## Executive Summary

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---

### Scope and structure
- Assessment scope:
  - clearing and settlement systems for (1) government securities, money market instruments and forex instruments; and (2) corporate securities and financial derivatives.
  - commodity derivatives clearing and settlement systems are outside this scope and a detailed self-assessment by the Forwards Market Commission (FMC) and/or an independent assessment is recommended in the immediate future.
- Assessment conducted during a Financial Sector Assessment Program field mission to India in September 2011.
- Information sources: laws, bylaws, regulations, rules and procedures; annual reports; RBI and SEBI responses to FSAP questionnaire; operators’ and regulators’ websites; CCIL self-assessment; CFSA 2009 assessment; extensive discussions with RBI, SEBI, FMC, CCIL, NSE, BSE, U.S.E, MCX, MCX-SX, NSCCL, ICCL, NSDL, CDSL, market participants and clearing banks.
- Document structure highlights (section start pages preserved in source):
  - Executive Summary — page 5
  - I. General — page 12
  - II. Overview of the Infrastructure for Securities and Derivatives Clearing and Settlement Systems — page 12
  - III. Detailed Assessments — page 23
  - A. Authorities’ Response — page 80
  - Annex I. The RTGS System in India — page 83

### Market structure, operators and linkages
- Government securities, money market and forex instruments:
  - Cleared by Clearing Corporation of India (CCIL); settled in the Public Debt Office (PDO) system of Reserve Bank of India (RBI).
  - Cash settlement in Real Time Gross Settlement (RTGS) system of the RBI.
  - CCIL acts as a central counterparty (CCP) and guarantees settlement; RBI is regulator and overseer under Payment System and Settlement Act of 2007 (PSSA).
  - PDO system is the CSD and registrar for dematerialized government securities; in August 2011 PDO counted 233 active own accounts and 88 client accounts.
  - CCIL coordinates cash settlement in RTGS and securities settlement in PDO; government securities settled using a DVP model 3 mechanism on T+1; repos settled on T+0 or T+1.
- Corporate securities and financial derivatives:
  - Traded on: National Stock Exchange (NSE), Bombay Stock Exchange (BSE), United Stock Exchange (U.S.E), MCX Stock Exchange (MCX-SX) and 17 regional exchanges.
  - Clearing: NSCCL clears NSE trades; BSE clears corporate securities and equity derivatives (mutual funds and corporate bonds cleared by ICCL); ICCL clears currency derivatives on U.S.E; MCX-SX CCL clears MCX-SX trades.
  - CCPs: NSCCL, BSE, ICCL and MCX-SX CCL act as CCPs.
  - Securities leg settled in NSDL and CDSL; cash leg settled in commercial clearing banks (13 for NSCCL, 9 for ICCL, 16 for BSE and 10 for MCX-SX CCL).
  - SEBI is regulator and supervisor of stock exchanges including clearing and settlement systems.
- Commodity derivatives (out of scope for detailed assessment here):
  - Traded on four national commodity exchanges (NMCE, MCX, NCDEX, ICEX) and 17 regional exchanges; commodity composition (2009): bullion (41 percent), base metals (23 percent), energy products (20 percent), agricultural commodities (16 percent).
  - Regulated and supervised by FMC.

### Market importance and selected volumes (figures preserved exactly as presented)
- General:
  - Systems handle a large number of transactions and are of systemic importance.
  - Derivatives segments increased strongly in recent years; cash market segments on NSE and BSE are stable.
  - Government securities and CBLO saw a decrease in 2010, but volumes increasing again in 2011.
- Selected table and figure entries as presented in source:
  - Table 2 (Cash Market Volumes as Percentage of GDP in 2010) — entries as presented:
    - Government securities  360 1,225,400 (2010/2011) 71-24
    - CBLO  na 1,998,920 (2010/2011) 116-24
    - NSE – Equities  1,556,620798,636462
    - BSE – Equities  555,719258,57515-1
  - Table 3 (CCIL Forex Market as Percentage of GDP in 2010) — entry as presented:
    - Forex  na3,841,860 (2010/2011) 22234
  - Table 4 (Derivatives Market Volumes as Percentage of GDP in 2010) — entries as presented:
    - NSE stock index derivatives 686,124,9684,109,95623833
    - NSE equity derivatives 204,037,4951,416,8898217
    - NSE and MCX-SX Currency futures 1,603,956,1241,635,18395256
    - MCX commodity futures 197,206,8011,905,339110 percent22 percent
- CCIL activity and participants:
  - CCIL receives around 20 percent of the secondary market transactions in government securities from the NDS system and approximately 80 percent from the NDS-OM.
  - CCIL has 222 participants in the CBLO segment and 169 in the government securities segment.
  - CCIL offers settlement of foreign exchange transactions (14 currencies) in CLS through CCIL; CCIL uses Royal Bank of Scotland (RBS) in London as a settlement participant in CLS.
- Average daily volumes (2011 January to August) — exact figures:
  - forex instruments: US$19.5 billion
  - CBLOs: US$9.4 billion
  - government securities and repos: US$5.9 billion
  - Note: volumes in 2011 (January to August) are higher than volumes for the full year of 2010.

### Key assessment conclusions — strengths and structural concerns
- Overall strengths:
  - Risk management framework is prudent.
  - Operational reliability is high.
  - Regulation and oversight functions are effective.
  - RTGS (implemented in 2004) provides an effective system for settlement of large value transactions including cash leg of government securities transactions.
- Structural concerns:
  - Market infrastructure is segmented per product type; vertical silos exist between government bond market and corporate equity/derivative market, which:
    - Prevent stock brokers and retail clients trading on stock exchanges from accessing the government bond market.
    - Prevent retail investors from investing in government bonds and accessing a full range of investment products.
    - Prevent stock brokers and custodians from using government securities to comply with CCP margin requirements.
  - Multiplicity of systems does not harm stability; multiple CCPs and CSDs may enhance stability by providing potential backups.

### Cross-regulatory coordination and oversight recommendations
- Implement formal arrangements for information sharing and policy coordination between regulators and overseers, including RBI and SEBI.
- RBI and SEBI should meet regularly on a technical and higher level, and have formal arrangements for information sharing and policy coordination.
- Include the FMC in regular meetings because of relevance to commodity market supervision.
- Relevant coordination topics:
  - Improvements in liquidity risk management of CCPs.
  - Orchestrated approach toward crisis management and default plans.
  - Settlement in central bank money.
  - Increasing use of government securities as collateral to cover positions in corporate securities and derivatives.
- Assessment of oversight capacity:
  - Oversight performed by RBI Department of Payment and Settlement Systems with a staff of 5 FTE covering all PSSA-defined systems.
  - Oversight uses off-site surveillance and on-site inspections; assessment framework based on CPSIPS and CPSS-IOSCO Recommendations.

### Crisis management, operational resilience and business continuity
- Findings:
  - Operational reliability is high; Business Continuity Planning (BCP) and Disaster Recovery (DR) sites are in place.
  - No system has crisis management plans that include detailed procedures and actions for a major crisis.
  - Systems test connectivity to backup sites regularly with participants.
- Recommendations:
  - Establish and regularly test detailed crisis management plans, including:
    - Definition of a crisis management team.
    - Procedures to consult and inform participants and regulators.
    - Regular simulations of stress scenarios affecting financial and operational soundness.
  - Reduce recovery time objective from one day to two hours where feasible (best practice); SEBI drafting detailed guidelines on these topics.

### Transparency and public disclosure
- Findings:
  - Transparency of all systems can be improved.
  - Current and forthcoming relevant international disclosure framework should be published on operators' websites.
  - The 2009 assessment results of the Committee on Financial Sector Assessment (CFSA) are available on Internet but are not updated and not all key questions are answered.
- Recommendations:
  - Publish the relevant disclosure framework and update public disclosure to address outstanding CFSA questions.
  - Develop dedicated information sections on RBI and CCIL websites (e.g., PDO system and CCIL disclosure frameworks).
  - SEBI has required depositories to publish fee details for over five years.

### Assessment highlights and targeted recommendations by system
- PDO system (assessed against RSSS):
  - Observance: observe or broadly observe 17 out of the 19 recommendations; two not applicable.
  - Improvement opportunities:
    - Legal framework: explicitly state that assets of a client may not be used to cover obligations toward a third party in case of insolvency of the participant of the PDO system.
    - Transparency: RBI website should include dedicated information about the PDO system; Government Securities Regulation and PDO manual should be available in the public domain; 2009 CFSA results should be updated and all key questions answered.
    - Protection of customer assets: implement arrangements to enable a customer's positions to be moved to a solvent custodian in case of insolvency of its own custodian.
- NSDL and CDSL (assessed against RSSS):
  - Observance: observe (observed or broadly observed) 16 out of the 19 recommendations; three not applicable.
  - Improvement opportunities:
    - Legal framework: strengthen legal backing for finality and netting of stock exchange transactions by addressing these aspects at the level of law (PSSA not applicable to stock exchange trading; current reliance on bylaws and Securities Contracts Regulation Act (SCRA) and Supreme Court rulings).
    - Governance: constitute user groups to give voice to participants not included in existing committees or Boards.
    - Efficiency: SEBI to conduct periodic performance assessments of CSDs versus international peers; request CSDs to maintain fee schedules in easily comparable format; improve clearing and settlement arrangements in wholesale corporate bond segment by automating DvP process and eliminating manual interventions.
    - Communication standards: consider offering participants the option to use ISO 15022 and migrating interfaces with clearing corporations to ISO 15022.
- CCIL (assessed against RCCP):
  - Observance: CCP observes or broadly observes 12 out of the 15 recommendations; two not applicable.
  - Improvement opportunities:
    - Measurement of credit exposure: enable intraday calculation of exposures in all segments using up to date positions and up to date prices; enable intraday valuation of available collateral.
    - Financial resources: enforce liquidity risk management framework to cope with immediate liquidity demands; CCIL developing arrangements with RBI; perform comprehensive tests including full model and parameter validations at least annually; establish default funds for all segments and develop other risk mitigating tools to enlarge guarantee function beyond SGF collateral.
    - Custody and settlement bank risks: reduce concentration risk in forex segment by opening a U.S. dollar account in at least one other bank; select one additional settlement bank; increase frequency and intensity of monitoring financial condition of custodian and settlement banks, including foreign settlement banks; install mechanisms to monitor financial condition of all banks on an ongoing basis; develop tools to monitor concentration of settlement flows among different settlement banks providing cash settlement in Indian Rupees (Rs).
    - Default procedures: include explicit arrangements for segregation and portability of client accounts in case of default of a clearing participant in the legal framework and CCIL default procedures.
- NSCCL, BSE and ICCL (assessed against RCCP):
  - Observance: CCPs observe or broadly observe 11 out of the 15 recommendations; two not applicable.
  - Improvement opportunities:
    - Legal risk: strengthen legal backing of clearing and settlement process by addressing finality and netting at the level of law.
    - Financial resources and stress testing:
      - Strengthen stress testing procedures; include liquidity aspects in periodic stress testing; ensure credit lines cannot be revoked; conduct stress testing more frequently.
      - Specifics: BSE/ICCL conducts stress only on a yearly basis; adequacy of resources in extreme situations should be assessed at least monthly; yearly comprehensive tests should include full model and parameter validation and scenario choices.
      - Stress scenarios should include most volatile periods of the cash and derivative markets over the last couple of years, preferably the last one or two decades, and include appropriate theoretical scenarios.
    - Default procedures: draft detailed action plans to implement default procedures timely and flexibly, including definition of crisis manager and crisis team, decision ranges, timelines, and reporting to regulators, clearing participants, stock exchanges, CSDs, and clearing banks.
    - Operational reliability: reduce recovery time objective from one day to two hours (best practice).
    - Money settlements: consider replacing commercial bank settlement model with central bank settlement model in the medium term to mitigate settlement bank risk and facilitate RBI as lender of last resort.
    - Governance: establish independent risk committees (internal and external experts) reporting directly to CCP Boards.
    - Participation requirements: exclude small trading members from CCP membership; establish a tiered system in the cash market.

