The Securities and Exchange Board of India, (SEBI) on May 29, 2024, issued Norms for acceptable collaterals and exposure of Clearing Corporations.
SEBI has issued new guidelines to strengthen the risk management framework for Clearing Corporations (CCs) through various circulars. The key points are as follows:
A. Collaterals Accepted by CCs
•Liquid Assets: SEBI Master Circulars have defined acceptable liquid assets with applicable haircuts for risk management, including cash, bank fixed deposits, bank guarantees, central government securities, and units of liquid mutual funds.
Revised Provisions:
•Overnight Mutual Funds: Units of growth plans will have a 5% haircut, while other plans remain at 10%.
•Equity Shares: Only those with an impact cost of up to 0.1% for an order value of INR 1 lakh and traded for 99% of the previous six months will be accepted.
•Modifications: The guidelines modify provisions for acceptable liquid assets, maintaining other assets like bullion, gold ETFs, agricultural commodities, base metals, and diamonds unchanged.
B. Prudential Norms for Exposure of CCs
•Investment Policy: CCs must follow principles for investing their own funds and the Core Settlement Guarantee Fund (SGF) as specified in SEBI's Master Circulars.
•Monitoring Exposure: CCs need to monitor and manage their exposures to ensure operational resilience and diversification.
Prudential Norms:
•Types of Exposures: Include investments in FDs, mutual funds, T-bills, G-secs, and exposures through members and warehouse service providers.
•Bank Selection Criteria: Banks must have a minimum net worth of INR 5,000 Cr, a long-term rating of AA or above, meet capital adequacy requirements, and not be under RBI's PCA framework.
•Single Bank Exposure Limits: Daily exposure to a single bank should not exceed 15% for AAA-rated banks and 10% for AA-rated banks.
•Corporate Bonds: Exposure should not exceed 10% of the total liquid assets for AAA-rated bonds and 8% for AA-rated bonds.
•Overall Bank Exposure: Should not exceed 20% of total liquid assets.
•Restrictions: CCs should not accept collateral from members' own group entities and must monitor compliance on an end-of-day basis.
Implementation
•CCs must update their systems, amend relevant bylaws, rules, and regulations, inform market participants, and disseminate the guidelines on their websites.
•These measures aim to ensure better risk management and operational resilience for CCs, promoting stability and sustainability in the market.
The provisions of this circular shall come into force with effect from August 01, 2024.
[Notification No. SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/65]
