Settlement Agencies

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The NSCCL, with the help of clearing members, custodians, clearing banks and depositories settles the trades executed on exchanges. The roles of each of these entities are explained below:

NSCCL: The NSCCL is responsible for post-trade activities of a stock exchange. Clearing and settlement of trades and risk management are its central functions. It clears all trades, determines obligations of members, arranges for pay-in of funds/securities, receives funds/securities, processes for shortages in funds/securities, arranges for pay-out of funds/securities to members, guarantees settlement, and collects and maintains margins/collateral/base capital/other funds.

Clearing Members: They are responsible for settling their obligations as determined by the NSCCL. They have to make available funds and/or securities in the designated accounts with clearing bank/depository participant, as the case may be, to meet their obligations on the settlement day. In the capital market segment, all trading members of the Exchange are required to become the Clearing Member of the Clearing Corporation.

Custodians: A custodian is a person who holds for safekeeping the documentary evidence of the title to property belonging like share certificates, etc. The title to the custodian’s property remains vested with the original holder, or in their nominee(s), or custodian trustee, as the case may be. In NSCCL, custodian is a clearing member but not a trading member. He settles trades assigned to him by trading members. He is required to confirm whether he is going to settle a particular trade or not. If it is confirmed, the NSCCL assigns that obligation to that custodian and the custodian is required to settle it on the settlement day. If the custodian rejects the trade, the obligation is assigned back to the trading /clearing member.

Clearing Banks: Clearing banks are a key link between the clearing members and NSCCL for funds settlement. Every clearing member is required to open a dedicated settlement account with one of the clearing banks. Based on his obligation as determined through clearing, the clearing member makes funds available in the clearing account for the pay-in and receives funds in case of a pay-out. Multiple clearing banks provide advantages of competitive forces, facilitate introduction of new products viz. working capital funding, anywhere banking facilities, the option to members to settle funds through a bank, which provides the maximum services suitable to the member. The clearing banks are required to provide the following services as a single window to all clearing members of National Securities Clearing Corporation Ltd. as also to the Clearing Corporation:

• Branch network in cities that cover bulk of the trading cum clearing members

• High level automation including electronic funds transfer (EFT) facilities

• Facilities like (a) dedicated branch facilities (b) software to interface with the Clearing Corporation (c) access to accounts information on a real time basis

• Value-added services to members such as free-of-cost funds transfer across centers etc.

• Providing working capital funds

• Stock lending facilities

• Services as Professional Clearing Members

• Services as Depository Participants

• Other Capital Market related facilities

• All other banking facilities like issuing bank guarantees / credit facilities etc.

 

Depositories: A depository is an entity where the securities of an investor are held in electronic form. The person who holds a demat account is a beneficiary owner. In case of a joint account, the account holders will be beneficiary holders of that joint account. Depositories help in the settlement of the dematerialised securities. Each custodian/clearing member is required to maintain a clearing pool account with the depositories. He is required to make available the required securities in the designated account on settlement day. The depository runs an electronic file to transfer the securities from accounts of the custodians/clearing member to that of NSCCL. As per the schedule of allocation of securities determined by the NSCCL, the depositories transfer the securities on the pay-out day from the account of the NSCCL to those of members/custodians.

Professional Clearing Member: NSCCL admits special category of members namely, professional clearing members. Professional Clearing Member (PCM) may clear and settle trades executed for their clients (individuals, institutions etc.). In such an event, the functions and responsibilities of the PCM would be similar to Custodians. PCMs may also undertake clearing and settlement responsibility for trading members. In such a case, the PCM would settle the trades carried out by the trading members connected to them. The onus for settling the trade would be thus on the PCM and not the trading member. A PCM has no trading rights but has only clearing rights, i.e. he just clears the trades of his associate trading members and institutional clients.

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