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MOSL: EXCHANGES-SEBI approves interoperability of clearing corporations

Exchanges: SEBI approves interoperability of clearing corporations, takes first steps to allow foreign entities to trade in commodity derivatives

 

The SEBI meeting that took place on 18th September 2018 had two key developments relevant to our Exchanges coverage universe ():

• Interoperability among clearing corporations – this is a significantly positive development for BSE, but will take time to materialize, in our view.
• First step toward allowing foreign entities to participate in commodity derivatives – this is another tick on the reforms agenda, but it remains to be seen what will attract volumes from overseas entities. A neutral event from MCX’s perspective, in our view.

 Appended below are more details on both the decisions by the regulator:

BSE: Interoperability among clearing corps – a big advantage

• Linking of clearing corporations (CCPs): The SEBI approved the amendments to the SECC Regulations, 2012 to enable interoperability among CCPs. It allows participants to consolidate their clearing and settlement functions at a single CCP, irrespective of the stock exchange on which the trade is executed. The choice of model will ensure all recognized CCPs are on an equal footing with each other with regard to flow of collateral, margins and general risk management.
• Still some time away, but biggest hurdle cleared: The SEBI will carry out necessary amendments to the SECC Regulations and issue necessary circular/guidelines for inter-CCP margins, inter-CCP settlement, inter-CCP collateral, default handling process, dispute resolution mechanism, and technology related issues, among others. We expect it to take time before the guidelines are out, and then further gestation as the systems in the ecosystem align for interoperability. That said, the SEBI approval was the key hurdle and an unknown which is now behind.