The Securities and Exchange Board of India (Sebi) has launched a comprehensive review of settlement and risk management regulations, issuing a consultation paper that represents the fifth and final part in a series of consultation papers for review of regulatory norms pertaining to stock exchanges and clearing corporations. According to the latest consultation paper, this initiative aims to simplify regulatory requirements, remove redundant provisions, discontinue duplication, promote ease of doing business and reduce the compliance burden on clearing corporations. The proposals will incorporate all applicable provisions up to 30 June 2026 and seek public comments on modifications to the Master Circular for Stock Exchanges and Clearing Corporations dated 30 December 2024 and the Master Circular for the Commodity Derivatives Segment dated 4 August 2023. The consultation paper specifically addresses provisions relating to Chapter 3 (Settlement), Chapter 4 (Comprehensive Risk Management for cash market and Debt segment), and Clearing Corporation/Risk management related provisions covered in Chapters 1, 5 and 6 of Master Circular for Stock Exchanges and Clearing Corporations, along with Chapter 9(Risk Management), Chapter 11(Delivery and Settlement) and Chapter 12(Warehousing norms for Agriculture and Agri-processed commodities and Non-Agricultural Goods) of Master Circular for Commodity Derivatives Segment.
The Securities and Exchange Board of India (Sebi) has proposed sweeping changes to settlement and risk management rules, aiming to hand greater operational responsibility to clearing corporations. According to reports from Mint, a Sebi consultation paper issued on Thursday seeks to make it easier for stock exchanges and clearing corporations to operate by updating master circulars governing settlement and risk management. The proposals are part of Sebi's fifth consultation paper on the regulatory framework for stock exchanges and clearing corporations.
Among the biggest changes is a proposal to make clearing corporations solely responsible for monitoring pay-in shortages and collecting penalties. As reported by Mint, at present, these responsibilities are split between stock exchanges and clearing corporations, even though clearing corporations have complete visibility of settlement shortfalls. Sebi has also proposed replacing the current penalty thresholds linked to a broker's base minimum capital with fixed monetary limits or a percentage of net worth, making the framework easier to administer. The consultation paper specifically addresses provisions relating to pay-in shortfalls, margin verification, delivery centres and depository participant reporting, while also requiring clearing corporations to formulate standard operating procedures for handling unscheduled settlement holidays in consultation with exchanges.
The consultation paper also seeks to ease compliance requirements significantly. According to Mint, clearing corporations may no longer need to submit quarterly net-worth certificates signed by their managing directors and annual reports on compliance with international Principles for Financial Market Infrastructures to Sebi. Instead, Sebi proposes annual certification where already required, immediate reporting only if net worth falls below prescribed levels, and public disclosure of certain information on clearing corporations' websites. The proposals include rationalising periodic filings, removing obsolete provisions, standardising disclosures, and updating settlement and risk management provisions to streamline regulatory requirements.
The proposals include several provisions to remove redundant requirements following the market's shift to a mandatory T+1 settlement cycle. As reported by Mint, rules governing the transition between T+1 and T+2 settlement, auction schedules under T+2 and procedures requiring brokers to transfer securities to clients would be deleted or rewritten since securities are now credited directly by clearing corporations to investors' demat accounts on the settlement day. The consultation paper also addresses modifications relating to direct payout of securities, transfer of funds, margin verification, delivery centres and depository participant reporting, while shifting certain stock broker-related provisions to the Master Circular for Stock Brokers.
