Utilisation of the Settlement Guarantee Fund (SGF)
Summary
SEBI permits Stock Exchanges to utilize the Settlement Guarantee Fund (SGF) to meet member shortages before declaring them defaulters, aligning with NSCCL practices. The directive mandates specific bye-law amendments allowing relevant authorities to use SGF funds under specified terms and conditions. Strict norms are established for handling shortages exceeding base minimum capital, including trading facility withdrawal and exposure limits.
Text
Stock Exchanges may be allowed to utilise the SGF maintained by them for meeting the shortages arising out of non-fulfillment/partial fulfillment of the funds obligations by the members in a settlement before declaring the concerned member defaulter
In the event a member fails to meet obligations to the Clearing House... the relevant authority may utilise the Settlement Guarantee Fund and other monies to the extent necessary to fulfill the obligation
In cases where amount shortages are in excess of the base minimum capital (BMC) prescribed, the trading facility of the member is withdrawn and the securities Pay-out due to the member is withheld
In cases where the amount of shortages exceed 20% of the BMC and is less than the BMC on six occasions within a period of three months, the trading facility of the member is withdrawn and the securities pay-out due to the member is withheld
On recovery of the complete shortages, the member is permitted to trade with a reduced gross exposure... 20% of BMC – 50% of BMC: 80%; 50% of BMC – 100% of BMC: 60%
This reduced gross exposure level is maintained for a period of four settlement. If the cumulative funds shortages for the next 4 settlements is less than 20% of BMC, the exposure limits shall be restored
The exposure limit may be restored if a member provides a cash deposit equivalent to his cumulative funds shortages as the 'funds shortage collateral'... kept with the Exchange for a period of 4 settlements
Such deposit will be kept with the Exchange for a period of 4 settlements and will be released only if no further funds shortages are reported for the member in next 4 consecutive settlements
The outstanding amount would carry a penal interest of not less than 0.09% per day
Source: SecMarx — Utilisation of the Settlement Guarantee Fund (SGF). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.