SEBI Considering Demerger Of Clearing Corporations From Parent Exchanges
SEBI is expected to release a public consultation paper on the matter soon, to gather stakeholder feedback and refine the proposal.
The Securities and Exchange Board of India is weighing on separating clearing corporations, or CCs, from their parent stock exchanges to boost their independence and diversify their ownership, as per Whole-Time Member Ananth Narayan.
While speaking at an event in Mumbai, Narayan mentioned that the clearing corporations act as the central counterparties responsible for clearing and settling trades.
CCs play a crucial role as a first line regulator managing several forms of market, counterparty, operational, and technology risk that accompanies trading and settlement in securities markets.Ananth Narayan, Whole-Time Member, SEBI
Globally, many markets treat CCs as public utilities, often independently owned and operated to serve the collective interests of all stakeholders. In India, however, CCs are currently wholly owned by their respective parent exchanges.
Regulations prohibit the listing of CCs, even though stock exchanges and depositories can do so. Still, Narayan mentioned that the listing of parent exchanges has indirectly allowed their shareholders to consider the CCs as part of the overall listed entity.
Since the introduction of interoperability in the equities market in 2018, CCs can now clear trades across multiple exchanges rather than exclusively for their parent exchange.
As per the WTM, this interoperability has enhanced trade ease, but the current ownership model, where one exchange holds 100% of its CC, could create actual or perceived conflicts of interest.
The Reliance For Equity Infusions
Another concern Narayan explained is that CCs in India rely heavily on their parent exchanges for equity infusions, default fund management, technology, and staffing resources. This setup stands in stark contrast to global norms, where clearing members contribute to the CC's Settlement Guarantee Fund, thereby sharing the risk associated with their platform activity.
In India, however, CMs are not required to contribute to the SGF, placing the burden solely on the CC, exchanges, and the parent exchange to bolster the SGF.
Narayan suggested that making CCs independent, self-sustaining entities with broad-based ownership and risk-sharing from CMs would create a fairer and more robust market infrastructure.
Upcoming Change
SEBI has already discussed potential reforms, including a possible demerger of stock exchanges and clearing corporations, with its Secondary Market Advisory Committee.
The markets regulator is expected to release a public consultation paper on the matter soon to gather stakeholder feedback and refine the proposal.
