What changed
RBI has allowed standalone PDs to exclude clearing exposure to a Qualifying CCP (QCCP) from the 25% of net owned funds single-borrower limit. This interim measure aims to encourage central clearing of standardized OTC derivatives. Other exposures to QCCPs, like capital investments, remain within the existing ceiling.
What it means for you
For standalone PDs, this reduces capital constraints when clearing through recognized CCPs like CCIL, NSCCL, ICCL, or MCX-SXCCL. It incentivizes use of central counterparties for OTC derivatives, aligning with global standards. PDs must still monitor total credit risk, including non-QCCP exposures, within prudential limits.
What you must do
- Update internal exposure tracking systems to separate QCCP clearing exposure from the 25% single-counterparty limit.
- Ensure all QCCP exposures (trade and default fund) are documented as per the March 27, 2014 capital requirements circular.
- Review and revise credit risk policies to reflect the exemption for QCCP clearing exposure while keeping other exposures within limits.
- Monitor the QCCP status of CCPs regularly, as withdrawal of status would revert exposure to non-QCCP norms.
Who it affects
Standalone Primary Dealers (PDs), Clearing Corporation of India Ltd. (CCIL), National Securities Clearing Corporation Ltd. (NSCCL), Indian Clearing Corporation Ltd. (ICCL), MCX-SX Clearing Corporation Ltd. (MCX-SXCCL)
What is the new exposure limit for QCCP clearing exposure?
Clearing exposure to a Qualifying CCP (QCCP) is exempted from the 25% of net owned funds single-counterparty limit, effective April 1, 2014.
Which CCPs are currently recognized as QCCPs?
CCIL is recognized by RBI, while NSCCL, ICCL, and MCX-SXCCL are recognized by SEBI as QCCPs, subject to ongoing compliance with CPSS-IOSCO principles.
What happens if a CCP loses its QCCP status?
If a regulator withdraws QCCP status, the CCP becomes a non-QCCP, and all exposures to it must fall within the 25% single-counterparty limit.