Description

Comprehensive summary of penalties applicable for trading limit violations (RRM) and position limit violations across equity cash, equity derivatives, currency derivatives, and securities lending & borrowing segments.

Summary

BSE has issued a consolidated summary of penalties applicable for trading limit violations (RRM violations) and position limit violations across various segments including Equity Cash, Equity Derivatives, Currency Derivatives, and Securities Lending & Borrowing (SLB). The circular provides a comprehensive penalty structure with escalating charges based on violation frequency, amount, and segment type. Penalties include daily charges of 0.07% plus fixed amounts ranging from Rs 1,000 to Rs 70,000 depending on violation instance and amount. Repeated violations (11th instance onwards) trigger referrals to the Member Committee for suitable action.

Key Points

  • Trading limit violations incur 0.07% per day penalty plus instance-based fixed charges
  • Penalty structure differentiates between violations ≤ Rs 1 crore and > Rs 1 crore
  • Escalating penalty framework: 1st instance has minimal penalty, increasing significantly for 6th-10th instances
  • 11th instance onwards triggers Member Committee referral in addition to cumulative penalties
  • Position limit violations for equity derivatives: 1% of violation value (min Rs 5,000, max Rs 1,00,000)
  • Currency derivatives position limit violations: No penalty for 1st instance, escalating thereafter
  • Client-level currency derivatives violations: Rs 5,000 per violation per client per day
  • Ban period position violations carry 1% penalty of violation value with specified minimum/maximum caps
  • Clearing members collect penalties and may recover from violating clients

Regulatory Changes

This circular consolidates existing penalty frameworks across segments for ease of reference. No new regulatory changes are introduced; rather, it provides a comprehensive summary of current penalty structures for:

  • Trading Limit Violations (RRM) across Equity Cash, Equity & Currency Derivatives
  • Trading Limit Violations for Securities Lending & Borrowing
  • Position Limit Violations at Trading Member/FPI/Mutual Fund levels (Equity Derivatives)
  • Position Limit Violations at Trading Member and Client levels (Currency Derivatives)
  • Position Limit Violations for Securities Lending & Borrowing
  • Entity-level position violations during ban periods

Compliance Requirements

For Trading Members:

  • Must monitor and adhere to trading limits across all segments to avoid escalating penalties
  • Must track violation instances within each calendar month as penalties are cumulative
  • Must be prepared for Member Committee referral after 11th violation instance
  • Responsible for collecting and potentially recovering penalties from clients who commit violations

For Clearing Members:

  • Must pay penalties collected by the Exchange on behalf of trading members and clients
  • May recover penalty amounts from clients who committed the violations
  • Must ensure client-level position limit compliance in currency derivatives (Rs 5,000 penalty per client per day)

Penalty Calculation Requirements:

  • Track violation instances separately for different amount thresholds (≤ Rs 1 crore vs > Rs 1 crore)
  • Calculate daily charges at 0.07% plus applicable fixed penalties
  • For position limit violations: calculate violation value as violated quantity × underlying price

Important Dates

  • Circular Date: October 24, 2025
  • Effective Date: Immediate (consolidation of existing penalty frameworks)
  • Monthly Reset: Violation instance counting resets at the start of each calendar month

Impact Assessment

Financial Impact:

  • High financial impact for members with repeated violations due to escalating penalty structure
  • Cumulative penalties can reach Rs 70,000+ fixed charges plus daily 0.07% for frequent violators
  • Position limit violations in equity derivatives capped at Rs 1,00,000 per entity per stock per day

Operational Impact:

  • Requires robust risk management systems to monitor trading and position limits in real-time
  • Members need enhanced tracking mechanisms to count monthly violation instances across segments
  • Potential operational disruption if referred to Member Committee (11th instance onwards)

Risk Management:

  • Encourages stricter internal controls to prevent limit violations
  • Creates deterrent effect through escalating penalty structure
  • Clearing members bear responsibility for penalty collection, necessitating strong client oversight

Market Impact:

  • Promotes market stability by discouraging excessive risk-taking through limit violations
  • Ensures fair trading practices across all market segments
  • Protects market integrity through stringent enforcement of position and trading limits

Impact Justification

Critical regulatory circular providing consolidated penalty framework affecting all trading members across multiple segments. High financial impact with escalating penalties and potential member committee referrals for repeated violations.