SEBI circular on Framework for Orderly Winding Down of Critical Operations and Services of a Clearing Corporation– December 16, 2022

SEBI, vide its circular dated December 16, 2022 decided that the CCs shall have a policy framework for orderly winding down of their critical operations and services.

In order to enable the Clearing Corporations (CCs) to have a framework for orderly winding down of critical operations and services, Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (SECC Regulations, 2018) have been amended vide Gazette Notification No. SEBI/LAD-NRO/GN/2022/104 dated November 15, 2022.

Identification of Potential Scenarios The scenarios which may potentially prevent a CC from being able to provide its critical operations and services as a going concern and may lead to wind down of its critical operations and services, shall be identified. Some of the reasons for winding down of CC can be: 1.1. Voluntary: The CC is solvent and is able to meet all its obligations towards Clearing Members (CMs)as well as other creditors; however, wishes to wind down its critical operations and services and exit as a strategic or business decision. 1.2. Involuntary: The winding down of critical operations and services on involuntary basis maybe due to various factors including but not limited to the following: 1.2.1. Losses due to default by CM(s): The default management resources maintained by the CC may get exhausted due to default by CM(s), and, consequently, the CC fails to fulfil its obligations towards CM(s)and/or its constituents. 1.2.2. Losses due to other factors: There is no CM default and the settlements have been happening in a timely manner; however, the solvency of a CC may get adversely affected as a result of some large operational expenses, legal expenses, business or investment losses, etc. thereby rendering a CC unable in fulfilling its obligations to CM(s), its constituents and/ or other creditors. 1.2.3. Regulatory Actions: Directions to a CC to wind down its critical operations and services by SEBI or any other statutory authority under applicable laws. SEBI may direct a CC to wind down its critical operations and services including but not limited to the following scenarios: i. A CC shall be required to continuously meet the annual clearing turnover, aggregated across segments, including by way of interoperability, of at least INR 1,000 Cr. per annum or any other amount as may be specified by SEBI from time to time. In case the CC fails to meet the aforesaid requirement for two consecutive years, it shall