{"id":3725,"date":"2021-03-31T05:38:37","date_gmt":"2021-03-31T05:38:37","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=3725"},"modified":"2021-03-31T05:51:19","modified_gmt":"2021-03-31T05:51:19","slug":"delivery-default-norms-amended-by-sebi","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/delivery-default-norms-amended-by-sebi\/","title":{"rendered":"Delivery Default Norms Amended by SEBI"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Security and Exchange Board of India\non 23.03.2021, by way of a Circular No SEBI\/HO\/CDMRD\/DRMP\/CIR\/P\/2021\/35, has\ndeclared amendment in the Delivery Default Norms. The amendment relates to the new\npenal structure for the commodity derivatives segment on the occasion of\ndelivery default.<\/p>\n\n\n\n<p>Further, the said Circular was in\nreference to SEBI\/HO\/CDMRD\/DRMP\/CIR\/P\/2016\/90, issued on 21.09.2016, where the\napex market regulator had prescribed provisions for the levy of penalty in the occasion\nof delivery default.<\/p>\n\n\n\n<p>Also, it shall be noted that this circular\nis issued by SEBI under the ambit of powers provided under section 11 (1) of\nthe SEBI Act 1992, read with the provisions of section 10 of the SCRA 1956, and\nwill come into effect from May 2021.<\/p>\n\n\n\n<p>In this learning blog, the key points of\nconsideration will be the need for amending the Delivery Default Norms,\ntogether with the amended provisions.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a62c57ac91\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a62c57ac91\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/delivery-default-norms-amended-by-sebi\/#Need_for_Amending_the_Delivery_Default_Norms\" title=\"Need for Amending the Delivery Default Norms\">Need for Amending the Delivery Default Norms<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/delivery-default-norms-amended-by-sebi\/#Amended_Default_Delivery_Norms\" title=\"Amended Default Delivery Norms\">Amended Default Delivery Norms<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/delivery-default-norms-amended-by-sebi\/#Penal_Provisions_for_Agricultural_and_Non_Agricultural_Activities\" title=\"Penal Provisions for Agricultural and Non Agricultural\nActivities\">Penal Provisions for Agricultural and Non Agricultural\nActivities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/delivery-default-norms-amended-by-sebi\/#Other_Amended_Provisions\" title=\"Other Amended Provisions\">Other Amended Provisions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/delivery-default-norms-amended-by-sebi\/#Penalty_on_a_Seller_in_the_case_of_Delivery_Default\" title=\"Penalty on a Seller in the case of Delivery Default\">Penalty on a Seller in the case of Delivery Default<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/delivery-default-norms-amended-by-sebi\/#In_the_case_of_Delivery_Default_by_Buyer\" title=\"In the case of Delivery Default by Buyer\">In the case of Delivery Default by Buyer<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/blog\/delivery-default-norms-amended-by-sebi\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/blog\/delivery-default-norms-amended-by-sebi\/#Official_SEBI_Circular_on_Amending_Delivery_Default_Norms\" title=\"Official SEBI Circular on Amending Delivery Default Norms\">Official SEBI Circular on Amending Delivery Default Norms<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Need_for_Amending_the_Delivery_Default_Norms\"><\/span>Need for Amending the Delivery Default Norms<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The main reason or the\nneed for amending Delivery Default Norms was that <a href=\"https:\/\/www.sebi.gov.in\/\">SEBI<\/a> had received several representations\nfrom various market participants in the commodity derivatives segment for the standardization\nof delivery default norms, ensuring sufficient compensation to the\nnon-defaulting counterparty, and strengthening the deterrent mechanism.<\/p>\n\n\n\n<p>Another reason was to protect the investors\u2019 interests in securities and to facilitatethe development of and to administer and regulate the securities market.<\/p>\n\n\n\n<p><strong>Also, Read: <\/strong><mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/master-circular-on-the-surveillance-of-the-securities-market-notified-by-sebi\/\">Master Circular on the Surveillance of the Securities Market Notified by SEBI<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Amended_Default_Delivery_Norms\"><\/span>Amended Default Delivery Norms<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The amended Default Delivery Norms can\nbe summarised as:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Penal_Provisions_for_Agricultural_and_Non_Agricultural_Activities\"><\/span>Penal Provisions for Agricultural and Non Agricultural\nActivities<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The existing delivery\ndefault norms were examined by SEBI in consultation with the Clearing\nCorporations, and the below listed has been decided:<\/p>\n\n\n\n<ul><li>In agricultural commodities, the levied penalty for delivery\ndefault by a seller has now been decided to be 4% of the settlement price plus\nthe replacement cost;<\/li><li>In\nnon-agricultural commodities, the levied penalty for delivery default by a\nseller will now remain at 3 % of the settlement price plus replacement cost;<\/li><li>In\nboth agricultural and non-agricultural commodities, the provisions for the levy\nof penalty on the delivery default by the buyer, as stated under paragraph 4.2\nof the circular, will be put into effect by the Clearing Corporations.