Stock exchanges in India including the BSE, the NSE and commodity bourse MCX will have to scale down their holdings in clearing corporations (CCs) to 51 per cent from 100 per cent. This has come into effect after SEBI’s announcement on a new set of norms for market infrastructure institutions (MIIs).
Also, the net worth criteria for CCs has been cut down to ₹100 crore plus from ₹300 crore earlier, which is the capital to manage counter-party and other risk. Norms for the remaining 49 per cent public holding in CCs will be aligned to the de-mutilisation norms followed by exchanges wherein only domestic financial institutions and banks, and foreign exchanges can hold up to 15 per cent stake while the rest have been restricted to 5 per cent.
The exchanges’ act of not allowing other exchanges to avail services of their clearing corporation, will also change as SEBI has allowed inter-operability among CCs, market experts told BusinessLine. Norms for working of inter-operability among CCs will be out soon. For rules related to payments and settlements of transactions on exchanges, SEBI has borrowed the concept of another Act called Payment and Settlement System Act, 2011, which provides for circumstances including winding up, insolvency resolution, etc, experts told BusinessLine.
SEBI defines netting as “determination of net payment or delivery obligations among the clearing members of a recognised clearing corporation by setting off or adjustment of the inter-se obligations or claims arising out of buying and selling of securities, discontinuation of business, dissolution, winding up or insolvency or such other circumstances as may be specified in the bye-laws of the clearing corporation”.
The definition has been widened and has given priority to exchanges for appropriation of any collateral or margins or depositions of members or brokers towards settlement or netting above any other liability or claim against the said trading member.
Also, SEBI has stipulated that payment and settlement in respect of a transaction between parties (arrived after dispute resolution in many cases) determined by the exchanges will be final, irrevocable and binding on such parties. Such a change will restrict the ability of brokers or trading members from approaching courts against claims decided by bourses, experts say.
Most of SEBI’s new norms with regard to MIIs are based on recommendations made by a panel led by former deputy governor of the RBI, R Gandhi. Among the other norms, any shortfall in the settlement guarantee will have to be managed by the exchanges and their clearing corporations. SEBI has also rationalised the number of committees connected with the board and running of MIIs. Less than half a dozen committees will now have to be appointed, compared to 17 earlier, in exchanges.
On shareholding in MIIs, earlier, a change in every 1 per cent holding had to pass through the SEBI approval process. Now, more than 2 per cent holding will require such a procedure. Utilisation of profits for investment in unrelated business by the bourse will require board approval, according to SEBI.