SEBI to implement IMF recommendations on CCP stress tests

The IMF and World Bank have completed their ‘Financial Sector Assessment Programme’ for India in which they suggested strengthening the stress testing procedures of Central Counterparties and improving liquidity risk management.

The IMF and World Bank have completed their ‘Financial Sector Assessment Programme’ for India in which they suggested strengthening the stress testing procedures of Central Counterparties (CCPs) and improving liquidity risk management.

The Securities and Exchange Board of India (SEBI) said that it has now initiated the process of strengthening the stress testing procedures of CCPs.

The report investigated assessed the Indian securities market, including securities’ settlement systems and CCPs.

The assessment acknowledged the risk management framework already prescribed by SEBI for the Indian securities settlement system.

It mentioned features such as online real-time margining, requirement for participants to deposit liquid collateral with the CCPs, real-time disablement of trading facility of the participants on exhaustion of the collateral, default management procedures, inter-linkages between depositories, market-wide circuit filters and security specific price bands.

The project was carried out for the International Organisation of Securities Commissions, (IOSCO).

Since the last assessment in 2001, Indian securities market has changed considerably in areas of regulatory framework, range of products, and technology. The report says that the regulatory and supervisory regime for India’s securities market is well developed and largely in compliance with international standards.

In the report, it was suggested that the SEBI should focus on the strengthening of the supervision of securities market intermediaries including fund managers. A challenge that the regulators encounter in this area is the sheer number of the intermediaries operating in the Indian securities market.

India’s regulator SEBI, explained how the supervisory work is allocated.

“Onsite inspections of brokers are primarily a responsibility of the stock exchanges. The stock exchanges have developed a risk based approach to determine the intensity of the inspections. Theme-based inspections have been carried out by SEBI in respect of market intermediaries, mutual funds, depositories and stock exchanges.”

 

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