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The Tax Publishers SEBI--Master Circular Master Circular No. CDMRD/DMP/CIR/P/2018/126, dt. 7-9-2018 Commodity Derivatives Market 1. Securities and Exchange Board of India (SEBI) has been issuing various circulars/directions from time to time for commodity derivatives market. 2. This Master Circular is a compilation of the circulars issued by Commodity Derivatives Market Regulation Department (CDMRD) pertaining to domestic commodity derivatives segment, which are issued till the date of this circular. 3. In case of any inconsistency between the Master Circular and the original applicable circular, the content of the original circular shall prevail. 4. This circular is available on SEBI Website at www.sebi.gov.in. CHAPTER 1 GOVERNANCE AND ADMINISTRATION OF EXCHANGES AND CLEARING CORPORATIONS 1.1. Timelines for Compliance with various provisions of Securities Laws by Commodity Derivatives Exchanges[1] 1.1.1 Commodity derivatives exchanges shall comply with the provisions of SCRA, applicable provisions of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012, ('SECC Regulations') and SEBI circular CIR/MRD/DSA/33/2012 dated December 13, 2012, on procedural norms on recognition, ownership and Governance for Stock Exchanges and Clearing Corporation ('SECC Circular'). 1.1.2 The timelines prescribed herein, for compliance with various provisions of Securities Laws shall be reckoned from September 28, 2015. 1.1.3 Clearing and Settlement: Commodity derivatives exchanges shall transfer the functions of clearing and settlement of trade to a separate clearing corporation within three years. Till then, the exchanges may continue with the existing arrangement for clearing and settlement of trades. 1.1.4 Validity of recognition of Commodity Derivative Exchanges: Validity of recognition of commodity derivatives exchanges under SCRA shall be taken to be the same as the validity of their recognition under FCRA. Further, the renewal of recognition, if any, will be as per SCRA and SECC Regulations. The conditions required to be continuously complied with by recognized stock exchanges as given in Regulation 7(3) of SECC Regulations shall be complied with by national commodity derivative exchanges. However, commodity derivatives exchanges shall immediately put in place adequate surveillance system to monitor positions, prices and volumes etc. so as to ensure market integrity till online real time surveillance systems are set up and operationalized. Conditions required to be continuously complied with by recognized clearing corporations given in Regulation 7(4) of SECC Regulations, to the extent applicable, shall be complied with by national commodity derivatives exchanges. 1.1.5 Regulatory Fee: Commodity derivatives exchanges shall pay the regulatory fee in terms of Securities and Exchange Board of India (Regulatory Fee on Stock Exchanges) Regulations, 2006. 1.1.6 Networth Requirements: Commodity derivatives exchanges shall comply with Regulation 14(1) of SECC Regulations as specified below: I. Commodity derivative exchanges shall not distribute profits in any manner to its shareholders until the requisite net worth of INR 100 crores is achieved in terms of Regulation 14(4) of SECC Regulations. II. Commodity derivatives exchanges shall submit audited net worth certificate from the statutory auditor on an yearly basis by the thirtieth day of September every year for the preceding financial year in terms of Regulation 14(5) of SECC Regulations. 1.1.7 Ownership I. National commodity derivatives exchanges shall comply with the shareholdings limits specified under SECC Regulations, 2012 by May 5, 2019. As per clause 5 of SECC Circular, they shall put in place a monitoring mechanism to ensure compliance with the shareholding restrictions specified in SECC Regulations. II. Regulations 20 to 22 of SECC Regulations shall be applicable to national commodity derivative exchange. The format for submitting shareholding pattern to SEBI is given in Annexure A. 1.1.8 Governance I. Provisions of Regulations 23 to 26 shall be applicable to national commodity derivatives exchanges, subject to the following: A. Existing Independent Directors on the boards of national commodity derivatives exchanges shall be deemed to be Public Interest Directors (PIDs) under SECC Regulations, B. All new appointments on the governing boards of national commodity derivatives exchanges shall be governed by the provisions of SECC Regulations and SECC Circular. II. National Commodity Derivatives Exchanges shall comply with the provisions of Regulation 27 of SECC Regulations 1.1.9 Segregation of Regulatory Departments: Commodity derivatives exchanges shall segregate their regulatory departments (as indicated in SECC Circular) from other departments in the manner specified in Part C of Schedule II of SECC Regulations. 1.1.10 Oversight Committees: Commodity derivative exchanges shall comply with the requirements of Regulation 29 read with Regulation 44D (1) (b) of SECC Regulations. National commodity derivatives exchanges shall constitute an oversight committee for 'Product design', chaired by a Public Interest Director. 1.1.11 Advisory Committee and other Statutory Committees: National commodity derivatives exchanges shall constitute Advisory committees in line with Regulation 30 of SECC Regulations, 2012 and statutory committees as specified in SECC Circular. 1.1.12 Risk Management Committee: Till the functions of clearing and settlement are transferred to a separate clearing corporation, commodity derivatives exchanges shall comply with provisions of Regulation 31 of SECC Regulations relating to risk management committee. This committee shall be constituted. 1.1.13 Appointment of Compliance Officer: All commodity derivative exchanges shall appoint a compliance officer in terms of Regulation 32 of SECC Regulations. 1.1.14 Transfer of Penalties: National commodity derivative exchanges shall credit all settlement related penalties to their settlement guarantee fund (SGF) and other penalties to Investor Protection Fund (IPF). 1.1.15 Disclosure and Corporate Governance Norms: Regulation 35 of SECC Regulations shall be applicable to national commodity derivative exchanges. 