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Commodity and capital market regulator SEBI’s move to reduce the core settlement guarantee fund in the commodity segment will ease the burden on exchanges, which are reeling under a drop in trading volumes.
Moreover, the likelihood of default on the exchanges has reduced drastically after Sebi norms insist on upfront trading margin almost equivalent to the open position.
A core settlement guarantee fund (SGF) is a corpus used for settlement of trades during defaults and all intermediaries — stock exchanges, clearing corporations, and brokers — contribute to it.
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The SGF at MCX, the country’s largest commodity exchange, has increased 12 per cent in FY23 to Rs 590 crore, against Rs 525 crore logged last year. As of May, NCDEX had SGF of Rs 240 crore, while it was Rs 10 crore at NSE and BSE.
Narinder Wadhwa, National President, Commodity Participants Association of India, said the turnover and open interest volumes at NCDEX, NSE and BSE have shown a declining trend and the business at their clearing corporations has not grown as envisaged during the time of recognition.
Hence, the minimum SGF corpus for clearing corporations was rationalised and reduced only for the commodity segment, where it was found to be excess, he said.
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SEBI had received representations from clearing corporations that, in light of a fall in turnover and open interest in stock exchanges, the target corpus level prescribed at the time of recognition of clearing corporations in 2018 may be reviewed and the methodology for computation of core SGF corpus in the commodity derivatives segment may now be harmonised with that of other segments.
Based on deliberations, SEBI decided that the clearing corporations in the commodity derivatives segment may now align with those of other segments and the excess contribution may be returned, with SEBI approval, to stakeholders on a pro-rata basis from June 1.
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Sachin Jasuja, Founding Partner, Centricity Wealthtech, said that while the move will alleviate financial burden on exchanges, its direct effect on investor costs remains uncertain.
The move may enable exchanges to allocate resources elsewhere, potentially leading to operational efficiencies and cost reduction in the long run. However, any cost benefits may not necessarily translate into lower expenses for investors, he said.
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