the State Government within fifteen days of the expiry of the time specified, shall be punishable with fine which shall not be less than one lakh rupees, but which may extend up to one per cent of the collection or transfer so defaulted.
  12. Will any information be provided to the State Government in respect of the stamp duty collected?
    Answer: The collecting agent shall submit a return of stamp-duty collected on various transactions to the State Government including details of defaulters in the prescribed format on a monthly basis to be furnished manually or electronically within seven days of the succeeding month. Further, the collecting agent shall furnish a consolidated return of stamp-duty collected during a financial year manually or electronically on or before the 30th June immediately following that financial year to the concerned State Government and the Accountant General of each State. The State Government may provide an online facility by which a collecting agent shall upload State wise monthly and yearly returns. Further, if a collecting agent fails to submit details of transactions to the Government or submits a document or makes a declaration which is false or which such person knows or believes to be false, shall be punishable with fine of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.
  13. Can collecting agents utilise amount collected on behalf of States for any other purpose?
    Answer: The stamp-duty collected on behalf of the State Government shall not be utilized by any collecting agent for any other purpose and shall be transferred to the State Government along with interest earned on such amount, if any.
  14. Who will collect the stamp duty in case of private placements/ e-IPOs through Stock Exchange platform?
    Answer: As per section 9A(1)(c), stamp duty shall be collected by the Depository on any creation or change in the records of a Depository, pursuant to issue of securities. This should be followed even in case of private placements/ e-IPOs through stock exchange platform.
  15. Whether stamp duty is applicable on bonus issue of shares?
    Answer: In case of bonus issue, there is no consideration which means bonus shares are issued free to existing shareholders. Section 21 of the Amended Indian Stamp Act read with sub-section 16B of Section 2 clearly indicates that stamp duty is to be collected on market value which is based on price or consideration involved.
  16. Whether stamp duty is applicable on units of Mutual Fund?
    Answer: Sub-Section 23A of Section 2 of the Indian Stamp Act, 1899 defines securities as including securities defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (SCRA). Further, it may be noted that clause (h)(id) of Section 2 of SCRA, 1956, which defines “securities” includes “units or any other such instrument issued to the investors under any mutual fund scheme” under its ambit. Therefore, units of Mutual Fund Schemes are to be considered as securities for the purpose of applicability of stamp duty also
  17. Which section of amended Indian Stamp Act, 1899 (section 9A or 9B) is applicable for Mutual Funds for the purposes of collection and transfer of stamp duty to States/UTs?
    Answer: Since RTI and/or STA of Mutual Funds have been declared as Depositories under the Stamp Act vide gazette notification dated 8th Jan, 2020, the entire mutual fund business gets covered under Section 9A of the Indian Stamp Act. Section 9B is not applicable to them. RTAs have to function like a Depository in respect of collection of Stamp Duty on issue and sale or transfer of mutual funds in SoA form. The extant Stamp Rules applies to them as well i.e. the operational clause for them is Section 9A and not 9B of the Indian Stamp Act.
  18. Who will collect and transfer the Stamp duty to States in case of transactions in units of Mutual Funds and AIFs in Statement of Account/ Physical (non-demat form)?
    Answer: To provide for collection of Stamp Duty on transactions in mutual fund and AIF units in the statement of account/physical (non-demat) form, RTI and/or STA have been notified (vide Gazette Notification dated 8th January, 2020) as a “Depository” for the limited purposes of acting as a “collecting agent” under the said Act and the Rules made thereunder. Accordingly, for non-demat Mutual Fund and
    AIF transactions, collection of stamp duty by RTAs shall be governed by the provisions of Section 9A(1)(b) and 9A(1)(c) and the transfer of stamp duty to the respective States shall be governed by the provisions of Section 9A (4). Thus, the transfer of collected stamp duty to respective States/UTs by RTAs also is governed by buyer-based principle as covered in Section 9A(4) and not on the basis of registered office of the issuer.
  19. Who will collect the Stamp duty in case of Mutual Fund and AIF transactions (sale, transfer and issue of units in demat mode) through recognized Stock Exchange or Depository?
    Answer: As clear from the Act that in case of Mutual Fund and AIF transactions (sale, transfer and issue of units in demat mode) through recognized Stock Exchange or Depository as defined under SCRA, 1956 and Depositories Act, 1996 respectively, the respective Stock Exchange/ authorized Clearing Corporation or a Depository is already empowered to collect stamp duty as per Amended Indian Stamp Act and Rules made thereunder.
  20. On transfer of units of Mutual Funds and AIFs held in physical form stamp duty is to be collected from the transferor. As these transfers happen outside the purview of RTAs what will be process of collection and remittance of stamp duty?
    Answer: Stamp duty has to be collected and remitted only by collecting agents (RTA for physical units and Depositories for demat units). Where Mutual Fund and AIF units are issued in physical form, stamp duty has to be collected and remitted by RTA. Accordingly, when the transferee approaches RTA for effecting the transfer in their books, RTA will be collecting the stamp duty from the transferor before effecting the transfer which will then be remitted to the state of domicile of the transferee.
  21. How stamp duty is calculated in case of issuance of Mutual fund Units?
    Answer: Stamp duty is imposed on the value of units excluding other charges like service charge, AMC fee, GST etc. If the units are issued for Rs.1 crore then Rs.500 would be the stamp duty to be remitted to States.
  22. Whether switching in Mutual fund attract stamp duty?
    Answer: The issue of fresh units in the switched scheme would also attract stamp duty even though there is no physical consideration paid or transfer of ownership. This is because the new units are deemed to have been purchased with the NAV realized from the sale of earlier units.
  23. Whether stamp duty is applicable on redemption of Mutual Fund units?
    Answer: Redemption is not liable to duty as it is neither a transfer nor an issue nor a sale.
  24. Whether stamp duty will be charged on off-market transfer of securities without consideration such on gift, legacy transfer etc.?
    Answer: No. Section 21 of the Amended Indian Stamp Act read with sub-section 16B of Section 2 clearly indicates that stamp duty is to be collected on market value which is based on price or consideration involved.
  25. Whether stamp duty is applicable at multiple levels of a single transaction (on account of procedural requirements) and to which State Government the stamp duty amount be transferred in such cases?
    Answer: It should be ensured that double incidence of stamp duty doesn’t occur on any transaction. Where, before being credited in the buyer’s demat account, the securities are transferred from the demat accounts of issuer to clearing corporation, member, etc., the stamp duty shall be transferred to the State Government where the residence of the buyer is located.
  26. Whether stamp duty will be applicable in case of creation of segregated portfolio?
    Answer: No. Since no consideration is received from the investors and the mechanism is only to facilitate mutual funds to deal with liquidity risk leading to equal treatment of all investors, issuance of units in segregated portfolio is not liable to stamp duty.
  27. Whether stamp duty will be applicable in case of conversion of holding from Dematerialisation into Statement of Account (SoA) form and vice versa?
    Answer: No. Conversion of existing mutual fund units held in SoA mode to demat mode or vice-versa does not tantamount to issuance or transfer of mutual fund units and it only reflects the change in mode of holding without any change in beneficiary ownership. Accordingly, stamp duty is not applicable on such conversions.
  28. What are the stamp duty rates being implemented through the Amended Indian Stamp Act?
    Stamp Duty Rates w.e.f. 1st July 2020
    Instrument Rate
    Issue of Debenture 0.005%
    Transfer and Re-issue of debenture 0.0001%.
    Issue of security other than debenture 0.005%
    Transfer of security other than debenture on delivery basis; 0.015%
    Transfer of security other than debenture on non-delivery basis 0.003%
    Derivatives––
    (i) Futures (Equity and Commodity) 0.002%
    (ii) Options (Equity and Commodity) 0.003%
    (iii) Currency and Interest Rate Derivatives 0.0001%
    (iv) Other Derivatives 0.002%
    Government Securities 0%
    Repo on Corporate Bonds 0.00001%

