Recently, SEBI has formed an ad-hoc Committee under Usha Thorat, to review the ownership and economic structure of clearing corporations.
- The 2018 report of the Committee on review of regulations and relevant circulars pertaining to Market Infrastructure Institutions (MIIs), had noted that the ownership of MIIs, should be dispersed, and should be widely held
About Clearing Corporations
- Definition: Section 2(d) of the Securities Contract (Regulation) (Stock Exchange and Clearing Corporation) Regulations, 2018 defines a clearing corporation as an entity tasked with clearing and settling trades in securities or other instruments/products traded on a recognized stock exchange, which includes a clearinghouse.
- Clearing: Clearing involves an organization acting as an intermediary, assuming the roles of both buyer and seller to facilitate trade transactions.
- It encompasses all activities from the initiation of the trade until its final settlement stage.
- Settlement: Settlement commences immediately after clearing concludes. The settlement agency receives securities from sellers seeking to sell their securities and cash from buyers wishing to purchase securities, facilitating transactions between them.
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Clearing Corporation Regulated by RBI
- Clearing Corporation of India
Clearing Corporation Overseen by International Financial Services Centres Authority (IFSCA)
- India International Clearing Corporation
- NSE IFSC Clearing Corporation
SEBI-Regulated Clearing Corporations
- Indian Clearing Corporation
- Metropolitan Clearing Corporation of India Limited
- Multi Commodity Exchange Clearing Corporation Limited
- National Commodity Clearing Corporation Limited
- National Securities Clearing Corporation Limited
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Market Infrastructure Institutions (MIIs)
- About: Market Infrastructure Institutions (MIIs) includes stock exchanges, depositories, and clearing corporations, collectively defining the market infrastructure.
- Market Infrastructure: In its 2010 report, a committee chaired by former RBI Governor Bimal Jalan defined ‘infrastructure’ as the basic framework of a system, while ‘market infrastructure’ refers to fundamental facilities and systems serving this market.
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Institutions classified as MIIs include
- Stock Exchanges: SEBI identifies seven, such as BSE, NSE, Multi Commodity Exchange of India, and Metropolitan Stock Exchange of India.
- Depositories: Two depositories, responsible for securely holding securities and facilitating their trading and transfer, are recognized as MIIs: Central Depository Services Ltd. and National Securities Depository Ltd.
Gandhi Committee Recommendations on Clearing Corporations
- No Listing for Clearing Corporations: The Gandhi Committee had noted that with the clearing corporations being sensitive and high risk-bearing and risk managing entities, listing of clearing corporations should not be permitted.
- Profit Distribution: Regarding the finances of MIIs, the Gandhi Committee deliberated on income generation and profit distribution, recommending that there should be no specific requirement regarding the amount of profits MIIs should generate.
- Instead, they suggested monitoring the reasonableness of charges and fees imposed by MIIs.
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Securities Exchange Board of India
- About: The Securities and Exchange Board of India (SEBI) was established on April 12, 1992, under the Securities and Exchange Board of India Act, 1992.
- Initially, SEBI lacked statutory authority, operating as a non-statutory body. However, it gained autonomy and statutory powers through the SEBI Act 1992.
- Objective: SEBI’s objective is to safeguard investors’ interests in securities and foster the growth of, and oversee, the securities market.
- It serves as the regulator of both the securities and commodity markets in India and is a government-owned entity.
- Powers: SEBI possesses quasi-legislative and quasi-judicial authority, enabling it to draft regulations, conduct investigations, issue rulings, and levy penalties.
- Functions: Its objectives include fostering the seamless operation and growth of the securities market and overseeing business activities within it.
- SEBI is tasked with preventing fraudulent and unfair trading practices in the securities market and its associated domains.
- Following the Securities Laws (Amendment) Act, 2014, SEBI gained the authority to regulate money pooling schemes valued at Rs. 100 crore or more and seize assets in cases of non-compliance.
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June 5, 2024