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Clearing Corpn poised to take off by year-end

P. Devarajan

MOST of the details of the Clearing Corporation of India, promoted by SBI, have been finalised at a presentation by a Core Group to the RBI recently. The corporation will cover money, repos, Government securities and forex markets with the body acting as the central counter-party for all trades. Deals in corporate bonds will take place at a later stage. The focus will be on areas coming under RBI.

For Government securities and repos, the infrastructure of the NSCCL has been found to be adequate. Clearing and settlement operations will be undertaken together like in Europe and the UK.

``The proposed clearing corporation is aimed at providing financial efficiency and stability. There shall be a pronounced emphasis on best practices, corporate governance and public policy content. It is not proposed as a commercial activity,'' says a pa rticipant. For the time being, the corporation will not combine a trading platform as regulatory issues are involved. However, the Memorandum & Articles of Association could provide for such activity in the future.

The new body will not only undertake netting and settlements but act as a central counter-party facilitating multi-lateral netting.

The size of the guarantee fund has been put at Rs 1,000 crore for debt and $ 35 million for forex. Contribution to the fund by participants could be through either cash or Government securities. ``These contributions qualifying for SLR and CRR was also d ebated and it was agreed that these issues would require RBI's examination,''said a banker.

Linkages between the corporation's infrastructure and RBI's Infinet for payments and depositories for securities settlements would be drawn up after the body is set up. Infinet membership will have to be extended to all SGL-account holders.

It looks the corporation will be a reality by the end of the year at the latest facilitating real time on screen debt and forex trading. Going by the present pace it is quite likely RBI will be able to update local debt and forex trading to place it on p ar with international norms. That will be an important job done (the legal hurdles are over) as it can help revive retail trading in debt.

The corporation will be a limited liability company under the Companies Act and the task will be given to a chartered accountant firm shortly. The authorised capital of the body will be Rs 150 crore with SBI, as the chief promoter, holding at least 26 pe r cent of the equity. Other core promoters viz., Bank of Baroda, HDFC Bank, ICICI, IDBI and the Primary Dealers Association of India (PDAI), will subscribe to the share capital with a minimum shareholding of five per cent initially with provisions in the proposed MoU to dilute stake to less than five per cent with the approval of the Board.

``Subscriptions to share capital will be invited from all banks, FIs, primary dealers, mutual funds and custodians with the object of having widespread shareholding in consonance with public policy objectives,'' said a top banker.

The Core Group met up with NSCCL, Bank of New York, Hongkong & Shanghai Banking Corporation, Swift, BSE and OM Technology on international systems. Inquiries with bankers indicate MoU signing may start by January and money put in by February as there is no dissent. The RBI sat in at every meeting of the Core Group and its okay has been taken as granted.