Sebi mulls routing OTC settlements through clearing entities

Market regulator Securities and Exchange Board of India (Sebi), is mulling regulations to bring transactions of Over the Counter (OTC) products such as corporate bonds through clearing entities, its Chairman today said.

Bringing OTC products, which comprise a majority of corporate bonds issued by private and public corporations, will ensure timely settlement of the transactions, Sebi Chairman, C B Bhave, told reporters on the sidelines of a Ficci-organised seminar here.

Sebi is looking at the issue of bringing OTC products into the fold of clearing entities. This would help to ensure timely settlement of such transactions, Bhave said.

Sebi has also approached the RBI to request whether the facility of clearing OTC products could be done with the central banks participation, Bhave said, adding that participation of the apex bank in the clearing operations of OTC products will make market participants feel more secure.

Noting that over-leveraging of institutions in developed economies had caused chaos in the financial systems, Bhave said the regulator was also looking at measures to ensure how leveraging will not go out of hand (in the Indian financial system)."

Lot of funds was invested in India (by FIIs) on a leveraged basis. (With the onset of financial crisis), FIIs were deleveraging. They had to withdraw funds to meet their requirements, Bhave said.

Highlighting that mutual trust was important among financial entities to ensure a smooth functioning of the system, Bhave said, there was a need to recognize this (ensuring trust) as a major challenge in the period ahead.

We should recognise this as a challenge and focus on this (building trust among the market participants), Bhave said.

Despite the global financial crisis and the downturn in the domestic economy, Indian capital market has not witnessed even a single settlement failure, Bhave said.

Also, the regulator was of the view that corporate governance standards should be met by institutions on their own rather than through regulatory compulsions but Sebi will look at regulatory options if further tightening is needed, Bhave said.