January 2023

Guidelines for Net Settlement of Equity and FNO Segments

Learn about the guidelines for net settlement of Equity and FNO (Futures & Options) segment upon the expiry of stock derivatives. Find out the details of the netting of obligations, securities settlement, funds settlement, margin benefit for offsetting positions, and early pay-in of funds/securities.

NSE Clearing Limited (NCL) has issued guidelines via a circular dated January 20, 2023, for the net settlement of the Capital Market segment and Futures & Options (F&O) segment upon the expiry of stock derivatives. This comes in response to SEBI circular SEBI/HO/MRD2_DCAP/P/CIR/2022/165 dated November 30, 2022. The guidelines outline a number of key points for the netting of obligations, securities settlement, funds settlement, margin benefit for offsetting positions, and early pay-in of funds and securities. The above changes shall be effective from March 2023 expiry of F&O contracts.

Net Settlement of Equity and FNO

Key Points for Net Settlement of Equity and FNO

  • SEBI has issued guidelines for the net settlement of equity and FNO (Futures & Options) segment upon the expiry of stock derivatives.
  •  Obligations in the physical settlement of the F&O segment will be netted with obligations in the Capital Market segment of the corresponding trade date.
  • Netting shall happen only if the clearing member-trading member-client (UCC Code) is common across Capital Market and F&O segments for the same security.
  • The net sell or buy obligations shall be settled in the Capital Market segment.
  • Clearing members in F&O will provide requests for voluntary auction for internal shortages of F&O physical in settlement type, settlement number, and security series applicable in the Capital market.
  • Funds settlement will happen from the settlement bank account of the Capital Market segment.
  • Clearing members are required to maintain active settlement account in the capital market segment.
  • Positions in stocks derivative contracts that are converted to settlement by delivery on expiry in the F&O segment and obligations in the underlying Capital Market segment shall be allowed margin benefit to the extent of offsetting positions.

Also Read: Unlocking Stock Market Secrets for a Successful Investment Journey

Netting of Obligations

SEBI’s net settlement of equity and FNO, says that this is the process of offsetting the obligations in the physical settlement of the F&O segment with the obligations in the Capital Market segment upon expiry. This is done when the clearing member-trading member-client (UCC Code) is common across Capital Market and F&O segments for the same security. This process aims to reduce the overall settlement obligations and increase efficiency in the financial markets.

Same Settlement Calendar for Equity and F&O

The net settlement of equity and FNO guidelines specify that NSE Clearing Ltd. (NCL) will not issue a separate settlement calendar for F&O physical settlement and F&O physical Auction market. Furthermore, clearing members in F&O will provide requests for voluntary auction for internal shortages of F&O physical in settlement type, settlement number, and security series applicable in the Capital market. This process ensures the proper and timely settlement of securities transactions.

Funds Settlement

The net settlement of equity and FNO guidelines state that funds settlement will happen from the settlement bank account of the Capital Market segment. Clearing members are required to maintain active settlement account in the capital market segment. In case of fund shortages, the shortages shall be apportioned on the basis of the segment-wise obligation of clearing member to NCL, on a pro-rata basis. This process ensures the proper and timely settlement of funds obligations.

Margin Benefit for Offsetting Positions

The net settlement of equity and FNO procedure specifies that positions in stocks derivative contracts that are converted to settlement by delivery on expiry in the F&O segment and obligations in the underlying Capital Market segment shall be allowed margin benefit. Margin benefit shall be provided on total margins in the Capital Market segment and on delivery margins in F&O Segment. This will only happen if the offsetting positions in a security at clearing member-trading member-client (UCC) are common across Capital Market and F&O segments. This process helps to reduce the overall margin requirements and increase efficiency in the financial markets.

Early Pay-in of Funds and Securities

On early Pay-in of funds and securities, the net settlement of equity and FNO guidelines tell that members may provide early pay-in of funds from the settlement bank account as mentioned above towards Capital Market segment settlement type only. The benefit of early pay-in shall be provided as per the order:

1.) Early pay-in of funds shall be first considered in the Capital Market segment.

2.) The residual amount of Early pay-in of funds allocated at the client/client-security level.

Clearing Member Obligations and Responsibilities

The net settlement of equity and FNO guidelines specify that clearing members are responsible for providing requests for voluntary auction for internal shortages of F&O physical in settlement type, settlement number, and security series applicable in the Capital market. Also, clearing members are responsible for maintaining active settlement account in the capital market segment and providing manual pay-in instructions for the incremental obligation. This ensures the clearing members’ compliance with the regulations and procedures set by the clearing corporation.