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clearing corpn in IFSCs

SEBI has vide its circular dated 7th August, 2020 amended the SEBI (International Financial Services Centres) Regulations 2015 by allowing other entities to pick up stake in a clearing corporation to be set up in an IFSC. The majority stake of 51% shall continue to be held by a recognised stock exchange or clearing corporation in India or of a foreign jurisdiction and they may have to in turn form a subsidiary to provide the services of a clearing corporation in an IFSC.

The remaining portion of the shareholding of the said clearing corporation in an IFSC can be held by any person whether Indian or foreign jurisdiction but they cannot hold more than 5% of the equity of the said clearing corporation whether directly or indirectly, individually or jointly or acting in concert.

But entities like i) any other stock exchange, ii) a clearing corporation,
iii) a depository, iv) a banking company, v) an insurance company, whether Indian or of foreign jurisdiction for (i) to (v), vi) a public financial institution of Indian jurisdiction, vii) a foreign commodity derivatives exchange; and viii)a bilateral or multilateral financial institution approved by the Central Government, may hold upto 15 % of the equity share capital of the said clearing corporation whether directly or indirectly, individually or jointly or acting in concert.

Copy of the SEBI circular can be found here https://www.sebi.gov.in/legal/circulars/aug-2020/sebi-international-financial-services-centres-guidelines-2015-amendment_47281.html

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