### Liquidity stress scenarios and CCIL resources (exact figures preserved)
- Stress trigger for forex valuation: "4.7 percent or Rs 2.25 per U.S.D (maximum 1 day change in past 8 years), whichever is higher."
- Stress scenario for forex forward segment: shift in exchange rate by Rs 2.50 to Rs 4.50 per U.S. dollar.
- CCIL resources to draw upon in the event of a default (December 31, 2010):
  - Securities Segment SGF: Rs 9,353 Cr (securities) and Rs 1,450 Cr (cash)
  - CBLO Segment SGF: Rs 1.47.396 Cr (securities) and 367 Cr (cash)
  - Forex Segment SGF: U.S.D 382 million
  - Forex forward Segment SGF and Default fund: Rs 403 Cr (securities)
  - Own resources (capital and reserves): Rs 541.34 crores, including a Settlement Reserve Fund of Rs 210 crores
  - Medium term target for the Settlement Reserve fund: Rs.1,000 crores
- Collateral composition and investment:
  - Collateral: government securities, treasury bills and cash.
  - Margin contribution received by CCIL invested in U.S. T-bills; less than 2 percent of margin retained as cash balance on the account.
- Liquidity management and recommendations:
  - Enforce CCIL liquidity risk management framework; perform comprehensive tests including full model and parameter validations at least annually.
  - Establish default funds for all segments and develop other risk mitigating tools to enlarge CCIL’s guarantee function.
  - Reduce concentration risk in U.S. dollar settlement by selecting at least one more settlement bank and establishing backup solutions for margin collection if foreign bank account is unavailable.
  - Address CBLO segment settlement-bank liquidity concern and legal clarity on netting of net files between asset classes.

### Clearing bank concentration and money-settlement arrangements
- Cash settlement currently takes place in commercial bank money; participants without RTGS access use settlement banks.
- Monitoring gaps:
  - CCIL lacks tools to monitor concentration of exposures toward different settlement banks for Rs and U.S. dollars.
  - Heavy dependence on a single large foreign bank for U.S. dollar settlements and credit lines.
- Recommendations:
  - Develop tools to monitor concentration of settlement flows among settlement banks providing cash settlement in Indian Rs.
  - Select at least one more settlement bank for cash settlement in U.S. dollars to reduce single-provider vulnerability.
  - Consider medium-term shift to central bank settlement model for securities and derivatives to mitigate settlement bank risk.

### Governance, disclosure, and SEBI response
- CCIL governance:
  - Six core promoters at CCIL start-up in 2002: State Bank of India, IDBI Bank Limited, ICICI Bank Ltd, Life Insurance Corporation of India, Bank of Baroda and HDFC Bank Limited.
  - Ownership: banks (62.50 percent), financial institutions (20.50 percent), primary dealers (17.00 percent).
  - Board includes core promoter representatives and independent directors; Chairman and Managing Director nominated by State Bank of India.
  - Board committees include Audit Committee, Committee for bylaws/rules, Risk Management Committee of Directors, Technical Approval Committee.
- Disclosure:
  - PSSA art 21 requires system providers to disclose terms and conditions, charges, limitations of liability, and supply copies of rules and regulations.
  - CCIL and PDO provide comprehensive information to participants; public disclosure can be improved by publishing CPSS-IOSCO disclosure framework and updating CFSA responses.
- SEBI response highlights:
  - SEBI appreciates the assessment and notes significant progress since 2001.
  - SEBI has recommended amendments to Securities Laws to provide for finality of settlement obligations and netting; new laws in process for formal recognition of clearing corporations.
  - SEBI notes bylaws, Supreme Court rulings and Contract Act support finality and novation in practice.
  - SEBI has constituted a committee to review extant risk management framework in cash and derivatives segments.

### RTGS System in India — overview and assessment (Annex I)
- Ownership and operation:
  - RBI owns and operates RTGS; went into operation in March 2004.
  - Membership growth: started with 4 banks and now has 125 members.
  - Membership open to scheduled commercial banks (SCBs), primary dealers, clearing houses and others as decided by RBI.
- Settlement mechanics and liquidity:
  - Settlement in books of RBI via an ‘RTGS Settlement Account’ at Mumbai; funded at beginning of each processing day from member’s current account and returned at end of day.
  - Queue management: centralized queue; members can assign and modify priorities; unsettled transactions remain in queue until end of day and are dropped.
  - RBI provides collateralized intraday liquidity to SCBs and primary dealers; intraday liquidity must be squared off by end of day.
  - RTGS provides manually triggered multilateral offsetting and gridlock resolution mechanisms.
- Usage statistics and pricing (exact figures):
  - Financial year 2010–2011 RTGS volumes and values: Rs 49.3 million (volume) and Rs 484.87 trillion (value).
    - Represents around 25 percent increase in volume and 17 percent increase in value over the previous financial year.
  - Floor for individual RTGS transactions revised to Rs 200,000 from Rs 100,000.
  - From October 2011, RBI adopted full operational costs recovery pricing model with per-transaction mark-up fees: four tiers with beginning of day being Rs 0 and closer to business day end being Rs 10 per transaction.
- Operational resilience and assessments:
  - RTGS primary datacenter in Mumbai with in-city disaster recovery datacenter and off-city datacenter at a different seismic zone.
  - Switchover times: to on-city datacenter within 30 minutes and to off-site datacenter within two hours.
  - CFSA assessment (March 2009): 7 of the 10 principles assessed as fully observed and 3 as broadly observed. Three of the four central bank responsibilities were assessed as fully observed and one responsibility as broadly observed.
  - CFSA and Swiss National Bank actions led to corrective measures (e.g., combined settlement of CBLO and government securities settlement files of CCIL; pricing changes; plans for next-generation RTGS).
  - Overall assessment: recent changes and peer reviews indicate RTGS in general observes CP SIPS and central bank responsibilities are being adhered to.

*Source: _cr13268 - Executive Summary (IMF).*

### Executive Summary ......................................................................................................

### Executive Summary

### Scope and Structure
- Document sections and starting pages:
  - Executive Summary — page 5
  - I. General — page 12
  - II. Overview of the Infrastructure for Securities and Derivatives Clearing and Settlement Systems — page 12
  - III. Detailed Assessments — page 23
  - A. Authorities’ Response — page 80
  - Annex I. The RTGS System in India — page 83

### Subtopics in Section II
- Covered clearing and settlement arrangements:
  - A. Clearing and Settlement Arrangements for Government Securities, Money Market, and Foreign Exchange Instruments — page 17
  - B. Clearing and Settlement Arrangements for Corporate Securities and Financial Derivatives — page 19

### Quantitative Content Inventory
- Tables (by number and title):
  - Table 1. Legal Status and Ownership Structure of CCPs and CSDs
  - Table 2. Cash Market Volumes as Percentage of GDP in 2010
  - Table 3. CCIL Forex Market as Percentage of GDP in 2010
  - Table 4. Derivatives Market Volumes as Percentage of GDP in 2010
  - Table 5. Detailed Assessment of Implementation of the CPSS-IOSCO Recommendations for Securities Settlement Systems—PDO System of RBI
  - Table 6. Detailed Assessment of Implementation of the CPSS-IOSCO Recommendations for Securities Settlement Systems—NSDL and CDSL
  - Table 7. Detailed Assessment of Implementation of the CPSS-IOSCO Recommendations for Central Counterparties–CCIL
  - Table 8. Detailed Assessment of Implementation of the CPSS-IOSCO Recommendations for Central Counterparties–NSCCL, BSE, and ICCL
  - Table 9. Summary of RSSS Implementation—PDO System
  - Table 10. Summary of RSSS Implementation—NSDL and CDSL
  - Table 11. Summary of RCCP Implementation—CCIL
  - Table 12. Summary of RCCP Implementation—NSCCL, BSE, and ICCL
  - Table 13. Recommended Actions to Improve RSSS Implementation–PDO System
  - Table 14. Recommended Actions to Improve RSSS Implementation–NSDL and CDSL
  - Table 15. Recommended Actions to Improve RCCP Implementation—CCIL
  - Table 16. Recommended Actions to Improve RCCP Implementation—NSCCL, BSE, and ICCL

- Figures:
  - Figure 1. Infrastructure of Securities Market in India
  - Figure 2. CCIL Average Daily Volumes

### Glossary and Abbreviations (selected entries as presented)
- Acronyms and terms included (sample):
  - AMFI Association of Mutual Funds of India
  - BCP Business Continuity Planning
  - BSE Bombay Stock Exchange
  - CBLO Collateralized Borrowing and Lending Obligation
  - CCIL Clearing Corporation India Limited
  - CCP Central Counterparty
  - CDSL Central Depository Services Limited
  - CSD Central Securities Depository
  - DvP Delivery versus Payment
  - FSAP Financial Sector Assessment Program
  - GDP Gross Domestic Product
  - IMF International Monetary Fund
  - NDS Negotiated Dealing System
  - NSDL National Securities Depository Limited
  - NSE National Stock Exchange
  - OTC Over The Counter
  - PDO Public Debt Office
  - RCCP Recommendations for Central Counterparties
  - RBI Reserve Bank of India
  - RSSS Recommendations for Securities Settlement Systems
  - RTGS Real Time Gross Settlement
  - SGF Settlement Guarantee Fund
  - VaR Value at Risk

### Emphases Indicated by Structure
- Detailed assessments follow international standards frameworks:
  - CPSS-IOSCO Recommendations assessments for Securities Settlement Systems and Central Counterparties are explicitly enumerated (Tables 5–8).
- Recommendations and remedial actions are organized into specific tables (Tables 13–16) for RSSS and RCCP implementation improvements.
- Annex material focuses on the RTGS System in India (Annex I — page 83).

