Indian Clearing Corporation (ICCL), a wholly-owned subsidiary of BSE, has received a show-cause notice and a letter from SEBI for violating rules pertaining to interoperability of clearing corporations (CCP).
ICCL has filed a settlement application without admission or denial of guilt and stated that it is willing to pay a fair amount to settle the proceedings. SEBI has indicated an amount of ₹8.62 crore as a probable settlement amount. The company is still under discussion with SEBI on the same.
This is the second regulatory setback for BSE recently. The bourse has had to make a provision of ₹169.8 crore towards differential regulatory fees on options contracts.
CCP matter
The SEBI circular on interoperability of CCPs — which allows members to clear trades through their preferred clearing corporations — was issued in November 2018 and implemented in FY 19-20.
ICCL’s violations are related to CCP norms on maintaining the inter-CCP collateral, said a person familiar with the matter. According to the 2018 circular, CCPs have to maintain sufficient collateral with each other so that any default by one CCP, in an interoperable arrangement, would be covered without financial loss to the other non-defaulting CCP.
The inter-CCP collateral comprises of two components. The first covers margins based on the risk management framework. The second relates to additional capital, to be determined by each CCP, based on the credit risk from the linked CCP.
“The collateral posted by one CCP with another CCP shall be maintained in a separate account which can be clearly identified in the name of such linked CCP which is providing collateral and shall not be included in the Core SGF of the CCP receiving them,” the circular said.
ICCL’s bank guarantee towards inter-CCP collateral under the interoperability framework stood at ₹7,700 crore as on March 31 this year, according to the bourse’s annual report. This is more than double the ₹3,000 crore that was set aside at the end of the previous year.
MF segment
ICCL’s mutual fund segment had to face challenges last year in the form of incorrect data update, delays in data updates, no updates from payment aggregator’s (PA) end and error in underlying process. This was in the aftermath of SEBI mandating discontinuation of pooling mechanism, third party validation and nomination checks with effect from July and October 2022, which necessitated process changes.
“There were technology constraints at PA end and incorrect updation of bank account details from member’s end. These issues led to delays in processing of refunds and excess payment to clients,” the annual report said.
The bourse has had to make provisions for the same.