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Other_Amended_Provisions\"><\/span>Other Amended Provisions<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In the light of decisions in paragraph 3 above, the provisions of clause 3 (d) of the\ncircular No. SEBI\/ HO\/ CDMRD\/ DRMP\/ CIR \/ P\/ 2016\/ 90, issued on 21.09.2016,\nshall stand amended as follows:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Penalty_on_a_Seller_in_the_case_of_Delivery_Default\"><\/span>Penalty on a Seller in the case of Delivery Default<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><em>Penalty on a seller in the case of delivery default shall be\nas follows:&nbsp;<\/em><em><\/em><\/p>\n\n\n\n<ul><li>For the future contract on Agri-commodities, the penalty to be levied has now been decided to be 4% of the settlement price plus the replacement cost;<\/li><li>For the future contract on Non-agri Commodities, the penalty to be levied has now been decided to be 3% of the settlement price plus the replacement cost;<\/li><li>Clearing Corporations\/ Exchanges will have the flexibility to increase or decrease the penalty for specific commodities varying on situation, in consultation with the SEBI;<\/li><li>Norms for the Apportionment of Penalty:<\/li><\/ul>\n\n\n\n<ol><li>At least 1.75% of the Settlement Price will be deposited in the SGF (Settlement Guarantee Fund) of the Clearing Corporation;<\/li><li>Up to 0.25% of the Settlement Price may be retained back by the Clearing Corporation towards the administration expenses;<\/li><li>1% of the Settlement Price in the case of non-agriculture goods or 2% of the settlement price in the case of agriculture goods plus replacement cost will go to the buyer who was entitled to receive delivery;<\/li><\/ol>\n\n\n\n<ul><li>In addition, Clearing Corporation may also have an appropriate deterrent mechanism (comprising of both penal and disciplinary action) in effect against the intentional or wilful delivery default;<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In_the_case_of_Delivery_Default_by_Buyer\"><\/span>In the case of Delivery Default by Buyer<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In the case of a delivery default by a\nbuyer in both the agricultural and non-agricultural commodities, Clearing\nCorporations will follow the standard procedure as follows:<\/p>\n\n\n\n<ul><li>The Clearing Corporation will review the total loss incurred by the non-defaulting Party, i.e., Seller, at its sole discretion, and consequently, levy penalty on the buyer in default. However, it shall be noted that such a penalty will be within the overall limit of the delivery margins collected by the CCs, from such a defaulting buyer.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In a nutshell, the\nSEBI on 23.03.2021, by way of a Circular, has declared amendment in the\nDelivery Default Norms, which relates to the new penal structure for the commodity\nderivatives segment in the occasion of delivery default. The need for amending Delivery Default Normswas to\nstandardize delivery default norms, ensure sufficient compensation to the\nnon-defaulting counterparty, and strengthen the deterrent mechanism.<\/p>\n\n\n\n<p><strong>Also, Read: <\/strong><mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/mca-notified-amendment-in-section-92-of-the-companies-act-2013\/\">MCA Notified Amendment in Section 92 of the Companies Act 2013<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Official_SEBI_Circular_on_Amending_Delivery_Default_Norms\"><\/span>Official SEBI Circular on Amending Delivery Default Norms<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<a href=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/03\/Official-SEBI-Circular-on-Amending-Delivery-Default-Norms.pdf\" class=\"pdfemb-viewer\" style=\"\" data-width=\"max\" data-height=\"max\"  data-toolbar=\"bottom\" data-toolbar-fixed=\"off\">Official-SEBI-Circular-on-Amending-Delivery-Default-Norms<br\/><\/a>\n<p class=\"wp-block-pdfemb-pdf-embedder-viewer\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Security and Exchange Board of India on 23.03.2021, by way of a Circular No SEBI\/HO\/CDMRD\/DRMP\/CIR\/P\/2021\/35, has declared amendment in the Delivery Default Norms. The amendment relates to the new penal structure for the commodity derivatives segment on the occasion of delivery default. Further, the said Circular was in reference to SEBI\/HO\/CDMRD\/DRMP\/CIR\/P\/2016\/90, issued on 21.09.2016, [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":3728,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[50,64],"tags":[551],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3725"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=3725"}],"version-history":[{"count":7,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3725\/revisions"}],"predecessor-version":[{"id":3737,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3725\/revisions\/3737"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/3728"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=3725"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=3725"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=3725"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}