New Rules: SEBI has tightened these rules regarding liquid assets, preparations to protect against risk

Capital markets regulator Securities and Exchange Board of India (SEBI) has changed the guidelines for clearing corporations (CCs) accepting liquid assets as collateral. During this period, SEBI has implemented norms by strengthening the risk management framework for such institutions. Clearing corporations accept liquid assets with applicable haircuts to meet initial margin and mark-to-market losses, among other things.

In its circular, the regulator said that the clearing corporation should accept units of growth plans of overnight mutual funds schemes at par with cash with a discount of 5%. Meanwhile, 10% deduction will remain applicable for other overnight mutual fund schemes.

How will risk management improve?

Overnight mutual funds invest only in overnight securities with a maturity of one day. Sebi said equity shares having impact cost up to 0.1% for order value of Rs 1 lakh and traded for 99% of the days in the last six months will be accepted as part of other liquid assets.

SEBI said, “To further improve risk management and ensure operational resilience, it is important that any type of risk of clearing corporations is properly monitored and managed. Diversification of clearing corporations’ exposure across instruments is essential for the stability and sustainability of clearing corporations.”

The regulator has asked clearing corporations to consider only settled investments, including own funds and core settlement guarantee fund (SGF), which are fixed deposits (FDs), units of overnight and liquid mutual funds, treasury bills. (T-bills) and government securities (G-secs).

Emphasis on managing average daily exposure

The exposure of the Clearing Corporation and its subsidiaries to any one bank in the form of cash, FDs and bank guarantees should not exceed 10-15% of the average daily exposure of the last three months, depending on the rating of the lenders.

“The aggregate exposure of clearing corporations to equity and debt instruments of the issuer received as collateral from clearing members (CMs) in both cash and F&O segments (including commodity and currency derivatives segments) shall be the aggregate of CCs received from CMs,” Sebi said. Shall not exceed 15% of liquid assets and will be treated as a non-component of the total liquid assets of the CC.