What changed
RBI introduced a new settlement mechanism for Exchange Traded Interest Rate Futures (IRFs) for Primary (Urban) Cooperative Banks. Entities with short positions must transfer securities from their SGL/CSGL accounts to a special Settlement SGL account of the Exchange Clearing House/Corporation (ECH/ECC). The ECH/ECC then delivers securities to long position holders after fund settlement is confirmed.
What it means for you
UCBs dealing in IRFs must now follow a structured, electronic settlement process through NDS, reducing manual errors and counterparty risk. The ECH/ECC takes responsibility for clearing and settlement, while RBI facilitates government securities transfers. Banks need to ensure their SGL/CSGL accounts are ready for such transfers and comply with the zero-balance requirement for the Settlement SGL account at end of day.
What you must do
- Ensure your UCB has SGL/CSGL accounts with RBI and NDS/INFINET connectivity for electronic transfers.
- For IRF short positions, initiate timely transfer of eligible securities to the ECH/ECC's Settlement SGL account via NDS.
- Coordinate with the ECH/ECC to confirm fund settlement before securities are delivered to long position holders.
- Monitor that the Settlement SGL account of ECH/ECC has zero balance at end of day; any leftover securities auto-transfer to their Proprietary SGL account.
Who it affects
Primary (Urban) Cooperative Banks dealing in IRFs, Exchange Clearing Houses/Corporations (ECH/ECC), RBI's Public Debt Office (PDO), Mumbai, Financial Markets Department, RBI
What happens if there is a default in funds settlement for an IRF contract?
Any leftover securities in the Settlement SGL account due to default or other reasons are automatically transferred to the ECH/ECC's Proprietary SGL account at end of day, with notification to RBI's Financial Markets Department and PDO.
Do UCBs need to open new accounts for IRF settlement?
No, UCBs use their existing SGL/CSGL accounts. The ECH/ECC must open a Settlement SGL account and a Proprietary SGL account with RBI's PDO for the settlement process.
Is this settlement process applicable to all types of securities transfers?
No, it applies only to transfers of government securities arising from IRF obligations between different SGL/CSGL accounts or between depositories (NSDL and CDSL). Transfers within the same depository are settled through the depository itself.