NSE returns Rs 250 crore to clearing members

From SGF contribution, on the regulator's order that this much was excess and not needed; shows our fund is robust enough on the stress tests, says the NSE

Some days earlier, the National Stock Exchange Clearing Corporation (CC) refunded around Rs 250 crore of clearing members’ contribution that they had made to the Core Settlement and Guarantee Fund (CSGF).

The CC of a bourse is to work out which members are due to deliver and which are due to receive on the settlement date. Settlement is a two-way process which involves transfer of funds and securities on the latter date. Clearing is the process of determining the settlement obligations and a clearing member is one who clears and settles deals through the CC.

In the capital market segment, all trading members of an exchange are required to become clearing members of the CC. In the futures and options (F&O) segment, trading members need not necessarily clear their own deals but can select another clearing member or a professional clearing member to clear and settle their dues.

The NSE refund was on an order from the Securities and Exchange Board of India (Sebi). Based on daily stress tests, on its new norms, it decided the bourse’s CC had enough funds and the contribution from clearing members was not required. The regulator had issued a circular in August 2014, prescribing guidelines for the CSGF and what is termed Default Waterfall and Stress Testing. NSE’s core SGF had enough money to cover the risk without money from members, it further clarified on May 4 this year.

The CSGF is to contain a 25 per cent contribution from the stock exchange, 50 per cent from the clearing corporation and a maximum of 25 per cent  from clearing members. The BSE exchange has not taken money from its clearing members. After the Sebi circular in May and the regulatory direction, NSE had to refund money from the SGF to clearing members last week.

“Sebi had brought the provision of Core SGF to make the risk management of a clearing corporation more robust, especially in the event of market-wide defaults. The corpus of a Core SGF, to be computed on the basis of a daily stress test, will be fully liquid and always available to the CC. Recently, we found the CCs had much more than the required corpus and directed the CCs to refund the contribution of clearing members, so as to reduce their capital requirement and consequently the cost of transaction,” said Rajeev Agarwal, wholetime member, Sebi.

According to the website of NSE, it had Rs 1,447 crore in its core SGF in June.

An NSE spokesperson said: “NSE needed to take the deposits as there was always substantial volume and, thus, to safeguard in an eventuality. As other exchanges hardly had any volumes in F&O, they possibly did not take these. The risk is higher with F&O, rather than the cash market. We believe one major takeaway in the process is that the regulator is satisfied our SGF satisfies the stress test and it does not need further strengthening.”

K Suresh, alternate president of the Association of National Exchanges Members of India, told this newspaper: “Some members would benefit, as NSE has refunded the money at this point of time when business is quite competitive and this is a good beginning from the exchange.”

Adding: “Our long pending demand with NSE is to consider paying interest on deposits of members with them. NSE has told us that they are looking into this and I hope that will also follow, as they made a good beginning by refunding money to clearing members.” He believes payment of interest will help small and medium-size members in the competitive atmosphere, as unlike the big members, these survive only on broking income.