New Delhi, markets regulator Sebi on Thursday released new guidelines regarding contributions of various entities to the core
Limited Purpose Clearing Corporation (LPCC) liquidation guarantee fund.
A Core Settlement Guarantee Fund (SGF) is a corpus used for settlement of trades during defaults and all intermediaries (stock exchanges, clearing corporations and brokers) contribute to it.
LPCC is an entity established to carry out the clearing and settlement activity of repo operations. A well-functioning repo market contributes to the development of the debt securities market by increasing liquidity.
In its circular, Sebi said the contribution of participants, who wish to participate directly and not through a clearing member to the central SGF, is risk-based and is equivalent to a shortfall in the minimum required corpus (MRC) post the contribution of issuers and clearing members.
These contributions from participants must be subject to certain conditions. These include participant exposure-free guarantees available with clearing corporations that can be counted towards participants' core contribution to the SGF, and that required contributions from individual participants will be prorated based on the risk they bring to the system.
Sebi said LPCC will have the flexibility to collect the principal contribution from the participant, including the flexibility to collect the principal contribution from the participant in advance or staggered over a period of time.
In the event that LPCC does not solicit contributions from participants or seeks tiered contributions, LPCC will cover the remaining balance to ensure the adequacy of the total SGF core corpus at all times. Such LPCC contributions will be available for LPCC to withdraw as more contributions are collected or received from participants.
In case of utilization of basic SGF during a calendar month, Sebi said taxpayers, based on the utilization of their individual contribution, will immediately replenish the basic SGF up to the required minimum corpus.
However, such contribution to the replenishment of the Core SGF by members/(participants) would be limited to a single time for 30 calendar days, regardless of the number of defaults during the period.
The period of 30 calendar days must begin to count from the date of notification of non-compliance by LPCC to market participants.
The regulator has prescribed guidelines for the default cascade of LPCC.
Default cascade is a system in which a clearing company applies different types of financial resources to deal with a default loss, such as margins contributed by defaulting participants, clearing funds and its own assets.
Limited Purpose Clearing Corporation (LPCC) liquidation guarantee fund.
A Core Settlement Guarantee Fund (SGF) is a corpus used for settlement of trades during defaults and all intermediaries (stock exchanges, clearing corporations and brokers) contribute to it.
LPCC is an entity established to carry out the clearing and settlement activity of repo operations. A well-functioning repo market contributes to the development of the debt securities market by increasing liquidity.
In its circular, Sebi said the contribution of participants, who wish to participate directly and not through a clearing member to the central SGF, is risk-based and is equivalent to a shortfall in the minimum required corpus (MRC) post the contribution of issuers and clearing members.
These contributions from participants must be subject to certain conditions. These include participant exposure-free guarantees available with clearing corporations that can be counted towards participants' core contribution to the SGF, and that required contributions from individual participants will be prorated based on the risk they bring to the system.
Sebi said LPCC will have the flexibility to collect the principal contribution from the participant, including the flexibility to collect the principal contribution from the participant in advance or staggered over a period of time.
In the event that LPCC does not solicit contributions from participants or seeks tiered contributions, LPCC will cover the remaining balance to ensure the adequacy of the total SGF core corpus at all times. Such LPCC contributions will be available for LPCC to withdraw as more contributions are collected or received from participants.
In case of utilization of basic SGF during a calendar month, Sebi said taxpayers, based on the utilization of their individual contribution, will immediately replenish the basic SGF up to the required minimum corpus.
However, such contribution to the replenishment of the Core SGF by members/(participants) would be limited to a single time for 30 calendar days, regardless of the number of defaults during the period.
The period of 30 calendar days must begin to count from the date of notification of non-compliance by LPCC to market participants.
The regulator has prescribed guidelines for the default cascade of LPCC.
Default cascade is a system in which a clearing company applies different types of financial resources to deal with a default loss, such as margins contributed by defaulting participants, clearing funds and its own assets.
