Sebi might review transfer of 25% exchange profits to SGF

Markets regulator may review stress test model to determine Minimum Required Corpus of Core SGF

The Securities and Exchange Board of India (Sebi) committee on clearing corporations, headed by K V Kamath, has proposed the current requirement of transferring of 25 per cent of exchange profits to the Settlement Guarantee Fund (SGF) of clearing corporations could be done away with.

“As the requirement of the core SGF has already been met, it was recommended that the requirement, under regulation 33 of SECC Regulations, 2012, to transfer 25 per cent of its profits by every recognised stock exchange to the fund, as specified in regulation 39, of the recognised clearing corporation, may no longer be required,” said the committee, in its report.

However, the committee has recommended Sebi review the stress test model to determine the minimum required corpus of core SGF before making such a departure.

The committee’s terms of reference were also whether to allow one single clearing corporation. The committee has advised that Sebi should currently stay away from the proposal, however, it can allow interoperability of clearing corporations, provided they have a framework that Sebi approves. On investments by clearing corporations, the committee recommended that clearing corporations can invest in fixed deposits and government securities. But, they cannot invest in instruments such as non-convertible debentures (NCDs), commercial papers (CPs), money market mutual funds, etc, as these instruments might carry credit/liquidity risks. Depositories will be asked to transfer five per cent of profits from depository operations every year to the Investor Protection Fund.