Description

ICCL revises penalty framework for SLB participants covering position limit violations and margin violations with tiered penalty structure based on frequency of violations.

Summary

Indian Clearing Corporation Ltd (ICCL) has issued revised penalty norms for Securities Lending and Borrowing (SLB) scheme participants, partially modifying circular dated December 23, 2020. The new framework establishes tiered penalties for position limit violations and margin violations, with escalating charges based on frequency of violations within a calendar month.

Key Points

  • First instance of position limit violation in a calendar month carries no penalty
  • Penalties range from Rs 5,000 to Rs 10,000 per instance based on violation frequency
  • Margin violation penalties include 0.07% per day charge plus fixed amounts based on frequency
  • Position limit breaches monitored on end-of-day basis, no additional daily penalties for unclosed positions
  • No penalty for violations caused by ICCL’s revision of limits during the month
  • Repeated violations (11th instance onwards) result in referral to Member Committee
  • Applicable taxes and charges will be levied on all penalties

Regulatory Changes

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

  • SLB participants must adhere to position limits specified by ICCL at all levels (member, financial institution, client)
  • Participants must maintain adequate liquid assets with ICCL to cover margin obligations at all times
  • Violations beyond 10 instances in a month trigger Member Committee review
  • Disablement of SLB segment transactions occurs upon margin violations
  • All penalties are subject to applicable taxes and charges

Important Dates

  • Circular Date: October 20, 2025
  • Notice Number: 20251020-2
  • Effective Date: Immediate (as per circular issuance)
  • Modifies: ICCL circular no. 20201223-69 dated December 23, 2020

Impact Assessment

Market Impact: Medium - affects only SLB segment participants, not broader equity market

Operational Impact: The tiered penalty structure provides a grace period for first-time violations while imposing escalating costs for repeated non-compliance. This encourages better risk management practices among SLB participants without being punitive for isolated incidents. The daily penalty rate of 0.07% for margin violations creates significant cost pressure for prolonged non-compliance.

Compliance Impact: Participants need to enhance monitoring systems for real-time position tracking and margin adequacy. The end-of-day monitoring approach provides operational flexibility while maintaining regulatory oversight. Organizations with multiple violations risk Member Committee scrutiny, potentially leading to additional sanctions or trading restrictions.

Impact Justification

Affects SLB participants with revised penalty structure for violations. Impact limited to specific market segment participants but creates clearer compliance framework.