*Source: _cr13268 - Executive Summary (IMF).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Overview of scope and market structure
- Assessment scope: clearing and settlement systems for (1) government securities, money market instruments and forex instruments; and (2) corporate securities and financial derivatives. Commodity derivatives clearing and settlement systems are outside this scope and a detailed self-assessment by the Forwards Market Commission (FMC) and/or an independent assessment is recommended in the immediate future.
- Operators and settlement arrangements:
  - Government securities: cleared by the Clearing Corporation of India (CCIL); settled in the Public Debt Office (PDO) system of Reserve Bank of India (RBI). Cash settlement in the Real Time Gross Settlement (RTGS) system of the RBI. CCIL acts as a central counterparty (CCP) and guarantees settlement. RBI is regulator and overseer under the Payment System and Settlement Act of 2007 (PSSA).
  - Money market and forex instruments: cleared by CCIL; cash settlement in RTGS.
  - Corporate securities and financial derivatives:
    - Traded on: National Stock Exchange (NSE), Bombay Stock Exchange (BSE), United Stock Exchange (U.S.E), MCX Stock Exchange (MCX-SX) and 17 regional exchanges.
    - Clearing: NSE trades cleared by National Securities Clearing Corporation Limited (NSCCL). BSE clears corporate securities and equity derivatives, except mutual funds and corporate bonds cleared by Indian Clearing Corporation Limited (ICCL). ICCL also clears currency derivatives traded on the U.S.E. MCX-SX cleared by MCX-SX Clearing Corporation Limited (MCX-SX CCL).
    - CCPs: NSCCL, BSE, ICCL and MCX-SX CCL act as CCP for corporate securities and derivatives.
    - Securities leg settlement: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
    - Cash leg settlement: commercial banks acting as clearing banks for the exchanges.
    - Regulator/supervisor: Securities and Exchange Board of India (SEBI).
- Market developments: systems handle a large number of transactions and are of systemic importance; volumes in derivatives segments increased strongly in recent years.

### Key assessment conclusions
- Overall strengths:
  - Risk management framework is prudent.
  - Operational reliability is high.
  - Regulation and oversight functions are effective.
  - RTGS (implemented in 2004) provides an effective system for settlement of large value transactions including the cash leg of government securities transactions.
- Structural concerns:
  - Market infrastructure is segmented per product type; vertical silos exist between government bond market and corporate equity/derivative market, which:
    - Prevent stock brokers and retail clients trading on stock exchanges from accessing the government bond market.
    - Prevent retail investors from investing in government bonds and accessing a full range of investment products.
    - Prevent stock brokers and custodians from using government securities to comply with CCP margin requirements.
  - Multiplicity of systems does not harm stability; multiple CCPs and CSDs may enhance stability by providing potential backups.

### Cross-regulatory coordination and oversight recommendations
- Implement formal arrangements for information sharing and policy coordination between regulators and overseers, including RBI and SEBI.
- RBI and SEBI should meet regularly on a technical and higher level, and have formal arrangements for information sharing and policy coordination.
- Include the FMC in regular meetings because of relevance to commodity market supervision.
- Relevant coordination topics:
  - Improvements in liquidity risk management of CCPs.
  - Orchestrated approach toward crisis management and default plans.
  - Settlement in central bank money.
  - Increasing the use of government securities as collateral to cover positions in corporate securities and derivatives.

### Crisis management and operational resilience
- Findings:
  - Operational reliability is high; Business Continuity Planning (BCP) and Disaster Recovery (DR) sites are in place.
  - No system has crisis management plans that include detailed procedures and actions for a major crisis.
  - Systems test connectivity to backup sites regularly with participants.
- Recommendations:
  - Establish and regularly test detailed crisis management plans, including:
    - Definition of a crisis management team.
    - Procedures to consult and inform participants and regulators.
    - Regular simulations of stress scenarios affecting financial and operational soundness.

### Transparency and disclosure
- Findings:
  - Transparency of all systems can be improved.
  - Current and forthcoming relevant international disclosure framework should be published on operators' websites.
  - The 2009 assessment results of the Committee on Financial Sector Assessment (CFSA) are available on Internet but are not updated and not all key questions are answered.
- Recommendation:
  - Publish the relevant disclosure framework and update public disclosure to address outstanding CFSA questions.

### Assessment highlights and targeted recommendations by system

- PDO system (assessed against the RSSS)
  - Observance: observe or broadly observe 17 out of the 19 recommendations; two not applicable.
  - Improvement opportunities:
    - Legal framework: explicitly state that assets of a client may not be used to cover obligations toward a third party in case of the insolvency of the participant of the PDO system.
    - Transparency: RBI website should include dedicated information about the PDO system; Government Securities Regulation and PDO manual should be available in the public domain; 2009 CFSA results should be updated and all key questions answered.
    - Protection of customer assets: implement arrangements to enable a customer's positions to be moved to a solvent custodian in case of insolvency of its own custodian.

- NSDL and CDSL (assessed against the RSSS)
  - Observance: observe (observed or broadly observed) 16 out of the 19 recommendations; three not applicable.
  - Improvement opportunities:
    - Legal framework: strengthen legal backing for finality and netting of stock exchange transactions by addressing these aspects at the level of law (PSSA not applicable to stock exchange trading; current reliance on bylaws and Securities Contracts Regulation Act (SCRA) and Supreme Court rulings).
    - Governance: constitute user groups to give voice to participants not included in existing committees or Boards.
    - Efficiency: SEBI to conduct periodic performance assessments of CSDs versus international peers; request CSDs to maintain fee schedules in easily comparable format; improve clearing and settlement arrangements in the wholesale corporate bond segment by automating DvP process and eliminating manual interventions.
    - Communication standards: consider offering participants the option to use ISO 15022 and migrating interfaces with clearing corporations to ISO 15022.

- CCIL (assessed against the RCCP)
  - Observance: CCP observes or broadly observes 12 out of the 15 recommendations; two not applicable.
  - Improvement opportunities:
    - Measurement of credit exposure: enable intraday calculation of exposures in all segments using up to date positions and up to date prices; enable intraday valuation of available collateral. CCIL has initiated implementation of intraday calculation facilities in some segments.
    - Financial resources: enforce liquidity risk management framework to cope with immediate liquidity demands; CCIL developing arrangements with RBI in this regard; perform comprehensive tests including full model and parameter validations at least annually; establish default funds for all segments and develop other risk mitigating tools to enlarge guarantee function beyond SGF collateral.
    - Custody and settlement bank risks: reduce concentration risk in forex segment by opening a U.S. dollar account in at least one other bank; select one additional settlement bank; increase frequency and intensity of monitoring financial condition of custodian and settlement banks, including foreign settlement banks; install mechanisms to monitor financial condition of all banks on an ongoing basis; develop tools to monitor concentration of settlement flows among different settlement banks providing cash settlement in Indian Rupees (Rs).
    - Default procedures: include explicit arrangements for segregation and portability of client accounts in case of default of a clearing participant in the legal framework and CCIL default procedures.

- NSCCL, BSE and ICCL (assessed against the RCCP)
  - Observance: CCPs observe or broadly observe 11 out of the 15 recommendations; two not applicable.
  - Improvement opportunities:
    - Legal risk: strengthen legal backing of clearing and settlement process by addressing finality and netting at the level of law.
    - Financial resources and stress testing:
      - Strengthen stress testing procedures; include liquidity aspects in periodic stress testing; ensure credit lines cannot be revoked; conduct stress testing more frequently.
      - Specifics: BSE/ICCL conducts stress only on a yearly basis; adequacy of resources in extreme situations should be assessed at least monthly; yearly comprehensive tests should include full model and parameter validation and scenario choices.
      - Stress scenarios should include most volatile periods of the cash and derivative markets over the last couple of years, preferably the last one or two decades, and include appropriate theoretical scenarios.
    - Default procedures: draft detailed action plans to implement default procedures timely and flexibly, including definition of crisis manager and crisis team, decision ranges, timelines, and reporting to regulators, clearing participants, stock exchanges, CSDs, and clearing banks.
    - Operational reliability: reduce recovery time objective from one day to two hours (best practice); SEBI drafting detailed guidelines on these topics.
    - Money settlements: consider replacing commercial bank settlement model with central bank settlement model in the medium term to mitigate settlement bank risk, reduce dependency of CCPs on collateral and liquidity services of clearing banks, and facilitate RBI as lender of last resort. This would require RBI to review and adapt rules, procedures, services and staff requirements but would significantly increase robustness.
    - Governance: establish independent risk committees (internal and external experts) reporting directly to CCP Boards to provide high level independent advice on margin model, collateral, default procedures and clearing of new products.
    - Participation requirements: exclude small trading members from CCP membership; establish a tiered system in the cash market as in derivatives markets so that only largest, most solid brokers are clearing participants.

