FAQS

Interoperability process information

What is Interoperability?
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Currently, the market participants (Broker) have to settle trades through the clearing corporation (CC) owned by the bourse on which the trade was executedviz. NSE Clearing (formerly the National Securities Clearing Corporation), a wholly-owned subsidiary of the NSE, is responsible for clearing and settlement of all trades executed on the NSE similarly, Indian Clearing Corporation, incorporated in 2007, handles the activity for the BSE; and Metropolitan Clearing Corporation of India settles transactions for the MSE. The CC also manages deposit and collateral management and risk management functions.

An expert Committee constituted by SEBI in November 2018, under the Chairmanship of Shri K V Kamath, had, inter alia, examined the ‘Viability of Interoperability between different Clearing Corporations’. Thereafter, SEBI Board approved suitable amendments to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations to, inter alia, enable interoperability among clearing corporations vide SEBI circular No. CIR/MRD/DRMNP/CIR/P/2018/145 dated 27.11.2018. SEBI also mentioned “Stock Exchanges and Clearing Corporations shall adhere to aforesaid guidelines and accordingly, take all necessary steps to operationalize interoperability at the earliest.

The interoperability would permit trading members to clear trades through any one clearing corporation of their choice instead of going through the clearing corporation owned by the bourse. Hence,

  1. It allows market participants to consolidate their clearing and settlement functions at a single CC, irrespective of the stock exchange on which the trade is executed.
  2. It will help in optimal utilization of margin in the securities market by employing multilateral netting, which will enable them to participate in a wider range of trading platforms
  3. It aims to protect the collateral that investors deposit with clearing corporations and shield them against systemic failures
  4. It is envisaged that this proposal may lead to efficient allocation of capital for the market participants, thereby saving on cost as well as provide better execution of trades.
  5. Interoperability also brings in a mechanism to separate the execution risk from the settlement risk, whereby market participants can seamlessly square off their positions in case of stock exchange outages, provided the product is available for trading on other stock exchanges.
  6. In addition to the benefit of savings on cost, it enhances competition among CCPs in terms of price and services they offer.
  7. Currently, margins are calculated on an individual client’s portfolio level in a given segment for a particular exchange, under the interoperability framework of an individual client’s portfolio would comprise of his net positions in securities across exchanges.
Products Eligible for Interoperability
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Products Eligible for Interoperability

  1. Equity Cash Segment
  2. Equity Derivatives Segment
  3. Currency Derivatives Segment (including Interest Rate Derivatives)
  4. ​Debt segment
Products Not Eligible for Interoperability
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  • Products Not Eligible for Interoperability
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  1. Commodity Derivatives Segment
  2. Tri-party Repo
  3. Securities Lending & Borrowing
  4. Order Collection Mechanisms/Schemes:
  •     Offer for Sale, 
  •     Mutual Funds Service Schemes
  •     Buy/Back/Tender Offer Schemes,
  1. Non-competitive Bidding (G-Secs)
  2. Primary Bidding of SGB, etc.
  • SBICAP Securities Ltd has selected NSE Clearing Ltd as its Clearing Corporation.

 

If a Client buys a scrip in one exchange and sells it in another exchange, will his/her position be netted off?
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  • Yes. An investor trading through the same broker across exchanges will be eligible for netting benefits for his trades in a given security across exchanges.
Which futures will be eligible for netting across exchanges?
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The futures have to be the same underlying and same expiry.

Which options will be eligible for netting across exchanges?
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The options have to be the same underlying, same type (Call/Put), same expiry and same strike.

How, will the margin be calculated for individual Clients? What would constitute individual client’s portfolio under the interoperability framework?
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Currently, margins are calculated on an individual client’s portfolio level in a given segment for a particular exchange. However, under interoperability, margin requirement shall be netted at level of individual client, for trades across exchanges, An individual client’s portfolio would comprise of his net positions in securities across exchanges in the case of the Equity Cash Segment. Similarly, the portfolio would include his net positions in all the futures and options contracts across exchanges in the case of Equity Derivatives and Currency Derivatives segments.

How, will the Brokerage and charges (STT & Stamp Duty) be calculated for individual Client, If a Client buys a scrip / Contract / Option in one exchange and sell it in another exchange?
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Currently, brokerage and charges (STT & Stamp Duty) are calculated in a given segment for a particular exchange based on client's net pnitian i.e. if the client has a purchases position in NSE CM and sell position in BSE CM the brokerage and charges (STT & Stamp Duty) are levied as per delivery. However, under interoperability it shall be netted at level of individual client for trades across exchanges and intra-day brokerage and charges (STT & Stamp Duty) will be charged.

Will Designated Clearing Corporation block margin from members for trades executed in other exchanges on a real time basis or end of day basis?
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CC will continue to levy margins upfront on an on-line real-time basis at the time of trade for all exchanges by adjusting against available common collateral limits of Clearing Members and common notional limits of the Trading Members.

