Markets regulator Sebi on Thursday came out with fresh guidelines pertaining to the contributions by various entities towards core settlement guarantee fund of Limited Purpose Clearing Corporation (LPCC).
A core settlement guarantee fund (SGF) is a corpus used for settlement of trades during defaults and all intermediaries — stock exchanges, clearing corporations and brokers — contribute towards it.
LPCC is an entity established to undertake the activity of clearing and settlement of repo transactions. A well-functioning repo market contributes to the development of the debt securities market by way of boosting liquidity.
In its circular, Sebi said that the contribution of participants, who desire direct participation and not through a clearing member to core SGF, is risk-based and equivalent to a deficit in minimum required corpus (MRC) post contribution by issuers and clearing members.
Such contributions by participants should be subject to certain conditions. These include exposure-free collateral of participants available with clearing corporations that can be considered towards core SGF contribution of participants, and that required contributions of individual participants will be pro-rata based on the risk they bring to the system.
Sebi said that LPCC will have the flexibility to collect the participant’s primary contribution, including flexibility to either collect the participant’s primary contribution upfront or staggered over a period of time.
In case LPCC does not seek contribution from participants or seeks staggered contribution, the remaining balance will be met by LPCC to ensure the adequacy of the total core SGF corpus at all times. Such LPCC contributions will be available to LPCC for withdrawal as and when further contributions from participants are collected/ received.
In the event of usage of core SGF during a calendar month, Sebi said contributors will, as per usage of their individual contribution, immediately replenish the core SGF to the minimum required corpus.
However, such contribution towards replenishment of Core SGF by the members / (participants) would be restricted to only once during 30 calendar days regardless of the number of defaults during the period.
The period of 30 calendar days should commence from the date of notice of default by LPCC to market participants.
The regulator has prescribed guidelines for the default waterfall of LPCC.
Default waterfall is a system in which a clearing corporation applies different types of financial resources to meet a default loss, such as margins brought in by defaulting participants, clearing funds and its own assets.
First Published: Jun 20 2024 | 9:36 PM IST
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