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Informist, Friday, Mar. 21, 2025

 

--Source: SEBI to put clearing corp proposals to board not before June meet

 

By Rajesh Gajra

 

NEW DELHI – Proposals made in a consultation paper in November over overhaul in norms on ownership and economic structure of clearing corporations will be put up before the board for approval not before the first board meeting of 2025-26 (Apr-Mar), likely to be held in June, according to a senior official in the Securities and Exchange Board of India. The Nov. 22 consultation paper had proposed a clean break between the parent stock exchanges and their respective clearing subsidiaries. This, according to the proposal, can take place by way of a parent exchange giving away its entire shareholding in the clearing subsidiary to its shareholders on a pro-rata basis.

 

There was an expectation from some market participants that this issue will be taken up in the forthcoming board meeting of SEBI on Monday. But while SEBI has received feedback from stakeholders, it is keen on carrying out more extensive discussions and consultations with stock exchanges and clearing corporations and will, therefore, approach the board with its final proposals around June, the official said. Earlier this month the market regulator got a new Chairman Tuhin Kanta Pandey after the three-year term of the former chief Madhabi Puri Buch got over.

 

Clearing corporation are vital market infrastructure entities as they carry out all the risk management and operational functions involved in the clearing and settlement of cash and derivatives trades on the stock exchanges, as well as set up and manage their settlement guarantee funds. Fully owned by their respective parent stock exchanges, the clearing corporations are explicitly prohibited from public listing. The Nov. 22 SEBI paper also touched upon this when it said that clearing corporations played a crucial role in risk management for public interest and, therefore, commercial considerations should not come in the way of their operations.

 

Their parent stock exchanges are, however, permitted to list, but the current thinking within SEBI  is that this was a mistake when it was around nine years ago, the official said. The Nov. 22 paper mirrored this thinking when it said that "when the exchange itself is listed, this also leads to the vicarious listing of its subsidiary CC (clearing corporation)."

 

SEBI also said in the consultation paper that recent measures it has taken to enhance investor protections such as shortening of settlement cycles, settlement pay-in and pay-out validations, direct pay-outs to clients, and trading supported by blocked amount in secondary market, require clearing corporations to make "significant investments towards infrastructure and processes." The surge in trading in recent years and the rapid growth in interest among a wide category of investors in the derivatives segment meant that clearing corporations "would also have to augment their SGF (settlement guarantee funds)," SEBI said in the paper.

 

Given the large investments required for these and other purposes, clearing corporations "are today primarily dependent on the parent exchange for infusion of..."substantial capital investments in a CC's infrastructure, risk management or human resources...(and these) may appear to be at odds with the commercial objectives of the parent exchange and its shareholders," the SEBI paper noted. But listed exchanges do not agree with this view. The managing director and chief executive officer of one of the large stock exchanges told Informist that "the shareholders invested knowing the clearing corporation was a 100% subsidiary and other connected consequences of that."

 

These and various other issues covered in the consultation paper will have to be thrashed out between SEBI and the stakeholders. SEBI, therefore, is expected to take more time to discuss with the stakeholders before taking the proposals in the consultation paper as it is, or with modifications, to its board for approval.  End

 

Edited by Akul Nishant Akhoury

 

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