The Securities and Exchange Board of India (Sebi) is working towards introducing interoperability between clearing houses. If implemented, it will offer market participants the freedom to choose the clearing service provider of their choice. More importantly, it is expected to increase competition and end monopolies of clearing houses. At present investors or stock brokers have to choose the clearing house floated by the respective stock exchanges on which their trades are executed.
?We are currently working on this,? said a senior Sebi official without mentioning the exact time frame within which it will be implemented. ?It may take one year or even more. Whenever the time is ripe and depending up on the requirement, interoperability between clearing houses will be done,? he said. Interoperability had already been implemented in the depositories business since 2000. Currently, NSE and BSE trades are cleared and settled through their respective wholly-owned subsidiaries namely the National Securities Clearing Corporation (NSSCL) and Indian Clearing Corporation (ICCL).
?Allowing interoperability between clearing houses will reduce the barrier for new players to enter the exchange business, as building and operating a clearing house efficiently requires lot of capital,? said Rajesh Chakrabarti, assistant professor-finance, Indian School of Business (ISB). However, he added that for a clearing house to truly become a uniform service provider for multiple exchanges, it will require multiple ownership instead of remaining a wholly owned subsidiary of a single exchange.
The Sebi Bimal Jalan Committee which recently reviewed the ownership structure and corporate governance issues among Market Infrastructure Institutions (MII) felt the need for interoperability between clearing corporations in its recommendations submitted to the regulator. While stating that the clearing corporations are the most important link for orderly settlement and risk containment, the committee felt that a single independent clearing corporation though ideal for obtaining the benefits of netting and position monitoring will in-fact increase the systemic risk in the market. ?A mid-way would be to have multiple independent clearing corporations, which are connected to each other and to the exchanges and depositories. This would necessitate interoperability among clearing corporations,? said the Jalan committee report.
Interoperability among clearing corporations is also being considered in developed markets. For instance in Europe, EMCF, the Dutch Central Counter Party(CCP) and SIX x-clear, a CCP licensed-Swiss bank, had inked a deal on interoperability allowing investors around European exchanges to select the clearing house of their choice. Both these CCPs will provide European investors with benefits in netting, collateral management, margining and settlement in all stocks that are actively traded.