Why Sebi wants clearing house holding diversified

Clearing houses are fully owned by their parent stock exchanges, creating potential conflicts of interest

- Neha Joshi

The Securities and Exchange Board of India (Sebi) recently proposed a shift to make clearing corporations in India's equity markets more independent. The regulator seeks to reduce the concentration of power held by stock exchanges over clearing corporations.

Mint explores what Sebi has proposed and why experts believe the proposal could help smaller corporations like Indian Clearing Corp. Ltd (ICCL) get a larger market share. Sebi's proposal is open for public comment until 13 December.

What do clearing corporations do and what is their structure currently?

Clearing corporations or clearing houses are linked to stock exchanges. Their primary function is to ensure seamless clearing and settlement of transactions, generating revenue through services, interest on float, and maintaining a settlement guarantee fund (SGF) to cover future counterparty risks and boost trader and investor confidence.

Currently, clearing corporations are fully owned by their parent stock exchanges, creating potential conflicts of interest. These are some of the prominent clearing corporations in India: ICCL, a wholly owned subsidiary of BSE; Metropolitan Clearing Corp. of India Ltd (MCCIL), a wholly owned subsidiary of the Metropolitan Stock Exchange; Multi Commodity Exchange Clearing Corp. Ltd (MCXCL), a wholly owned subsidiary of Multi Commodity Exchange of India Ltd (MCX); National Commodity Clearing Corp. Ltd (NCCCL), wholly owned by National Commodity & Derivatives Exchange Ltd (NCDEX); and National Securities Clearing Corp. Ltd (NSCCL), a wholly owned subsidiary of the National Stock Exchange (NSE).