Clearing & Settlement procedure:

The Redemption & T+1 trades are taken up for processing before the start of the trading session on the settlement date and all T+0 trades of both Auction and Normal markets are taken up for processing at the end of the respective trading session of NDS and non-NDS members. CCIL assumes the role of the central counter party through the process of novation and guarantees settlement of transactions processed as above. CBLO obligation is generated by netting of trades in the same CBLO for the Normal market whereas the obligation for CBLOs in the Auction market is worked out on gross basis. Accordingly, CCIL debits the members' CBLO accounts / borrowing limit to the extent of their final CBLO Pay-in obligations. In respect of utilization of borrowing limit, securities to the extent used as collateral are blocked in the CSGL account of the borrowers. There will be no transfer of securities to the lenders but lenders interest in the underlying securities is recognized through appropriate documentation. Members can reckon unencumbered securities for SLR calculations.

Settlement for NDS Members:

The funds obligation for each NDS Member is netted across all the matched trades in the Auction and Normal market in respect of T+0 trades of the current day, T+1 trades of the previous day and redemption obligation. The net funds obligation comprising the member-wise Pay-in and Pay-out position is sent electronically to RBI for effecting debits and credits in the members’ current accounts through the settlement account of CCIL. RBI completes the settlement and sends funds settlement confirmation to CCIL. After receiving settlement confirmation, CCIL posts the CBLOs to the respective buyer member’s CBLO account.

Settlement for Non-NDS Members:

Similarly, the net fund obligation for such non-NDS members in respect of their trades in the Normal market is sent electronically to the respective Settlement Banks for effecting debits and credits in the members’ Current accounts through the settlement account of CCIL with the Settlement Bank. These entities should ensure that funds to the extent of their obligations are available in their current account with the concerned Settlement Bank on the day of settlement. CCIL transfers CBLOs to the respective buyer member’s CBLO account after receiving the funds settlement confirmation from the Settlement Banks.

Risk Management:

CCIL addresses risk relating to trading and settlement by adopting stringent membership norms by restricting its membership only to the entities which meet the minimum eligibility criteria. Members are allowed to borrow to the extent of the limit fixed after MTM valuation of securities with appropriate haircut. The securities in the CSGL account are subjected to daily valuation and any deficit in the value of the securities vis-à-vis the borrowed amount (face value of CBLO) is collected from the concerned members. Besides, CCIL stipulates initial margin for the lenders in the Auction market and for each bid and offer in the Normal market to address the interest rate risk, in case the lenders do not honor their commitments. In case of members failure to deposit such deficit on the same day, it is treated as a Margin Default and penalty is charged accordingly.

Default handling:

(i) Funds Shortage:

Shortfall in funds can take place when the members (by lenders on the day of lending and by borrowers on the day of redemption) fail to meet funds obligation on the day of settlement. In such cases, CCIL meets the shortage by utilising the lines of credit extended by the member banks / Settlement Banks and complete the settlement. CCIL then initiates the default handling process by withholding the CBLOs receivable by the lenders (defaulting members). In case of failure by the borrower to meet the redemption proceeds on maturity of CBLOs, the underlying securities of such member stands encumbered till the funds are replenished alongwith charges. In case of eventual default, CCIL liquidates the underlying securities/CBLOs and adjust the proceeds towards the shortfall and other charges.

(ii) CBLO Shortage :

CBLO shortage can take place when the members sell CBLOs without having sufficient borrowing limit or concerned CBLOs in their account. In case of CBLO shortfall, CCIL withholds the funds receivable by the defaulting members and creates CBLOs to the extent of CBLO shortfall quantity by using the withheld funds and credit the same to the concerned buyers’ CBLO account. Alternatively, CCIL may also opt for Close-out process by reducing the CBLO shortfall quantity proportionately from the buyers (lenders) receivable position in the concerned CBLOs.