1.1.16 General Obligations I. Till the functions of clearing and settlement are transferred to a separate clearing corporation, commodity derivative exchanges shall comply with the provisions of Regulation 39 of SECC Regulations on Fund to guarantee settlement of trades. II. The provisions of Regulations 41, 42, 43, 44 and 44A of SECC Regulations to a recognized stock exchange shall be applicable to commodity derivatives exchanges. Additionally, the provisions of Regulations 41, 42, 43, 44 and 44A of SECC Regulations in so far as they pertain to a recognized clearing corporation shall be applicable to commodity derivatives exchanges till the functions of clearing and settlement are transferred to a separate clearing corporation III. Till the functions of clearing and settlement are transferred to a separate clearing corporation, commodity derivative exchanges shall have right to recover dues from its trading/clearing members arising from the discharge of their clearing and settlement functions from the collaterals, deposits and the assets of the trading/clearing members in line with Regulation 44B of SECC Regulations. IV. Regulation 44C and 44D of SECC Regulations shall be applicable to commodity derivatives exchanges. 1.1.17 Listing: Regulation 45 of SECC Regulations shall be applicable to commodity derivatives exchanges. 1.1.18 Dematerialization of Securities: National commodity derivative exchanges shall comply with Regulation 46 of SECC Regulations with respect to holding securities in dematerialized form. 1.2. Monthly Development Report for Commodity Derivative Exchanges[2] 1.2.1 The Commodity Derivative Exchanges are advised to submit a Monthly Development Report as per the prescribed format to SEBI by 7th of the succeeding month. 1.2.2 The format for the Monthly Report is provided at Annexure B. 1.3. Mandatory requirements/exit policy for Commodity Derivatives Exchanges[3] 1.3.1 If there is no trading operation on the platform of any commodity derivatives exchanges for more than twelve months then such exchange shall be liable to exit. 1.3.2 In addition to the above, henceforth, all National Commodity Derivative Exchanges shall continuously meet the turnover criteria of Rs. 1000 crores per annum. The Regional Commodity Exchanges shall ensure that they have at least 5% of the nation wide market share of the commodity, which is principally traded on their platform. In case the National and Regional Commodity Exchanges fail to meet the above criteria for 2 consecutive years, they shall be liable to exit. 1.3.3 In the event a recognized commodity derivatives exchange, for any reason suspends its trading operations, it shall resume its trading only after ensuring that adequate and effective trading systems, clearing and settlement systems, monitoring and surveillance mechanisms, risk management systems are put in place and only after complying with all other regulatory requirements stipulated by SEBI from time to time. Further, such recognized commodity derivatives exchanges shall resume trading operations only after obtaining prior approval from SEBI. 1.3.4 In case any commodity derivatives exchange proposes to surrender its recognition voluntarily or whose recognition is proposed to be withdrawn by SEBI, the concerned Exchange shall be directed to comply with the following: I. The concerned commodity derivatives exchange shall not alienate any assets of the exchange without taking prior approval of SEBI. II. Treatment of the assets of de-recognized exchange: A. The concerned commodity derivatives exchange shall be permitted to distribute its assets subject to certain conditions as laid down in this circular as well as other guidelines that may be issued by SEBI, Government, or any other statutory authority, from time to time. B. For the purpose of valuation of the assets of the commodity derivative exchange, a valuation agency shall be appointed by SEBI. All the valuation charges shall be paid by the concerned exchange. C. The quantum of assets for distribution will be available after payment of statutory dues including income tax, transfer of funds as specified in para III below, payment of dues as specified in para IV below, refund of deposit (refundable) to the stock brokers/clearing members including their initial contribution/deposit to Settlement Guarantee Fund/Trade Guarantee Fund (SGF/TGF) and contribution to SEBI as specified in para V (D) below. III. The concerned exchange shall transfer the Investor Protection Fund or any such fund to the SEBI Investor Protection and Education Fund. IV. The concerned exchange shall pay following dues to SEBI: A. The dues outstanding to SEBI and the annual regulatory fee. B. The outstanding registration fees of brokers/trading members of such de-recognised stock exchanges as specified in the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 till the date of such de-recognition. C. Dues of the brokers to SEBI shall be recovered by the exchange out of the brokers' deposits/capital/share of sale proceeds/winding up proceeds dividend payable, etc. available with the exchange. D. The exchange will be liable to make good any shortfall in collection of dues of the brokers to SEBI. V. Other Conditions A. In case any commodity derivatives exchange, after de-recognition, continues as corporate entity under the Companies Act, 2013, it shall not use the expression 'stock exchange', 'commodity derivative exchange' or 'exchange' or any variant in its name or in its subsidiaries name so as to avoid any representation of present or past affiliation with the exchange. B. The Sale/distribution/transfer of assets/winding up of such exchanges/companies shall be subject to the applicable laws in force. C. The concerned commodity derivatives exchange shall set aside sufficient funds in order to provide for settlement of any claims, pertaining to pending arbitration cases, arbitration awards, not implemented, if any, liabilities/claims of contingent nature, if any, and unresolved investors complaints/grievances lying with the exchange. D. In case of de-recognition and exit, the stock exchange shall contribute up to 20% of its assets (after tax) towards SEBI Investor Protection and Education Fund (IPEF) for investor protection and in order to cover future liabilities, if any. The contribution may be decided by SEBI taking into account, inter alia, the governance standards of the commodity derivatives exchange and estimation of future liabilities. VI. SEBI may impose additional conditions as deemed fit in the interest of trade or in the public interest including securities market. CHAPTER 2 TRADING 2.1. Trading Hours/Trading Holidays on Commodity Derivatives Exchanges[4] 2.1.1 Trading Hours I. All Commodity Derivatives Exchanges shall permit trading only from Monday to Friday. II. Trading hours shall be fixed by the Exchange within the time limits as mentioned in the table below: SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

