Markets regulator SEBI put in place a framework for upfront collection of funds from eligible issuers of debt securities to build the Settlement Guarantee Fund of the Limited Purpose Clearing Corporation (LPCC).
Key points
- The eligible issuers would be notified by the LPCC as per its risk management policy, the Securities and Exchange Board of India (SEBI) said in a circular.
LPCC
- LPCC is an organization that has been created to manage the process of clearing and settling repo transactions.
- An efficient repo market enhances the growth of the debt securities market by increasing the liquidity of the underlying debt securities.
- Additionally, it enables market players to obtain funds temporarily by monetizing their debt holdings without disposing of the underlying assets.
- The dispute resolution mechanism will be used to settle disputes between clearing members; contention between the clearing members and their clients; differences between the LPCC and its vendors; and disputes between clearing members or its clients and the LPCC.
- Under the framework, SEBI said that an amount of 0.5 basis points of the issuance value of debt securities per annum based on the maturity of debt securities will be collected by the stock exchanges and placed in an escrow account before the allotment of the debt securities.
- This amount is applicable on a public issue or private placement of debt securities.
- In its board meeting in September 2020, SEBI had approved a proposal to facilitate the setting up of an LPCC.
- AMC Repo Clearing Limited (ARCL) has been granted recognition as LPCC by SEBI. T
- The Reserve Bank of India (RBI) also gave necessary approvals to ARCL to function as a Clearing Corporation with a limited purpose and to offer central counterparty services for repo transactions in debt securities.
