SEBI seeks to tighten regulations for Stock Exchange SGF

Capital markets regulator SEBI is taking no chances. It has initiated process to ensure that stock exchanges are adequately ring-fenced against any potential defaults. In the last two weeks, SEBI has asked all stock exchanges — BSE, NSE and MCX-SX— to submit details of their Settlement Guarantee Fund. Currently, all exchanges calculate Settlement Guarantee Fund (SGF) as per their own bye-laws and regulations. SEBI aims to streamline SGF regulations so that all exchanges follow similar methodology and regulations when it comes to calculation of SGF.

This recent action by SEBI is as a result of the NSEL fiasco where the spot exchange disclosed its SGF reduced to around Rs 5 crore from earlier disclosed Rs 840 crore. Last week, Forward Markets Commission (FMC) released regulations for creation of SGF. FMC wants all commodity exchanges to transfer 5 percent of the gross annual revenues to the SGF.

Also Read: NSEL 2nd payout: Bourse gets only Rs 3.40 cr on Monday

Stock Exchanges have made representation on: ‘what should constitute SGF’ including whether margin money submitted by the brokers be part of the SGF calculations. SEBI had, in June 2012, issued a circular which asked stock exchanges to transfer 25 percent of their profits to Settlement Guarantee Fund. This circular is yet to be implemented as exchanges sought clarification as to what constitutes profits.

SEBI then set up an expert committee to "look into the norms for adequacy of the core corpus of the Settlement Guarantee Fund (SGF)/Trade Guarantee Fund (TGF) and its sourcing, including transfer of profits by stock exchanges to SGF/TGF in the long run". This committee is yet to submit its report and hence the stocks exchanges have not transferred 25 percent of the profits to the SGF for the last financial year. The new SECC (Stock exchanges and Clearing Corporation) Regulations require clearing corporations to have a minimum networth of Rs 300 crore. This has to be achieved within 3 years. BSE and NSE currently also contribute 20 percent and 15 percent of their revenues from trading activities to the SGF.

NSE has disclosed in its website that as on March 31, 2013, Settlement Guarantee Fund stands at Rs 4,731.76 crore for cash market, it stands at Rs 26,140.72 crore for the derivative segment and Rs 1,807.17 crore for the currency segment. While for BSE Settlement guarantee fund details were not available on the exchange website, BSE spokesperson told CNBC-TV18, that the combined SGF for equities and derivatives stands at Rs 4129 crore.

While MCX-SX spokesperson says that the combine SGF for equities, derivatives and currency segment stands around Rs 1650 crore. Exchange officials expect SEBI to move fast on the SGF guidelines.