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Penalties


Short / non-reporting of client margin

The following penalty shall be levied on the members for short / non-collection of margins from their clients beyond T + 2 working days in case of short reporting by trading/clearing member as per the details given below per instance.

Short collection for each client Penalty percentage
(< Rs 1 lakh) And (< 10% of applicable margin) 0.5%
(= Rs 1 lakh) Or (= 10% of applicable margin) 1.0%

Where a = short-collection / non-collection of margins per client per day

In case of short-collection /non collection of initial margins, the above penalty structure would be applicable from T day.

  • The members are supposed to report the collection of all margins from their clients at the end of each trading day and to report short collection/non-collection of all margins on the T+5 day.
  • All instances of non-reporting shall amount to 100% non-collection of margin and the penalty as prescribed above shall be charged on these instances in respect of non-collection. The penalty shall be collected by the Exchanges not later than five days of the last working day of the trading month.
  • With respect to repeated defaulters, who default 3 times or more during a month, the penalty would be 5% of the shortfall in such instances.(Every short/non collection of margin is to be considered as one instance of default. In case margin shortage is reported for a client 3 times or more during a month, i.e., either in consecutive instances or in 3 different instances, the penalty would be 5% of the shortfall from 4th instance of shortfall. E.g. shortage is reported for a client on 1st and 2nd day of month consecutively; thereafter again on 10th day shortage is reported. So the number of instances is 3 and in case shortage is reported on any day later in the month, the penalty shall be 5% of the shortfall amount for all such instances beyond 3rd instance.)
  • All the penalties collected as prescribed above shall be credited to the Investor Protection Fund.

The following penal provisions are made to discourage/ prevent open interest violations at Commodity level / near month contract level. Monetary penalty on the concerned member for violations in the open interest (either on own account or on account of clients) are linked to the quantum/ value of violation committed and to be charged from the concerned member for each such violation as under:

  • Where the violation is more than 2% of the prescribed limit(s) - Limit exceeded x Closing price x number of days such violation continued x 2% (0.02) or Rs. 10,000/- whichever is higher.
  • Where the violation is up to 2% of the prescribed limit(s) - Limit exceeded x Closing price x number of days such violation continued x 2% (0.02) or Rs. 10,000/- whichever is lower.
  • The member has to ensure reduction in position and to bring it within the prescribed limit(s) by the next trading day after the day of violation. In case such violation continues, the Exchange would square-off the excess position without any further notice to the member by putting the orders on behalf of the member in that client code and will not be responsible for the consequences of such action
  • In case, the instance at (1) above is observed for more than 3 times in a month across the market, the Exchange would suspend the concerned member for a period of one week. For instances at (2) above, the Exchange may devise its norms to deal with habitual defaulters.
  • Further, in case repeated violations of such nature are observed by SEBI, SEBI may consider action against the concerned Exchange.
  • The monetary penalty as stated above, will be credited to the Investor Protection Fund of the Exchange.

Members failing to fulfil their funds obligations (including CTT obligation) by the scheduled date and time to Clearing Corporation shall be subjected to the following penalty structure.

Sl No. Type of Non-fulfilment Penalty Charge % per day Action
1 Value Rs. 5 lakhs or more 0.07 The trading facility of the member shall be withdrawn immediately & commodities pay out shall be withheld.
2 Value less than Rs. 5 lakhs 0.07 If in the last three months, the member is short over Rs. 2 lakhs on six or more than six occasions, the trading facility of the member shall be withdrawn and commodities pay out shall be withheld*.

 

*In case, the member is disabled on account of (b) above, on making good the shortage amount, the member shall be permitted to trade subject to its providing a deposit equivalent to its cumulative funds shortage as the 'funds shortage collateral'. Such deposit shall be kept with the Clearing Corporation for a period of ten settlements and shall be released only if no further funds shortages are reported for the member in next ten consecutive settlements.

Members may further note that there shall not be any margin benefit or any interest payment on the amount so deposited as 'funds shortage collateral'. The amount may be provided by way of cash, fixed deposit receipts, or bank guarantee, equivalent to the cumulative funds shortage.

*Recovery of Funds due through liquidation of Commodities Withheld:-

The funds defaulting member will be allowed such time as may be permitted by NCL depending upon the facts of the case to bring in the amount in default. If funds are not brought at any time by the defaulting member, the Clearing Corporation at its discretion will proceed to close out commodities in the normal / auction market. If the member does not bring in the amount by the time permitted by NCL, and continues to default thereafter, NCL would be constrained to initiate suitable action including withdrawal of his trading facility, appropriation of his capital / deposits with the Exchange / Clearing Corporation and/or declare him a defaulter.

  • Buyer default shall not be permitted.
  • Penalty on seller in case of delivery default (default in delivery against open position at expiry in case of compulsory delivery contracts, default in delivery after giving intention for delivery) shall be as follows:
  • 3% of Settlement Price + replacement cost (difference between settlement price and higher of the last spot prices on the commodity pay-out date and the following day, if the spot price so arrived is higher than Settlement Price, else this component will be zero.)
  • Exchanges shall have the flexibility to increase/decrease penalty for specific commodities depending on situation, in consultation with SEBI.
  • Exchange shall have appropriate deterrent mechanism (including penal/disciplinary action) in place against intentional/wilful delivery default.

* Norms for apportionment of penalty on Delivery Shortage:- 

At least 1.75% of Settlement Price shall be deposited in the IPF of the exchange.

Up to 0.25% of Settlement Price may be retained by the Exchange towards administration expenses. 1% of Settlement Price + replacement cost shall go to buyer who was entitled to receive delivery.

Updated on: 20/05/2019 12:00
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