The Securities and Exchange Board of India (Sebi) is looking at redefining the manner in which stock exchanges manage their settlement guarantee fund (SGF). The Sebi committee formed to look into this matter will be meeting early next week though a consensus is expected to take at least a couple of months.
This assumes significance in light of the ongoing turmoil in the commodity market on account of the settlement crisis at the National Spot Exchange (NSEL), which also saw the size of SGF suddenly dwindle from R800 crore to R60 crore in a matter of days.
According to persons privy to the development, the last couple of meetings of the committee did not make much headway as all three bourses ? NSE, BSE and MCX-SX ? were opposed to Sebi?s earlier idea of transferring 25% of their annual profits every year to SGF. The main issue, however, still remains the manner in which bourses would contribute to the fund, they say.
?With stock exchanges unanimously rejecting Sebi?s idea, an alternate solution has to be arrived at,? said a person familiar with the development. ?There is a huge difference between the volumes of BSE, NSE and MCX-SX. So a one-size-fits-all solution will not work. Ideally, the SGF should be directly linked to the volume of the exchange,? he explained.
Interestingly, it is believed that even Sebi is now not in favour of exchanges transferring 25% of the profits every year. ?We are looking at the parameters, based on which we can decide that further transfer of profits will not be required. The committee is looking into it. It will not be eternal,? said a senior Sebi official.
Meanwhile, as the issue is under consideration, none of the exchanges transferred 25% of their profits to SGF in the last financial year (FY13). According to a recent PTI report, NSE saw its net profit grow by 25% to nearly R878 crore, although BSE?s net profit fell by 39% to R108 crore in FY13. MCX-SX also swung to profitability with a net profit of R21.5 crore in 2012-13, as against a loss of R2.6 crore in the previous fiscal.
As the name suggests, SGF guarantees the settlement of the trade at a time when the member defaults on the payment obligations. If a member is declared a defaulter, then his assets are seized and any outstanding beyond that is paid out of the SGF. Typically, an SGF comprises of cash and non-cash collateral as provided by the trading members. Under the guidelines prescribed by Sebi, 50% of the margin is collected in cash with the rest in the form of securities, including shares, bonds, government securities and bank guarantees.