Market regulator debates tweak in settlement guarantee fund norms

Manisha Jha Mumbai | Updated on August 28, 2013

Clear picture likely to emerge only after expert panel’s report

The market regulator SEBI in a meeting held last week has discussed ways for redefining the manner in which stock exchanges manage their Settlement Guarantee Fund (SGF).

Settlement Guarantee Fund works as a buffer to dip into in case of a payment default in settlement by a trading member.

The committee on Inter-operability of Clearing Corporation, headed by former ICICI Bank Managing Director and Chief Executive Officer K.V. Kamath which met earlier last week, centred its discussion around two key issues on SGF norms among other issues.

Firstly, the committee discussed whether 25 per cent of annual profits to be transferred would be considered from profit before tax or profit after tax, and secondly the committee debated on the demand from exchange corporations that though money would be transferred, it should continue to reflect on the asset side of their balance sheets.

A person in the know of development said: “Exchanges are saying that the money would be set aside with Clearing Corporation of India for crisis of payment default. However, they should be able to show it in their balance sheets with a view to retain their competitive edge in an era of inter-operability between the exchanges. Exchanges want to show that have a robust balance sheet that presents a healthy picture.”

“Though discussions took place the final report of the committee would be ready only after a few months,” he added.

SEBI has been working on implementation of the SGF norms as a continuous exercise in promoting better governance and transparency in the market infrastructure institutions such as exchanges and clearing corporations since last year.

Sets up panel

It had in 2012 issued a stipulation for all the stock exchanges to transfer 25 per cent of their annual profits every year to a fund to guarantee settlement of trade of the clearing corporation which clears and settles trades executed on that bourse.

However, it later set up an expert committee to look into the norms for adequacy of the core corpus of the SGF and Trade Guarantee Fund and its sourcing, including transfer of profits by the stock exchanges to such funds following opposition from certain quarters and further clarity demanded on what would constitute SGF.

Embroiled in crisis

Pending the recommendations to be made by this panel, none of the three exchanges made any transfer of profits to their respective SGFs for 2012-13, even as all of them have posted profits for the year.The SGF issue is in the eye of the storm currently in the wake of the payment settlement crisis in the National Spot Exchange Ltd which saw the exchange’s SGF reportedly dwindle from Rs 839 crore to Rs 62 crore between July 29 to August 14. Though according to the company’s latest Annual Report, it has come to light that its actual SGF stood at Rs 84.66 lakh as on March 31.

At present, SGF of NSE stands at Rs 30,872.48 crore for both cash and derivatives segment combined. The SGF for BSE and MCX-SX stands at Rs 4,129 crore and Rs 1,650 crore respectively.

Published on August 28, 2013

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