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CCIL
proposes tough guarantee system
Atmadip
Ray
Mumbai, Aug 8: The Clearing Corporation
of India Ltd (CCIL) has recommended a stringent guarantee
system for settlements of dealings in government securities
and forex exchanges. CCIL has also set up two separate advisory
groups to look into these proposals.
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...to
be operational in 3 months
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BS Srinivasalu Reddy
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| The Clearing Corporation of India Ltd,
set up at the behest of the RBI with a view to develop
a deep debt market, will become operational in three months
and is expected to expand its network within another three
months and will make available debt offerings across the
country. |
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The CCIL has, in a presentation on its role
and function delivered in a recent seminar arranged by Fimmda,
proposed a guarantee fund and margining to minimise irregularities
in the settlement process.
The CCIL proposed that the guarantee fund for outright trades
will be based on the exposure level of the participants. It
also said that the margining for repos-trades will be calculated
as initial margin with a mark-up of variable margin on a daily
basis, which will be based on daily marked-to-market value
of the contract.
| Reserve Bank
test runs NDS |
The proposed Negotiated Dealing System
(NDS), the electronic dealing platform in government securities
and money market instruments, was set up for acceptance
testing in July, the RBI official said at a seminar on
“NDS and PDO development”, arranged by the Fixed Income
Money Market & Derivatives Association of India (Fimmda).
The first phase of the NDS project has been completed,
and a local area network (LAN) environment has been created
for acceptance testing by RBI involving market participants
effective from July 16. The NDS software was installed
on July 2 on IBM S-390 for acceptance testing, the project
report stated.
The RBI has set the system for parallel run for two months
to gain market confidence on the software. The time period
depends upon the number of participants who are connected
to network. The RBI also taken initiatives to link repos
and reverse-repos with NDS. In the next phase, interest
payments and redemptions will also be integrated with
the payment system. The process will be operational from
December, this year. |
If a participant failed to deliver securities
in time, CCIL proposes using securities in the guarantee-fund.
The corporation also feel that the credit of funds or the
delivery of other securities of the defaulting member, will
be withheld, and the costs due to default will have to be
borne by the defaulting member. In case of non-availability
of the security in which a default has occurred, cash compensation
is to be paid by the buyer. If the funds are not paid, the
corporation will make it up by using cash-balances of the
guarantee fund with the Reserve Bank of India or by drawing
on credit lines made available by other banks. The repos with
the central bank, as and when permitted, would be used by
CCIL to generate funds to meet shortfall. Delivery of securities
to the defaulting member would be withheld.
The CCIL has also finalised the membership criteria for banks,
financial institutions and primary dealers. Market participants,
who are willing to be a member of the proposed corporation
will have to be a members of the negotiated dealing screen
(NDS) system.
Participants have to maintain the stipulated capital adequacy
norms. Members should also have a proper risk management set
up, the CCIL said.
The CCIL has been set up for clearing and settlement of dealings
in government securities, treasury-bills, corporate bonds
and securities of all kinds and money market instruments.
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