Clearing corps to get first right over dues from insolvent cos

Clearing corporations, operating in the capital market, are likely to soon have the first right over recovery of dues from entities facing insolvency.

The proposal, approved by the board of market regulator Sebi recently, is expected to be cleared soon by the Cabinet, sources said.

As per the proposal, clearing houses would have precedence over the rights of other persons in recovering dues from collaterals, deposits and assets from entities that are facing insolvency or winding up proceedings.

To implement the plan, the government would amend the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012, sources said.

Clearing houses are responsible for ensuring proper settlement of transactions in stock markets.

The move is aimed at bringing in more legal certainty to settlement finality, netting and rights of clearing corporations over collaterals. It would also plug the loopholes in the existing settlement mechanism.

Netting refers to determination of net payment or delivery obligations.

Sources said the government would be making changes to Securities Contracts (Regulation) Act, among others, with respect to clearing houses getting precedence over others in recovering dues from entities facing insolvency.

Besides, having such rights would help clearing houses to attain the status of qualifying central counterparty.