Will there be a change in the margin collected from Members?
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There will be no change in the margin models or risk parameters.

Will CC levy a new margin on the members under the new Interoperable Framework?
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No. There is no new margin being introduced specifically for Interoperability

Will a Clearing Member be required to earmark collateral deposited with CC separately for each exchange
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No, the Clearing Member won’t be required to earmark collateral separately for each exchange.

Currently MTM margin is to be paid by CMs to CCs before start of the next trading day – will the timeline remain unchanged post interoperability?
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Yes. All processes that are currently applicable under the current scenario will continue to be applicable for trades executed on another exchange

How will the CC determine end of day settlement prices for same contracts traded on different trading venues, will the trading venues be obliged to share real-time prices with all CCs?
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The Daily & Final Settlement price shall be common across Exchanges and CCPs.

 

 

Whether Selection of Clearing corporation are Segment wise
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Yes, The Clearing member has a choice to select different CC for different Segments. In other words, for one segment, Clearing Member can select only one CC. However, SSL has selected NCL for both Cash and Derivatives segment.

Will there be any change in the settlement process for Equity cash & Derivatives segment?
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No. There will be no change in the settlement process of Equity cash & Derivatives segment. Settlement will be effected in accordance with the Settlement Calendar issued by CC from time to time for the respective segment, the settlement will be based on the consolidated position of the trades done by the trading members (settling through such Clearing member) across multiple Exchanges

Will the settlement be on the netted payin / Payout amount for positions across exchanges?
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Yes. The settlement will be netted except for trades in Trade for Trade securities.

Will the settlement number be uniform across exchanges under the interoperability framework?
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There will be no changes to the existing settlement numbers. Settlement number of the respective CC shall prevail (If NCL is CC then Settlement No of NCL will prevail)

 

If I buy a near month contract of an underlying in one exchange and sell a far month contract of the same underlying in another exchange, will I get calendar spread margin benefit?
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Yes, the position will be eligible for calendar spread margin benefit.

If I buy XYZ scrip in one exchange and then sell it in another exchange, will I be charged Crystallised Loss Margin?
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Yes, you will be charged Crystallised Loss Margin to the extent of the offsetting position.

If I have an open sell position in ABC derivative contract in one exchange and then buy a certain quantity of the same derivative contract in another exchange, will I be charged Crystallised Loss Margin
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(The loss arising on account of squaring off /closeout of open positions is intraday crystallised loss)?

Yes, you will be charged Crystallised Loss Margin to the extent of the offsetting position. However, all the other applicable margins (Initial Margin, ELM) will be released.

Will I get Net option Value (“NOV”) benefit for buy open position in one exchange and sell open position in another exchange?
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Yes, NOV of a portfolio is calculated as the Long Option Value minus the Short Option Value (irrespective of which exchange the options trades have been executed). A positive NOV will continue to reduce your SPAN Margin Requirement while, a negative NOV will continue to increase your SPAN Margin Requirement.

Will my Buy Premium for options traded on another exchange be blocked by CC or the other exchange’s clearing corporation?
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Yes

Is there a change in the Risk Reduction Mode threshold level?
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Yes. Put in RRM at 85% collateral utilisation & moved back to normal mode when utilisation goes below 80%.

How will Client financial ledgers be maintained in view of the inter-operability?
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With respect to Segments forming part of interoperability, Client financial ledgers will be prepared Segment wise and consolidated across Exchanges. (For instance, in case of CM, FO & CD Segment, Stock Broker shall maintain separate ledger for CM Segment across all Exchanges & separate ledger for FO segment across all Exchanges & separate ledger for CD segment across all Exchanges).

Currently

New scenario

BSE Cash Segment

 

Cash Segment (BSE plus NSE)

 

NSE Cash Segment

BSE Derivatives Segment

Derivatives/FO Segment (BSE plus NSE)

NSE Derivatives Segment

BSE Currency Derivatives Segment

Currency Segment (BSE plus NSE)

NSE Currency Derivatives Segment

The bills posted shall mention the relevant Clearing Corporation’s (CC) settlement number, as available.  With respect to other Segments/products which are not part of interoperability of CCs, Stock Brokers shall continue to follow the existing practice

Will there be a need to maintain separate pool account for different CC’s?
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CC wise separate pool a/c in depository system will be required for settlement purpose.

Whether, after interoperability, NRIs can buy/sell on one Exchange and square up on other Exchange(s) on the same trading day?
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No, NRIs cannot undertake intra-day transactions in cash segment.

For the purpose of collection and reporting Margin/MTM losses, financial balances of which segment should be used?
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Stock Brokers shall consider the free & unencumbered consolidated balance across all segments.