Welcome to the world of interoperability

KS Badri Narayanan Chennai | Updated on May 31, 2019 Published on May 31, 2019

Buy on one exchange and settle the dealon another bourse

From next month onwards, investors on the NSE can settle their trade either on the BSE or the Metropolitan Stock Exchange of India (MSE) and vice-versa, thanks to the newly ushered in interoperability mechanism. The system was supposed to kick in from June 1, but stock exchanges and clearing corporations (CCs) have decided to implement it from July 1 to ensure a seamless and non-disruptive transition to interoperability.

The new framework among CCs allows market participants to consolidate their clearing and settlement functions at a single CC, irrespective of the stock exchange on which the trade is executed. All the products available for trading on the stock exchanges (except commodity derivatives) will be made available under the interoperability framework, according to SEBI.

This means that traders in NSE futures or Nifty options can settle their positions on either the BSE or the MSEI clearing units.

NSE Clearing (formerly the National Securities Clearing Corporation), a wholly-owned subsidiary of the NSE, is responsible for clearing and settlement of all trades executed on the NSE and deposit and collateral management and risk management functions; similarly, Indian Clearing Corporation, incorporated in 2007, handles the activity for the BSE; and Metropolitan Clearing Corporation of India settles transactions for the MSE.

The interoperability would permit trading members to clear trades through a firm of their choice instead of going through the clearing corporation owned by the bourse on which the trade was executed.

Further, the new mechanism would lead to efficient allocation of capital for the market participants, thereby saving on costs as well as provide better execution of trades. An investor trading through the same broker across exchanges will be eligible for netting benefits for his/her trades in a given security across the exchanges.

Also, a trader is eligible for calendar spread margin benefit if he/she buys a near month contract of an underlying on one exchange and sells a far month contract of the same underlying on another exchange.

Traders will be charged crystallised loss margin for both the cash and derivative segments to the extent of the offsetting position, if they buy a stock/contract on one exchange and settle on another exchange. However, all the other applicable margins (initial margin, exposure margin) will be released.

Besides, all processes that are applicable under the current scenario will continue to be applicable for trades executed on another exchange.

Published on May 31, 2019

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