### Operational recommendations common across systems
- Formalize inter-regulatory information sharing and policy coordination (RBI, SEBI, include FMC).
- Establish and test detailed crisis management plans and default action plans, including crisis teams and communication procedures.
- Improve transparency by publishing disclosure frameworks and updating public assessment results.
- Strengthen intraday risk measurement, liquidity risk management, stress testing frequency and comprehensiveness, and reduce recovery time objectives to two hours where feasible.
- Move toward settlement in central bank money for broader mitigation of settlement bank risks and to facilitate lender-of-last-resort functions.

*IMF staff assessment (EXECUTIVE SUMMARY)._cr13268 - EXECUTIVE SUMMARY*

### 1.      The present document is the assessment of securities and derivatives clearing

### The present document is the assessment of securities and derivatives clearing and settlement systems in India based on the Recommendations of the Committee for Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) for Securities Settlement Systems (RSSS) and the Recommendations of CPSS-IOSCO for Central Counterparties (RCCP)

### Overview of the infrastructure for securities and derivatives clearing and settlement systems
- Assessment conducted during a Financial Sector Assessment Program field mission to India in September 2011.
- Information sources:
  - Relevant laws, bylaws, regulations, rules and procedures governing the systems.
  - Annual reports, RBI and SEBI responses to the FSAP questionnaire for securities clearing and settlement systems; websites from regulators, overseers, supervisors, operators and stakeholders and other relevant documents.
  - Extensive discussions with RBI, SEBI, FMC, CCIL, NSE, BSE, U.S.E, MCX, MCX-SX, NSCCL, ICCL, NSDL, CDSL and stakeholders (primary dealers, banks and broker-dealers), and clearing banks.
  - A self assessment prepared by the CCIL.
  - The CFSA assessed the financial sector of India in 2009, including payment and securities clearing and settlement systems.
- Scope:
  - Organized around three product sets: (1) government securities, money market instruments and forex instruments; (2) corporate securities and financial derivatives; (3) commodity derivatives.
  - Different legal frameworks, regulators and operators for the three product sets.
  - Scope of this assessment limited to the first two sets of products; recommended that commodity derivatives clearing and settlement arrangements be assessed in the near future.

### Key market infrastructures and linkages
- Government securities, money market and forex:
  - Cleared by CCIL and settled in the books of the PDO system of the RBI.
  - Cash settlement in the Real Time Gross Settlement (RTGS) system of the RBI.
  - CCIL acts as CCP and guarantees settlement; RBI is regulator and overseer based on the PSSA.
  - CCIL coordinates cash settlement in RTGS and securities settlement in the PDO system; government securities settled using a DVP model 3 mechanism on T+1; repos settled on T+0 or T+1.
  - PDO system is the CSD and registrar for dematerialized government securities; in August 2011 PDO counted 233 active own accounts and 88 client accounts.
- Corporate securities and financial derivatives:
  - Traded on NSE, BSE, U.S.E, MCX-SX and 17 regional exchanges.
  - Clearing: NSCCL clears corporate securities and financial derivatives traded on NSE; BSE clears corporate securities and equity derivatives traded on BSE (mutual funds and corporate bonds cleared by ICCL); ICCL clears currency derivatives traded on U.S.E; MCX-SX cleared by MCX-SX CCL.
  - NSCCL, BSE, MCX-SX CCL and ICCL act as CCPs for corporate securities and derivatives.
  - Securities leg settled in NSDL and CDSL; cash leg settled in commercial clearing banks (13 for NSCCL, 9 for ICCL, 16 for BSE and 10 for MCX-SX CCL).
  - SEBI is regulator and supervisor of stock exchanges including clearing and settlement systems.
- Commodity derivatives:
  - Traded on four national commodity exchanges (NMCE, MCX, NCDEX, ICEX) and 17 regional exchanges.
  - Commodity composition (2009): bullion (41 percent), base metals (23 percent), energy products (20 percent), agricultural commodities (16 percent).
  - Commodity exchanges provide trading platform and CCP facilities; cash settlement in clearing banks (same as for corporate securities).
  - Regulated and supervised by FMC under the Ministry of Consumer Affairs, Food and Public Distribution; FMC established under the Forward Contracts (Regulation) Act, 1952.

### Legal status, ownership and market structure
- CCPs and CSDs are user-owned companies under the Companies Act, except PDO (owned by RBI).
- Selected legal status and ownership structure (as stated):
  - PDO system — CSD/SSS — No independent legal status — Fully owned by RBI.
  - NSDL — CSD/SSS — Public Limited Company under the Companies Act 1956; sponsors required to collectively hold at least a 51 percent stake; the NSDL is promoted by the NSE, IDBI and UTI; the NSE is the largest share-holder with a 25 percent stake.
  - CDSL — CSD/SSS — Public Limited Company under the Companies Act 1956; promoters required to collectively hold at least a 51 percent stake; the promoter is the BSE with a 54.2 percent stake.
  - CCIL — CCP — Public Limited Company under the Companies Act 1956 — Banks (62.50 percent), financial institutions (20.50 percent) and primary dealers (17.00 percent). Promoters include State Bank of India, IDBI Bank Limited, ICICI Bank Ltd, Life Insurance Corporation of India, Bank of Baroda and HDFC Bank Limited.
  - NSCCL — CCP — Clearing corporation under the SCRA; NSCCL is a 100 percent subsidiary of NSE. NSE owned by a range of banks, insurance companies and other financial institutions, with a maximum share of 15 percent each.
  - BSE — CCP — Public Limited Company under the Companies Act 1956; BSE owned by a range of banks, insurance companies and other financial institutions, with a maximum share of 15 percent each.
  - ICCL — CCP — Clearing corporation under the Securities Law; ICCL is 100 percent subsidiary of BSE.

### Market importance and volumes (selected figures preserved exactly)
- General:
  - Systems handle a large number of transactions and are of systemic importance.
  - Derivatives segments saw increased activity during the last year; cash market segments on NSE and BSE are stable.
  - Government securities and CBLO saw a decrease in 2010, but volumes increasing again in 2011.
- Table 2 (Cash Market Volumes as Percentage of GDP in 2010) — entries as presented:
  - Government securities  360 1,225,400 (2010/2011) 71-24
  - CBLO  na 1,998,920 (2010/2011) 116-24
  - NSE – Equities  1,556,620798,636462
  - BSE – Equities  555,719258,57515-1
- Table 3 (CCIL Forex Market as Percentage of GDP in 2010) — entry as presented:
  - Forex  na3,841,860 (2010/2011) 22234
- Table 4 (Derivatives Market Volumes as Percentage of GDP in 2010) — entries as presented:
  - NSE stock index derivatives 686,124,9684,109,95623833
  - NSE equity derivatives 204,037,4951,416,8898217
  - NSE and MCX-SX Currency futures 1,603,956,1241,635,18395256
  - MCX commodity futures 197,206,8011,905,339110 percent22 percent
- CCIL activity and participants:
  - CCIL receives around 20 percent of the secondary market transactions in government securities from the NDS system and approximately 80 percent from the NDS-OM.
  - CCIL has 222 participants in the CBLO segment and 169 in the government securities segment.
  - CCIL offers settlement of foreign exchange transactions (14 currencies) in CLS through CCIL; CCIL uses Royal Bank of Scotland (RBS) in London as a settlement participant in CLS.
- Average daily volumes (2011 January to August) — exact figures:
  - forex instruments: US$19.5 billion
  - CBLOs: US$9.4 billion
  - government securities and repos: US$5.9 billion
  - Note: volumes in 2011 (January to August) are higher than volumes for the full year of 2010.

### Clearing and settlement arrangements and operational features
- Government securities, money market and forex instruments:
  - Historical developments and reforms:
    - DVP model 1 mechanism introduced in 1995.
    - CCIL started operations in 2002; mandatory holding of government securities in dematerialized form introduced in 2002.
    - Negotiated Dealing System (NDS) introduced in 2002; RTGS introduced in 2004 enabling settlement in central bank money.
    - NDS-OM (Order Matching) introduced in 2005 as anonymous order matching system.
    - Standardized settlement cycle of T+1 implemented in 2005 for all outright OTC and NDS-OM transactions in government securities.
  - STP is supported for transactions in government securities, CBLOs and forex instruments.
  - Trading channels:
    - NDS-OM (anonymous) and OTC for government securities; OTC transactions must be reported on NDS.
    - Repos electronically traded on CROMS; OTC repos reported on NDS.
    - CBLO Trading System operated by CCIL for CBLOs.
    - Forex and forex forwards mostly bilateral telephone trading; also EOMS, Reuters and CCIL’s Fx Clear trading platform.
  - Clearing and risk management:
    - CCIL is CCP for government securities and CBLOs; part of forex/forwards settled through CCIL; Interest Rate Swaps settled through CCIL on nonguaranteed mode.
    - For guaranteed transactions CCIL nets participants multilateral daily then novates.
    - CCIL has a comprehensive risk management framework; measures exposure daily and requires margins and collateral.
    - Access criteria apply to CCIL participants.
  - Settlement finality and netting:
    - PSSA supports final and irrevocable nature of transactions and netting.
    - Cash settlement for participants without RBI current accounts takes place in designated settlement banks.
- PDO system:
  - CSD for dematerialized government securities and registrar; participants can hold own or client accounts.
  - Permitted own-account participants: banks, primary dealers, central and state governments, pension funds, insurance funds, mutual funds, financial institutions, NSDL and CDSL.
  - Permitted client-account and custody service providers: banks, primary dealers, NSDL, CDSL and CCIL.

### Corporate securities and financial derivatives market developments and rankings
- Market evolution:
  - SEBI established post-liberalization (1992) and facilitated competition and new exchanges; NSE established offering electronic trading.
  - Dematerialization increased efficiency; NSDL and later CDSL established as CSDs.
  - Risk-reduction measures introduced: rolling settlement, compression to T+2 settlement cycle, introduction of DvP mechanisms.
- Exchange size and rankings (figures as presented):
  - BSE market capitalization: US$1,632 billion (largest market capitalization in India; ninth largest worldwide).
  - NSE market capitalization: US$1,596 billion (second in India; tenth largest worldwide).
  - NSE turnover (2010): US$798 billion (highest turnover in India; sixteenth largest worldwide).
  - BSE turnover (2010): US$259 billion (second in India; twenty-fourth worldwide).
  - Derivatives exchange international ranks by contracts traded/cleared: NSE ranks fifth, MCX (including MCX-SX) ranks ninth, U.S.E ranks thirteenth.

