SEBI's New Guidelines for Core Settlement Guarantee Fund Contributions

SEBI has issued updated guidelines on contributions toward the core settlement guarantee fund of Limited Purpose Clearing Corporation (LPCC). The directive aims to streamline contributions based on risk and participant exposure, providing flexibility in primary contributions and ensuring the stability of the total core SGF corpus.

The Securities and Exchange Board of India (SEBI) unveiled fresh guidelines on Thursday concerning contributions by entities toward the core settlement guarantee fund (SGF) of the Limited Purpose Clearing Corporation (LPCC).

A core SGF is a financial safeguard used during trade defaults, with contributions from various intermediaries such as stock exchanges, clearing corporations, and brokers.

LPCC is designed to oversee the clearing and settlement of repo transactions, pivotal for maintaining liquidity in the debt securities market.

According to SEBI's latest circular, direct participants, not acting through clearing members, will contribute to the core SGF based on a risk assessment tied to the deficit in the minimum required corpus (MRC) after issuer and clearing member contributions.

These participant contributions are subject to particular conditions, including exposure-free collateral that clearing corporations can consider toward the core SGF, and contributions will be pro-rata based on individual risk exposure.

LPCC may collect these contributions upfront or in a staggered manner over time. If LPCC does not immediately seek contributions, any gap will be filled by LPCC to maintain the total core SGF corpus.

SEBI also stipulates that in case of SGF utilization within a calendar month, contributors must replenish their contributions immediately, but a maximum of once within 30 days, irrespective of the number of defaults.

Additionally, SEBI outlined guidelines for the 'default waterfall' system, which allocates different financial resources to cover default losses.

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