Settlement Systems

Securities Settlement - Clearing Corporation of India Limited (CCIL)

CCIL is a FMI, authorised by RBI under the PSS Act to operate various payment systems and function as a TR. CCIL has been granted the status of a Qualified Central Counterparty (QCCP) in the Indian jurisdiction.

As a risk mitigation measure, CCIL has constituted the following subsidiaries for undertaking activities not relating to its role as a central counterparty (CCP):

• Clearcorp Dealing Systems (India) Limited (CDSL) was set up in June, 2003 to provide dealing systems / trading platforms for repo, tri-party repo, money market instruments and forex exchange transactions. The subsidiary was set up to separate the risk bearing activities of CCIL viz., clearing and settlement from its dealing activities.
• Legal Entity Identifier India Limited (LEIL) was set up in 2015 as a Local Operating Unit (LOU) for issuing globally compatible LEI in the Indian financial market.

Government Securities Segment

The secondary market outright, repo and tri-party repo trades (settlement on T+0 to T+2 basis) are undertaken on order matching platforms i.e., Negotiated Dealing System-Order Matching (NDS-OM), Clearcorp Repo Order Matching System (CROMS) and Triparty Repo Dealing System (TREPS), respectively. Further, OTC trades reported on NDS-OM and CROMS, are also cleared and settled by CCIL on a ';net'; basis with CCIL arriving at a single funds and securities settlement obligation for each member for each settlement date. CCIL acts as a CCP for all trades ensuring guaranteed settlement with multilateral netting benefits. The funds settlement is through a settlement bank or RBI, for members maintaining a current account with the Designated Settlement Bank (DSB) or RBI, as the case may be. With effect from November 5, 2018, Collateral Borrowing and Lending Obligation (CBLO) was replaced by tri-party repo under the Securities segment.

Forex Segment

CCIL settles all inter-bank cash, tom, spot and forward USD / INR transactions on guaranteed basis through a process of multilateral netting. Trades done on Fx-Clear and Fx-Swap trading platforms as well as inter-bank transactions concluded bilaterally by clearing participants that are reported to CCIL flow to CCIL's settlement system. The trades are validated and matched trades that pass an exposure check are 'accepted' for settlement. Novation occurs at the point in time when the trade is accepted for guaranteed settlement and the net amount payable to or receivable from CCIL in each currency is arrived at, member-wise, following the multilateral netting procedure.

CCIL settles the net positions of the members on a Payment versus Payment (PVP) basis with the INR leg settled through the member's current account at RBI and the USD leg settled through CCIL's USD account with its settlement banks.

Forex Forward Segment

Interbank forex forward trades with residual maturity up to 13 months are eligible for guaranteed settlement under forex forward segment. Forward trades concluded on Fx-swap trading platform and OTC trades reported by the members flow to CCIL for clearing and settlement. Two days prior to settlement , i.e., on S-2 day, the net position of each member is computed for all underlying trades accepted for guaranteed settlement for the relevant settlement date.

Rupee Derivatives (IRS) Segment

CCIL extends guaranteed settlement of trades in IRS and FRA referenced to Mumbai Interbank Offer Rate (MIBOR), and Mumbai Interbank Overnight Indexed Swaps (MIOIS) benchmarks. Instruments covered under IRS and FRA are IRS - fixed float and basis swaps referenced to MIBOR and MIOIS with maximum maturity of 10 years and FRA with maximum maturity of 10 years. CCIL also commenced clearing of IRS trades referenced to MIFOR benchmark with maximum maturity of 5 years from November 19, 2018.

Continuous Linked Settlement (CLS)

CCIL offers non-guaranteed settlement of cross currency transactions through CLS Bank on a PVP basis. The settlement is through a third party arrangement.

Directions for central counterparties (CCPs)

Directions on governance of domestic CCPs authorised to operate in India by RBI: Governance provides the processes through which an organisation sets its objectives, determines the means for achieving those objectives, and monitors performance against the objectives. To ensure appropriate governance standards in CCPs, RBI issued directions on the broad principles underlying governance of CCPs covering the composition of the board, roles and responsibilities of the board, appointment of Directors, constitution of Committees, etc.

Directions on networth requirements and ownership of CCPs: CCPs should have sufficient networth to cover potential general business losses and continue to provide services as a going concern. RBI stipulated a networth of ₹ 300 crore for authorisation / recognition of any CCP desirous of operating in India. Further, in line with the Principles for Financial Market Infrastructures (PFMIs), CCPs are required to hold liquid net assets funded by equity capital equal to minimum of six months of current operating expenses. With regard to ownership of the CCP, shares of an authorised CCP can be held only by persons who are users of the authorised CCP. CCIL is compliant with the requirements laid out for networth and ownership of CCPs.

Source : RBI