Description

BSE consolidates and clarifies penalty structure for trading limit violations (RRM) and position limit violations across equity, currency, derivatives, and securities lending segments.

Summary

BSE has issued a consolidated summary of penalties applicable for trading limit violations (RRM violations) and position limit violations across equity cash, equity derivatives, currency derivatives, and securities lending & borrowing segments. The circular provides a unified reference document detailing penalty structures that escalate based on violation frequency, amount, and segment. Penalties range from 0.07% per day plus fixed amounts to referral to the Member Committee for persistent violators.

Key Points

  • Trading limit violations incur 0.07% per day penalty plus escalating fixed penalties based on violation frequency and amount
  • Position limit violations at trading member/FPI/mutual fund level in equity derivatives attract 1% of violation value (minimum Rs 5,000, maximum Rs 1,00,000 per entity per stock per day)
  • From the 11th violation instance onwards in a calendar month, members are referred to the Member Committee for suitable action
  • Penalties differentiate between violations ≤ Rs 1 crore and > Rs 1 crore with higher fixed penalties for larger violations
  • Currency derivatives position limit violations have no penalty for first instance, escalating from Rs 5,000 to Rs 70,000+ for repeated violations
  • Client level position limit violations in currency derivatives attract Rs 5,000 per violation per client per day
  • Securities lending & borrowing segment has separate penalty structures for both trading limit and position limit violations
  • Entity level penalties during ban period are 1% of violation value (minimum Rs 5,000, maximum Rs 1,00,000)

Regulatory Changes

This circular does not introduce new penalties but consolidates existing penalty structures across segments for ease of reference. The standardized framework ensures consistent application of penalties:

  • Equity Cash, Equity & Currency Derivatives Trading Limits: Progressive penalty structure from 1st instance (0.07% per day) to 11th+ instance (0.07% + Rs 14,000/Rs 70,000 cumulative + Rs 2,000/Rs 10,000 per instance)
  • Securities Lending & Borrowing Trading Limits: Similar progressive structure with penalties ranging from 0.07% per day to 0.07% + Rs 10,000 per instance + Member Committee referral
  • Position Limit Framework: Standardized across segments with specific thresholds and referral mechanisms

Compliance Requirements

  • Trading Members: Must monitor and ensure compliance with trading limits (RRM) across all segments to avoid escalating penalties
  • Clearing Members: Responsible for paying penalties on behalf of clients who violate position limits; may recover amounts from violating clients
  • All Members: Must track violation instances within calendar month as penalties escalate based on frequency
  • Position Monitoring: Members must ensure clients do not exceed position limits in equity derivatives, currency derivatives, and securities lending segments
  • Record Keeping: Members should maintain records of violations to understand cumulative penalty exposure and potential Member Committee referrals

Important Dates

  • Notice Date: October 24, 2025
  • Notice Number: 20251024-2
  • Effective Date: Immediate (consolidation of existing penalty structures)
  • Violation Counting Period: Calendar month basis for determining instance count and penalty escalation

Impact Assessment

High Impact - This consolidated framework affects all trading and clearing members across equity, currency, derivatives, and securities lending segments. Key impacts include:

  • Financial Impact: Repeated violations can result in substantial cumulative penalties (e.g., 11th+ violation in equity derivatives with >Rs 1 crore amount incurs 0.07% per day + Rs 70,000 cumulative + Rs 10,000 per additional instance)
  • Operational Impact: Members must implement robust risk management and monitoring systems to track trading limits and position limits in real-time across multiple segments
  • Compliance Risk: Members with 11+ violations face referral to Member Committee, potentially leading to additional sanctions including suspension of trading privileges
  • Client Management: Clearing members must recover penalties from violating clients, requiring enhanced client monitoring and communication processes
  • Deterrent Effect: Progressive penalty structure creates strong incentive for members to prevent violations through better pre-trade risk controls
  • Transparency: Consolidated format improves clarity for members regarding penalty exposure across all segments

Impact Justification

Comprehensive penalty framework affecting all trading members across multiple segments with escalating financial penalties and potential referral to Member Committee for repeated violations