In a circular dated November 27, Sebi said the interoperability would permit trading members to clear trades through a firm of their choice instead of going through the CCP owned by the bourse on which the trade was executed.
Capital markets regulator Sebi has recently issued norms for interoperability among clearing corporations (CCPs) which aims at reducing trading costs. The framework came after the Sebi board in September approved a proposal to enable interoperability, and will be operationalised by June 1, 2019. While the norms will aid traders to take benefits of margin, market observers believe that the new facilitation will also reduce post-trade costs of trading firms by optimising the use of capital.
“This (interoperability framework) will definitely help traders – specially jobbers doing it on multiple exchanges. For example, buying of a particular stock on one exchange and selling on another exchange used to attract margins on both the clearing corporations associated with these exchanges. With interoperability in place, these would get netted off and benefit of margins can be taken,” Ashish Rathi, Whole time Director, HDFC Securities, told FE Online. “This would bring down costs of funds to be deployed with clearing corporations for the purpose of trading,” Rathi said.
Rahul Sharma, Senior Analyst, Equity99, says interoperability will rationalise margins across exchanges and products. “It will also provide more competition as it eliminates the monopolising effects of network effects which are found in exchanges and clearing corporation. In the longer term, it may also pave the way for consolidation in clearing corporations,” Sharma told FE Online.
At present, different bourses have their own CCPs — Indian Clearing Corporation of the BSE, Metropolitan Clearing Corporation of India of MSEI and the National Securities Clearing Corporation of the National Stock Exchange — which handle settlement of trades on the respective stock exchanges. In a circular dated November 27, Sebi said the interoperability would permit trading members to clear trades through a firm of their choice instead of going through the CCP owned by the bourse on which the trade was executed.
Sebi said the interoperability framework will be applicable to all the recognised CCPs excluding those operating in International Financial Services Centre. “All the products available for trading on the stock exchanges (except commodity derivatives) shall be made available under the interoperability framework,” the circular added. Sebi has also asked the stock exchanges and CCPs to “take all necessary steps to operationalise interoperability at the earliest but not later than June 1, 2019”.
In the case of the clearing firms other than the subsidiaries of the bourses, the new norms would bring down costs and help in fungibility of capital to be deployed with clearing corporation, added Rathi. “This would ideally bring
in efficient allocation of capital without any increase in the entire risk management framework for the entire capital market. Also, many a times, trading is preferred on the particular exchange due to deployment of funds by trading entities in the clearing corporation associated with it. Interoperability will remove that hurdle,” he said.
Markets regulator Sebi had in August 2015, decided to hold public consultations on a new set of norms to enable interoperability of CCPs. The interoperability among CCPs was suggested by an expert committee chaired by eminent banker K V Kamath. The interoperability norms assume significance in the wake of the disruptions in the functioning of a stock exchange and the respective CCPs in recent past.