Sebi revises compensation, penalty norms under regaining of matched book rule

Markets regulator Sebi on Tuesday revised norms of compensation and penalty applicable on termination of contracts under the regaining matched book regulations for commodity derivatives segment.

The regulator in September 2016 had come out with risk-mitigating tools, christened as regaining matched book rule, for the commodity market.

A Sebi circular on Tuesday said that the norms related to compensation and penalty applicable on tear-up of positions have been revised following feedback from Clearing Corporations and stakeholders.

The revised norms call for voluntary tear-up at last mark-to-market price along with compensation equal to 10 per cent of last mark-to-market price and penalty equal to 1 per cent of last mark-to-market price.

Similarly, partial tear-up (pro-rata against members/clients having opposite positions) would be at last mark-to-market price along with compensation equal to 8 per cent of last mark-to-market price and penalty equal to 1 per cent of last mark-to-market price (to be credited to SGF).

Earlier conditions were voluntary tear-up at last mark-to-market price along with compensation (percentage of last mark-to-market price equal to twice the daily price limit) and penalty (5%, to be credited to SGF); Partial tear-up (pro-rata against members/clients having opposite positions) at last markto-market price along with compensation (%age of last mark-to-market price equal to thrice the daily price limit) and penalty (5%, to be credited to SGF).

The circular mentioned that other provisions with regard to regaining of the matched book prescribed by Sebi in September 2016, will continue to prevail.

"Based on the experience gained with regard to the implementation of these norms and the feedback from Clearing Corporations (CCs) and other stakeholders, it has been decided to revise the alternatives ...in terms of compensation and penalty applicable on tear-up of positions," the circular stated.

For timely and error free execution, CCs have been asked to have an automated system to implement all such tools, it added.

"CCs shall put in place such system, and also conduct testing of the same, within six months from the date of issuance of this circular," the regulator said.