### Findings and recommendations (explicitly stated in source)
- Findings:
  - Multiple infrastructure improvements over two decades have strengthened settlement in central bank money and introduced CCPs and DvP arrangements.
  - Systems enable STP for government securities, CBLOs and forex instruments, with centralized clearing by CCIL for many instruments.
  - CCPs and CSDs are of systemic importance given transaction volumes and market activity.
- Recommendations:
  - The scope of this assessment is limited to government securities, money market and forex instruments, and corporate securities and financial derivatives; it is recommended that the clearing and settlement arrangements for the commodity derivatives market be assessed in the near future.
  - The PDO system, NSDL and CDSL are subject to a detailed assessment using the CPSS-IOSCO Recommendations for SSS.
  - ICCL, NSCCL, BSE and ICCL are subject to detailed assessments using the CPSS-IOSCO Recommendations for CCPs.
  - Given growth and volumes of the commodity derivatives market, a more detailed assessment of commodity derivatives clearing and settlement systems should be considered in the immediate future.

*Assessment conducted during a Financial Sector Assessment Program field mission to India in September 2011; assessor: Massimo Cirasino, supported by Froukelien Wendt and Harish Natarajan.*

### 19.      The NSE offers trading in equities, government and corporate bonds, warrants,

### _cr13268 - 19.      The NSE offers trading in equities, government and corporate bonds, warrants,

### Market offerings and trading platforms
- NSE offers trading in equities, government and corporate bonds, warrants, exchange traded funds (ETFs), mutual funds, stock index options and futures, stock options and futures and currency options and futures.
- Transactions at NSE are executed on the National Exchange for Automated Trading (NEAT).
- BSE offers the same range of products except for the currency derivatives.
- BSE has a stake in the U.S.E that started a trading platform for currency futures and options in 2010.
- Transactions on BSE are executed on the BSE Online Trading System (BOLT).

### Clearing counterparties, roles, and organizational structure
- NSCCL is the CCP for transactions executed on the NSE; NSCCL is a wholly-owned subsidiary of the NSE and legally a clearing corporation.
- BSE is the CCP for transactions executed on the BSE trading platforms and legally a clearing house.
- BSE provides guarantee and risk management functions; BOISL handles operational processing of BSE transactions.
- BSE owns 49 percent of the BOISL and Bank of India 51 percent.
- ICCL is the CCP for currency derivatives traded on the U.S.E, as well as mutual funds traded on the BSE; ICCL is legally a clearing corporation and a 100 percent subsidiary of the BSE.
- MCX-SX CCL acts as CCP to all the trades, provides full novation and carries out the business of clearing and settlement for currency futures contracts on MCX-SX.
- NSCCL, BSE, MCX-SX CCL and ICCL net the positions of their clients on a multilateral basis, after which novation takes place real time.

### Risk management, margins, and stress testing
- The CCPs have comprehensive risk management models to protect itself against the default of one of its members.
- Exposures and margin requirements are calculated on a real time basis for all client levels.
- The CCPs calculate several types of margin, including initial margin and variation margin, based on the internationally used VaR/SPAN model.
- Stress tests calculate whether the CCPs are able to withstand the default of the ten participants with the largest exposures.

### Clearing, settlement models, finality, and netting
- The CCPs handle the DVP process for corporate securities.
- Transactions are settled using a DVP model 3 mechanism, with settlement on T+2.
- The securities leg of the transactions is settled in the books of the NSDL and CDSL.
- The cash settlement takes place in commercial bank money.
- The CCPs have appointed more than a dozen settlement banks as designated clearing banks; criteria exist for their enrollment.
- Brokers and custodians have to designate one clearing bank for cash settlement purposes.
- Finality and netting are covered by provisions of the bylaws of the stock exchanges.
- The PSSA is not applicable to stock exchange transactions.

### Market participants, retail investor participation, and brokerage
- Investors access the markets through registered intermediaries called stock brokers.
- The NSE has around two to three million investors participating in the market on a daily basis.
- Retail investors are a substantial part of the total investor base for corporate securities and derivative markets in India.
- The total number of retail investors was estimated to be eight million in 2007 and the estimate for 2009–10 was 12 million.
- The estimated number of tax payers in India is only 26 million (contextual comparison).
- Only intermediaries who have obtained a license from the SEBI are permitted to deal on behalf of investors.
- The number of registered stock brokers was 9,325 on March 31, 2011.
- The NSE counted 1,389 registered brokers, of which 1,239 were corporate brokers and 1,301 on the BSE, of which 1,087 were corporate brokers.

### Corporate bond market structure and RBI initiatives
- Corporate bonds are tradable on the stock exchanges as well as in the OTC segment.
- NSE and BSE offer trading in publically issued corporate bonds on the same platform as corporate equities.
- Clearing and settlement arrangements are similar, with NSCCL and BSE acting as the CCP for transactions in corporate bonds.
- NSDL and CDSL act as the CSDs for corporate bonds.
- OTC transactions are not guaranteed by NSCCL and ICCL, but the CCPs coordinate the DvP settlement for corporate bonds, with cash settlement in the RTGS system of the RBI and the securities settlement in the books of NSDL and CDSL.
- The corporate bond market in India is underdeveloped compared to the equity and derivatives market.

RBI-supported measures to develop corporate bond market:
- (1) Facilitating the settlement of secondary market trades in corporate bonds in the RTGS system, using a DvP model 1 mechanism. The NSCCL and the ICCL have obtained approval to maintain transitory pooling accounts with the RBI. Guidelines have been issued to all RBI regulated entities to mandatorily clear and settle all OTC trades in corporate bonds using the above arrangement with effect from December 1, 2009.
- (2) Facilitating the development of an active repo market in corporate bonds. The guidelines for repo transactions in corporate debt securities were issued early 2010. The guidelines will enable repo in listed corporate debt securities rated ‘AA’ or above.
- The Fixed Income Money Market and Derivatives Association of India (FIMMDA) is working on the development of reporting platform and also on the Global Master Repo Agreement to standardize the repo transactions in corporate bonds.

*Source: _cr13268 PDF chapter content.*

### 26.      The RBI has taken initiatives to increase the transparency and safety of the OTC

### _cr13268 - 26.      The RBI has taken initiatives to increase the transparency and safety of the OTC

### OTC derivatives reporting and transparency initiatives
- The RBI has set up a working group consisting of members of the RBI, CCIL and the FIMMDA to work out the modalities for an efficient, single reporting mechanism for all OTC interest rate and forex derivative transactions.
- Current reporting arrangements (as described):
  - Interbank reporting of interest rate derivative transactions is done electronically on CCIL; client transactions are collected on a weekly basis.
  - Transactions in forex forwards and forex interest rate swaps are published in the Weekly Statistical Supplement of the RBI, with a time lag of two–three weeks.
  - Cross currency derivative transactions are reported on a half yearly basis.
  - OTC trades in corporate bonds must be reported on the corporate bond platform of the BSE, NSE or FIMMDA within 30 minutes after the transactions.
  - Repos in corporate bonds have to be reported on the FIMMDA platform within 15 minutes after the transaction.
- The RBI has proposed to set up a centralized Trade Repository (TR) for credit default swaps.
- Reference to international guidance: draft CPSS-IOSCO reports ‘Guidance on the application of the 2004 CPSS-IOSCO Recommendations for Central Counterparties to OTC derivatives CCPs’ and ‘Considerations for trade repositories in OTC derivatives markets’ of May 2010.

### Key operational and disclosure findings for the PDO (Public Debt Office) system and OTC-related markets
- Legal and institutional framework:
  - Critical legal elements for securities clearing and settlement are covered by the Securities Contracts Regulation Act (SCRA; 1956), the Government Securities Act (GSA; 2006), Payment and Settlement Systems Act (PSSA; 2007) and the Contract Act (1872).
  - The PDO-system is governed by the Subsidiary General Ledger (SGL) and Constituents’ Subsidiary General Ledger (CSGL) regulations and the Government securities regulations (GSR), 2007.
  - Assessment: Observed.
- Reporting, trade confirmation and settlement timeliness:
  - OTC transactions have varied reporting timeliness (see specific items above).
  - All transactions in government securities and repos must be reported on NDS or executed on NDS-OM (government securities) or CROMS (repo). OTC transactions must be reported within 15 minutes after the trade is executed at NDS; NDS-OM and CROMS are confirmed real time.
  - Approximately 20 percent of all trades in government securities are reported through NDS, whereas approximately 80 percent of transactions are executed on the NDS-OM platform.
  - Only confirmed transactions will be sent to the PDO system.
  - Assessment (confirmation): Observed.
- Settlement cycles and fail management:
  - Agreed settlement standard for secondary market transactions in government securities is T+1. Settlement standard for repo transactions is T+0 or T+1.
  - Settlement fails are low due to RBI penalty regime including temporary and permanent exclusion for repeated shortfalls.
  - All transactions in government securities are guaranteed by CCIL. Assessment: Observed.
- Central counterparty and risk management:
  - CCIL is the central counterparty for government securities, money market and forex instruments, established to reduce liquidity needs through multilateral netting. Assessment: Observed.
- Securities lending and repos:
  - No regulatory or tax impediments for repo market or securities lending; RBI allowed to offer lending and borrowing facility for government securities under RBI Act 1934.
  - Repo participation: banks, primary dealers, nonbanking financial companies, insurance companies, financial institutions, mutual funds and housing finance companies are allowed; corporate investors may only lend in repo market (minimum period of 7 days) and only to banks.
  - A limited purpose securities lending facility and CCIL securities lines of credit exist to meet securities shortfalls. Assessment: Observed.
- Dematerialization and book-entry transfer:
  - Government securities are issued only in dematerialized form; PDO is registrar; transfer in PDO results in transfer of ownership. Assessment: Observed.
- Delivery-versus-payment (DvP) and use of central bank money:
  - CCIL uses a DvP model 3 mechanism with netting of securities and funds; CCIL holds a securities account in the PDO and a cash account in the RBI RTGS system; multilateral net settlement file has priority over other RTGS transactions.
  - Finality: irrevocability achieved once transactions are accepted for guaranteed settlement and novated by CCIL at the end of the trading day; finality supported by PSSA art 23. Assessment: Observed.
- Intraday credit and settlement asset safety:
  - PDO does not provide intraday credit; no overdrafts allowed in the CSD. Participants can pledge/hypothecate securities to obtain loans within the RTGS system subject to haircuts. Assessment: Not applicable.
  - All government securities are settled in central bank money in the RBI RTGS system. Assessment: Observed.

