N O T I C E
Dated: 29th November, 2018
Trading Members are hereby informed that the Exchange
has received a Circular from SEBI Vide Ref. No. CIR/MRD/DRMNP/CIR/P/2018/145,
Dated November 27, 2018 regarding
Interoperability among Clearing
Corporations. The contents of the said circular are reproduced
hereunder for information of trading members.
Quote:
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CIRCULAR
CIR/MRD/DRMNP/CIR/P/2018/145 November 27, 2018
To
All recognised Stock
Exchanges and Clearing Corporations except Stock Exchanges and Clearing
Corporations in International Financial Services Centre
Dear Sir / Madam ,
Interoperability among Clearing
Corporations
1. Interoperability
among Clearing Corporations (CCPs) necessitates linking of multiple Clearing
Corporations. It allows market participants to consolidate their clearing and
settlement functions at a single CCP, irrespective of the stock exchange on
which the trade is executed. It is expected that the interoperability among
CCPs would lead to efficient allocation of capital for the market participants,
thereby saving on costs as well as provide better execution of trades.
2. An expert Committee
constituted by SEBI, under the Chairmanship of Shri K V Kamath, had, inter
alia, examined the ‘Viability of Interoperability between different Clearing
Corporations’. Thereafter, proposals on Interoperability, received from
CCPs, were placed before the Secondary Market Advisory Committee (SMAC) of
SEBI. As recommended by SMAC, three working sub-groups pertaining to relevant subjects viz. Risk Management, Technology, and Finance and
Taxation were constituted comprising academicians, market participants and
relevant stakeholders to examine the related issues and provide their
recommendations. The reports of these sub-groups were placed before SMAC and
their recommendations were deliberated upon.
3. Thereafter, SEBI Board approved suitable amendments
to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations)
Regulations to, inter alia, enable interoperability among clearing
corporations.
4. The
Committee on Payments and Settlement Systems (CPSS) and the Technical Committee
of International Organization of Securities Commissions (IOSCO) have prescribed
the Principles for Financial Market Infrastructures (PFMIs) with a view to
enhance safety and efficiency in payment, clearing, settlement, and recording
arrangements as well as to limit systemic risk, and foster transparency and
financial stability. Principle 20 of PFMIs, which is relevant to the proposed
interoperability among clearing corporations, prescribes that “An FMI that
establishes a link with one or more FMIs should identify, monitor, and manage
link-related risks.”
5. Keeping the aforementioned in
view, the broad guidelines for operationalizing the interoperable framework
among CCPs are prescribed for compliance hereunder :-
5.1. Scope of Interoperability
among CCPs
(1) The interoperability framework
shall be applicable to all the recognised clearing
corporations excluding those operating in International Financial Services
Centre.
(2) All the products available for
trading on the stock exchanges (except commodity derivatives) shall be made
available under the interoperability framework.
5.2. Interoperable links among
CCPs
(1) The recognised
clearing corporations shall establish peer-to-peer link for ensuring
interoperability. A CCP shall maintain special arrangements with another CCP
and shall not be subjected to normal participant (membership) rules. Risk
management between the CCPs shall be based on a bilaterally approved framework
and shall ensure coverage of inter-CCP exposures. CCPs shall exchange margins
and other financial resources on a reciprocal basis based on mutually agreed
margining models.
(2) However, SEBI, in certain cases,
may require a CCP to establish participant link for interoperability. In such
cases the CCP concerned shall become participant of another CCP (the host CCP)
and shall be subjected to the host CCP’s normal participant rules. Since the
participant CCP would be posting margins with the host CCP, but would not be
collecting margins from the host CCP, it shall be required to hold additional
financial resources to protect itself against default of the host CCP.
5.3. Inter CCP Collateral
(1) To manage the inter-CCP exposure
in the peer-to-peer link, CCPs shall maintain sufficient collateral with each
other so that any default by one CCP, in an interoperable arrangement, would be
covered without financial loss to the other non-defaulting CCP. The inter-CCP
collateral shall comprise two components, viz.
(a) Margins as per the existing Risk
Management Framework (initial margin, extreme loss margin, calendar spread
margin, etc.) prescribed by SEBI; and
(b) Additional capital, to be
determined by each CCP, based on the credit risk from the linked CCP, on which
no exposure shall be granted to the linked CCP.
(2) The collateral posted by one CCP
with another CCP shall be maintained in a separate account which can be clearly
identified in the name of such linked CCP which is providing collateral and
shall not be included in the Core SGF of the CCP receiving them.