SEBI--Master Circular

Master Circular No. CDMRD/DMP/CIR/P/2018/126, dt. 7-9-2018

Commodity Derivatives Market

1. Securities and Exchange Board of India (SEBI) has been issuing various circulars/directions from time to time for commodity derivatives market.

2. This Master Circular is a compilation of the circulars issued by Commodity Derivatives Market Regulation Department (CDMRD) pertaining to domestic commodity derivatives segment, which are issued till the date of this circular.

3. In case of any inconsistency between the Master Circular and the original applicable circular, the content of the original circular shall prevail.

4. This circular is available on SEBI Website at www.sebi.gov.in.

CHAPTER 1

GOVERNANCE AND ADMINISTRATION OF EXCHANGES AND CLEARING CORPORATIONS

1.1. Timelines for Compliance with various provisions of Securities Laws by Commodity Derivatives Exchanges[1]

1.1.1 Commodity derivatives exchanges shall comply with the provisions of SCRA, applicable provisions of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012, ('SECC Regulations') and SEBI circular CIR/MRD/DSA/33/2012 dated December 13, 2012, on procedural norms on recognition, ownership and Governance for Stock Exchanges and Clearing Corporation ('SECC Circular').

1.1.2 The timelines prescribed herein, for compliance with various provisions of Securities Laws shall be reckoned from September 28, 2015.

1.1.3 Clearing and Settlement: Commodity derivatives exchanges shall transfer the functions of clearing and settlement of trade to a separate clearing corporation within three years. Till then, the exchanges may continue with the existing arrangement for clearing and settlement of trades.

1.1.4 Validity of recognition of Commodity Derivative Exchanges: Validity of recognition of commodity derivatives exchanges under SCRA shall be taken to be the same as the validity of their recognition under FCRA. Further, the renewal of recognition, if any, will be as per SCRA and SECC Regulations.

The conditions required to be continuously complied with by recognized stock exchanges as given in Regulation 7(3) of SECC Regulations shall be complied with by national commodity derivative exchanges.

However, commodity derivatives exchanges shall immediately put in place adequate surveillance system to monitor positions, prices and volumes etc. so as to ensure market integrity till online real time surveillance systems are set up and operationalized.

Conditions required to be continuously complied with by recognized clearing corporations given in Regulation 7(4) of SECC Regulations, to the extent applicable, shall be complied with by national commodity derivatives exchanges.

