SEBI Establishes Committee To Review Ownership And Economic Structure Of Clearing Corporations

The Gandhi Committee's 2018 report emphasized the need for a dispersed and widely held ownership structure for Market Infrastructure Institutions (MIIs), including clearing corporations, due to their high-risk nature. The committee advised against the listing of clearing corporations to avoid conflicts of interest and ensure their primary focus remains on risk management rather than profit maximization.

SEBI's Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (SECC regulations) currently dictate the ownership norms for clearing corporations. According to these regulations, at least 51% of the paid-up equity share capital of a recognized clearing corporation must be held by one or more stock exchanges. Other entities, such as banks and insurance companies, can hold up to 15%, while no other individual or entity can hold more than 5%.

The committee's formation comes in response to several identified issues within the existing framework:

1. Currently, most clearing corporations are subsidiaries of their parent exchanges. This arrangement subjects them to the expectations of the parent exchange's shareholders and can lead to potential conflicts of interest.

2. The exponential growth in derivatives trading, which inherently carries higher risk, needs a risk management framework within clearing corporations. Additionally, the implementation of interoperability among exchanges means that clearing corporations now provide centralized services across multiple platforms.

The Committee will evaluate the current ownership norms and suggest alternatives to ensure the true independence of clearing corporations. This includes examining the feasibility of broadening the list of eligible investors and revising shareholding caps.

Further, The Committee will review the financial sustainability of clearing corporations. This includes assessing the adequacy of current revenue models, the sufficiency of funds for capital expenditures and investments, and the ability to maintain minimum net-worth and settlement guarantee funds.

Globally, clearing corporations like the Depository Trust & Clearing Corporation (DTCC) and Euroclear operate with diversified shareholding structures, while others, like LCH and SGX-DC, remain subsidiaries of parent exchanges. The committee will analyze these structures to recommend an optimal model for Indian clearing corporations.

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