- SEBI has formed an ad-hoc committee under Usha Thorat to review the ownership and economic structure of clearing corporations and suggest measures to ensure the corporations function as resilient, independent and neutral risk managers.
- The 2018 report of the committee on the review of regulations and relevant circulars about Market Infrastructure institutions (MIIs), headed by R. Gandhi (referred to as Gandhi Committee).
- It noted ownership of MIIs should be dispersed and widely held.
- It highlighted that most clearing corporations in India were 100% owned by a single exchange, given such corporations are risk-bearing MIIs, they should be widely held.
- Listing of clearing corporations should not be permitted being sensitive and high risk-bearing and risk-managing entities.
- There should be no stipulation on the quantum of profit to be made by MIIs but monitoring of reasonableness of the charges levied by MIIs should be preferred.
- Given the novation function of the clearing corporations,
Issues in functioning as an Independent Risk Manager
- As all clearing corporations under the regulatory purview of SEBI are subsidiaries of their parent exchanges.
- The dominance in ownership exposes them to the expectations of shareholders of the parent exchange.
- They are dependent for capital infusion and augmentation of reserves, including for any shortfall in the corpus of the settle guarantee fund.
- Infusion of capital in a clearing corporation by a parent exchange might be at odds with the economic interest of an exchange shareholder.
- Investment is needed towards enhancing capabilities in technology and human and regulatory resources.
- As public utilities make reasonable profits to sustain their operations, to ensure market stability.
- With a substantial rise in trading volumes particularly in the derivatives segment, need to augment their settlement guarantee funds.
Dig Deeper: Read about the Clearing Corporations of India and their parent exchanges.
