Banks: Banks, CCIL in talks to build 3rd-party clearing process, unlock trade

Mumbai: Domestic and European banks have initiated discussions with the Clearing Corporation of India (CCIL) to establish the necessary structures for third-party clearing of government bonds and derivatives. This development paves the way for the execution of trades worth billions of dollars that were at risk of stalling due to regulatory issues.

“Banks and CCIL are in talks for the third-party clearing mechanism. In its securities settlement segment, the CCIL permitted certain members to become clearing members in 2020,” a source familiar with the matter told ET. “Clearing members can take on European banks as clients and conduct trades.”

“The current issue revolves around forex forwards and IRS (interest rate swap). The operationalization of clearing members in these areas has not yet commenced. However, the structures are in place. We have already received requests regarding the operational aspects of this system,” the source said.

An email requesting a comment on the matter was sent to CCIL, but no response was received at the time of publication. CCIL serves as the trading platform for Indian government bonds and derivatives such as overnight indexed swaps (OIS).

According to another source, once the clearing member model is operationalized for forex forwards and the IRS segment, domestic banks will be able to facilitate trading for European banks.

In March 2020, the CCIL introduced a tiered membership structure in its securities segment. Subsequently, in November 2020, the CCIL’s Clearing Member Structure in the rupee IRS Guaranteed Segment went live. Three months later, the clearing member structure in the forex forward segment was introduced. “The process would involve a bank like ICICI Bank, SBI, or HDFC Bank taking on the responsibility, margin risk, and default risk for one of the four European banks. CCIL would be on the other side,” the source explained.

European banks with a presence in the Indian bond and derivatives markets include Societe Generale, Credit Agricole, BNP Paribas, and Deutsche Bank. Deutsche Bank and BNP Paribas declined to comment, and emails sent to Societe Generale and Credit Agricole did not receive responses by press time. ICICI, SBI, and HDFC also did not respond to emails seeking comment.

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