### Operational resilience, contingency planning, and disclosure recommendations
- Operational resilience and backups:
  - PDO system is fully automated with on-city hot backup with Disaster Recovery (DR) data center and a third off-city back-up site with different risk profile.
  - Replication: primary to on-city data centre in real time; primary to off-city with a small time lag.
  - Switchover times: to on-city datacenter within 30 minutes and to off-site datacenter within 2 hours.
  - Regular independent internal and external audits; quarterly DR drills including connectivity tests for systems of PDO participants. No major incident or failure in recent years. Assessment: Observed.
- Crisis management and recommended improvements:
  - Comments highlight room to improve crisis management arrangements regarding continuity of the PDO system.
  - Recommendations:
    - RBI and preferably participants and other infrastructure service providers should draft an action plan detailing actions to be taken in case of a crisis, with contact details, information flows and decision ranges.
    - RBI should carry out a formal exercise with relevant participants to test the action plan in a variety of scenarios and adapt the plan according to lessons learnt, addressing the human factor in stress situations.
    - Scenarios should include failure of central systems, participants’ systems, infrastructure services, or external threats like cybercrime attacks.
  - Assessment note: system assessed as ‘observed’ despite lack of comprehensive crisis management procedures; assessment may differ under CPSS-IOSCO Principles for FMIs expected in 2012.
- Custody, client asset protection, segregation and portability:
  - PDO participant (custodian) maintains client CSGL accounts separated from proprietary SGL accounts; beneficial ownership recorded in custodian books (clients not identified as beneficial owner in PDO system).
  - GSA art 4(2) and art 4(3) and CSGL regulations specify protections and operational requirements; custodians must provide system generated audit trails and quarterly audit reports to RBI Audit Committee. Assessment: Observed.
  - Comments/recommendation: No arrangements available to enable a customer’s positions to be moved to a solvent custodian in case of insolvency of its custodian. Recommendation to implement segregation and portability tools per draft CPSS-IOSCO Principles for Financial Market Infrastructures.
- Disclosure, public information and governance transparency:
  - PSSA art 21 requires system providers to disclose terms, conditions, charges, limitations of liability, and supply copies of rules/regulations.
  - Existing participants have access to relevant laws, rules and information necessary for full description of rights and risks as part of membership; potential participants may find it difficult to obtain a clear picture as information is scattered and the GSR is not publicly available on the RBI website.
  - Assessment: Broadly observed.
  - Recommendations:
    - Update and expand answers to the CPSS-IOSCO disclosure framework; regularly review.
    - Develop a dedicated section on the RBI website including overview of legal framework, governance arrangements and objectives of the PDO system.
    - Consider publishing the GSR on the RBI website to increase transparency.
    - Increase public information on PDO objectives and GSR/PDO manual availability.

### Inter-agency cooperation and oversight recommendations
- Oversight structure and capacity:
  - Oversight of payment and settlement systems is performed by the RBI under the PSSA; the oversight department is part of the Department of Payment and Settlement Systems with a staff of 5 FTE covering all PSSA-defined systems.
  - Oversight uses off-site surveillance and on-site inspections; assessment framework based on CPSIPS and CPSS-IOSCO Recommendations.
  - Assessment: Broadly observed.
- Institutional coordination:
  - The Financial Stability and Development Council (FSDC) formed December 2010 includes heads of RBI, SEBI, IRDA, PFRDA and others; a sub-committee chaired by RBI Governor assists FSDC and meets quarterly; an Inter Regulatory Technical Group meets once every two months.
  - Despite cooperation, payment and securities clearing/settlement cooperation is not formalized; no explicit agreements for information sharing or policy coordination between RBI and SEBI (and FMC).
  - Recommendation: RBI should establish a framework for cooperation with SEBI and FMC to exchange information and coordinate policy implementation; one option is using the FSDC structure.

*Italic: Source — IMF FSAP chapter content as provided in the supplied PDF excerpt.*

### 4.7 percent or Rs 2.25 per U.S.D (maximum 1 day change in past 8 years),

### _cr13268 - 4.7 percent or Rs 2.25 per U.S.D (maximum 1 day change in past 8 years)

### Liquidity stress scenarios and available resources
- Stress trigger for forex valuation: "4.7 percent or Rs 2.25 per U.S.D (maximum 1 day change in past 8 years), whichever is higher."
- Stress scenario for forex forward segment: shift in exchange rate by Rs 2.50 to Rs 4.50 per U.S. dollar.
- CCIL resources to draw upon in the event of a default (December 31, 2010):
  - Securities Segment SGF: Rs 9,353 Cr (securities) and Rs 1,450 Cr (cash)
  - CBLO Segment SGF: Rs 1.47.396 Cr (securities) and 367 Cr (cash)
  - Forex Segment SGF: U.S.D 382 million
  - Forex forward Segment SGF and Default fund: Rs 403 Cr (securities)
  - Own resources (capital and reserves): Rs 541.34 crores, including a Settlement Reserve Fund of Rs 210 crores
- Medium term target for the Settlement Reserve fund: Rs.1,000 crores

### Quality of collateral, credit lines, and liquidity access
- Collateral composition: government securities, treasury bills and cash; high quality.
- Cash deposits: short term deposits at banks with high credit standings.
- Legal enforceability: beneficial interest in collaterals enforceable under the PSSA, section 23 and under the GSA.
- Credit lines: available without delay; offered by several banks; cash transfers via the RTGS system of RBI.
  - Credit lines are registered with the RBI and can be invoked by notifying the RBI without additional action from the issuing bank.
  - For forex and forex forward segments, CCIL can draw on credit lines from a large foreign bank for U.S. dollar liquidity.

### Participant exposure limits, intraday deposits, and risk transfer
- Margin/exposure rule:
  - If total required margin < available SGF contribution → participant is within exposure limit.
  - If new transactions exceed risk exposure limit → CCIL will not guarantee these transactions for settlement unless participant transfers additional cash or securities to the SGF.
- Intraday deposits: participants can make intraday deposits of cash and securities.
- Risk transfer consequence: uncovered exposures are transferred to the original counterparty (a CCIL participant); sudden significant exposures may arise for CCP participants and should be covered by their own risk management.
- Suggested mitigants: establish robust intraday margin facilities for all segments and create a default fund for other segments.

### Loss allocation and default handling
- Loss allocation rule: enforceable and transparent; if a participant defaults and collateral is insufficient, CCIL may divide loss among surviving participants who had to receive payment from the defaulting participant.
  - Allocation proportional to individual net exposure of surviving participants to the defaulting participant on the value date.
- Default definition triggers (Bylaws chapter XIII and Rules chapter VI): participant declared in default if, among others:
  - it is unable to fulfill its clearing or settlement obligations; or
  - it admits or discloses its inability to fulfill duties, obligations and liabilities; or
  - it is unable to fulfill within the specified time the margin obligations including initial and MTM margins; or
  - it fails or is unable to pay within the specified time the damages and the money difference due on a closing-out effected against it under byelaws, rules and regulations; or
  - proceedings have been commenced for winding up.
- Default procedures: detailed action plan exists, reviewed every year.
- Assessment: Observed for default procedures.

### CBLO segment settlement-bank liquidity concern
- CBLO nonbank participants: insurance companies, mutual funds and corporates; typically lenders of money.
- No limit set on amount of lending; volumes of payouts of settlement banks are increasing.
- CCIL stress tests indicate potential liquidity shortages in case of a failure of a settlement bank.
- Current mitigation: net the settlement file in the CBLO segment with the net settlement file in the government securities segment to reduce CCIL liquidity needs in a settlement-bank failure.
- Legal concern: doubts whether this netting of net files is legally valid under the PSSA.
- Assessment: Partly observed.

### Recommendations related to liquidity management and CBLO risks
- Enforce the CCIL liquidity risk management framework to ensure sufficient capacity to cope with immediate liquidity demands; note CCIL is developing arrangements with RBI.
- Perform comprehensive tests, including full model and parameter validations, at least annually.
- Establish default funds for all segments and develop other risk mitigating tools to enlarge CCIL’s guarantee function where an individual participant’s SGF contribution may be temporarily insufficient.
- Address liquidity risk related to settlement banks of nonbank participants in the CBLO segment. Possible solutions:
  - increase availability of short term liquidity within CCIL; or
  - impose a NDC as is currently the case in the forex segment.
- Further legal analysis required on validity of current netting of net files between asset classes.

### Collateral handling, investment policy, and monitoring (RCCP 7)
- Collateral types accepted: cash, government securities and treasury bills.
- Securities deposit location: CSGL account of CCIL in the PDO system of the RBI.
- Cash contributions: sent to the RTGS settlement account of CCIL; participants without RTGS access send cash collateral to CCIL’s current account with one of the settlement banks.
- Forex segment collateral: U.S. dollar contributions transferred to U.S. dollar nostro current account of CCIL maintained with a large foreign bank.
- Margin treatment: margin contribution received by CCIL in a separate RBI Account distinct from the settlement account; margins immediately invested in U.S. T-bills; less than 2 percent of margin retained as cash balance on the account.
- Investment policy: invest in highly liquid securities or cash deposits; Indian rupee cash invested mainly in government securities and bank deposits with banks of high credit rating; investments are short term.
- U.S. dollar cash: invested in U.S. Treasury bills by two large foreign banks; small portion kept on current accounts with settlement banks.
- Monitoring: exposures per settlement bank are monitored; custodians’ financial conditions reviewed annually.
- E-Notice system: web-based application for submission of collateral notices and membership related data; facilitates online monitoring.
- Assessment: Observed.
- Comments/recommendations:
  - Increase frequency and intensity of monitoring of financial condition of settlement banks, including foreign settlement banks.
  - Establish a backup solution for collection of margins if the foreign bank account is not available.

