The Securities and Exchange Board of India (SEBI) on July 20, 2023, issued a Consultation Paper on ‘Prudential norms for exposure of Clearing Corporations’.
CCs are Market Infrastructure Institutions (MIIs), which operate as legal counterparties by standing in between the parties to every trade and essentially taking on the counterparty or credit risk. Due to their affiliation with banks, CCs are exposed to these entities in the normal course of business in a variety of ways, including through deposits made to banks for the Core Settlement Guarantee Fund (Core SGF) and their own funds, as well as through instruments issued by banks like Fixed Deposits (FDs), Bank Guarantees (BGs), Equity or Debt Securities, etc. placed as collateral with CCs by Clearing Members (CMs). Additionally, a bank serves as a clearing bank, CM, custodian, source of liquidity, etc.
Additionally, CCs are exposed to other (non-bank) businesses due to stock or debt instruments that CMs have given CCs as collateral. As a result, CCs are vulnerable to the concentration risk that could result from the total of CCs' and their subsidiaries' exposures to different bank and non-bank businesses (which may not be financially independent).
Considering the implications of the said matter on the market participants, public comments are invited on the proposal Comments may be sent latest by August 10, 2023.
