The Securities and Exchange Board of India (SEBI) has proposed a comprehensive overhaul of India’s settlement and risk management framework, aiming to streamline operations for market infrastructure institutions (MIIs), reduce regulatory compliance, and assign greater operational responsibility to clearing corporations.
The proposals were released through SEBI’s fifth consultation paper on the regulatory framework for stock exchanges and clearing corporations.
Clearing Corporations to Play a Bigger Role
One of the most significant proposals is to make clearing corporations solely responsible for monitoring settlement pay-in shortages and collecting related penalties.
Currently, these responsibilities are shared between stock exchanges and clearing corporations. SEBI noted that clearing corporations already have complete visibility of settlement shortfalls, making them better positioned to handle these functions efficiently.
The regulator has also proposed replacing references to stock exchanges with clearing corporations in provisions related to:
- Margin reporting
- Monitoring settlement shortfalls
- Collection of penalties
Stock exchanges would continue to perform certain inspection-related responsibilities where applicable.
Simpler Penalty Framework
SEBI has proposed replacing the existing penalty structure, which is linked to a broker’s Base Minimum Capital (BMC), with:
- Fixed monetary thresholds, or
- A percentage of the broker’s net worth.
The move is intended to simplify implementation and improve consistency across market participants.
Compliance Burden to Reduce
The consultation paper also recommends easing several compliance requirements for clearing corporations.
If implemented:
- Quarterly net-worth certificates signed by Managing Directors may no longer be required.
- Annual reports on compliance with the Principles for Financial Market Infrastructures (PFMI) may be discontinued.
- Immediate reporting would only be required if a clearing corporation’s net worth falls below the prescribed regulatory threshold.
- Certain disclosures would instead be made publicly on the clearing corporation’s website.
Rules Updated for T+1 Settlement
SEBI has proposed removing several provisions that have become obsolete following India’s transition to the mandatory T+1 settlement cycle.
The regulator plans to eliminate or revise rules relating to:
- Transition between T+1 and T+2 settlement
- Auction schedules under the earlier T+2 framework
- Broker-led transfer of securities to clients
Since securities are now credited directly by clearing corporations into investors’ demat accounts on the settlement date, many of the older procedures are no longer relevant.
Other Key Proposals
The consultation paper also recommends:
- Standard Operating Procedures (SOPs) for unscheduled settlement holidays, to be prepared by clearing corporations in consultation with stock exchanges and depositories.
- Uniform disclosure norms for the Settlement Guarantee Fund (SGF) across all market segments.
- Removal of outdated provisions related to:
- Base Minimum Capital
- Dedicated debt segment
- No-delivery periods
Objective Behind the Changes
SEBI said the proposed amendments are intended to:
- Simplify the regulatory framework.
- Reduce compliance and reporting requirements.
- Improve operational efficiency.
- Align regulations with current market practices.
- Strengthen the role of clearing corporations in risk management.
The proposals are currently open for public consultation before being finalised.
Key Highlights
- SEBI proposes a major revamp of settlement and risk management regulations.
- Clearing corporations may become solely responsible for pay-in shortages and penalty collection.
- Compliance requirements for market infrastructure institutions are proposed to be reduced.
- Obsolete rules linked to the old T+2 settlement cycle may be removed.
- Penalty calculations could shift from Base Minimum Capital to fixed limits or net worth.
- The proposals form part of SEBI’s fifth consultation paper on market infrastructure reforms.
