Clearing & Settlement:
CBLO system operates on a Straight through Processing (STP) environment. The trade flows from CBLO Dealing System seamlessly to CCIL for Clearing and Settlement. The trades received by CCIL are novated and netted for settlement. A single obligation is generated for each member for each settlement date by netting trades received for settlement that business date with borrowing / lending maturity obligation for the same date. The funds settlement is achieved at Settlement Bank for those CBLO members who maintain a current account with Designated Settlement Bank (DSB). CBLO Funds settlement is achieved at RBI for those members who maintain current account at RBI and are allowed to settle secondary market transactions in such account. The securities of equivalent value are blocked for members utilizing borrow limits. CBLO Account balance credits are displayed for those members who have lent funds after the CBLO Funds settlement is completed. This indicates that the lendings are collateralised. A report is made available to borrower giving details of securities encumbered in CBLO segment.
CBLO Funds Settlement:
The instructions for settlement of funds obligations, for members settling at Settlement Bank, is transmitted electronically to the Settlement Bank containing details of Funds Pay-in and Pay-out to be effected by the respective Settlement Bank. The Settlement Bank shall after effecting such Pay-in and Pay-out, confirm back electronically the completion of such process. The onus on ensuring that sufficient funds are made available in the respective current account with Settlement Bank rests with the CBLO members settling through Settlement Bank.
CBLO Funds Settlement @ RBI Current Account:
The instructions for settlement of funds obligations, for members settling at RBI, is transmitted to RBI which include Pay-in and Pay-out positions in respect of their proprietary positions and for Settlement Banks, it also includes, those obligations of other members for whom they have undertaken the function as a Settlement Bank.
CCIL addresses risk relating to trading and settlement by adopting stringent membership norms and admit the members who 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. Members are also required to deposit Initial Margin required for borrowing and/ or lending in CBLO Segment. Cash deposited by members, in CBLO segment shall be treated as Initial Margin. The Initial Margin available, if is lesser than the requirement, then system would source the initial margin excess utilised from the free Borrow Limit available. The members are required to deposit immediately, in the CBLO CSGL account, securities required for replenishing the shortfall in Borrow Limit, if any. Similarly, the members are also required to replenish the Initial Margin shortfall, immediately on it Initial Margin utilisation exceeding the available Initial Margin.
Any shortfall in Borrow Limit shall be treated as settlement shortage and shall be handled as per the process laid down for handling CBLO shortage. Further, members failure to deposit such deficit (both Borrow limit & Initial Margin), immediately shall be treated as a Margin Default and penalty is charged accordingly.
(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 utilizing 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 CBLO Account balance credit receivable by the lenders (member-in-shortage). In case of failure by the borrower to meet the redemption proceeds on maturity of borrowing transactions, the underlying securities of such member stands encumbered till the funds are replenished along with charges. In case of eventual default i.e. non replenishment of settlement shortage by member-in-shortage, CCIL liquidates the underlying securities and adjust the proceeds towards the shortfall and other charges.
(ii) CBLO Shortage :
CBLO shortage can take place when a member’s borrow position is not backed by sufficient borrow limit and if such member does not deposit additional collateral to that extent before commencement of settlement. In case of CBLO shortfall, CCIL allocates the shortfall to net lenders in the CBLO in descending order of their net lend position. CCIL recovers the interest payable from the member-in-shortage as part of the settlement file on the day of the shortage itself. The principal is returned to the allocatee members on the same day. The interest amount is paid to the lender on the next day. In case of term CBLO the lender can make claim for interest loss suffered, if any, on the next day before the cut off time.