Impact on STT and Stamp Duty

The net settlement of equity and FNO guidelines specify that there shall be no change in the computation of STT and Stamp duty and the same shall continue to be levied for F&O physical and Capital Market separately as per the existing mechanism. This means that the guidelines will have no impact on the calculation of STT and Stamp duty, which will continue to be determined based on the existing regulations and procedures.

Pro-rata Apportionment of Shortages and Losses

The net settlement of equity and FNO rules specify that in case of fund shortages, the shortages shall be apportioned on the basis of the segment-wise obligation of clearing member to NCL, on a pro-rata basis. The losses, if any, in case of default of a clearing member to NCL shall be computed on the basis of the segment-wise obligation of the clearing member to NCL, on a pro-rata basis. This process ensures that the burden of shortages or losses is shared fairly among all the participants.

Do not Exercise Facility

Finally, the net settlement of equity and FNO rules state that the facility of “Do Not Exercise” available for stock options on the expiry day shall be discontinued. That is, the Do Not Exercise Facility allows the traders to not exercise an option. This facility is available for ATM and near ATM options.

Also Read:

Guidelines for Net Settlement of Equity and FNO Segments Read More »

Removal of FSL and TORONTPOWER from the FNO

Stay informed with the latest NSE circular regarding the removal of FSL and TORONTPOWER from the FNO market on March 30, 2023. Learn about the impact on stock prices and settlement of contracts.

Removal of FSL and TORONTPOWER from the FNO

On January 20, 2023, the National Stock Exchange (NSE) vide circular no. NSE/FAOP/55309, has announced its decision to exclude FIRSTSOURCE SOLUTIONS LIMITED (FSL) and TORRENT POWER LIMITED (TORNTPOWER) from the futures and options (F&O) segment. This means that new F&O contracts for these companies will not be issued after March 30, 2023. This decision is based on a review of the framework for stocks in the derivatives segment by the Securities and Exchange Board of India (SEBI).

Removal of FSL and TORONTPOWER from the FNO
Removal of FSL and TORONTPOWER from the FNO

Last Date in F&O

Investors will be able to trade in F&O for FSL and TORNTPOWER till March 30, 2023. After that, new contracts for FSL and TORNTPOWER will not be issued and these companies will not be a part of the F&O segment. Any contract that remains unsettled on March 30, 2023, will be settled by delivery.

About FSL and TORNTPOWER

FIRSTSOURCE SOLUTIONS LIMITED (FSL) is a business process outsourcing and IT company, which provides services to clients in the banking and financial services, healthcare, telecommunications and media, and insurance sectors. TORRENT POWER LIMITED (TORNTPOWER) is in the business of power generation and distribution, it is an integrated power utility company engaged in the business of generation, transmission, and distribution of power. FSL closed at 102.65 on NSE on January 20, 2023, its 52-week high is 171.45 and its low is 93. TORNTPOWER closed at 460 and its 52-week high is 610 and its low is 415.25.

Impact of Removal from F&O

There may have an impact of the removal of FSL and TORONTPOWER from the FNO on investors, it is important to note that FSL and TORNTPOWER will continue to trade in the equity segment and their underlying business performance will continue to drive their stock prices. It is important for investors to consider all available information before making any investment decisions.

Also Read:

Removal of FSL and TORONTPOWER from the FNO Read More »

Exploring the New OFS Framework for Sale of Equity Shares, REITs and InvITs: A Guide to the Recent SEBI Circular

SEBI has issued a circular for the new OFS framework. Learn about the changes to the process and guidelines for the sale of equity shares, REITs, and InvITs through the Offer for Sale mechanism.

Key Points for the New OFS Framework

  • The introduction of a comprehensive framework for the Offer for Sale (OFS) of shares by promoters and other shareholders.
  • The requirement for sellers to disclose the floor price of shares at least one day before the OFS.
  • The option for sellers to offer shares to employees at a discounted price.
  • The provision for discounts for retail investors.
  • The requirement for a separate trading window for the OFS of shares.
  • The reservation of a minimum of 25% of shares for mutual funds and insurance companies and a minimum of 10% for retail investors.
  • The calculation of the cut-off price based on all valid bids.
  • The option for non-retail investors to carry forward their bids to the next day.
  • The imposition of penalties for default in pay-in and the inability to revise allotment prices.
  • The issuance of contract notes by brokers to clients.
  • The imposition of a cooling-off period of 10 trading days before an OFS can be made again after withdrawal.
  • The prohibition of cancellation of an OFS during the bidding period.
  • The applicability of the framework to publicly issued and listed Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
SEBI's New OFS Framework

