Framework for Orderly Winding Down of Critical Operations and Services of a Clearing Corporation
Summary
This circular mandates Recognized Clearing Corporations to establish a policy framework for the orderly winding down of their critical operations and services. The framework must identify potential voluntary and involuntary scenarios, define critical operations, and include a Standard Operating Procedure approved by the governing board. Additionally, the document outlines specific procedures for asset distribution and regulatory compliance during the wind-down process. This section details the financial obligations of a Clearing Corporation (CC) during winding down, including asset distribution and payments to SEBI. It mandates that CCs maintain specific capital resources for orderly winding down and establishes oversight mechanisms by the Regulatory Oversight Committee. Finally, it outlines obligations for exchanges and clearing members, modifies default waterfall provisions, and sets compliance timelines.
Text
The scenarios which may potentially prevent a CC from being able to provide its critical operations and services as a going concern and may lead to wind down of its critical operations and services, shall be identified.
A CC shall be required to continuously meet the annual clearing turnover... of at least INR 1,000 Cr. per annum... In case the CC fails to meet the aforesaid requirement for two consecutive years, it shall be liable to exit and accordingly, apply for orderly winding down...
To identify the operations and services which may be classified as critical, CCs shall, inter alia, consider their risk profile, operations, organizational structure, financial resources, business practices, interconnectedness and interdependencies...
The policy framework of CCs shall contain a Standard Operating Procedure (SOP) duly approved by their governing board... A notice or intimation regarding winding down of critical operations and services shall be issued by the CC as and when the scenarios get triggered, with prior approval of SEBI.
Voluntary winding down of a CC shall be approved by the governing board, its shareholders and SEBI... mention a sufficient notice period (at least six months)... Once the winding down process is initiated, any open positions... shall have to be transferred to the new CC... Any open positions... that could not be transferred shall be closed-out...
The procedure for winding down shall be as follows: i. The CC shall announce a termination date, with prior approval of SEBI. ii. The CMs who have open positions may change their designated CC, or close-out their open positions. iii. All open positions, if any, shall expire at the daily settlement prices of the termination date.
The provisions of SECC Regulations, 2018 and various circulars and guidelines issued thereunder, shall continue to apply during the entire period of winding down... The framework shall be (i) periodically reviewed, at least on an annual basis, and (ii) published or disclosed on the website of the CC...
The exiting CC shall be permitted to distribute its assets subject to conditions as laid down in its framework, guidelines issued by SEBI from time to time, or any other direction issued by SEBI or any other statutory authority.
The quantum of assets available for distribution shall be arrived at after payment of statutory dues, including applicable taxes; contribution to SEBI as specified in para 5.4 and 5.5 below, return of refundable collateral and membership deposits of CMs, return of deposits to warehouse service providers, if any, and the unutilized Core SGF contributions of CMs and Stock Exchanges, as the case may be, depending upon the scenario triggering winding down of critical operations and services.
Subsequent to exit, the CC shall also be required to contribute upto 20% of its assets (after applicable taxes) towards SEBI Investor Protection and Education Fund (IPEF) in order to provide for settlement of any claims pertaining to pending arbitration cases, unresolved complaints or grievances lying with the CC, etc. The contribution percentage may be decided by SEBI taking into account relevant factors such as the governance standards of the CC, estimation of future liabilities, etc.
The CC shall pay following dues to SEBI: i. The dues outstanding to SEBI; ii. The outstanding fees of CMs of such exiting CC till the date of such exit: In this regard, the CC shall recover the dues of the CMs to SEBI out of the CMs’ own deposits/ capital/ share of sale proceeds/ winding down proceeds of CC, etc. available with the CC. The CC shall be liable to make good any shortfall in collection of dues of CMs to SEBI.
Penalties collected from CM(s), issuer(s) contribution in case of Limited Purpose Clearing Corporation (LPCC), and interest on these components, forming part of Core SGF shall be used by the CC in a manner as specified by SEBI from time to time.
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Source: SecMarx — Framework for Orderly Winding Down of Critical Operations and Services of a Clearing Corporation. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.