### Operational risk, systems resilience, and business continuity (RCCP 8)
- Operational risk management: active identification and mitigation; operational audits by internal and external auditors; security policies; review by the Technical Advisory Committee.
- Systems and providers:
  - CCIL operates its own systems.
  - M/s. Tata Consultancy Services designs and develops software for CCIL.
  - INFINET connects back office of participants with CCIL; data transmitted in IFN300 format.
- Business continuity and recovery:
  - On-city backup site and off-city backup site (in Pune), fully operational.
  - Quarterly connectivity tests with participants.
  - Real-time replication between primary site and on-city data centre; replication to off-city data centre with a small time lag.
  - Implementation of automated 3-way SAN-based replication solution expected to make data loss close to zero.
  - No major incident in previous year; capacity plans to handle stress volumes.
- Assessment: Observed.
- Recommendation: develop and test crisis management procedures with all or main participants; draft detailed action plan including roles, contact details, information flows and decision ranges; conduct formal exercises and adapt action plan based on lessons learnt. Stress scenarios should include central systems failure, participant system failures, infrastructure service failures, and external threats like cybercrime attacks.

### Money-settlement arrangements and concentration risk (RCCP 9)
- Cash leg settlement:
  - Securities, CBLO and forex segment cash settlements take place in the RTGS system of the RBI.
  - Participants without RTGS access use settlement banks.
  - U.S. dollar cash settlements for forex segment take place in the books of a large foreign bank.
  - CCIL cash settlement instructions result in final settlements in line with PSSA (art 23).
- Settlement bank requirements: explicit application and compliance with strict requirements (credit rating, capital adequacy, operational efficiency, liquidity position, earnings/profitability, regulatory conduct).
- Monitoring gaps and concentration risk:
  - CCIL lacks tools to monitor concentration of exposures toward different settlement banks for Rs and U.S. dollars.
  - For U.S. dollar settlements, CCIL is heavily dependent on a single large foreign bank which is also the only credit line provider in U.S. dollars and the only custodian for cash collateral in U.S. dollars.
- Assessment: Broadly observed.
- Recommendations:
  - Develop tools to monitor concentration of settlement flows among settlement banks providing cash settlement in Indian Rs.
  - Select at least one more settlement bank for cash settlement in U.S. dollars to reduce single-provider vulnerability.

### Physical deliveries, links, cost-effectiveness, and governance (RCCP 10–13)
- RCCP 10: Physical deliveries
  - CCIL does not conduct any physical deliveries.
  - Assessment: Not applicable.
- RCCP 11: Links to other CCPs
  - CCIL has not established any links with other CCPs.
  - Assessment: Not applicable.
- RCCP 12: Cost-effectiveness
  - CCIL has conducted cost benefit analyses for forex and forex forward segments; user group meetings for other segments.
  - Fee-setting: CCIL may prescribe fees, charges and recoveries (Bylaws, art VIII.11), usually after comprehensive consultation with participants.
  - Service level reviews: regular interaction with user committees and participants; internal and external operational audits used to review operational reliability.
  - Assessment: Observed.
  - Comment: Suggestion that regulatory approval on any fee changes be applied to provide an additional tool to ensure efficiency given CCIL’s monopoly position.
- RCCP 13: Governance
  - The CCIL has been incorporated as a Public Limited Company under the Companies Act. (Text ends at incorporation statement in supplied content.)

*Italic: Content derived from the provided IMF source text.*

### 1956. Six core promoters helped CCIL start up in 2002, which are State Bank of India,

### _cr13268 - 1956. Six core promoters helped CCIL start up in 2002, which are State Bank of India,

### Governance and ownership
- Six core promoters at CCIL start-up in 2002: State Bank of India, IDBI Bank Limited (formerly Industrial Development Bank of India), ICICI Bank Ltd, Life Insurance Corporation of India, Bank of Baroda and HDFC Bank Limited.
- Ownership structure:
  - banks (62.50 percent)
  - financial institutions (20.50 percent)
  - primary dealers (17.00 percent)
- Objectives are expressed in a memorandum of association (public document by filing with registrar of companies).
- Annual financial statements are available on the CCIL website.

### Board composition, management, and user engagement
- Board comprises representatives of CCIL’s core promoters and independent directors with expertise in forex markets, risk management and capital markets, law and accountancy.
- Chairman and Managing Director nominated by the State Bank of India.
- Directors are accountable under the Companies Act and the PSSA.
- Participants not on the Board can express views in:
  - general shareholder meetings (annual)
  - user group meetings (user groups exist for various business segments; user groups include representatives from all market segments and organizations like FIMMDA, PDAI, AMFI, FEDAI).
- Major rule, regulation and procedure changes are discussed within CCIL user groups.

### Board committees and risk governance
- Board committees:
  - Audit Committee — review internal, operational and statutory audit reports and periodic financial statements.
  - Committee for bylaws, rules and regulations — review draft bylaws, rules and proposed changes.
  - Risk Management Committee of Directors — address/decide all risk management issues and approve admission of new participants.
  - Technical Approval Committee — IT expert invitees to address IT issues.
- Clear separation between risk management and operations:
  - Head of risk management reports directly to Managing Director.
  - Separate Board committee on risk management with directors experienced in risk management.

### Transparency and disclosure (RCCP 14)
- PSSA art 21 requires system providers to disclose terms and conditions, charges, limitations of liability, and supply copies of rules and regulations.
- CCIL provides comprehensive information on its website and other means; participants have access to relevant laws, regulations, rules and other information to understand rights, obligations and risks.
- Historical assessment: CCIL was assessed by the Committee on Financial Sector Assessment in March 2009; answers to CPSS-IOSCO Recommendations for Securities Settlement Systems exist but are not updated and not all key questions addressed.
- Recommendation: publish the CPSS-IOSCO relevant disclosure framework on the CCIL website with updated and detailed answers to key questions.

### Regulation and oversight (RCCP 15)
- CCIL is regulated and overseen by the RBI as an authorized entity under the PSSA.
- Oversight department: Department of Payment and Settlement Systems, comprising a staff of 5 FTE that cover all payment and settlement systems defined by the PSSA.
- Oversight practices: off-site surveillance and on-site inspections; framework based on international standards (CPSIPS and CPSS-IOSCO Recommendations for SSS and CCPs).
- Cooperation with SEBI exists in various groups, but cooperation on payment and securities clearing and settlement systems is not formalized; no explicit agreements for information sharing or policy coordination.
- Recommendation: RBI should establish a framework for cooperation with SEBI and FMC to exchange information and coordinate on policy implementation — one option is to use the FSDC structure.

### Key operational and risk-management findings (selected RCCP assessments)
- RCCP 3 (measurement & management of credit exposure)
  - CCIL provides participants access to comprehensive information; recommendation for CCIL to publish CPSS-IOSCO disclosure framework.
- RCCP 5 (financial resources)
  - Stress tests indicate CCPs’ resources are generally adequate for the largest-exposure default, but dependence on clearing banks’ credit lines is a concern.
  - NSCCL bylaws limit Clearing Corporation liability to contributions available to the Settlement Fund (SGF) and permit use of retained earnings/profits.
  - Assessment: Partly observed.
  - Recommendations:
    - strengthen liquidity risk management and include liquidity aspects in periodic stress testing;
    - ensure credit lines cannot be revoked;
    - conduct stress testing at least monthly (BSE/ICCL currently yearly); annual comprehensive tests including full model and parameter validation;
    - expand stress scenarios to include most volatile periods over the last one or two decades and appropriate theoretical scenarios.
- RCCP 6 (default procedures)
  - Bylaws, rules and regulations clearly state default events and default procedures; legal framework supports segregation and portability of clients’ margins.
  - CCPs lack a detailed internal action plan (crisis manager, crisis team, timelines, reporting to stakeholders).
  - Assessment: Partly observed.
  - Recommendation: draft and annually review a detailed action plan for timely and flexible implementation of default procedures.
- RCCP 7 (custody and investment risks)
  - Collateral accepted: cash, bank guarantees, bank deposits, eligible securities deposited at NSDL/CDSL; cash in CCP accounts with clearing banks.
  - Investment policies and exposure limits exist; SEBI circular limits exposure to single banks relative to TGF/SGF and total liquid assets, with explicit thresholds (including Rs 500 crores net worth criterion and P1/P1+ rating).
  - Assessment: Observed.
- RCCP 8 (operational risk and business continuity)
  - Annual system audits mandated; business continuity plans and on-city and off-city disaster recovery sites exist.
  - NSCCL categorizes disaster failures into four levels; recovery time objective defined as the next trading day.
  - Procedures for transaction data preservation, SAN replication and off-site backups in place; regular testing and audits conducted.
  - Assessment: Observed.
  - Recommendations:
    - develop and test crisis management procedures with main participants and infrastructure providers;
    - reduce recovery time objective from one day to two hours (best practice).
- RCCP 9 (money settlement arrangements)
  - Commercial bank settlement model used; CCPs maintain accounts in multiple clearing banks and transfers between CCP and clearing banks go through RBI RTGS.
  - Number of clearing banks used by CCPs:
    - NSCCL uses 13 clearing banks
    - BSE uses 16 clearing banks
    - MCX-SX CCL uses 10 clearing banks
    - ICCL uses 9 clearing banks
  - Clearing banks also guarantee brokers’ collateral obligations; CCPs do not have default procedures specifically for clearing bank failure.
  - Assessment: Broadly observed.
  - Recommendation: reduce dependence on a few large clearing banks, monitor their financial condition, develop contingency plans, and consider central bank settlement model using RBI RTGS for securities and derivatives.

