Compliance Report Sought From Custodians, Bourses

Major stock exchanges have also been asked to draw up similar reports and submit them. The deadline for the custodians to comply with the changes was September.

The biggest change sought by Sebi in the procedure for custodians is their joining the clearing houses or corporations of the stock exchanges.

The Bombay Stock Exchange (BSE) president M G Damani confirmed that Sebi had asked the BSE to provide such details. While some custodians including the Stock Holding Corporation of India Ltd (SHCIL) were with BSE, others were still to join the fold, Damani said.

D R Mehta, Sebi chairman, said: They will fall in line. We do not anticipate any major problems, but these things do not happen so quickly and need some prodding.

 

Sebi had, in August, drawn up a series of major custodial reforms keeping in mind the problems faced by custodians and brokers while dealing at the stock exchanges.

A number of foreign-bank custodians had earlier expressed their reservations about joining the clearing houses of the bourses.

Sebi had also asked the custodians to try and convince the clients of dealing through the stock exchange clearing house mechanism. They had also been told to explain to the clients the benefits of the counter-party guarantees that would be there for the clients while dealing through the clearing house system.

Sebi had also directed that collaterals would not be necessary any longer for trades done through the clearing house. However, for hand-delivery trades, the collaterals may be collected by the custodians but only to the extent of the objections and not for the full transactions.

The custodians, Sebi had ruled, would also mandatorily have to abide by the Sebi good and bad delivery norms. Custodians would no longer be allowed to stipulate their own norms for good and bad delivery.

Settlement of trades in the form of partials has also been permitted by Sebi. Partials have been restricted to two, with the first partial to contain at least 50 per cent of the total transaction.

Custodians have also been asked to make payments to brokers within 48 hours and the appointments system has been abolished. A working group has also been constituted to look into procedures between brokers and custodians.