Mumbai: Capital market trading costs are likely to decrease next year under a framework for interoperability among clearing corporations (CCPs) which will be operationalised by June 1, 2019, as per new guideliens issued by regulator Securities and Exchange Board of India (Sebi) on Tuesday.
Interoperability would permit trading entities to clear trades through a firm of their choice instead of going through the CCP owned by the stock exchange on which the trade is executed.
As per the current practice, different stock exchanges have their own CCPs to handle trade settlements on respective exchanges.
"Interoperability among CCPs necessitates linking of multiple clearing corporations. It allows market participants to consolidate their clearing and settlement functions at a single CCP, irrespective of the stock exchange on which the trade is executed," a Sebi circular said.
"It is expected that the interoperability among CCPs would lead to efficient allocation of capital for the market participants, thereby saving on costs as well as provide better execution of trades."
Following the recommendations made by the regulator-appointed expert committee, the Sebi board, in September, approved the proposal to enable interoperability among CCPs.
Interoperability framework will be applicable to all the recognised CCPs excluding those operating in the International Financial Services Centre.
"All the products available for trading on the stock exchanges (except commodity derivatives) shall be made available under the interoperability framework," Sebi said.
The regulator asked stock exchanges and CCPs to "take all necessary steps to operationalise interoperability at the earliest, but not later than June 1, 2019".
"The agreements entered into by the stock exchanges/ CCPs shall, inter alia, include system capability, inter-CCP links and CCP-trading venue link, risk management framework, monitoring of client margin/ position limits, obligation system, settlement process, surveillance systems, sharing of client data, sharing of product information, default handling process and dispute resolution process."
In case of default by a CCP, the collateral provided by such CCP will be utilised by the non-defaulting CCP to cover losses arising from such default, the regulator said.
Besides, in order to manage the inter-CCP exposure in the peer-to-peer link, CCPs will 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, it added
To promote transparency in the area of charges levied by the exchanges and CCPs, Sebi said the transaction charges levied need to be clearly identified and made known to the participants upfront.