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Informist, Thursday, May 15, 2025

 

NEW DELHI – The Securities and Exchange Board of India has decided not to impose any penalty on BSE Ltd.'s wholly-owned subsidiary Indian Clearing Corp. Ltd. for alleged breach of norms on the interoperability agreement framework between clearing corporations in the equity market. The alleged violations were technical in nature, considering the peculiar facts and circumstances of the case, the market regulator said in an order Thursday.

 

SEBI had carried out an enquiry in 2022 and 2023 into the matter of compliance by clearing corporations with inter-central counterparty collateral and other rules within the interoperability agreement framework.

 

SEBI had issued a show-cause notice to Indian Clearing Corp. on Nov. 21, 2023, alleging the company had failed to maintain sufficient inter-central counterparty collateral from National Stock Exchange of India Ltd.'s clearing subsidiary, NSE Clearing Corp. Ltd. There were three other allegations specified in the show-cause notice, including one on failure to calculate additional capital applicable to NSE Clearing Corp. as per BASEL III guidelines required under the inter central counterparty agreement between the two clearing corporations signed in June 2019.

 

SEBI said the case did not merit an imposition of a penalty as the omissions by the BSE clearing subsidiary were technical and involved an incorrect approach of implementation. It was also not a "case of wanton negligence but a case subsequently perceived as misjudgment based on bilateral framework and the mutually agreed margining models by CCPs (central counterparties) as set out in the SOPs (standard operating procedure) and also informed to SEBI contemporaneously," SEBI said.

 

SEBI had issued a show-cause notice on Nov. 21, 2023, to NSE Clearing Corp. as well, alleging the company had not maintained sufficient inter-central counterparty collateral from Indian Clearing Corp. and committed other breaches as well, according to a settlement order issued by the capital market regulator on Oct. 29, 2024. The nature of the alleged violations by NSE Clearing Corp. was similar to that of Indian Clearing Corp.

 

NSE had applied to SEBI under the settlement regulations and its offer to settle the case for INR 271.31 million was accepted by the market regulator. BSE had also applied under the settlement regulations to close the show-cause notice, but the application was rejected by SEBI on Nov. 11, 2024. SEBI's order Thursday made no mention of the settlement amount offered by BSE.

 

The rule pertaining to inter-central counterparty collateral was covered in SEBI's circular of Nov. 27, 2018. The circular said risk management between the clearing corporations should ensure coverage of inter-central counterparty exposures in which they would exchange margins and other financial resources on a reciprocal basis based on a mutually agreed margining models.

 

The circular had directed the clearing corporations to maintain sufficient collateral with each other so that any default by one, in an interoperable arrangement, would be covered without financial loss to the other non-defaulting central counterparty, and without posing systemic risks. In its probe into the inter-central counterparty collateral maintained by the two clearing corporations during April 2020 to April 2023, SEBI had found there were shortfalls on most days.

 

Before its show-cause notices to the two clearing corporations, SEBI had issued advisories to them to take corrective steps. Both the clearing corporations had claimed that they undertook corrective measures.

 

SEBI said in Thursday's order it had considered the argument that since its show-cause notice against NSE Clearing Corp had been disposed off on payment of settlement amount of INR 271.31 million it should also penalise the Indian Clearing Corp the minimum amount of INR 50 million prescribed under the rules for adjudication proceedings. SEBI argued in the order "both proceedings operate in different and independent dispensations and with different approaches of assessment."

 

SEBI, however, passed a stricture against BSE's clearing subsidiary saying the clearing interoperability framework cannot be diluted by a clearing corporation "based on hunch or any apprehension of practical difficulties (and) ICCL (Indian Clearing Corp) being a market infrastructure institutional must strictly follow the prescribed norms."  End

 

Reported by Rajesh Gajra

Edited by Akul Nishant Akhoury

 

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