The Securities and Exchange Board of India (SEBI) has signed an updated memorandum of understanding with the European Securities and Markets Authority (ESMA) to strengthen cooperation and information sharing over Indian clearing houses that handle transactions involving European market participants. According to reports from Rediff Moneynews and The Economic Times, the new MoU replaces the previous agreement signed on June 21, 2017, establishing a framework for cooperation between the two regulators over central counterparties, or CCPs, regulated and supervised by SEBI. The agreement was signed on Friday, September 4, by SEBI Chairman Tuhin Kanta Pandey and ESMA Chair Verena Ross. The updated pact provides a framework for cooperation between SEBI and ESMA in accordance with their respective laws and regulations, including enabling ESMA to rely on SEBI's regulatory and supervisory activities, as reported by Rediff Moneynews.
The agreement will allow ESMA to rely on SEBI's regulatory and supervisory work concerning Indian CCPs while safeguarding financial stability in the European Union, as reported by Rediff Moneynews and The Economic Times. Central counterparties play a key role in market infrastructure by standing between buyers and sellers in financial market transactions and helping manage counterparty risk. Cooperation between regulators becomes important when clearing activity has a cross-border link or when overseas entities depend on market infrastructure supervised by another regulator. The MoU aims to strengthen regulatory coordination around CCPs, which play a critical role in clearing and settling trades, providing a mechanism for the two authorities to share relevant information and cooperate on supervisory matters involving CCPs under SEBI's oversight.
The latest agreement provides a mechanism for SEBI and ESMA to exchange information and cooperate on the supervision of Indian CCPs, helping facilitate clearing activity involving European entities without requiring ESMA to duplicate all of SEBI's supervisory work. According to Rediff Moneynews and The Economic Times, the MoU replaces an earlier agreement between the two regulators signed in June 2017. SEBI stated that the agreement underscores the importance of cross-border regulatory cooperation in facilitating international clearing, with the arrangement seeking to safeguard the European Union's financial stability while facilitating cross-border cooperation for international clearing activities. For Indian market infrastructure, such agreements help maintain engagement with overseas regulators and support confidence in the supervision of entities operating in India's securities market ecosystem.
Separately, SEBI is reviewing how settlement prices for derivative contracts are calculated on expiry days following feedback from market participants after the introduction of the Closing Auction Session (CAS). As reported by CNBC TV18, SEBI introduced CAS on August 3 to determine closing prices in the equity cash market. Under the current system, the closing price produced by the auction is also used to calculate the settlement price of derivative contracts at expiry. After reviewing the first month of the system and receiving feedback from market participants, SEBI said it could propose changes to the methodology, with a consultation paper outlining possible changes expected in about a week.