1.1.5 Regulatory Fee: Commodity derivatives exchanges shall pay the regulatory fee in terms of Securities and Exchange Board of India (Regulatory Fee on Stock Exchanges) Regulations, 2006.

1.1.6 Networth Requirements: Commodity derivatives exchanges shall comply with Regulation 14(1) of SECC Regulations as specified below:

I. Commodity derivative exchanges shall not distribute profits in any manner to its shareholders until the requisite net worth of INR 100 crores is achieved in terms of Regulation 14(4) of SECC Regulations.

II. Commodity derivatives exchanges shall submit audited net worth certificate from the statutory auditor on an yearly basis by the thirtieth day of September every year for the preceding financial year in terms of Regulation 14(5) of SECC Regulations.

1.1.7 Ownership

I. National commodity derivatives exchanges shall comply with the shareholdings limits specified under SECC Regulations, 2012 by May 5, 2019. As per clause 5 of SECC Circular, they shall put in place a monitoring mechanism to ensure compliance with the shareholding restrictions specified in SECC Regulations.

II. Regulations 20 to 22 of SECC Regulations shall be applicable to national commodity derivative exchange. The format for submitting shareholding pattern to SEBI is given in Annexure A.

1.1.8 Governance

I. Provisions of Regulations 23 to 26 shall be applicable to national commodity derivatives exchanges, subject to the following:

A. Existing Independent Directors on the boards of national commodity derivatives exchanges shall be deemed to be Public Interest Directors (PIDs) under SECC Regulations,

B. All new appointments on the governing boards of national commodity derivatives exchanges shall be governed by the provisions of SECC Regulations and SECC Circular.

II. National Commodity Derivatives Exchanges shall comply with the provisions of Regulation 27 of SECC Regulations

1.1.9 Segregation of Regulatory Departments: Commodity derivatives exchanges shall segregate their regulatory departments (as indicated in SECC Circular) from other departments in the manner specified in Part C of Schedule II of SECC Regulations.

1.1.10 Oversight Committees: Commodity derivative exchanges shall comply with the requirements of Regulation 29 read with Regulation 44D (1) (b) of SECC Regulations. National commodity derivatives exchanges shall constitute an oversight committee for 'Product design', chaired by a Public Interest Director.

1.1.11 Advisory Committee and other Statutory Committees: National commodity derivatives exchanges shall constitute Advisory committees in line with Regulation 30 of SECC Regulations, 2012 and statutory committees as specified in SECC Circular.

1.1.12 Risk Management Committee: Till the functions of clearing and settlement are transferred to a separate clearing corporation, commodity derivatives exchanges shall comply with provisions of Regulation 31 of SECC Regulations relating to risk management committee. This committee shall be constituted.

1.1.13 Appointment of Compliance Officer: All commodity derivative exchanges shall appoint a compliance officer in terms of Regulation 32 of SECC Regulations.

1.1.14 Transfer of Penalties: National commodity derivative exchanges shall credit all settlement related penalties to their settlement guarantee fund (SGF) and other penalties to Investor Protection Fund (IPF).

1.1.15 Disclosure and Corporate Governance Norms: Regulation 35 of SECC Regulations shall be applicable to national commodity derivative exchanges.

1.1.16 General Obligations

I. Till the functions of clearing and settlement are transferred to a separate clearing corporation, commodity derivative exchanges shall comply with the provisions of Regulation 39 of SECC Regulations on Fund to guarantee settlement of trades.

II. The provisions of Regulations 41, 42, 43, 44 and 44A of SECC Regulations to a recognized stock exchange shall be applicable to commodity derivatives exchanges. Additionally, the provisions of Regulations 41, 42, 43, 44 and 44A of SECC Regulations in so far as they pertain to a recognized clearing corporation shall be applicable to commodity derivatives exchanges till the functions of clearing and settlement are transferred to a separate clearing corporation

III. Till the functions of clearing and settlement are transferred to a separate clearing corporation, commodity derivative exchanges shall have right to recover dues from its trading/clearing members arising from the discharge of their clearing and settlement functions from the collaterals, deposits and the assets of the trading/clearing members in line with Regulation 44B of SECC Regulations.

IV. Regulation 44C and 44D of SECC Regulations shall be applicable to commodity derivatives exchanges.

1.1.17 Listing: Regulation 45 of SECC Regulations shall be applicable to commodity derivatives exchanges.

1.1.18 Dematerialization of Securities: National commodity derivative exchanges shall comply with Regulation 46 of SECC Regulations with respect to holding securities in dematerialized form.

