Sebi tightens collateral norms

Directs clearing corporations to take necessary steps to put systems in place

Capital market regulator Securities and Exchange Board of India (Sebi) on Friday directed clearing corporations to not accept fixed deposit receipts (FDRs) from banks as ‘collateral’, issued by them or clearing member of stock exchange.

Sebi has observed that some banks that are also a trading members on the stock exchange and clearing corporation have placed FDRs issued by themselves as collateral with the clearing corporation.

“Trading/clearing members who have deposited their own FDRs or associate banks shall replace such collateral, with other eligible collateral as per extant norms, within a period of six months from the date of issuance of the circular,” Sebi said in a circular on Friday.

Sebi directed clearing corporations to take necessary steps to put systems in place and make necessary amendments in the existing regulations. Sebi’s risk management review committee suggested that there is a need to align the risk management practices in Indian markets with global principles.

"The committee also considered the principle on collateral while deliberating on the issue of 'deposit of collateral' with the clearing corporation," noted Sebi circular.