Description

BSE introduces penalty structure for position limit violations and margin violations in Securities Lending and Borrowing Scheme, effective immediately.

Summary

BSE has issued penalty norms for Securities Lending and Borrowing (SLB) participants, partially modifying ICCL circular dated December 23, 2020. The new framework establishes penalties for position limit violations and margin violations, with escalating fines based on frequency of violations within a calendar month. Position limit breaches carry penalties from Rs 5,000 to Rs 10,000 per instance (with first instance waived), while margin violations attract 0.07% per day plus additional instance-based penalties. Repeated violations (11th instance onwards) result in referral to Member Committee.

Key Points

  • Position limit violations monitored on end-of-day basis, with one instance per breach regardless of duration
  • First position limit violation in a calendar month carries no penalty
  • Penalties range from Rs 5,000 (2nd-5th instance) to Rs 10,000 (6th instance onwards) per violation
  • Margin violations result in 0.07% daily penalty plus instance-based charges and trading disablement
  • 11th instance or more of either violation type triggers Member Committee referral
  • No penalty for position limit violations due to ICCL-initiated limit revisions during the month
  • Applicable taxes and charges will be levied on all penalties

Regulatory Changes

This circular partially modifies ICCL circular no. 20201223-69 dated December 23, 2020, introducing a structured penalty framework for SLB segment violations. The changes establish:

Position Limit Violation Penalties:

  • 1st instance: No penalty
  • 2nd to 5th instance: Rs 5,000 per instance
  • 6th to 10th instance: Rs 10,000 per instance
  • 11th instance onwards: Rs 10,000 per instance + Member Committee referral

Margin Violation Penalties (Monthly Basis):

  • 1st instance: 0.07% per day
  • 2nd to 5th instance: 0.07% per day + Rs 5,000 per instance
  • 6th to 10th instance: 0.07% per day + Rs 10,000 per instance
  • 11th instance onwards: 0.07% per day + Rs 10,000 per instance + Member Committee referral

Compliance Requirements

For SLB Participants:

  1. Maintain positions within ICCL-specified limits at all levels (member level, financial institution level, client level)
  2. Ensure adequate liquid assets with ICCL to cover all margin obligations at all times
  3. Monitor position limits on end-of-day basis to avoid violations
  4. Be prepared for trading disablement in SLB segment in case of margin violations
  5. Account for applicable taxes/charges on penalties levied
  6. Note that no additional daily penalty applies if positions remain in violation after initial breach

Exemptions:

  • First position limit violation in a calendar month is not penalized
  • Position limit violations due to ICCL-initiated limit revisions during the month are not penalized

Important Dates

  • Notice Date: October 20, 2025
  • Effective Date: Immediate (from notice date)
  • Penalty Cycle: Calendar month basis for counting instances

Impact Assessment

Market Impact: The introduction of structured penalties is expected to enhance discipline in the Securities Lending and Borrowing segment. The escalating penalty structure provides deterrence against repeated violations while allowing a grace period for first-time breaches.

Operational Impact: SLB participants must strengthen their risk management and monitoring systems to track position limits and margin requirements in real-time. The potential for trading disablement and Member Committee referrals for repeated violations creates significant operational and reputational risks.

Financial Impact: Participants face financial penalties ranging from Rs 5,000 to Rs 10,000 per position limit violation, plus 0.07% daily charges on margin violations. Repeated violations (11+ instances) carry additional scrutiny through Member Committee referrals, potentially leading to further sanctions.

Risk Management: The framework incentivizes proactive compliance by waiving penalties for first instances and exempting violations caused by regulatory limit changes. However, the cumulative effect of repeated violations within a month can be substantial, particularly when combined with Member Committee referrals.

Impact Justification

Introduces significant penalty structure for SLB participants with escalating fines and potential Member Committee referrals for repeated violations