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    L.C.Gupta Committee Purpose

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    Abhishek Kumar Singh
    The L.C. Gupta Committee was formed to recommend separating the cash and derivatives segments of stock exchanges and their clearing houses. The key recommendations were to have separate regulations, memberships, legal frameworks, and operations for the cash and derivatives segments. The committee also recommended establishing a regulatory framework for derivatives trading with oversight at both the exchange and SEBI levels. Derivatives exchanges should have a minimum of 50 members with net worth of at least 3 crores. Trading, products, participants, brokerage, sales practices, and clearing/settlement should also follow certain guidelines. Legal amendments to the Securities Contract Regulation Act were subsequently made to implement the committee's recommendations.

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    L.C.Gupta Committee Purpose

    Uploaded by

    Abhishek Kumar Singh
    2K views3 pages
    The L.C. Gupta Committee was formed to recommend separating the cash and derivatives segments of stock exchanges and their clearing houses. The key recommendations were to have separate regulations, memberships, legal frameworks, and operations for the cash and derivatives segments. The committee also recommended establishing a regulatory framework for derivatives trading with oversight at both the exchange and SEBI levels. Derivatives exchanges should have a minimum of 50 members with net worth of at least 3 crores. Trading, products, participants, brokerage, sales practices, and clearing/settlement should also follow certain guidelines. Legal amendments to the Securities Contract Regulation Act were subsequently made to implement the committee's recommendations.

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    L C gupta

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    L.C.GUPTA

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    The L.C. Gupta Committee was formed to recommend separating the cash and derivatives segments of stock exchanges and their clearing houses. The key recommendations were to have separate regulations, memberships, legal frameworks, and operations for the cash and derivatives segments. The committee also recommended establishing a regulatory framework for derivatives trading with oversight at both the exchange and SEBI levels. Derivatives exchanges should have a minimum of 50 members with net worth of at least 3 crores. Trading, products, participants, brokerage, sales practices, and clearing/settlement should also follow certain guidelines. Legal amendments to the Securities Contract Regulation Act were subsequently made to implement the committee's recommendations.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    2K views3 pages

    L.C.Gupta Committee Purpose

    Uploaded by

    Abhishek Kumar Singh
    The L.C. Gupta Committee was formed to recommend separating the cash and derivatives segments of stock exchanges and their clearing houses. The key recommendations were to have separate regulations, memberships, legal frameworks, and operations for the cash and derivatives segments. The committee also recommended establishing a regulatory framework for derivatives trading with oversight at both the exchange and SEBI levels. Derivatives exchanges should have a minimum of 50 members with net worth of at least 3 crores. Trading, products, participants, brokerage, sales practices, and clearing/settlement should also follow certain guidelines. Legal amendments to the Securities Contract Regulation Act were subsequently made to implement the committee's recommendations.

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    L.C.

    GUPTA COMMITTEE PURPOSE: -

    The key purpose of the committee is financial derivatives separation of cash and
    derivative segment of an exchange and their clearing house. The Gupta Committee on
    derivatives had permitted existing stock exchanges having cash trading to trade in
    derivative contracts through a separate segment with separate membership.

     Regulations and bylaws of derivative segment shall be separate from the cash
    market.
     Membership of derivative segment shall be separate from the cash market
    segment.
     The legal framework governing trading clearing and settlement of the derivative
    segment should be separate from the cash market segment.
     The separation as regard the functional, operational and administrative
    modalities shall be at the discretion of the exchange.

    RECOMMENDATIONS OF GUPTA COMMITTEE ON DERIVATIVES MARKET IN INDIA: -

    L. C. Gupta Committee believes that regulations should be designed to achieve specific


    and well-defined goals. Gupta Committee recommended the following regarding the
    trading of derivative contracts in the Indian stock market:

     Derivatives exchanges
    The committee strongly favoured the introduction of financial derivatives to
    facilitate hedging in a most cost efficient may against market risk.

     Rules regarding exchange operations


    Derivatives contracts can be traded in a screen based trading system with online
    facilities.

     Regulatory framework
    Regulatory control should envisage modern system for better regulation. The
    framework envisaged two level regulations i.e. exchange level and SEBI level.
     Specification regarding trading
    Stock exchange should stipulate in advance trading days and hours. Each contract
    must have pre-determined expiration date and time. Contract expiration period
    may not exceed 12 months.

     Membership
    A minimum of 50 members are required to start derivatives trading exchange in
    India. The members must have certain minimum net worth of INR 3Crores.

     Products
    The derivatives products must be approved by SEBI which consist of securities
    which should protect the interest of investors.

     Participants
    There should be no restrictions on investment institutions such as mutual funds
    and others in the derivatives market.Margin money will be collected from all the
    participants.

     Brokerage
    The prices on the system shall be exclusive of brokerage and a minimum brokerage
    rate shall be prescribed by the exchange. The brokerage amount is to be separately
    indicated in the contract note.

     Sales practices
    It should be mandatory to provide risk disclosure document with each client. The
    sales personnel must pass certification exam.

     Trading regulations
    There should be a clear disclosure of risk on each security which should be supplied
    by the broker.

     Contract notes
    Contract note must he duly stamped and timed.
     Clearing regulations
    The rules pertaining to clearing agreements with clearing houses should be made
    for proper functioning of derivatives market in India. Deposit should also be made
    with clearing houses.
     Market and settlement
    There should be the system of daily settlement of futures contracts. The final
    settlement price is to be as per the closing of underlying security.

    Consequent to the committee's recommendations the following legal amendments were


    carried out —

     Securities Contract Regulation Act.


     Derivatives contract declared as a 'security' in Dec 1999.

    In order to recommend a roadmap for effective implementation of the


    recommendations of LC Gupta Committee Report, SEBI entrusted the task of another
    committee i.e., JR Verma Committee appointed it.

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