1.2. Monthly Development Report for Commodity Derivative Exchanges[2]

1.2.1 The Commodity Derivative Exchanges are advised to submit a Monthly Development Report as per the prescribed format to SEBI by 7th of the succeeding month.

1.2.2 The format for the Monthly Report is provided at Annexure B.

1.3. Mandatory requirements/exit policy for Commodity Derivatives Exchanges[3]

1.3.1 If there is no trading operation on the platform of any commodity derivatives exchanges for more than twelve months then such exchange shall be liable to exit.

1.3.2 In addition to the above, henceforth, all National Commodity Derivative Exchanges shall continuously meet the turnover criteria of Rs. 1000 crores per annum. The Regional Commodity Exchanges shall ensure that they have at least 5% of the nation wide market share of the commodity, which is principally traded on their platform. In case the National and Regional Commodity Exchanges fail to meet the above criteria for 2 consecutive years, they shall be liable to exit.

1.3.3 In the event a recognized commodity derivatives exchange, for any reason suspends its trading operations, it shall resume its trading only after ensuring that adequate and effective trading systems, clearing and settlement systems, monitoring and surveillance mechanisms, risk management systems are put in place and only after complying with all other regulatory requirements stipulated by SEBI from time to time. Further, such recognized commodity derivatives exchanges shall resume trading operations only after obtaining prior approval from SEBI.

1.3.4 In case any commodity derivatives exchange proposes to surrender its recognition voluntarily or whose recognition is proposed to be withdrawn by SEBI, the concerned Exchange shall be directed to comply with the following:

I. The concerned commodity derivatives exchange shall not alienate any assets of the exchange without taking prior approval of SEBI.

II. Treatment of the assets of de-recognized exchange:

A. The concerned commodity derivatives exchange shall be permitted to distribute its assets subject to certain conditions as laid down in this circular as well as other guidelines that may be issued by SEBI, Government, or any other statutory authority, from time to time.

B. For the purpose of valuation of the assets of the commodity derivative exchange, a valuation agency shall be appointed by SEBI. All the valuation charges shall be paid by the concerned exchange.

C. The quantum of assets for distribution will be available after payment of statutory dues including income tax, transfer of funds as specified in para III below, payment of dues as specified in para IV below, refund of deposit (refundable) to the stock brokers/clearing members including their initial contribution/deposit to Settlement Guarantee Fund/Trade Guarantee Fund (SGF/TGF) and contribution to SEBI as specified in para V (D) below.

III. The concerned exchange shall transfer the Investor Protection Fund or any such fund to the SEBI Investor Protection and Education Fund.

IV. The concerned exchange shall pay following dues to SEBI:

A. The dues outstanding to SEBI and the annual regulatory fee.

B. The outstanding registration fees of brokers/trading members of such de-recognised stock exchanges as specified in the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 till the date of such de-recognition.

C. Dues of the brokers to SEBI shall be recovered by the exchange out of the brokers' deposits/capital/share of sale proceeds/winding up proceeds dividend payable, etc. available with the exchange.

D. The exchange will be liable to make good any shortfall in collection of dues of the brokers to SEBI.

V. Other Conditions

A. In case any commodity derivatives exchange, after de-recognition, continues as corporate entity under the Companies Act, 2013, it shall not use the expression 'stock exchange', 'commodity derivative exchange' or 'exchange' or any variant in its name or in its subsidiaries name so as to avoid any representation of present or past affiliation with the exchange.

B. The Sale/distribution/transfer of assets/winding up of such exchanges/companies shall be subject to the applicable laws in force.

C. The concerned commodity derivatives exchange shall set aside sufficient funds in order to provide for settlement of any claims, pertaining to pending arbitration cases, arbitration awards, not implemented, if any, liabilities/claims of contingent nature, if any, and unresolved investors complaints/grievances lying with the exchange.

D. In case of de-recognition and exit, the stock exchange shall contribute up to 20% of its assets (after tax) towards SEBI Investor Protection and Education Fund (IPEF) for investor protection and in order to cover future liabilities, if any. The contribution may be decided by SEBI taking into account, inter alia, the governance standards of the commodity derivatives exchange and estimation of future liabilities.

VI. SEBI may impose additional conditions as deemed fit in the interest of trade or in the public interest including securities market.

CHAPTER 2

TRADING

2.1. Trading Hours/Trading Holidays on Commodity Derivatives Exchanges[4]

2.1.1 Trading Hours

I. All Commodity Derivatives Exchanges shall permit trading only from Monday to Friday.

II. Trading hours shall be fixed by the Exchange within the time limits as mentioned in the table below: