SEBI raises minimum contract size in equity derivatives to Rs5 lakh
SEBI has raised minimum contract size for equity derivatives to Rs5 lakh from the next trading day after expiry of October 2015 contracts

Market regulator Securities Exchange Board of India (SEBI) has raised the minimum contract size for equity derivatives to Rs5 lakh from Rs2 lakh earlier. 
In a notification, SEBI said, the new provision shall be made effective from the next trading day after expiry of October 2015 contracts.



Chandra Prakash Jain

1 year ago

It will drive away small traders from derivative market . SEBI must think on reducing it a little bit .

Nifty, Sensex, Bank Nifty to rally higher - Monday closing report
Nifty has to say above 8,450 for the momentum to be strong
We had mentioned in Friday’s closing report that the Indian stock market is fearful about the potential negative news from international markets and is therefore moving up cautiously. Also, we had said that Nifty has to close above 8,390 for the first confirmation of a new upmove.  Greek Prime Minister Alexis Tsipras accepted a compromise on German-led demands for the sequestration of Greek state assets to be sold off to pay down debt. With the Greece deal being struck, indices were up by around 1% in Monday’s trading.
European Council President Donald Tusk said that EU leaders had unanimously reached an agreement on a third bailout for the cash-strapped southern European country of Greece. This was positive news for stock markets worldwide.
Investor sentiments were bullish after Greece reached a new bailout deal. This led a barometer index of the Indian equity markets to gain nearly 300 points on Monday.
After the Indian equity markets slipped on the Greece debt crisis countless times, the investor anxiety was calmed as the Mediterranean country reached a new bailout deal with its creditors.
The recent slowdown in the factory output, revealed by the Index of Industrial Production (IIP) data released on Friday and good progress of monsoon, renewed hopes of another rate cut by the Reserve Bank of India (RBI) during its review in August. 
This propelled interest rate sensitive stocks like automobile and banks to rise.
Further easing of crude oil prices, which are now hovering around $50 per barrel at the West Texas Intermediate (WTI) futures and options index, helped to improve the market's sentiments.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) also made healthy gains during the day's trade. It rose by 99.10 points or 1.19% at 8,459.65 points.
The Sensex of the S&P Bombay Stock Exchange (BSE), which opened at 27,739.32 points, closed at 27,961.19 points, up 299.79 points or 1.08% from the previous day's close at 27,661.40 points.
The Sensex touched a high of 28,005.17 points and a low of 27,635.06 points in the intra-day trade.
"Greece was a major trigger for today's gains. It is not a final solution to the crisis but gives hope of a resolution and time to the Greek economy to recover," Anand James, co-head, technical research desk, Geojit BNP Paribas, told IANS.
"The Greece bailout package coupled with hopes of a rate cut in August and the good progress of monsoon led the market to make healthy gains." 
According to James, the major trigger to look out for will be the Consumer Price Index (CPI) data expected to come out on Monday and the Wholesale Price Index (WPI) which will be released on Tuesday.
"These data points coupled-with good monsoon progress will be the undercurrent of market sentiments for some time, as they will determine any chances of a future rate-cut by the RBI."
Gaurav Jain, director with Hem Securities, said that the markets surged as European Union bailed out Greece for a third time. 
"European leaders in Brussels have reached a third bailout deal for Greece after more than 17 hours of discussion on the subject of reforms and more financial aid for the near-bankrupt country," Jain said.
"Earlier, markets opened on a weak note on the back of weak IIP numbers announced on Friday after market hours," he added.
Meanwhile, the stability in the Chinese markets also supported the investor sentiments.
The continuous slide in the Chinese markets had eroded nearly 40 percent of the stock value and also caused panic.
More importantly, the inability of the Chinese government, fund houses and brokerage firms to arrest the fall led to global sell-offs.
During Monday's intra-day trade, healthy buying was observed in automobile, healthcare, banks, information technology (IT), oil and gas, technology, entertainment and media (TECK) and fast moving consumer goods (FMCG) stocks. 
However, capital goods scrips came under intense selling pressure.
The S&P BSE automobile index zoomed by 295.21 points, healthcare index jumped 218.65 points, banks extended gains by 194.70 points, IT index augmented by 173.92 points, oil and gas index rose by 124.17 points, TECK index increased 95.39 points, and FMCG index was higher by 87.51 points. 
The S&P BSE capital goods index fell by 34.96 points.
The major Sensex gainers during Monday's trade were: Gail, up 3.55% at Rs373.35; HDFC, up 3.19%  at Rs1,323.85; Maruti Suzuki, up 2.56% at Rs4,036.60; NTPC, up 2.50% at Rs133.10; and Wipro, up 2.08% at Rs560.
The major Sensex losers were: ONGC, down 1.02% at Rs290.85 and Larsen and Toubro (L&T), down 0.75% at Rs1,857.80.
Among the Asian markets, Japan's Nikkei was up by 1.57%, but China's Shanghai Composite Index gained 2.41%, and Hong Kong's Hang Seng rose by 1.30%.
In Europe, the London FTSE 100 index was up by 0.76%, the French CAC 40 was higher by 2.04%  and Germany's DAX Index gained by 1.28% at the closing bell here.
The top gainers and losers in the major indices in the Indian stock market are given in the table below:
The closing values of major Asian indices are given in the table below:
Among European indices, DAX was at 11,474, up 1.39% and FTSE 100 was at 6,721, up 0.72%. Athex Composite Share Price Index was at 797.52, up 2.03%. 


