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05-06-2024

12:00:AM

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GS2 – Governance


  • SEBI has formed a committee under Usha Thorat to review the ownership and economic structure of clearing corporations.
  • This move aims to ensure these entities operate independently and effectively manage risk, following concerns from the 2018 Gandhi Committee about concentrated ownership and potential conflicts of interest.

Analysis of the news:

  • SEBI forms an ad-hoc committee led by Usha Thorat to review the ownership and economic structure of clearing corporations and recommend measures for resilience, independence, and neutrality.
  • The 2018 Gandhi Committee report recommended widely dispersed ownership for Market Infrastructure Institutions (MIIs), noting the high-risk nature of clearing corporations.
  • Gandhi Committee emphasised clearing corporations should not be listed due to their sensitive and risk-managing roles.
  • Currently, most Indian clearing corporations are 100% owned by a single parent exchange, exposing them to shareholder expectations and financial dependencies.
  • Dominance of parent exchanges may conflict with the economic interests of clearing corporations, affecting their capital infusion and reserve augmentation.
  • SEBI highlights the need to eliminate any perverse incentives that could compromise the independent risk management role of clearing corporations.
  • Gandhi Committee suggested no specific profit stipulation for MIIs but recommended monitoring the reasonableness of charges and fees.
  • Clearing corporations must prioritise market stability and development over profit, given their critical roles in technology, settlement guarantee funds, and regulatory resources.
  • Rising trading volumes, especially in derivatives, necessitate enhanced settlement guarantee funds for clearing corporations.
  • SEBI underscores the importance of clearing corporations as public utilities making reasonable profits to sustain operations while ensuring overall market stability.

What are clearing corporations?

  • Clearing corporations are entities that facilitate the settlement of trades in financial markets.
  • They act as intermediaries between buyers and sellers, ensuring the transfer of securities and funds. Their role includes managing counterparty risk by guaranteeing the completion of transactions. Clearing corporations maintain margin requirements and settlement guarantee funds to cover potential defaults. They enhance market stability and confidence by ensuring smooth and secure trade settlements.


GS 3 : Science and Technology


Context: Amid the COVID-19 pandemic, the enzyme reverse transcriptase gained prominence for its role in molecular diagnostics, enabling rapid SARS-2 virus detection and tracking.Its discovery revolutionised molecular biology, impacting viral research and treatment, particularly for HIV, and revealing significant evolutionary insights in human and bacterial genomes.