(3) The liquid assets as well as
hair-cuts as prescribed vide SEBI Circular MRD/DoP/SE/Cir
07/2005 dated February 23, 2005 on “Comprehensive Risk Management Framework
for the cash market” and SEBI Circular CIR/MRD/DRMNP/9/2013 dated March 20,
2013 on “Corporate bonds and Government securities as collateral” shall
be applicable for inter-CCP transactions.
5.4. Inter CCP Settlement
The CCPs shall undertake multilateral
netting to create inter-CCP net obligations and exchange funds and securities
on a net basis. The pay-in and pay-out shall be completed as per the settlement
schedule prescribed vide SEBI Circular MRD/DoP/SE/Dep/Cir-18/2005
dated September 02, 2005 on “Revised Activity schedule for T+2 rolling
settlement”.
5.5. CCP-Trading Venue Link
(1) In an interoperable arrangement,
the stock exchange and the CCP may not be located at same venue. Accordingly,
to ensure real time flow of information between the stock exchange (trading
venue) and the CCP, so as to facilitate effective real-time risk monitoring and
mitigation, each interoperable CCP shall put in place appropriate
infrastructure including deployment of adequate servers at each of the linked
trading venues.
(2) In order to mitigate any risk
arising out of latency, in partial modification of para-7 of the SEBI Circular
CIR/MRD/DP/34/2012 dated December 13, 2012 on “Pre-trade Risk Controls”, Stock
Exchanges shall ensure that stock brokers are mandatorily subjected to risk
reduction mode on utilization of 85% of the stock broker’s collateral available
for adjustment against margins.
(3) Other provisions with regard to
risk reduction mode, prescribed vide the above-mentioned SEBI Circular dated
December 13, 2012 shall continue to be applicable.
5.6. Default Handling Process
In case of default by a CCP, in the
interoperable arrangement, the collateral provided by such CCP shall be
utilized by the non-defaulting CCP to cover losses arising from such default,
as per the default waterfall prescribed vide SEBI Circular CIR/MRD/DRMNP/25/2014
dated August 27, 2014 on “Core Settlement Guarantee Fund, Default Waterfall
and Stress Test”.
5.7. Charges by Stock
Exchanges/Clearing Corporations
(1) In order to promote transparency
in terms of charges levied by the Stock Exchanges/ Clearing Corporations, the
transaction charges levied shall be clearly identified and made known to the
participants upfront.
(2) The Stock Exchanges and Clearing
Corporations shall comply with the provisions under Para-2 of SEBI Circular
MRD/DoP/SE/Cir-14/2009 dated October 14, 2009 on “Revision
of transaction charges by the stock exchanges”.
5.8. Dispute Resolution
The Conflict Resolution Committee, as
prescribed vide SBI Circular SEBI/HO/MRD/DSA/CIR/P/2017/9 dated January 27,
2017 on “Procedures for Exchange Listing Control Mechanism” shall
address disputes, among CCPs and Stock Exchanges, arising out of
interoperability.
5.9. Inter-CCP Agreement
(1) Securities Contracts (Regulation)
(Stock Exchanges and Clearing Corporations) Regulations, 2018 prescribes that “...in
case a recognised stock exchange enters into an
arrangement with more than one recognised Clearing
Corporation, it shall enter into a multipartite agreement in writing with such recognised clearing corporations to ensure interoperability
among the clearing corporations”.
(2) The
agreements entered into by the Stock Exchanges/ Clearing Corporations shall,
inter alia, include system capability, inter-CCP links and CCP-trading venue
link, risk management framework, monitoring of client margin/position limits,
obligation system, settlement process, surveillance systems, sharing of client
data, sharing of product information, default handling process and dispute
resolution process.
6.
Stock Exchanges and Clearing Corporations shall adhere to aforesaid guidelines
and accordingly, take all necessary steps to operationalize interoperability at
the earliest but not later than June 01, 2019.
7. The
Stock Exchange and Clearing Corporations are directed to:
(1) take
necessary steps to put in place requisite infrastructure and systems for
implementation of the circular, including necessary amendments to the relevant
bye-laws, rules and regulations;
(2) bring
the provisions of this circular to the notice of their members and also
disseminate the same on its website; and
(3)
communicate to SEBI, the status of implementation of the provisions of this
circular.
8. This circular is being issued in
exercise of powers conferred under Section 11 (1) of the Securities and
Exchange Board of India Act, 1992 to protect the interests of investors in
securities and to promote the development of, and to regulate, the securities
market.
Yours faithfully
(Sanjay Purao)
General Manager
Division of Risk Management and New
Products
Market Regulation Department
Email:
sanjayp@sebi.gov.in
Unquote: -
Trading Members are requested to take note of the
aforesaid guidelines of SEBI and act accordingly.
Dhiraj
Chakraboty
Deputy
General Manager