Sebi asks NSE to refund Rs 250 crore to clearing members from SGF contribution

Market regulator Sebi directed the National Stock Exchange Clearing Corporation (CC) to refund around Rs 250 crore of clearing members’ contribution that they had made to the core Settlement and Guarantee Fund (SGF). The exchange refunded the money to these members a few days ago.

The Securities and Exchange Board of India (Sebi) found that based on the daily stress test as per its new norms, NSE CC has enough funds and the contribution from the clearing members was not required.

The regulator had issued a circular in August 2014 prescribing guidelines for Core Settlement Guarantee Fund (CSGF) and Default Waterfall and Stress Test. NSE’s core SGF had enough money to cover the risk without money from members, it further clarified on this on May 4 this year.

Core SGF contains 25% contribution from the stock exchange, 50% from clearing corporation and maximum 25% from clearing members. BSE had not taken money from clearing members. However, following Sebi circular in May and the regulatory direction, NSE had to refund money from SGF to clearing members last week which was found excess based on the stress test norms.

"SEBI had brought the provision of Core SGF (Settlement Guarantee Fund) to make the Risk Management of clearing corporation more robust especially in the event of market-wide defaults. The corpus of Core SGF, which was to be computed on basis of daily stress test, will be fully liquid and always available to the CC. In this CC was supposed to contribute minimum 50%, exchange 25% and clearing members the rest 25%, or less. However, recently Sebi found that CCs had much more than the required corpus therefore directed the CCs to refund contribution of clearing members so as to reduce their capital requirement and consequently the cost of transaction," said Rajeev Agarwal, whole time member, Sebi.

According to the website of NSE, it has Rs 1,447 crore in its core SGF in June.

K Suresh, alternate president of Association of National Exchanges Members of India told Business Standard, “Some members would benefit as NSE has refunded the money at this point of time when business is quite competitive and this is a good beginning from the exchange.” However, he added, “Our long pending demand with the NSE to consider paying interest on deposits of members with them. NSE has told us that they are looking in to this and I hope that will also follow as they made a good beginning by refunding money to clearing members.” He believes payment of interest will help small and medium size members in the competitive atmosphere as unlike big members, they survive only on broking income.