CENTRAL COUNTER PARTIES - ECONOMY
News: Why
EU has acted against six Indian CCPs
What's in the news?
● The
European Securities and Markets Authority (ESMA), the European Union (EU’s)
financial markets regulator and supervisor, has derecognized six Indian central counterparties (CCPs) from April
30, 2023.
Key takeaways:
● These
six CCPs are The Clearing Corporation of India (CCIL), Indian Clearing
Corporation Ltd (ICCL), NSE Clearing Ltd (NSCCL), Multi Commodity Exchange
Clearing (MCXCCL), India International Clearing Corporation (IFSC) Ltd (IICC)
and NSE IFSC Clearing Corporation Ltd (NICCL).
Reasons for Derecognition:
● The
ESMA said it reviewed the recognition of all third country CCPs (TC-CCPs) that
had been recognised prior to September 21, 2020, as per the European Market Infrastructure Regulation
(EMIR) regime.
● The
decision to derecognise Indian CCPs came due to ‘no cooperation arrangements’ between the ESMA and Indian
regulators — the Reserve Bank of India (RBI), the Securities and Exchange Board
of India (SEBI) and the International Financial Services Centres Authority
(IFSCA).
Central Counter Parties:
● A
CCP is authorised by the RBI to
operate in India under the Payment and
Settlement Systems Act, 2007.
Functions:
● CCPs
perform two main functions as the intermediary
in a market transaction – clearing and settlement – and guarantee the terms of
trade.
● CCP
is a system provider, who by way of
innovation interposes between system participants in the transactions admitted
for settlement, thereby becoming the buyer to every seller and the seller to
every buyer, for the purpose of effecting settlement of their transactions.