The concept of guaranteed settlements has completely changed the way market safety is perceived. It has eliminated the counterparty risk of trading on the Exchange. The market has full confidence now that settlements will take place in time and will be completed irrespective of possible defaults by isolated trading members. In this
Settlement Guarantee Fund
- A large Settlement Guarantee Fund provides the cushion for any residual risk left after the fine-tuned risk management system.
- The Settlement Fund is an important element in facilitating the settlement process.
- The Fund operates like a self-insurance mechanism and is funded through the contributions made by trading members, transaction charges, penalty amounts, fines etc. recovered by NSCCL.
- A part of the Cash Deposit and the entire security of every clearing member with the Exchange has been converted into an initial contribution towards the Settlement Guarantee Fund.
- There is a provision that as and when volumes of business increase, members may be required to make additional contributions allowing the fund to grow along with the market volumes.
| Type of Member | Cash Deposit (Rs. Lac) | Security Deposit in the form of Bank FDR/Guarantee or Securities (Rs. Lac) |
|---|---|---|
| Individual/ Partnership Firms | 6.00 | 17.50 |
| Corporates | 9.00 | 25.00 |
Direct Pay-out of Securities
- On the pay-out day, pay-out directly goes to the Investor’s account.
- NSCCL has a system of directly pay-out of securities to Investor’s account in place.
- The trading Member/clearing Member indicates the beneficiary account to which the securities payout is made by the way of file upload.
- This system is applicable for both the depositories.
- In case of any wrong information provided by the trading member, the
pay-out goes to the pool account of the trading member.
No-delivery period
- To ensure that investor’s entitlement for the corporate benefits is clearly determined, the exchange sets up a ‘no-delivery period’ for the security in which book closure or a record date is announced by a company for corporate actions other than AGM, EGM, Dividend, Bonus etc.
- During this period, trading is permitted in the security under consideration but all the trades are settled only after the no-delivery period is over.
Penalty
The clearing corporation levies penalties on trading members for non-compliances and defaults like:
- Fund Shortages
- Securities Shortages
- Margin Shortages
- Security Deposit Shortages
- Client Code Modification
- Non-Acceptance/Rejection/ Allocation of Institutional trades
- Ineligible client in Inter-institutional deals
- Others.
Investigation and Inspection
As per the regulatory requirement, a minimum of 20% of the active trading members are to be inspected every year by Exchanges. Usually more members than regulatory requirements are scrutinized every year to verify the level of compliance with various rules, byelaws and regulations of the exchange. We have seen how the inspection process or Offline Monitoring takes place in the previous post ‘Online and Offline Monitoring‘ in this blog.