SEBI Modifies Liquid Asset Rules For Clearing Corporations, Sets New Prudential Exposure Norms

Capital markets regulator SEBI has tweaked guidelines for accepting liquid assets as collateral by clearing corporations and put in place prudential norms for exposure of such entities in a bid to strengthen the risk management framework. Clearing corporations accept liquid assets with applicable haircuts to meet the requirements for initial margins and mark to market losses among others. 

In its circular, the regulator said that units of growth plan of overnight mutual fund schemes would be accepted as cash equivalent by CCs with a haircut of 5% and for other plans of overnight mutual fund schemes, the hair cut of 10% would continue to be applicable.

Overnight mutual funds invest only in overnight securities having maturity of one day. Further, equity shares with impact cost of up to 0.1% for an order value of Rs 1 lakh and traded for 99% of days over the period of previous six months would be accepted as part of other liquid assets, it said. 

"In order to further enhance the risk management of the CCs and ensure their operational resilience, it is essential that any type of exposure of CC is appropriately monitored and managed. A diversification of exposure of the CCs in the instruments issued by various entities is essential towards stability and sustainability of a CC," SEBI said.

The regulator has asked clearing corporations to consider only specified types of exposures, including own funds and Core Settlement Guarantee Fund invested in fixed deposits, units of overnight and liquid mutual funds, treasury bills and government securities.    

The exposure of CCs and its subsidiaries towards a single bank in the form of cash, FDs and BGs must not exceed 10-15% of the average daily exposure of the previous three months depending on the ratings of the lenders. 

"Further, the total exposure of the CC to equity and debt instruments of an issuer, received as collateral from CM in both cash and F&O segment (including commodity and currency derivatives segment) put together, shall not exceed 15% of total liquid assets of the CC received from CMs; and shall be treated as part of non-cash component of the total liquid assets of the CC," SEBI said.

The overall daily exposure of a CC to a single bank including cash, FD, bank guarantee, equity and debt  through clearing member collateral should not exceed 20% of the total liquid assets.

SEBI has restrained CCs from accepting collateral including FDs, BGs, equity, or debt securities issued by Clearing Members or trading members themselves or their group or associate entities.

The new guidelines pertaining to acceptable liquid assets will be applicable from August 1 and while those relating to exposure of clearing corporations will be implemented in a phased manner with the timeline ranging from three months to one-year.