Sebi releases framework for limited purpose clearing corporation

Markets regulator Sebi on Friday came out with a framework governing the outsourcing activities of the limited purpose clearing corporation, its arrangements regarding business continuity plan, disaster recovery and cyber security mechanism.

The limited purpose clearing corporation (LPCC) is an entity established to undertake the activity of clearing and settlement of repo transactions.

Sebi had come out with a framework for setting up LPCC in October, a move aimed at boosting repo trading in corporate bonds.

Sebi noted that the LPCC has been permitted to enter into outsourcing agreements with existing clearing corporations (CCs) for using their core and critical IT support infrastructure or activities for running LPCC's core activities -- transaction process, clearing and settlement -- and related operations.

Additionally, the LPCC is permitted to have arrangements with any of the existing CCs for putting in place a business continuity plan (BCP) and disaster recovery (DR) mechanism, and cyber security.

Sebi, through a circular, laid down a framework governing these arrangements.

Regarding outsourcing agreements with existing CCs, Sebi said, "For the purpose of execution of repo in corporate bonds, the LPCC shall enter into necessary agreements with stock exchanges and their associated Clearing Corporations (CCs) for continuity purposes".

The LPCC needs to enter into outsourcing agreements with at least two existing CCs so that there is complete redundancy and business continuity in place.

Sebi also laid down the parameters for selection of CCs and for determing fees and charges.

The regulator also defined the roles and responsibilities. It laid out various conditions determining liability of LPCC and stock exchanges in case of various failures and disputes.

The transactions would be executed on the platform of exchanges.

As part of the risk management process, the LPCC would define the risk management parameters.

Further, for margin blocking, collateral management, pay-in and pay-out of funds and securities, separate bank and demat account would be opened by the LPCC.

Besides, the LPCC is permitted to have arrangements with any of the existing CCs who are in compliance with the existing regulatory BCP, DR, cyber security and cyber resilience framework requirements.

However, for any disputes arising on account of such arrangement, the LPCC shall be liable.