Sebi to levy additional penalty for repeated delivery default

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Looking to safeguard the interest of investors and reduce risks in the system, market regulator Sebi in a notification said that it will impose an additional penalty of 3% of the total value of the delivery default in the case of ‘repeated default’ by a seller or a buyer. The prime objective of this additional penalty is to put in place a deterrent mechanism to address instances of repeated delivery defaults.

Repeated default

According to Sebi’s new notification, repeated default will be defined as an event wherein a default on delivery obligations takes place three times or more during six months on a rolling basis.

Additional penalty

The repeated defaulter will be charged an additional penalty which will be equivalent 3% of the value of the delivery default. “The penalty levied shall be transferred to Settlement Guarantee Fund (SGF) of the Clearing Corporation,’ Sebi said.

Timeline

The new rules come into effect from September 17, 2021. In March, Sebi put in place delivery default norms for the commodity derivatives segment. The rules came into effect from the first trading day of May 2021. In agricultural and non-agricultural commodities, the penalty for delivery default by the seller was fixed at four per cent and three per cent of the settlement price plus replacement cost, respectively.

With regard to futures contracts on agri-commodities, a penalty on a seller in case of delivery default was fixed at four per cent of settlement price along with replacement cost. The latter refers to the difference between settlement price and an average of the three highest of the last spot prices of five succeeding days after the commodity pay-out date if the average price so determined is higher than the settlement price. Otherwise, this component will be zero.