Govt mulls expansion of collateral facility for FIIs

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New Delhi, Mumbai, Aug 17 : right of the clearing corporation as well as the clearing member to liquidate the sovereign securities tendered as collateral, in the event of default by clearing member or FII, as the case may be. The clearing member will take due care to ensure that the sovereign securities tendered as collateral are available for liquidation in the event of insolvency of the FII or any intermediary or any other person located overseas through whom the securities are held. The clearing corporation will also take due care to ensure that sovereign securities tendered as collateral are available for liquidation in the event of insolvency of the clearing member or any intermediary or other person located overseas through whom the securities are held.

The clearing corporation will value the collateral tendered by applying due “haircuts”. The haircut may either be a fixed percentage or be based on value-at-risk (VaR). A higher haircut may be considered to cover the expected time frame for liquidation. A market-determined price as obtained from an internationally recognised data vendor shall be considered for valuation. The prices will be converted into rupee terms on a daily basis, the regulator said.