SEBI issues norms related to computation of risk-based capital and net worth requirements for CCPs

Apr 11, 2019 | by Avantis RegTech Legal Research Team


The Securities Exchange Board of India (SEBI) on April 10, 2019, in consultation with the recognized Clearing Corporations, has issued norms related to computation of risk-based capital and net worth requirements for Clearing Corporations (CCP) under Securities Contracts (Regulation)(Stock Exchanges and Clearing Corporations) Regulations, 2018.

Norms for Credit Risk:

•The credit risk from default of clearing members is being captured through the Core Settlement Guarantee Fund (SGF) framework. The CCP contribution to Core SGF shall be at least 50 % of the Minimum Required Corpus (MRC). The contribution will be considered for the purpose of computing capital requirements towards credit risk.

Norms for Business Risk:

•The capital requirement for general business risk is dependent on the factors of business strategy, market environment, responses to competition or technological progress etc.

•A CCP shall identify, monitor and manage its general business risk and hold sufficient liquid net assets funded by equity to cover potential general business losses so that it can contribute operations and services as a going concern.

•The capital requirements for business risk shall be subject to a minimum of 25 % of annual gross operational expenses.

Norms for Orderly Wind-down:

•A CCP shall have an orderly wind-down plan and hold sufficient liquid net assets funded by equity to implement this plan. These assets shall be determined by the general business risk profile of the CCP.

•A CCP shall consider a minimum time span of six months for ensuring an orderly winding down or restructuring of its activities while computing the capital requirement of winding down. It shall hold liquid net assets equal to at least six months of gross operational expenses.

Norms for Operational and Legal Risks:

•The capital requirement for legal and operational risks shall be at least be 20% of the aggregate of capital requirements for counterparty credit risk, business risk and orderly wind-down or recovery of operations.

[Circular No.: SEBI/HO/MRD/DRMNP/CIR/P/2019/55]

Click here to download the Circular.

 


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