A Comprehensive Look at the New OFS Framework

The Securities and Exchange Board of India (SEBI) has issued a circular outlining a comprehensive framework for the Offer for Sale (OFS) mechanism. The new OFS framework is designed to provide a transparent and efficient process for the sale of securities by promoters and other shareholders of listed companies. The circular defines key terms such as “Seller”, “Retail Investor” and “Cut-off Price” in order to provide clarity on the OFS process.

The definition of “Seller” includes promoters and promoter group entities, as well as other shareholders of a listed company who wish to sell their securities through the OFS mechanism. A “Retail Investor” is defined as an individual investor who places bids for shares of a total value not exceeding ₹ 2 lakhs. “Cut-off Price” is the lowest price at which the entire offer gets sold, determined based on all valid bids.

The new OFS framework also includes details on the timing and method of the OFS process, order placement, risk management, allocation, settlement, and handling of defaults. The definition of these key terms is crucial to ensure a fair and orderly process for the sale of securities through the OFS mechanism.

Eligibility Securities for New OFS Framework

The securities that are eligible for the new OFS framework are equity shares of listed companies and units of publicly issued and listed Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

Eligible Buyers and Sellers

The eligible sellers under the new OFS framework are the promoters, promoter group entities, and other unitholders of the eligible securities. The eligible buyers under the OFS framework are institutional investors, non-institutional investors, and retail investors.

Size of OFS

The size of the offer shall be a minimum of ₹ 25 Crore. However, the size of the offer can be less than ₹ 25 Crore by the promoter(s) or promoter group entities so as to achieve minimum public shareholding in a single tranche.

Advertisements and Offer Expenses

The issuer must disclose the floor price and the number of shares being offered through the OFS in the advertisement, and the advertisement must be placed in at least two newspapers with nationwide circulation. The expenses for the OFS, including the expenses for the advertisement, must be borne by the issuer and cannot be passed on to the shareholders. The new OFS framework prohibits the issuer or any of its associates from making any payment or providing any benefit to any media entity in relation to the OFS. This is done to ensure that the advertisement and the offer expenses are not inflated and that the interests of investors are protected.

Operational Requirements

The seller(s) will appoint broker(s) for this purpose. The seller’s broker(s) may also undertake transactions on behalf of eligible buyers. Seller shall announce the intention to the sale of shares latest by 5 pm on T-1 days (T day being the day of the OFS) to the stock exchange. Stock exchanges shall inform the market immediately upon receipt of the notice. The stock exchange, however, may allow, on a case-to-case basis based on the request of the seller, the extension of this time up to 6 pm by recording reasons for granting the such extension. In the new OFS framework, the seller(s) shall announce the intention to the sale of shares along with the following information:

  • Name of the seller(s) (promoter(s) or promoter group entities or non-promoter shareholders) and the name of the company whose shares are proposed to be sold.
  • Name of the stock exchange(s) where the orders shall be placed. In case orders are to be placed on more than one stock exchange, one of them shall be declared as the Designated Stock Exchange (“DSE”).
  • Date and time of the opening and closing of the offer.
  • Allocation methodology i.e. either on a price priority basis (at multiple clearing prices) or on a proportionate basis (at a single clearing price).
  • The number of shares being offered for sale.
  • Green Shoe Option: The maximum number of shares that the seller may choose to sell over and above the offer made.
  • The name of the seller broker(s) on behalf of the seller(s).
  • Conditions, if any, for withdrawal or cancellation of the offer.

Floor Price

In the new OFS framework, the seller shall disclose the floor price latest by 5 pm (or latest by 6 pm, if the extension is granted by the stock exchange) on T-1 day to the stock exchange. Stock exchanges shall ensure that the same is informed to the market immediately. The promoters may at their discretion offer these shares to employees at the price discovered in the said OFS transaction or at a discount to the price discovered in the said OFS transaction. Promoters shall make necessary disclosures in the OFS notice to the exchange including the number of shares offered to employees and the discount offered if any.

