SEBI Issues Notification to Amend Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018

SEBI Issues Notification to Amend Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018

The market regulator Securities and Exchange Board of India (SEBI) has issued a notification dated 24 July, 2023, introducing amendments to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.

The newly introduced regulations, titled the ‘Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Second Amendment) Regulations, 2023,’ have been formulated by SEBI in exercise of the powers conferred by sections 4, 8A, and 31 of the Securities Contracts (Regulation) Act, 1956, read with sections 11 and 30 of the Securities and Exchange Board of India Act, 1992.

Amendments to the first set of regulations will permit more entities to contribute to the Settlement Guarantee Fund under Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 and increase the scope for the utilization of the funds.

Amendments to the second set of regulations (Stock Brokers) Regulations, 1992 will allow a larger participation in the corporate-bond market.

For clearing corporations

Circular on Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 amended Regulation 22D, which cover the contribution to the Settlement Guarantee Fund, and those made to 37 (2) on the utilization of these funds.

Currently, the regulation 22D on Contribution to the Settlement Guarantee Fund is as follows:

“Regulation 22D. (1) The contribution to the Fund as specified in regulation 37 shall be made by the recognised limited purpose clearing corporation, the clearing members and issuers of the debt securities, in the manner as may be specified by the Board from time to time.”

The circular listed the changes, in regulation 22D of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, the words and symbol ‘participants’ shall be inserted after the words ‘the clearing members’ and before the words ‘and issuers of the debt securities.’

Under Regulation 37, details on fund to guarantee settlement of trades are given, and the changes have been suggested in its sub-sections (2) and (3).

Currently Regulation 37(2) read as follows:

“Regulation 37. (2) In the event of a clearing member failing to honour his settlement obligations, the Fund shall be utilised to complete the settlement.

(3) The corpus of the Fund shall be adequate to meet the settlement obligations arising on account of failure of clearing member(s).”

The circular stated the following changes:

(a) In sub-regulation (2), after the words ‘the event of a clearing member’ and before the words ‘failing to honour’, the words ‘or a participant’ shall be inserted;

(b) In sub-regulation (3), after the words ‘failure of clearing member(s)’, the words ‘or participant(s)’ shall be inserted.

For stock brokers

In Securities and Exchange Board of India (Stock Brokers) Regulations, 1992, changes have been suggested for regulation 10A.

This section is on application for registration, and its current version reads as follows:

“Regulation 10A. (1) No person shall act as a clearing member, unless he obtains a certificate of registration from the Board:

Provided that no separate registration shall be required for a stock broker registered with the Board to act as a clearing member in a clearing corporation of which he is admitted as a member, subject to grant of approval by the concerned clearing corporation.

Explanation. For the purpose of this sub regulation, it is clarified that no separate registration shall be required for a clearing member registered with the Board to operate in more than one clearing corporation, of which he is admitted as a member, subject to grant of approval by the concerned clearing corporation.

(2) An application for grant of a certificate of registration as clearing member shall be submitted to the Board in Form AD of Schedule I through the clearing corporation [*] of which he is admitted as a member.

(3) The Clearing Corporation [*] shall forward the application form to the Board as early as possible, but not later than thirty days from the date of its receipt.”

The circular stated changes to (1) in Regulation 10A as follows:

(a) In the first proviso, after the words ‘the concerned clearing corporation’, the symbol ‘.’ shall be substituted with the symbol ‘:’;

(b) After the first proviso, the following shall be inserted, namely, – “Provided further that no separate registration shall be required for any person registered with the limited purpose clearing corporation as a participant for participating in the tri-party repo segment for undertaking proprietary trades in corporate bonds.”

(c) The existing Explanation shall be renumbered as Explanation 1.

(d) After Explanation 1, the following shall be inserted, namely, – Explanation 2. – For the purposes of these regulations, ‘participant’ means any person who is an eligible entity as stipulated under the Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018.