SEBI seeks views of exchanges, clearing corps on interoperability issue

Capital and commodity markets regulator SEBI has once again started discussions on the interoperability among clearing corporations (CCPs).

The issue of interoperability resurfaced after National Stock Exchange reported a technical glitch on July 10. The glitch forced the exchange to halt F&O and cash trading on the Nifty for over three hours on that day.

Traders said that stocks on NSE were not quoting the correct rates and many brokers complained that they were unable to execute any deals during the down time. If the interoperability norms were in place, the trading would not have been affected and the traders could have bought/sold stocks on other exchanges with the same margin.

Securities and Exchange Board of India has sought views on the issue from exchanges and clearing corporations. The regulator is planning to implement interoperability in next 3-6 months, sources told Moneycontrol.

“SEBI has sought views on interoperability among clearing corporations but they have some concerns which they want to clear before implementing,” a source said.

“Globally also, Financial Market Intermediaries (FMIs) are moving forward in the process of providing its participants with efficiencies in cost and processes. The connectivity between the clearing corporations is important for risk management and settlement,” said another source.

“The proposed framework may help in reducing clearing and compliance cost, efficient capital allocation and enhanced obligation nettings benefits.”

Currently, different stock exchanges have their own clearing corporations, which handle settlement of trades on the respective bourses.

Introduction of interoperability would allow trading companies to clear trades through a firm of their choice, rather than the current arrangement of necessarily going through the clearing house owned by the exchange on which the trade was executed.

SEBI has raised many concerns on this issue including the model — common or discretion — of interoperability. Another concern is on margins. Although the regulator has already prescribed collateral that can be used in the margin, but it raised the issue of margins for better clarity among participants.

The regulator had formed a committee for interoperability in 2013 under the chairmanship of KV Kamath and submitted a report in 2015.

In the report, the committee recommended “that at this juncture, maintaining separate clearing corporations for each exchange would be prudent. However, SEBI may keep the interoperability option open and consider the proposal for implementation when ground conditions are met, which, inter alia, include clear intent of the participants coming together and having a suitable framework in place to the satisfaction of SEBI".