Clearing Corporation of India
The Clearing Corporation of India Ltd. (CCIL) was set up in 2001. It provides clearing and settlement services for transactions in money markets, government securities and foreign exchange. As a clearing and settlement agency, CCIL acts as the financial intermediary and counterparty for these financial transactions and guarantees settlement by novation. Novation is a process that discharges the contract between the original trading counterparties; simultaneously, it creates two new legally binding contracts.
Both of these contracts are between the original counterparty and CCIL. The settlement guarantee through novation is a risk-bearing function, and the trading members are required to deposit margin collaterals for trading through CCIL. The importance of CCIL is that it improves the transaction efficiency in settlement process and insulates the financial system from operational shocks.
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It also undertakes various activities that aim at further development of money, securities and forex markets in India. CCIL handles clearing and settlement for securities such as government securities, T-bills, repos, Collateralised Borrowing and Lending Obligation (CBLO) and RBI auctions. It also handles clearing and settlement for USD/INR cash, spot and forward trades. CCIL, through its subsidiary, Clearcorp Dealing Systems (India) Ltd. (CDSL), operates several trading platforms for serving money market transactions, forex transactions and securities transactions.
Collateralised Borrowing and Lending Obligation (CBLO)
CBLO stands for Collateralised Borrowing and Lending Obligation. It is a product developed by CCIL and is approved by RBI. It is basically a secured instrument that can be used for borrowing money on a fully collateralised basis. The financial institutions that want to use CBLO for borrowing are required to deposit securities as collateral with CCIL by electronically transferring the securities to CCIL’s account. The approved securities include treasury bills and dated government securities. Based on the market value of the collaterals deposited, CCIL will fix the borrowing limit after applying a margin.
Technically, CBLO creates a legal obligation on the borrower to repay the money borrowed along with interest on a pre-determined future date, and a right and authority to the lender to receive money lent along with interest on that date. CCIL creates a charge on the collaterals deposited by borrowers. The borrowing/trading is done through the CBLO dealing system, operated by Clearcorp, which allows trading by automatic anonymous order matching system.
CBLO is a discounted instrument and is generally available for maturities of next seven business days and three months. CCIL acts as the counterparty to the deals by novation and performs clearing and settlement activities. The funds settlement for trading members is done through the accounts maintained by the members with RBI. CBLO is beneficial for institutions that do not have access to the call/ notice money market along with those institutions which can access the call/notice money market but within the prescribed limits.
Negotiated Dealing System (NDS), Clearcorp Repo Order Matching System (Croms) and Fx-Clear
CROMS, NDS and FX-Clear (a forex dealing system) are some of the trading platforms or dealing systems used by various market participants in Indian money markets, securities markets and forex markets. NDS is operated by RBI for government securities trading. CROMS and FX-Clear, along with several other trading platforms, are hosted by CCIL through its wholly owned subsidiary CDSL.
Negotiated Dealing System (NDS)
NDS was introduced by RBI in 2002. It is a screen-based negotiated dealing platform. This platform can be used for government securities and money market instruments such as T-bills, call money, term/notice money and repos. RBI requires that members who conclude any deal related to these securities outside NDS must report that deal on NDS system within 15 minutes after concluding the deal.
The NDS interfaces with CCIL for clearing and settlement. It also acts as the platform for bidding in primary market auctions, bidding in open market operations of RBI, including repo auctions under LAF. The Negotiated Dealing System–Order Matching (NDS-OM) is an anonymous electronic order-matching platform launched by RBI in 2005. It facilitates secondary market trading in all kinds of central government securities, state government securities, special securities and treasury bills.
It is hosted and maintained by CCIL for and on behalf of RBI. The members of NDS-OM system can place their bids and offers on NDS-OM screen. The NDS-OM system matches the bids and offers automatically on price-time priority. It matches the oldest order first within the orders of the same price/yield.
This platform provides complete anonymity because the information regarding the counterparties is not disclosed. It also allows Straight Through Processing (STP). Under STP, all trades that are concluded on NDS-OM system flow directly to CCIL for settlement. As explained earlier, CCIL acts as the central counterparty through novation.
Clearcorp Repo Order Matching System (CROMS)
CROMS is a trading and settlement platform operated by Clearcorp. It also offers STP and anonymous order matching for repos in government securities. In CROMS, the dealing is done in basket repos. In basket repos, the repoable (lendable) securities are clustered together based on instrument type, liquidity and outstanding tenor. Any borrower can borrow funds by lending any security belonging to the basket repo.
CROMS also offers the conventional repo, in which both the borrower and lender are aware of the underlying security against which funds are being lent. It offers better transparency, repo rate discovery and operational efficiency making it a preferred choice for market repo deals. About 70% of all market repo transactions against government securities are traded through this platform.
CROMS also facilitates the reporting of bilateral market repo trades in government securities concluded by members outside the CROMS platform for the purpose of clearing and settlement by CCIL. It is required that both the counterparties report their individual trades to CCIL. Once the trades are reported, CCIL takes care of validation, matching and other settlement processes.
FX-Clear is a forex dealing system launched by Clearcorp in 2003 for forex trading between market participants. It offers both negotiation and order matching for forex trading. It allows trades in interbank USD/INR spot and swap transactions and transactions in major cross-currencies.
A new version of FX-Clear launched in 2015 offers guaranteed settlement from the point of trade for all the trades concluded on the order matching mode of the platform wherein all trades are automatically forwarded to CCIL, which acts as the central counterparty. FX-Clear in its negotiation mode allows dealing members to contact each other for the negotiation of forex trades. After the deal has been fixed, they can confirm the deal in the system and generate deal tickets.
The deals done on the negotiation mode can be separately reported to the settlement segment of CCIL. An advantage of FX-Clear is that it is offered free of cost to its members, while competing trading platforms like Reuters charge fees ranging from ₹50,000 to ₹3 lakh per month per terminal. Also, FX-Clear in its order matching mode allows straight-through processing with automatic settlement and clearing facilitated and guaranteed by CCIL.