What changed
RBI mandated that all OTC corporate bond trades be cleared and settled through NSCCL or ICCL, effective December 1, 2009. These clearing corporations can now open transitory pooling accounts at RBI to facilitate real-time gross settlement (RTGS) on a DvP-I (delivery versus payment) basis, meaning each trade settles individually.
What it means for you
Banks and other regulated entities must route all OTC corporate bond transactions through the designated clearing corporations, ensuring settlement risk is minimized via DvP-I. This shift from bilateral settlement to a centralized, real-time mechanism enhances transparency and reduces default risk for lenders and investors.
What you must do
- Ensure all OTC corporate bond trades are cleared and settled through NSCCL or ICCL from December 1, 2009.
- Coordinate with your bank's treasury to use RTGS for fund transfers to the clearing corporation's transitory pooling account for each trade.
- Update internal systems and processes to comply with the DvP-I settlement mechanism and norms issued by NSCCL/ICCL.
Who it affects
All RBI-regulated entities dealing in corporate bonds, Treasury departments of banks, Clearing corporations (NSCCL and ICCL), Corporate bond market participants
What is DvP-I settlement?
DvP-I stands for delivery versus payment on a trade-by-trade basis. It ensures that the transfer of securities happens simultaneously with the payment, reducing settlement risk.
Which clearing corporations are involved?
The National Securities Clearing Corporation Limited (NSCCL) for NSE and the Indian Clearing Corporation Limited (ICCL) for BSE have been permitted to open transitory pooling accounts at RBI for this purpose.
When does this mandate take effect?
The requirement applies to all OTC corporate bond trades from December 1, 2009.