The bulk deals committee, set up by the Securities & Exchange Board of India (Sebi), will take up redefinition of 'bulk deals' today.
The committee will discuss whether the minimum requirement of bulk/negotiated deals on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) could be redefined to Rs 1 crore or 50,000 shares, and Rs 25 lakh or 10,000 shares for other exchanges. At present, the NSE threshold for bulk/negotiated deals is Rs 1 crore .
The committee, comprising Sebi senior executive directors O P Gahrotra and L K Singhvi, executive director Pratip Kar, BSE president M G Damani, NSE managing director R H Patil, Unit Trust of India chief general manager B G Daga, BSE member Anand Rathi and Dennis Grubb of Price Waterhouse LLP, had earlier decided that the minimum size for negotiated deals will either be a volume exceeding 10,000 shares or deals exceeding Rs 25 lakh.
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The committee will also discuss whether trade settlement through clearing house will be beneficial as this roots out the possibility of false trades. Besides, such a move will ensure compulsory reporting of the trade to the exchange.
In some bourses, bulk trades are settled through stock exch-ange clearing mechanism, but in NSE the contracts have to be settled on a predefined date directly by the parties to the contract.
The issue of trade guarantee, if the clearing house settles such deals, will also come up for discussion. The exchange may not be willing to guarantee all bulk deals especially if they are executed outside the price band. In such cases the committee will decide in what way the claims of members on defaults will be treated.
Margin structure will not apply to negotiated deals as in case of institutional trades and trades for which delivery is immediately given to the exchange. But in negotiated deals, where parties are not institutions or deliveries are not given immediately, the committe will deliberate whether margin requirements can be imposed irrespective of trade guarantee being offered to minimise risks.
Today's meeting will also discuss the proposal of allowing negotiated deals only for delivery and not allow squaring off. The margin will be calculated separately for normal and negotiated deals and long positions in normal trades will not be allowed to offset the short position in negotiated deals or vice versa for calculation of margins. Pooling of trades will also not be allowed in a negotiated deal and all individual trades have to abide by the minimum size.
Compulsory crossing of at least 5 per cent of the negotiated deal on the floor of the exchange will be discussed, by prescribing that beneficial orders be displayed on the screen for at least an hour to the extent of 5 per cent of the deal struck at the contract price. If the order is not filled in this time then this requirement will be waived. The committee will also decide on automatic approval of negotiated deals if all rules are followed.
Section 18 and 2(1) of the Securities Contract (Regulation) Act exempting 'spot delivery' from Section 14 (which declares void all transactions within the notified area if they violate any by-law of stock exchange), is recommended for negotiated deals if delivery versus payment is imposed, settlement being on the same or the next day.