SEBI to adopt principles of financial market infrastructures

The principles are aimed to enhance safety and efficiency in payment, clearing, settlement and recording arrangements

January 01, 1970 5:30 IST | India Infoline News Service
Market regulator SEBI (Securities and Exchange Board of India) on Thursday said it will monitor and assess depositories and clearing corporations as outlined by IOSCO (International Organisation of Securities Commissions).

IOSCO has suggested 24 principles for financial market infrastructures (PFMI). To protect investors and the stock market from systemic risks emanating from FMIs, SEBI has decided to adopt 24 standard global principles for such institutions.

Financial market infrastructures include exchanges, depositories and clearing corporations. The principles are aimed to enhance safety and efficiency in payment, clearing, settlement and recording arrangements.

It also seeks to reduce systemic risk, foster transparency, financial stability and promote protection of participants and investors.

Being a member of IOSCO, SEBI said, it is "committed to the adoption and implementation of the new standards of PFMIs in its regulatory functions of oversight, supervision and governance of the key financial market infrastructures under its purview."

"All FMIs in the securities market shall be monitored and assessed against the PFMIs on a periodic basis," it added.

"These systemically important financial infrastructures provide essential facilities and perform systemically critical functions in the market and shall hence be required to comply with the principles of financial market infrastructures specified by CPSS-IOSCO as applicable to them," SEBI said.

"An FMI that requires collateral to manage its or its participants' credit exposure need to accept collateral with low credit, liquidity, and market risks. They should also set and enforce appropriately conservative haircuts and concentration limits," Sebi noted.

Besides, it said that Central Counterparty ( CCP) should cover its credit exposures to its participants for all products through an effective margin system that is risk-based and regularly reviewed.

"An FMI should conduct its money settlements in central bank money where practical and available. If central bank money is not used, an FMI should minimise and strictly control the credit and liquidity risk arising from the use of commercial bank money," the Indian regulator noted.

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