Sebi issues detailed norms for computing clearing corps' risk-based capital, net worth requirements

Sebi on Wednesday issued granular norms to compute risk-based capital and net worth requirements for clearing corporations.

Besides issuing the norms for assessing credit and business risks, the watchdog has said clearing corporations should regularly review their net worth requirement and ensure that it does not fall below the prescribed threshold.

The minimum contribution required to be made by the clearing corporation towards Core Settlement Guarantee Fund (SGF) would be considered for computing capital requirements towards credit risk, according to a circular.

The credit risk from default of clearing members is captured through the Core SGF framework.

For credit risk, the CCP contribution to core SGF (settlement guarantee fund) shall be at least 50 per cent of the minimum required corpus (MRC) as mandated by the regulator, Sebi said in a circular.

Similarly it has laid down the capital requirements for business risk, orderly wind-down, for operational and legal risks.

The regulator said the capital requirement for general business risk would be based on a clearing corporation's own estimate.

A clearing corporation should "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 continue operations and services as a going concern".

Further, the capital requirement for business risk would be subject to a minimum of 25 per cent of annual gross operational expenses.

The total risk-based net worth requirement for clearing corporations would be computed as the aggregate of capital requirements each for counterparty credit risk, business risk, orderly winding down or recovery of operations and legal and operational risks, as per the circular.

"Thus, the clearing corporations shall be required to maintain, at all times, in the form of liquid assets, a net worth of either Rs 100 crore or as determined in the manner specified above, whichever is higher," it noted.

The clearing corporations should use the most recent audited information from their annual financial statement for the purposes of calculation of gross operational expenses, it noted.

With regard to net worth, the clearing corporation has to submit a certificate signed by its managing director within 15 days from the end of every quarter.

"The first such submission shall be made applicable for the April 2019 June 2019 quarter," the Securities and Exchange Board of India (Sebi) said.

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