SEBI Circular: SEBI/HO/CDMRD/DMP/CIR/P/2016/103 dated September 27, 2016
1. Warehousing infrastructure and its ancillary services play a critical role in the delivery mechanism of the Commodity Derivatives Market. A robust & credible warehousing infrastructure is sine qua non for an effective Commodity Derivatives Market that can inspire confidence amongst the market participants and other stake holders. At the time of the merger of Forward Market Commission (FMC) with SEBI, with a view to ensuring good delivery of commodities on expiry of the futures contract, SEBI decided to fasten the responsibility of settlement of the futures contact, including good delivery on the commodity derivatives exchanges. With this objective necessary amendments were carried out by inserting Regulation 44D(2) in Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 ("SECC Regulations"), by providing that every commodity derivatives exchange (in short, exchange) shall ensure guarantee for settlement of trades including good delivery.
2. It is therefore, incumbent upon the commodity derivatives exchanges to have in place comprehensive framework of norms for adherence by the Warehouse Service Providers (WSP), warehouse, assayers and other allied service providers engaged by them so as to exercise a robust mechanism, for ensuring good delivery as mandated under the SECC Regulations. In order to facilitate good delivery by the commodity derivatives exchanges by providing therein with a set of minimum standards and norms for compliance by the accredited warehouses, the existing norms for exchange accredited WSPs, warehouses and assayers have been reviewed.
3. On the basis of various observations inputs/feedback received during visits to different warehouses, meetings held with the WSPs, national commodity derivatives exchanges and other stakeholders, it has been decided that in supersession of the earlier norms, the national commodity derivatives exchanges shall frame guidelines in accordance with the following revised norms for their accredited WSPs, warehouses, assayers etc.
4. At the outset, it is clarified that the norms prescribed in this circular are the minimum requirements/standards for compliance by the exchange accredited WSPs, warehouses and assayers and are to be complied with in addition to those laid down by Warehousing Development and Regulatory Authority (WDRA), any other government authority from time to time. The Exchanges are at liberty to prescribe additional norms/guidelines for compliance by their accredited WSPs, warehouses and assayers, if they deem so fit, in addition to the norms laid down hereunder, for ensuring good delivery of commodities by them. Provided that such additional norms specified by the exchanges are not in contravention with the instruction issued in this circular.
Revised Warehousing Norms are available here - link
5. The exchanges shall put in place necessary arrangements for ensuring compliance with the provisions of the Regulation 44D(2) of SECC Regulations regarding guarantee for settlement of trades including good delivery. Further, the exchanges have necessary arrangements to ensure that in the event of bankruptcy or insolvency of the WSP or other such contingency, there must be no restrictions placed upon owners/depositors of the commodity wishing to take possession of their individually identified commodity and remove it from the accredited Warehouse(s).
6. The norms laid down as above shall come into effect from September 29, 2016. Wherever, incremental requirements have been prescribed over the exiting norms, the Exchanges shall ensure that the existing accredited WSPs/warehouses, as on the date of the circular, shall comply with the incremental requirements, if any, latest by March 31, 2017 (other than share capital and networth requirements for which separate date has been prescribed).
7. The Exchanges are advised to:
i. bring the provisions of this circular to the notice of the members of the Exchange and also to disseminate the same on their website.
ii. communicate to SEBI, the status of the implementation of the provisions of this circular in the Monthly Development Reports to SEBI.
iii. to make necessary amendments to the relevant bye-laws, rules and regulations.
8. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.