Sebi asks clearing corporations to diversify their bank exposure

Regulator also tweaks norms on collateral and liquid assets

The Securities and Exchange Board of India (Sebi) has directed clearing corporations (CCs) to diversify their exposure towards banks through cash, fixed deposits and bank guarantees.

According to the new norms, the exposure to a single bank will have to be within 15 per cent of the average daily exposure of the previous three months considering liquid assets for banks with AAA rating. The same is set at 10 per cent for banks with AA rating.

The market regulator has also specified other criteria for the selection of banks for exposure based on parameters such as financials (including the net-worth), capital adequacy, creditworthiness considering long-term credit rating, etc.

“In case of exposure to banks which subsequently fails to meet any of the above eligibility conditions, CCs shall rebalance its exposure through own funds and Core SGF to such banks as soon as possible but not later than three months,” said Sebi.

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CCs’ total exposure to equity and debt instruments of an issuer (received as collateral from clearing members like banks, and institutions) has also been limited to 15 per cent.

Along with a revision in the norms on exposure, the market regulator has also made changes in the existing collaterals accepted by CCs.

The collaterals are liquid assets deposited by members used to meet the requirements for initial margins, mark-to-market losses, value-at-risk margins, extreme loss margins, and base minimum capital.

Cash, bank FDs, bank guarantees, units of liquid mutual funds, or government securities are considered liquid assets.

“Units of the growth plan of overnight mutual fund schemes shall be accepted as Cash Equivalent by CCs with a haircut of 5 per cent and for other plans of overnight mutual fund schemes the hair cut of 10 per cent shall continue to be applicable,” said Sebi in the new guidelines.

The regulator also said that certain equity shares will also be accepted as part of other liquid assets.