Clear lines of independence

The long-delayed listing of the National Stock Exchange (NSE) has once again taken center stage—not due to valuation hurdles or market sentiment, but because of a structural concern.

- SANDEEP PAREKH

This seemingly narrow issue is, in fact, a flashpoint in a larger conversation about how India governs its market infrastructure institutions.

While stock exchanges are always under the market glare, the real grunt work is done by the arcane institution known as the clearing corporations, which transfer funds and securities and manage risk and collateral. They also act as guarantors to every trade, acting as a buyer to every seller and as a seller to every buyer. They work under immense pressure, managing both concentrated risk and hard timelines. Though not celebrated, they are the unseen heroes who ensure the stock markets don't suffer. In a way, their lack of limelight is a good sign of health for the markets.

Under the current regulatory framework, clearing corporations must be majority-owned by one or more recognized stock exchanges. This 51% minimum holding was designed to ensure close coordination between trading and post-trade infrastructure. The introduction of interoperability in 2018 between clearing corporations brought in added competition.

In November 2024, Securities and Exchange Board of India (Sebi) proposed a reimagining of this structure through two alternative models depending on the applicability of the Payment and Settlement Systems (PSS) Act, 2007, which brings all payment and settlement service providers under the Reserve Bank of India's (RBI) regulatory framework. However, clearing corporations are currently excluded from its purview—largely because they remain owned majorly by Sebi-regulated stock exchanges. If this ownership structure is diluted, the rationale for their exclusion becomes less certain, raising the question of whether such clearing corporations should then fall under RBI's supervision.