CLEARING CORPORATIONS

Nov. 28, 2018

The Securities and Exchange Board of India (SEBI) has announced the guidelines for interoperability of clearing corporations – an issue that was under discussion for many years.

Interoperability among clearing corporations:

Meaning: It refers to the linking of multiple clearing corporations, which allows market participants to consolidate their clearing and settlement functions at a single clearing corporation, irrespective of the stock exchange on which the trade is executed.
Recent SEBI guidelines:
- All the products available for trading on the stock exchanges except commodity derivatives would be made available under the interoperability framework.
- All clearing corporations have to establish peer-to-peer link for ensuring interoperability.
- Clearing corporations will have to maintain sufficient collateral with each other so that any kind of default would be covered without risking financial loss to the other clearing corporations.
Significance:
- Such interoperability is expected to bring down the compliance costs for market intermediaries and thereby the trading costs as well, which are among the highest in the world.
- Interoperability among clearing corporations is expected to ensure efficient allocation of capital for the market participants.