Stringent norms for change in control for the NBFCs
The revised directions are much more stringent, putting additional burden on the smaller companies, as they will have to rush to the RBI every time there is a change in their board
The Reserve Bank of India, on 9th July, 2015, came out with the fine print of the revised directions on change in control over/ acquisition of NBFCs (revised directions). These can be viewed here.  
Earlier, change in control over/ acquisition of NBFCs was governed by the notification of May 2014 (please see), whereby they were only required to obtain a prior written consent from the RBI. But under the revised directions, the RBI insists the promoters to make a full-fledged application to the RBI for the change in hands. In this write-up, we intend to draw up the impact of the revised directions and its comparison with the earlier norms.

What amounts to change in control/ acquisition of an NBFC?

As per the revised directions, the following circumstances amount to change in control/ acquisition of an NBFC and the same shall be subject to prior approval of the RBI –
(a) Any takeover or acquisition of control of an NBFC, even if the same does not tantamount to change in management of the company;
(b) Any change in the shareholding of an NBFC, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 26 per cent or more of the paid up equity capital of the NBFC. However, exemption has been granted to a situation where the increase in the shareholding results due to a buyback of shares/ reduction in capital where it has been done with the approval of a competent court;
(c) Any change in management of the NBFC that would result in change in more than 30 per cent of the directors. However, change in the number of independent directors shall not constitute change in control for obvious reasons. However, prior approval would not be required for those directors who get re-elected on retirement by rotation.
Though the intent of the RBI is noble, it may at times pose a good amount of trouble to the NBFCs. There may be instances where the above events may occur due to reasons beyond the control of the promoters. Even then, a full-fledged application shall have to be made by the NBFC. Some of such instances have been discussed below.
Say, there are only three directors in an NBFC; one of them expires, which means more than 30% in the composition of the board. If we go by the directions, any change in more than 30% of the directors should be done only after prior permission of the RBI. Not sure how can an NBFC obtain a prior approval in such a case.
Let us again take an example of an NBFC with only 3 directors, and the shareholders wish to not reappoint one of the retiring director in the annual general meeting, this leads to a situation where more than 30% of the directors are changed. In this case, if the Directions were to be followed, the shareholders would require getting the consent of RBI before enforcing their proprietary rights.
Again, what happens if the 51% shares of an NBFC are being acquired by a bank/ banks under a strategic debt restructuring scheme, will it still require the prior consent of the RBI? This is a bit contradictory in nature, as one will have to obtain prior approval of RBI to act in accordance with a decision granted after exercising power granted by RBI itself.
These are only some of the instances. There can be several other instances as well, which might happen for reasons beyond the control of the promoters; but in all cases prior approval of the RBI has to be obtained.

Process of making an application to the RBI

The application for change in control/ acquisition of NBFCs has to be done by the company in its letter head along with complete details of proposed directors/ shareholders of the company (which is a list of 29 items!), sources of funds for the proposed acquisition of the shares of the company. 
The revised directions also require the company to enclose various disclosures from the proposed directors/ shareholders; one of such is a disclosure that the proposed directors/ shareholders are not associated with an entity which has been denied the certificate of registration by the RBI. Therefore, if you have ever failed to register your company as an NBFC, you will never be able to become a promoter/director of an NBFC again.
The revised directions also talk about a Banker’s Report on the proposed directors/ shareholders of the company; however, nothing else has been clarified in this regard.
The application has to be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the registered office of the NBFC is located. 

Prior public notice for change in control/ management

The NBFC and proposed acquirer, either singly or jointly, shall have to issue a public notice at least 30 days before the change in control of the company/ acquisition of the shares of the company after the permission is granted by the RBI. The public notice, which is to be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper, shall indicate the intention to change the control, the particulars of acquirer and furthermore, the reasons for such change of ownership/ control.
The revised directions are much more stringent than what existed and this is one more sign which indicates that the RBI is intending to implement the check at the management level of the NBFCs. While the motive is noble, but at some places the core intent has got distorted. One of the major recommendation of the Usha Thorat Committee was deregulation of smaller companies, but these Directions seems to unknowingly put additional burden on the smaller companies, as they will have to rush to the RBI every time there is a change in their board. 
By the way, the consequences of violation of these directions also deserve a mention; in case of any violation of the revised directions; the CoR of the company will be cancelled!
(Abhirup Ghosh works as researcher at Vinod Kothari & Company)


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