What changed
RBI reviewed its October 2009 directions on settlement of OTC corporate bond transactions and decided to include MCX-SX Clearing Corporation Limited as an additional eligible entity for clearing and settlement. Previously, only NSCCL or ICCL were permitted for this purpose.
What it means for you
Banks and other market participants now have a third clearing corporation option for settling OTC corporate bond trades, which could enhance operational flexibility and reduce concentration risk. This move may also foster competition among clearing houses, potentially leading to improved efficiency and lower costs for settlement services.
What you must do
- Update internal operational guidelines to include MCX-SX Clearing Corporation Limited as a valid clearing entity for OTC corporate bond settlements.
- Review and amend any existing agreements or standing instructions with counterparties to reflect the new eligible clearing house.
- Train treasury and back-office teams on the procedures for using MCX-SXCCL for DvP-I settlement of corporate bonds.
- Monitor any additional operational or risk management requirements from MCX-SXCCL for onboarding.
Who it affects
All market participants dealing in OTC corporate bonds, Treasury departments of banks, Clearing and settlement teams, Compliance and risk management functions
What is DvP-I basis?
Delivery versus Payment (DvP) Model I involves simultaneous settlement of securities and funds on a gross basis, ensuring that delivery of bonds occurs only if payment is made, reducing settlement risk.
Does this notification affect existing trades settled through NSCCL or ICCL?
No, existing arrangements remain valid. This circular only adds MCX-SXCCL as an additional option; participants may continue using NSCCL or ICCL as before.
When does this change take effect?
The circular was issued on June 26, 2013, and is effective from that date. No specific transition period is mentioned in the source.