CIRCULAR, CIR/MRD/DRMNP/2/2014,
dated January 20, 2014
To
Depositories,
Recognized
Stock Exchanges,
Recognized
Clearing Corporations,
All
Foreign Institutional Investors through their designated Custodians of
Securities
1. SEBI in consultation with
RBI, vide circular CIR/MRD/DRMNP/35/2013 dated December 5, 2013 prescribed the
framework for Stock Exchanges to launch cash settled Interest Rate Futures on
10-year G-sec.
2. In the said circular, the
following position limits were prescribed for FIIs:
“The gross open positions of the
FII across all contracts shall not exceed 10% of the total open interest or INR
600 crores, whichever is higher.
Additional restriction: The total
gross short (sold) position of each FII in IRF shall not exceed its long
position in the government securities and in Interest Rate Futures, at any
point in time. The total gross long (bought) position in cash and IRF markets
taken together for all FIIs shall not exceed the aggregate permissible limit
for investment in government securities for FIIs.
FIIs shall ensure compliance with
the above limits. Stringent action shall be taken against FII in case of
violation of the limits."
3. SEBI vide circulars dated
April 1, 2013 and July 18, 2012 has put in place mechanism for monitoring and
enforcing limits of FIIs in Government Securities and corporate bonds by
directing depositories to disseminate information regarding the total FII
investment values in Government and corporate bonds. It has been decided in
consultation with RBI that this monitoring mechanism shall also incorporate
monitoring of gross long positions of FIIs in IRF as mentioned in Paragraph '2'
above. The mechanism shall be as follows:
a. Stock exchanges shall provide
information regarding aggregate gross long position in IRF of all FIIs taken
together at end of the day to the depositories NSDL and CDSL and shall also
publish the same on their website.
b. NSDL and CDSL shall aggregate the gross
long position of FIIs in IRF in each exchange and add it with investment of
FIIs in Government Debt for monitoring adherence to the regulatory limit
prescribed in paragraph 13 (d) of the SEBI Circular on IRF dated Dec 5, 2013 /
paragraph 4.2 of the RBI directions on IRF dated Dec 5, 2013 and shall jointly
publish/disseminate the same on their website, on daily basis.
c. As and when the total of cash and
IRF of all FIIs as determined in sub-paragraph b above reaches 85% of the
permissible limit, NSDL and CDSL shall inform RBI (CGM-in-Charge, Foreign
Exchange Department), SEBI and Stock Exchanges.
d. Once 90% of limit is utilized, NSDL
and CDSL shall inform RBI, SEBI and Stock Exchanges about the same. Stock
Exchanges shall notify the same to the market and thereafter FIIs shall not
further increase their long position in IRF till the time the overall long
position of FIIs in cash and IRF comes below 85% of existing permissible limit.
4. This circular is issued
in exercise of the powers conferred under Section 11 (1) of the Securities and
Exchange Board of India Act 1992, read with Section 10 of the Securities
Contracts (Regulation) Act, 1956 to protect the interests of investors in
securities and to promote the development of, and to regulate the securities
market.
5. The circular shall come
into force from the date of the circular.
6. This circular is
available on SEBI website at www.sebi.gov.in.,
under the category “Circulars”.
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