Discount for Retail Investors

In the new OFS framework, SEBI says the seller may offer a discount to retail investors. The details of the discount and percentage of reservation for retail investors shall be disclosed upfront in the notice of OFS to the exchange. The discount to retail investors may be offered as follows:

  • Multiple Clearing Price OFS i.e. retail investors may be allocated shares at a discount to the cut-off price determined in the retail category, irrespective of the bid price entered by them. Or, retail investors may be allocated shares at a discount to the bid price entered by them.
  • Single Clearing Price OFS i.e. retail investors shall be allocated shares at a discount to cut off price determined in the retail category.

In the case of both of the above methodologies, the discounted price which shall be the final allocation price to the retail investors may be below the floor price.

Timelines

The new OFS framework proposes the duration of the OFS shall be as per the trading hours of the secondary market. On the commencement of OFS on T day only non-retail investors shall be permitted to place their bids. The cut-off price shall be determined based on the bids received on T day as per the extant guidelines. The retail investors shall bid on T+1 day. The seller shall make appropriate disclosures in this regard in the OFS notice.

Order Placement

A separate window for the purpose of the sale of shares through OFS shall be created. The following orders shall be valid in the OFS window:

  • Orders with 100% of margin paid upfront by institutional investors and non-institutional investors. Such orders can be modified or canceled at any time during trading hours.
  • Orders without paying upfront margin by institutional investors only. Such orders cannot be modified or canceled by the investors or stock brokers, except for making upward revisions in the price or quantity.

Cumulative bid quantity shall be made available online to the market throughout the trading session at specific intervals in respect of orders with 100% upfront margin and separately in respect of orders placed without any upfront margin. The indicative price shall be disclosed to the market throughout the trading session for non-retail bids. The indicative price shall be calculated based on all valid bids or orders.

If the shares have a price band in the normal segment, the same shall not apply to the orders placed in the OFS. Stock-specific tick size as per the extant practice in normal trading session shall be made applicable for this window. In the case of shares under OFS, trading in the normal market shall also continue. However, in case of market closure due to the incidence of breach of the ‘Market wide index based circuit filter’, the OFS shall be halted. Non-retail investors shall be allowed to place only limit orders or bids. Multiple orders from a single buyer shall be permitted. On T-Day orders or bids below the floor price shall be rejected.

Order Placement for Retail Investors

Individual retail investors shall have the option to bid in the retail category and the general category (non-retail). However, if the cumulative bid value of such investors exceeds ₹ 2 lakhs, the bids in the retail category shall become ineligible. To make it easier for retail investors to participate in OFS, it would be mandatory for sellers to provide the option to retail investors to place their bids at a cut-off price in addition to placing price bids.

The sellers shall mandatorily announce the floor price on T-1 day to the stock exchange. The exchanges will decide upon the number of shares eligible to be considered as retail bids, based on the floor price declared by the seller. There shall be no indicative price for the retail portion of OFS.

Retail investors may enter a price bid or opt for bidding at the cut-off price. The margin for retail bids placed at the cut-off price shall be at the cut-off price determined based on the bids received on T Day and for price bids at the value of the bid. Bidding by retail investors on T+1 Day shall be based on the cut-off price determined in the non-retail category.

In case of under subscription in the non-retail category, the retail investors shall be allowed to place their bids at floor price on T+1 day. Retail bids below the cut-off price of T day or the floor price, whichever is applicable, shall be rejected. Retail bids at cut-off price shall be allocated on a proportionate basis in case of over-subscription. Any unsubscribed portion of the non-retail category after allotment shall be eligible for allocation in the retail category and vice versa.

Risk Management

Clearing Corporation shall collect a 100% margin in cash from non-institutional investors. In the case of institutional investors who place orders or bids with 100% of the margin upfront, custodian confirmation shall be within trading hours. In the case of institutional investors who place orders without an upfront margin, custodian confirmation shall be as per the existing rules for secondary market transactions. The funds collected shall neither be utilized against any other obligation of the trading member nor co-mingled with other segments.

In respect of bids in the retail category, the clearing corporation shall collect a margin to the extent of 100% of the order value in cash or cash equivalents. Pay-in and pay-out for retail bids shall take place as per normal secondary market transactions. In case of an order or bid modification or cancellation, such funds shall be released or collected on a real-time basis by the clearing corporation.

The seller(s) shall deposit the entire quantity of shares offered for sale including the additional shares disclosed, as pay-in with the designated clearing corporation under the framework of interoperability of clearing corporations prior to the commencement of the offer. No other margin shall be charged to the seller(s).

Allocation

A minimum of 25% of the shares offered shall be reserved for mutual funds and insurance companies, subject to allocation methodology. Any unsubscribed portion thereof shall be available to the other bidders. A minimum of 10% of the offer size shall be reserved for retail investors. The cut-off price i.e. the lowest price at which the entire offer gets sold, shall be determined based on all valid bids. The cut-off price shall be determined separately for bids received in the retail category and for bids received in the non-retail category.

Upon determining the cut-off price, the offer size reserved for retail investors shall be allocated to eligible bids of retail investors. In case of excess demand in the retail category at the cut-off price, the allocation shall be on a proportionate basis. In order to ensure that shares reserved for retail investors do not remain unallocated due to insufficient demand by the retail investors, the bids of non-retail investors shall be allowed to carry forward to T+1 day. Similarly, the unsubscribed portion of the non-retail segment shall be allowed for bidding in the retail segment.

The unsubscribed portion of the shares reserved for retail investors shall be allocated to non-retail bidders (un-allotted bidders on T day who choose to carry forward their bid on T+1 day) on T+1 day at a price equal to cut off price or higher as per the bids. In this regard, an option shall be provided to such non-retail bidders to indicate their willingness to carry forward their bids to T+1 day. If the non-retail bidders choose to carry forward their bids to T+1 day, then, they may be permitted to revise such bids.

Settlement

The allocation and the obligations resulting thereof shall be intimated to the brokers or clearing members on T day. The settlement shall take place on trade for trade basis. For non-institutional orders or bids and for institutional orders with 100% margin, settlement shall take place on T+1 day. In case of orders or bids of institutional investors with no margin, settlement shall be as per the existing rules for secondary market transactions.

Settlement for bids received on T+1 day shall be carried out as per the existing rules for secondary market transactions. Funds collected from the bidders who have not been allocated shares shall be released after the download of the obligation. On the day prior to settlement, to the extent of obligation determined, the designated clearing corporation of the seller broker(s) under the framework of interoperability among clearing corporations shall transfer such number of shares to the other interoperable clearing corporations.

The other interoperable clearing corporation(s) shall transfer funds consideration to the designated clearing corporation on settlement day. Excess shares, if any, shall be returned to the seller broker(s). The direct credit of shares shall be given to the Demat account of the successful bidder provided that such manner of credit is indicated by the broker or bidder.

Handling of Default in Pay-in

In case of default in pay-in by any investor, 10% of the order value shall be charged as a penalty from the investor and collected from the broker. This amount shall be credited to the Investor Protection Fund of the stock exchange. The price at which allotments have been made based on the allocation on T day shall not be revised as a result of any default in pay-in. Seller(s) shall have the option to cancel in full or conclude the offer. Allotment details after settlement shall also be disseminated by the exchange. The Settlement Guarantee Fund shall not be available for OFS through the stock exchange mechanism.

Issuance of Contract Notes

The brokers shall be required to issue contract notes to the client based on the allotment price and quantity in terms of conditions specified by the exchange.

Withdrawal of Offer

The OFS may be withdrawn prior to its proposed opening. In such a case there will be a cooling off period of 10 trading days from the date of withdrawal before an offer is made once again. The stock exchange(s) shall suitably disseminate details of such withdrawal.

Cancellation of Offer

Cancellation of the offer shall not be permitted during the bidding period. If the seller(s) fails to get sufficient demand from non-retail investors at or above the floor price on T day, then the seller may choose to cancel the offer, post bidding, in full (both retail and non-retail) on T day and not proceed with the offer to retail investors on T+1 day. The stock exchange(s) shall suitably disseminate details of such cancellation.

New OFS Framework for REITs and InvITs

OFS for the sale of units of REITs and InvITs by the sponsor(s) or sponsor group entities, and other unitholders shall be permitted only in publicly issued and listed REITs and InvITs. The new OFS framework for REITs and InvITs shall be equivalent to the OFS framework prescribed above.

Also Read:

Exploring the New OFS Framework for Sale of Equity Shares, REITs and InvITs: A Guide to the Recent SEBI Circular Read More »

Dividend Adjustment of TCS Full Details: TCS Announces ₹ 75 Dividend per Share

Get all the details on the Dividend Adjustment of TCS, including the date of ex-dividend, record date, cash, and F&O adjustments, and more. Learn how TCS’s dividends will be adjusted in line with SEBI guidelines.

On January 09, 2023, TATA CONSULTANCY SERVICES (TCS) announced that its Board of Directors has approved a third Interim Dividend of ₹ 8 per equity share and a special dividend of ₹ 67 per equity share, representing a total dividend of ₹ 75 per equity share. This is equivalent to a payout of 2.34% of the share price, based on the closing price of ₹ 3211.55 on January 06, 2023. The Ex-date for dividend is January 16, 2023, and the record date for the payment of dividends is January 17, 2023.

Dividend adjustment of TCS

SEBI’s Guidelines for Dividend Adjustment in F&O

SEBI guidelines state that companies whose dividends are more than 2% of the closing price on the day before the date of declaration of dividends must adjust the dividends in the futures and options market. In line with these guidelines, TCS dividends will be adjusted in the futures and options market as well as in the cash market.

Dividend Adjustment of TCS in the Cash Market

In the cash market, the last cum-dividend date for TCS is January 13, 2023. Investors who purchase TCS shares on or before this date will receive the dividends directly in their bank accounts.

Dividend Adjustment of TCS the Futures Segment

In the futures market, the value of a TCS futures contract will be adjusted by deducting the dividend amount from the closing price on January 13, 2023. For example, if TCS closes at ₹ 3400 on January 13, 2023, the value of a future contract will be ₹ 3400 x 175 = ₹ 5,95,000. On January 16, 2023, the value of the same contract will be ₹ 3325 x 175 = ₹ 5,81,875. The difference between these two values will be credited to the future buyer’s account and debited from the future seller’s account.

Dividend Adjustment of TCS in the Options Market

In the options market, the dividend amount will be deducted from the strike price (call/put) of the option for ongoing months contracts. This applies to the contracts expiring on January 25, 2023, February 23, 2023, and March 29, 2023. This can be understood through the table given below:

TCS Dividend Adjustment in Options

Generated by wpDataTables

If you have any other query related to the dividend adjustment of TCS then you can ask us by commenting below and get your doubt cleared. If you found this information beneficial then share it.

Read More:

Dividend Adjustment of TCS Full Details: TCS Announces ₹ 75 Dividend per Share Read More »

Stock Exchange Outage

SEBI’s guidelines for handling stock exchange outages: A closer look

Learn about SEBI’s new Standard Operating Procedure for managing stock exchange outages and ensuring an orderly trading environment in case of disruptions.

Stock exchange outages can disrupt trading and have a major impact on market participants. The Securities and Exchange Board of India (SEBI) has recently issued a new circular outlining a Standard Operating Procedure (SOP) for handling such outages. This article will explain the key elements of SEBI’s SOP and how it aims to minimize the impact of disruptions and ensure orderly trading.

stock exchange outage

Key Points to Handle Stock Exchange Outage

  • Definition of stock exchange outage: The SOP defines a stock exchange outage as a stoppage of continuous trading, either initiated by the exchange or caused by reasons beyond its control.
  • Reporting requirements: The affected stock exchange must inform market participants, other MIIs, and SEBI of the outage immediately, but no later than 15 minutes from the occurrence of the outage. The exchange must also update on the ongoing outage every 45 minutes until normalcy is restored.
  • Trading on unaffected segments/exchanges: In case of an outage, trading in unaffected segments of the affected exchange shall continue, and all other unaffected exchanges shall continue to trade in all their market segments.
  • Extension of trading hours: If trading on the affected exchange does not resume to normalcy even one hour (excluding 15 minutes of the pre-opening session, if applicable) before the scheduled market closure, trading hours for all stock exchanges would automatically get extended for an additional one and a half hour.
  • Business Continuity Planning (BCP) and Disaster Recovery (DR): The affected exchange is required to follow the SEBI circulars on BCP and DR as well as the circular on Standard Operating Procedure for the handling of technical glitches by Market Infrastructure Institutions (MIIs)
  • Importance of SOP: The SOP is intended to ensure that any outage at stock exchanges is handled in a harmonized and consistent manner to minimize the impact on market participants and maintain orderly trading.

Defining a Stock Exchange Outage

Defining a Stock Exchange Outage is an essential aspect of SEBI’s Standard Operating Procedure (SOP) for managing such disruptions. According to the SOP, a stock exchange outage refers to a stoppage of continuous trading on a stock exchange, either initiated by the exchange or caused by reasons beyond its control. It is important to note that this definition does not include a trading halt on account of the index-based market-wide circuit breaker.

Reporting Requirements for Outages

Reporting Requirements for Outages is an important aspect of SEBI’s Standard Operating Procedure (SOP) for managing stock exchange outages. The affected stock exchange is required to inform all market participants, trading members, and other MIIs (Market Infrastructure Institutions) about the outage immediately, but no later than 15 minutes from the occurrence of the outage. The affected exchange must also send an email to SEBI’s dedicated email id: [email protected] and update on the ongoing outage every 45 minutes from the initial intimation until normalcy is restored.

This reporting requirement is crucial as it helps market participants, other MIIs, and SEBI to take necessary actions to minimize the impact of disruptions and ensure orderly trading. It also helps all the stakeholders to be aware and take necessary measures to adapt to the situation and plan their next move. The timely reporting of outages by the stock exchange also helps in managing market expectations and minimizing the spread of misinformation.

Extending Trading Hours in Case of Outage

Extending Trading Hours in Case of an Outage is a crucial aspect of SEBI’s Standard Operating Procedure (SOP) for managing stock exchange disruptions. The SOP sets out clear guidelines for when trading hours should be extended to ensure that market participants have sufficient time to close their intraday positions. If trading on the affected stock exchange does not resume to normalcy even one hour (excluding 15 minutes of the pre-opening session, if applicable) before the scheduled market closure, trading hours for all stock exchanges would automatically get extended for an additional one and a half hours.

This extension is meant to provide ample time to market participants to take the necessary actions to close their positions and reduce the impact of disruptions on their trading activities. It also helps in maintaining market stability and orderly trading even during difficult situations. The extension of trading hours also helps in preventing any panic or unnecessary volatility during the close of market hours. It is important to note that this extension is triggered automatically, the affected stock exchange has no discretion in this matter. This is to ensure that all exchanges align with each other and market participants have a level playing field.

Details of Time Extention

  • If the outage on exchange A is resolved and normalcy is restored by 14:30, there will be no extension of trading hours for either exchange.
  • If the outage on exchange A occurs in the Cash Market and the start of the pre-opening session is delayed but begins by 14:15, there will be no extension of trading hours.
  • If the outage on exchange A occurs in the Cash Market and the pre-opening session does not start by 16:00, trading will be halted for the day on the Cash Market of exchange A. The Equity Derivative segment on exchange A and the Cash Market and Equity Derivative segment on exchange B will continue to trade till 17:00.
  • If the outage occurs up to 15:05 on exchange A in the Cash Market, the trading hours for both exchanges A and B will be extended till 17:00. The affected exchange must announce this extension within 10 minutes of the outage occurring.
  • If the outage occurs at 15:16 on exchange A in the Cash Market, there will be no extension of trading hours for either exchange.

Business Continuity Planning and Disaster Recovery

Business Continuity Planning (BCP) and Disaster Recovery (DR) are integral parts of SEBI’s Standard Operating Procedure (SOP) for managing stock exchange outages. BCP and DR measures are designed to minimize the impact of disruptions and ensure the continuity of operations. The affected stock exchange is required to follow the SEBI circulars on BCP and DR as well as the circular on Standard Operating Procedure for the handling of technical glitches by Market Infrastructure Institutions (MIIs). This includes the use of a Disaster Recovery Site (DRS) and carrying out various activities to restore operations to normalcy as quickly as possible.

Ensuring Harmonized and Consistent Handling of Outages

Ensuring Harmonized and Consistent Handling of Outages is a crucial aspect of SEBI’s Standard Operating Procedure (SOP) for managing stock exchange outages. The SOP sets out clear guidelines for the handling of outages, including the definition of a stock exchange outage, reporting requirements, trading on unaffected segments/exchanges, and the extension of trading hours. By having a clear and consistent set of guidelines, market participants, other MIIs, and stock exchanges are better able to understand how to respond to an outage and take necessary actions to minimize the impact of disruptions and ensure orderly trading.

Also Read:

SEBI’s guidelines for handling stock exchange outages: A closer look Read More »

RBI's Financial Stability Report December 2022

RBI’s Financial Stability Report December 2022: Low GNPA Ratio and Strong Capital Buffers Boost Confidence

Get a detailed overview of the risks and resilience of India’s financial system highlighted in the RBI’s Financial Stability Report December 2022. This report includes a collective assessment from the FSDC on financial stability and an update on key indicators like asset quality and stress test results. Find out more about the latest findings and their implications for the Indian economy with our summary of the RBI’s Financial Stability Report for December 2022.

Key Points of RBI’s Financial Stability Report December 2022

  • The global economy is facing significant challenges and recessionary risks, while the Indian economy is showing resilience due to strong macroeconomic fundamentals and healthy financial sector balance sheets.
  • Demand for bank credit is strong and there are early signs of a revival in the investment cycle, partly due to improved asset quality and strong capital and liquidity buffers at scheduled commercial banks (SCBs).
  • The gross non-performing asset (GNPA) ratio of SCBs has fallen to a seven-year low of 5.0%, and net non-performing assets (NNPA) have dropped to a ten-year low of 1.3% in September 2022.
  • Macro stress tests for credit risk reveal that SCBs would be able to meet minimum capital requirements even under severe stress scenarios.
  • Stress tests for open-ended debt mutual funds show no breaches in limits related to interest rate, credit, and liquidity risks.
  • The consolidated solvency ratios of both life and non-life insurance companies remain above the prescribed minimum levels.
RBI's Financial Stability Report December 2022
RBI’s Financial Stability Report December 2022

Global Headwinds Hit Indian Economy, But Strong Fundamentals Provide Resilience

The global economy is facing significant challenges and recessionary risks, according to the RBI’s Financial Stability Report December 2022. Despite these global headwinds, the Indian economy is showing resilience due to strong macroeconomic fundamentals and healthy financial sector balance sheets. This is reflected in indicators such as improved asset quality and strong capital and liquidity buffers at scheduled commercial banks (SCBs).

Also Read: RBI’s Monthly Bulletin January 2024

SCB Asset Quality Improves, Stress Tests Show Ability to Meet Capital Requirements

Scheduled commercial banks (SCBs) in India have seen an improvement in asset quality, with the gross non-performing asset (GNPA) ratio falling to a seven-year low of 5.0% in September 2022. This is accompanied by a drop in net non-performing assets (NNPA) to a ten-year low of 1.3%. These positive trends may indicate a return to profitability for SCBs and are likely a result of strong capital and liquidity buffers.

In addition to the improvement in asset quality, the RBI’s Financial Stability Report December 2022 found that SCBs would be able to meet minimum capital requirements even under severe stress scenarios. This is according to the results of macro stress tests for credit risk. These tests simulate the impact of hypothetical stress events on the financial system and help to ensure that institutions are prepared to withstand potential shocks.

Overall, the findings of the RBI’s Financial Stability Report December 2022 suggest that SCBs are well-positioned to handle potential risks and maintain financial stability. The improvement in asset quality and the ability to meet capital requirements under stress scenarios are both positive indicators for the financial system.

Debt Mutual Funds Pass Stress Tests, Insurance Solvency Ratios Remain Strong

According to the RBI’s Financial Stability Report December 2022, open-ended debt mutual funds in India have successfully passed stress tests for interest rate, credit, and liquidity risks. These stress tests are designed to evaluate the ability of financial institutions to withstand potential shocks and ensure that they are prepared for a range of scenarios. The fact that open-ended debt mutual funds passed these tests is a positive indicator for financial stability in the country.

The RRBI’s Financial Stability Report December 2022 also found that the consolidated solvency ratios of both life and non-life insurance companies in India remain above the prescribed minimum levels. This means that these institutions have a sufficient level of capital to cover the risks they take on and to meet their financial obligations. Maintaining strong solvency ratios is important for the stability of the insurance sector and the financial system as a whole.

Low NNPA Ratio Reflects Improved Asset Quality at Scheduled Commercial Banks

The net non-performing asset (NNPA) ratio of scheduled commercial banks (SCBs) in India has fallen to a ten-year low of 1.3% in September 2022, according to the RBI’s Financial Stability Report December 2022. This low NNPA ratio is a reflection of improved asset quality at SCBs and may indicate a return to profitability. Asset quality is an important factor in the health and stability of financial institutions, and the improvement in this area is a positive sign for the financial system.

FSR Highlights: Risk to Financial Stability and Resilience of Indian Financial System

The RBI’s Financial Stability Report December 2022 provides an assessment of the risks to financial stability and the resilience of the Indian financial system. The FSR looks at a range of factors that can impact financial stability, including the health of financial institutions, the performance of the economy, and the state of financial markets.

The FSR found that the global economy is facing significant challenges and recessionary risks, while the Indian economy is showing resilience due to strong macroeconomic fundamentals and healthy financial sector balance sheets. This is reflected in indicators such as the low gross non-performing asset (GNPA) ratio of scheduled commercial banks (SCBs) and the strong capital and liquidity buffers at these institutions.

Also Read:

RBI’s Financial Stability Report December 2022: Low GNPA Ratio and Strong Capital Buffers Boost Confidence Read More »