The most important points you need to know about NSE Clearing
Basics First – NSCCL Full Form and History
NSCCL was established in August 1995 as a wholly owned subsidiary of the National Stock Exchange (NSE). The full form of NSCCL is National Securities Clearing Corporation Limited and it was the first securities clearing house in the country to be established. It was also the first clearing company in the country to implement a settlement guarantee.
NSCCL has now been renamed NSE Clearing Limited and has been designated as a Qualified Central Counterparty (QCCP) and Systemically Important Market Infrastructure Institution by the Security Exchange Board of India (SEBI).
NSE Clearing Ltd has been assigned the highest corporate credit rating of ‘AAA’ by CRISIL, indicating the highest degree of strength in terms of debt repayment.
What are the objectives of the NSCCL?
NSCCL aims to provide safe and efficient value-added services while setting global benchmarks through strong risk management systems and processes. The main objectives of NSE Clearing are described below.
- To facilitate the clearing and settlement of securities
- Maintain strict short-cycle regulations
- Offer a guarantee against the counterparty risk to the parties concerned
- Facilitate the risk treatment system
Who is eligible for the membership admission process for NSCCL?
Membership in the NSCCL is open to the following entities, provided they meet the SEBI and NSE eligibility criteria.
- Partner companies
- Limited Liability Company
- Moral people
What is the settlement process through NSE Clearing?
1- NSCCL receives all trades executed or locked on the trading day at the start of the settlement cycle.
2- After receiving the details of all transactions, it calculates the cumulative obligation of each member for the settlement of transactions.
3- This information is then transmitted electronically to the Clearing Members (CM). Each trade made during a specific trading period is settled together for all members.
4- The clearing house then uses a multilateral netting procedure to calculate the net settlement obligation of each Clearing Member, whether the position is a delivery or a receiver.
5- Next, the settlement procedure consists of allocating the delivery of the securities to arrive at the exact obligations of delivery and receipt of funds and securities for each member of the NSCCL.
6- When the payment of funds and securities is declared and released, the settlement procedure is completed.
7- Delivering members are required to bring the securities on the day of payment and deliver them to the respective receiving members on the day of payment.
What are NSCCL’s products?
The clearing house is not only in charge of the settlement of NSE-listed stocks, but it also serves as a centralized gateway for settlements of other products. Available products that are supported by NSCCL are listed below.
- Equity and commodity derivatives
- Commodity derivatives
- Retail debt
- NSE bond futures on government bonds or treasury bills
- Corporate bonds
- MFSS (Mutual Fund Service System)
- Securities Lending and Borrowing Program (SLBS)
Also read: RSU Vs ESOP – Which is better in 2022?
Who are NSCCL’s partners?
Different participants and partners are responsible for settling trade transactions. The main partners of National Securities Clearing Corporation Ltd are:
1- clearing member
A clearing member is a member of the clearing company who clears and settles transactions through the clearing company. Through their NSCCL Account, Clearing Members clear and settle Transactions for a Segment in the manner and in the manner prescribed to them, subject to the Terms and Procedures.
In addition, a clearing member may clear and settle transactions either for its own account or for the account of its clients, subject to the terms and conditions prescribed by the clearing company.
2- Clearing bank
Clearing Banks act as a single point of contact for all Clearing Members for services such as branches in multiple cities, advanced electronic funds transfer portals, providing working capital facilities, trade settlements and banking facilities such as issuance of bank guarantees/credit facilities, etc.
There are a total of 13 banks that facilitate clearing services
- Axis Bank Ltd.
- Bank of India Ltd.
- Canara Bank Ltd.
- The Hong Kong & Shanghai Banking Corporation Ltd.
- ICICI Bank Ltd.
- HDFC Bank Ltd.
- IDBI Bank Ltd.
- IndusInd Bank Ltd.
- Kotak Mahindra Bank Ltd.
- Standard Chartered Bank
- Union Bank of India
- National Bank of India
Custodians settle transactions on behalf of their clients by confirming their settlement and assuming the obligation assigned by the clearing house. If settlement is not confirmed, the trading member bears the settlement obligation imposed by the clearing house.
As a partner, they are responsible for promoting the dematerialization of listed shares. For electronic securities settlement, NSE Clearing is associated with the two depositories in India, NSDL (National Securities Depository Limited) promoted by NSE and CDSL (Central Securities Depository Limited) promoted by BSE Ltd.
SEBI has gradually made dematerialized settlement mandatory, which has resulted in an increase in the proportion of shares delivered in dematerialized form, resulting in 99% of all securities settlement in dematerialized form in India.
5- Professional Clearing Members
Professional clearing members are admitted as a special category of members by the Clearing Corporation. Clearing members who are not trading members are called professional clearing members (PCM). These are usually banks, custodians and other financial institutions that clear and settle transactions executed on behalf of their customers, including individuals, institutions, etc.
On August 25, 2022, NSE Clearing Ltd. concluded its 5587th normal settlement (Rolling T+2 following the SEBI directive) settlement number N-2022159 and its 122nd normal settlement (Rolling T+1) settlement number M-2022660. Here are the settlement statistics:
NSE Clearing is India’s largest clearing company and it was established to ensure smooth clearing of all transactions of various segments under the shed of NSE. It has been the backbone of billions of business transactions in India. Settlement on the NSCCL platform is available in the following currencies, primarily Dollar (USD), Euro (EUR), British Pound (GBP) and Japanese Yen (JPY). NSSCL will continue to power the transparent and structured settlement of commercial transactions in India.
We hope this article was helpful in grading you on one of the most prominent and yet unknown infrastructure players in the Indian securities market. If you have any content suggestions, please leave your comments below.