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Transition to delivery versus payment -- SEBI panel draws up wish-list

Our Bureau

MUMBAI, Nov. 22

THE SEBI-constituted DVP panel has put together a `wish list' which would be taken up with the Reserve Bank of India (RBI) for a smoother transition to a Delivery Versus Payment regime.

In an informal chat after the meet today, Prof J.R. Varma, member, SEBI board, said that the introduction of delivery versus payment (DVP) required an efficient electronic system in place.

``Our goal is simultaneous, final and irrevocable payment and transfer of funds and securities. International standards prescribe (with regard to DVP) all payments or fund transfer should be in central bank money. To this extent, the RBI is currently wor king on a real time gross settlement (RTGS) system which will allow real-time fund transfer to happen. We wanted to push our wish list in at the design stage so that these issues could also be kept in mind at the design stage itself,'' he said.

According to him, there are three entities involved in the process. The RBI, securities transfer in a demat environment and the clearing agency which guarantees the entire settlement.

Apart from the conviction that RTGS would make DVP happen, the panel also debated on how the DVP system would work in a RTGS environment.

Another area of concern was as to how do the settlement agencies (in this case, the clearing corporation and depositories) interface with RTGS.

The panel recommended that a facility to block cash balances and securities balances and to freeze it, be incorporated in the system in order to execute transfer of funds and securities simultaneously.

``We need to know that the RTGS system can support these blocking requests. And to this end both -- the RTGS and the

depositories -- need to have this software in place in their systems,'' Prof Varma said.

In order to allow settlement agencies access to RTGS, the panel recommended limited direct access into RTGS. ``What we are saying is that all payment requests is prefunded. So no credit is being sought from the central bank. All we need is access for bot h the settlement agencies, i.e. the clearing corporation and the depositories,'' he explained.

The group also mooted that Infinet membership be extended to these agencies. Infinet is a computer network for banks, financial institutions. It provides a secure communication network within which various kinds of communication takes place in a secure m anner. However, Infinet membership is limited.

Prof Varma, however, said that the RBI would probably set its own eligibility criteria as to which are the agencies that could tap into the RTGS system. SEBI would, in turn, give the official seal of approval.

``If this `wish list' were to be accepted by RBI in toto, we would have full DVP,'' Prof Varma said.

While there appears to be no time frame whereby theses recommendations would be enforced, the DVP panel is simultaneously exploring the possibility of introducing a limited version of the system.

``The RBI is said to be working on CFMS or central fund messaging system which performs a limited part of the RTGS functionalities. The question is whether this could be introduced before RTGS,'' he said.

The group on DVP is headed by the full-time SEBI member, Prof J. R. Varma, and includes, Mr C. B. Bhave, Managing Director, NSDL, B.V. Goud, Managing Director, SHCIL, Mr A. N. Joshi, Executive Director, BSE, Mr. Ravi Narain, Managing Director NSE and Mr . Pratip Kar, Executive Director (Secondary Market), SEBI.