The memorandum of understanding, signed on Friday, September 4, establishes a framework for cooperation between the two regulators over central counterparties, or CCPs, regulated and supervised by SEBI.
The agreement will also allow ESMA to rely on SEBI’s regulatory and supervisory work concerning Indian CCPs while safeguarding financial stability in the European Union, SEBI said.
The MoU was signed by SEBI Chairman Tuhin Kanta Pandey and ESMA Chair Verena Ross and replaces an earlier agreement between the two regulators signed in June 2017.
Why the agreement matters
Central counterparties sit between buyers and sellers in financial-market transactions. In simple terms, once a trade is executed, the clearing house becomes the buyer to every seller and the seller to every buyer, reducing the risk that the failure of one party disrupts the transaction.
That makes regulatory cooperation important when investors, clearing members and financial institutions operate across countries.
The latest agreement provides a mechanism for SEBI and ESMA to exchange information and cooperate on the supervision of Indian CCPs, helping facilitate clearing activity involving European entities without requiring ESMA to duplicate all of SEBI’s supervisory work.
SEBI said the agreement underscores the importance of cross-border regulatory cooperation in facilitating international clearing.Also Read: Exclusive | SEBI may open commodity derivatives to FPIs in September: Sources
SEBI separately reviews derivatives settlement rules
Separately, SEBI is reviewing how settlement prices for derivative contracts are calculated on expiry days following feedback from market participants after the introduction of the Closing Auction Session, or CAS.
SEBI introduced CAS on August 3 to determine closing prices in the equity cash market. Under the current system, the closing price produced by the auction is also used to calculate the settlement price of derivative contracts at expiry.
After reviewing the first month of the system and receiving feedback from market participants, SEBI said it could propose changes to the methodology. A consultation paper outlining possible changes is expected in about a week.
The regulator has been consulting stock exchanges, brokers, proprietary traders, software vendors, mutual funds, industry associations and foreign portfolio investors while monitoring the new system’s impact.
Also Read: CAS is here to stay: MCQube’s Shunmugam on tweaks SEBI may consider