### Assessment summaries and recommended actions (selected tables)
- Table 11 (India: Summary of RCCP Implementation—CCIL)
  - Observed 8: 1, 2, 4, 6, 8, 12, 13, 14
  - Broadly observed 4: 3, 7, 9, 15
  - Partly observed 1: 5
  - Not applicable 2: 10, 11
- Selected recommended actions for CCIL (Table 15):
  - RCCP 3 — Measurement and management of credit exposure:
    - progress plans to measure exposure intraday based on up-to-date prices and positions in all segments and manage these exposures.
  - RCCP 5 — Financial Resources:
    - enhance liquidity risk management framework to withstand settlement default of at least the largest participant;
    - perform comprehensive tests at least annually.
  - RCCP 7 — Custody and Investment Risks:
    - reduce concentration risk in forex segment by opening a U.S. dollar account in at least one other bank and select another custodian;
    - institute mechanisms to assess ongoing financial soundness of all banks with exposures, especially domestic and foreign settlement banks.
  - RCCP 9 — Money Settlements:
    - monitor concentration of settlement flows for Rs settlement and establish thresholds for corrective measures;
    - diversify U.S. dollar settlement and custody services and credit lines.
  - RCCP 15 — Regulation and Oversight:
    - RBI should establish a framework for cooperation with SEBI and FMC to exchange information and coordinate on policy implementation (one option: FSDC structure).

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13268.pdf*

### 1.   The robustness of the CCPs be increased by

### _cr13268 - 1.   The robustness of the CCPs be increased by

### Liquidity Risk Management and Stress Testing for CCPs
- Recommendation: Improve liquidity risk management in addition to credit risk management; include liquidity aspects in periodic stress testing and ensure credit lines cannot be revoked.
- Stress testing frequency:
  - Current practice: BSE/ICCL conducts stress tests only on a yearly basis.
  - Recommended practice: Assess adequacy of resources in extreme situations at least monthly.
  - Yearly: perform comprehensive tests including full model and parameter validation and consideration of scenario choices.
- Stress scenario scope:
  - Include not only the most extreme circumstances during the last year, but also the most volatile periods of the cash and derivative markets during the few years, preferably the last one or two decades.
  - Include appropriate theoretical scenarios as well.

### Default Procedures (RCCP 6)
- Requirement: CCPs should draft a detailed action plan to implement default procedures in a timely and flexible manner.
- Suggested action plan elements:
  - Definition of a crisis manager and crisis team.
  - Range of decisions the crisis manager/crisis team may consider, under what conditions, and according to what timelines.
  - Reporting of information to different stakeholders: regulators, clearing participants, the stock exchanges, CSDs, and clearing banks.
  - Annual review of the action plan.

### Money Settlements (RCCP 9)
- Recommendation: Reduce dependence on a few, large commercial clearing banks that settle the majority of cash flows.
- Suggested actions:
  - Actively monitor the financial condition of these banks.
  - Develop plans to cope with the failure of one or more such banks.
  - Medium-term recommendation: replace the commercial bank settlement model with the central bank settlement model.
    - Use the central bank settlement model with cash settlement in the RTGS system of RBI for all securities and derivatives.
    - Expected effect: significantly reduce the systemically important role of these commercial banks and the settlement bank risk to which the market is exposed.

### Regulation and Oversight (RCCP 15)
- Recommendation: RBI should establish a framework for cooperation with SEBI and FMC to exchange information and coordinate on policy implementation.
- Implementation option: use the FSDC structure to realize this cooperation, though other ways may be chosen.

### Authorities’ Response (SEBI)
- SEBI appreciation: acknowledges IMF and World Bank assessment and the opportunity it provided.
- SEBI observations and actions:
  - Noted significant progress since 2001 in regulatory framework, product range, market growth, technology, and investor participation.
  - Has recommended amendments to the Securities Laws to provide for finality of settlement obligations and netting; new laws in process for formal recognition of clearing corporations.
  - Existing bylaws of exchange/clearing corporations deem settlements final and irrevocable, support netting, specify default procedures, and provide clearing corporations full powers over collateral. Applicability upheld by Supreme Court rulings (Vinay Bubna Vs. Bombay Stock Exchange, Supreme Court, 1999; Bombay Stock Exchange vs. Jaya I. Shah and another, Supreme court, 2004). Novation is supported by the Contract Act.
  - Notes that the system of online real-time margining, requirement for participants to deposit liquid collateral with the CCPs, real-time disablement of trading facility on exhaustion of collateral, default management procedures including segment-wise settlement guarantee fund, inter-linkages between depositories, market-wide circuit filters and security specific price bands, have prevented major defaults in the last decade.
  - Has taken note of the FSAP suggestion to replace commercial bank settlement model with central bank settlement model and will undertake market-wide consultation with stock exchanges/clearing corporations, stock brokers/trading members, clearing members and RBI.
- Specific clarifications and positions:
  - SEBI notes it has required depositories to publish fee details for over five years.
  - Clarification on margining: initial and extreme loss margins are adjusted upfront, post-trade, from collateral deposited by participants with the CCP; mark-to-market losses are collected in cash on the same day or latest before trading starts on the next day.
  - On credit lines and liquidity adequacy:
    - Recent tests by CCPs indicated that amounts assured by credit lines and cash margins are sufficient to ensure timely settlement.
    - Irrevocable credit lines with major clearing banks of the CCPs (BSE and NSCCL) have been established to manage liquidity risk; BSE and NSCCL have informed that their credit lines are irrevocable in nature.
    - SEBI has initiated the process to strengthen the stress testing procedures of CCPs.
  - On default procedures observance (RCCP 6):
    - Bylaws of NSCCL and BSE provide details on situations when a member may be declared a defaulter, utilization of funds including margins and the settlement guarantee fund in the event of default.
    - CCPs have further detailed guidelines through rules, regulations, and circulars.
    - SEBI has suggested upgrading the rating attributed to observance of RCCP 6 by NSCCL, BSE, and ICCL; notes this suggestion has not been considered.
- Institutional actions:
  - SEBI has constituted a committee to review the extant risk management framework in the cash market segment and derivatives segment.
  - Committee expected to review guidelines on risk management, settlement guarantee fund, segregation of client assets, exposure of CCPs to the few large clearing banks, etc.

### RTGS System in India — Overview and Assessment (Annex I)
- RTGS ownership and membership:
  - The RBI owns and operates the RTGS system.
  - RTGS went into operation in March 2004.
  - Membership growth: started with 4 banks and now has 125 members.
  - Membership open to all scheduled commercial banks (SCBs), primary dealers, clearing houses and others as decided by RBI. Only SCBs may submit customer-initiated transactions; clearing houses may submit multilateral net settlement batches.
  - Participants connect via INFINET and use public key infrastructure for data security and authentication.
  - RTGS operations governed by the RTGS Membership Regulations, 2004 and RTGS (Membership) Business Operating Guidelines, 2004.
- Settlement mechanics and liquidity:
  - Settlement occurs in the books of the RBI via an ‘RTGS Settlement Account’ at Mumbai; funded at the beginning of each processing day from the member’s current account with the RBI and returned at end of day.
  - Transactions enter a centralized queue; members can assign and modify priorities; unsettled transactions remain in queue until end of day and are dropped.
  - Transactions settled on a prioritized First-In-First-Out basis.
  - RBI provides collateralized intraday liquidity to SCBs and primary dealers; intraday liquidity must be squared off by end of day; collateral can include existing reserves—cash and securities—and additional collateral the institution brings in.
  - RTGS provides manually triggered multilateral offsetting and gridlock resolution mechanisms.
- Usage statistics and pricing:
  - Financial year 2010–2011 RTGS volumes and values: Rs 49.3 million (volume) and Rs 484.87 trillion (value).
    - Represents around 25 percent increase in volume and 17 percent increase in value over the previous financial year.
  - Floor for individual RTGS transactions revised to Rs 200,000 from Rs 100,000 (only transactions above this amount can be introduced into RTGS).
  - From inception until October 2011, RTGS services were free of charge.
  - From October 2011, RBI adopted full operational costs recovery pricing model comprising membership fees and per transaction fee with additional mark-up based on time of transaction initiation.
    - Per-transaction mark-up fee: four tiers with beginning of day being Rs 0 and closer to the business day end being Rs 10 per transaction.
- Operational resilience and disaster recovery:
  - RTGS primary datacenter in Mumbai with an in-city disaster recovery datacenter and an off-city datacenter at a different seismic zone.
  - Real-time replication between primary site and in-city datacenter; replication to off-city datacenter with a small-time lag.
  - RTGS operations can be switched over from primary data center to on-city datacenter within 30 minutes and to off-site datacenter within two hours.
  - Periodical disaster recovery drills are conducted per RBI policy.
- Past assessments and compliance with CPSS:
  - RTGS assessed against the CP SIPS by the Committee for Financial Sector Assessment (CFSA); results published post peer review in March 2009.
  - RTGS also peer-reviewed by Swiss National Bank in April 2009.
  - CFSA assessment: 7 of the 10 principles assessed as fully observed and 3 as broadly observed. Three of the four central bank responsibilities were assessed as fully observed and one responsibility as broadly observed.
    - Principles/responsibilities assessed as broadly observed: risk management (CP III); security and operational reliability (CP VII); efficiency (CP IX); and central bank responsibility B (compliance with core principles).
  - CFSA observations and subsequent actions:
    - CFSA cited unmitigated liquidity risk arising from CBLO settlement files of CCIL (reason for CP III broadly observed). RBI instituted combined settlement of CBLO and government securities settlement files of CCIL and required CCIL to have higher lines of credit. Swiss National Bank assessment in April 2009 assessed the system as fully compliant on CP III.
    - CFSA cited absence of a remote back-up site and inadequate business continuity procedures for CP VII broadly observed. Corrective measures were planned and implemented; Swiss National Bank assessment recorded CP VII as fully observed.
    - CFSA noted lack of formal cost-benefit assessment and queuing as the only viable liquidity optimization mechanism for some members due to lack of right collateral for intra-day liquidity. Swiss National Bank recommended developing a medium- and long-term strategy for pricing and future developments. RBI implemented pricing changes in October 2011 and announced plans for a next-generation RTGS with a wide range of liquidity optimization mechanisms.
  - Overall assessment: recent changes and the two assessments indicate the RTGS system in general observes all the CP SIPS and the associated central bank responsibilities are being adhered to.

*Source: _cr13268 - 1.   The robustness of the CCPs be increased by*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13268.pdf_