RBI lays down norms for CCPs

The RBI Monday laid down framework for Central Counterparties (CCPs) which provide guaranteed settlement services in the markets served by them and mitigate counterparty risk for the participants, thereby reducing systemic risk.

The framework aims at ensuring that these entities function in an efficient and effective manner.

As per the norms, an applicant seeking authorisation/recognition as a CCP should have a minimum networth of Rs 300 crore at the time of submitting its application.

"The adequacy of networth requirement of the CCP would be reviewed by RBI from time to time. RBI may, however, based on its assessment of the CCP prescribe higher networth," the central bank added.

Further, every authorised CCP would have to constitute a risk management committee, said the norms, which also prescribes 'fit and proper criteria' for directors on the board.

The RBI further said that authorised CCP must maintain effective written organisational and administrative arrangements to identify and manage potential conflicts of interest between itself and its members.

The RBI has defined a CCP as 'a system provider, who by way of novation interposes between system participants in the transactions admitted for settlement, thereby becoming the buyer to every seller and the seller to every buyer, for the purpose of effecting settlement of their transactions'.