In August 2013 the IMF and the World Bank jointly released the Financial Sector Assessment Program Update (Report) assessing the implementation of the CPSS-IOSCO Recommendations for Securities Settlement Systems and for Central Counterparties in India. The Report analyses the clearing and settlement systems for (a) government securities, money market instruments and forex instruments and (b) corporate securities and financial derivatives. Although the commodity derivatives market has not been assessed by the Report, it suggested that a detailed self-assessment should be conducted by the Forwards Market Commission (FMC).
The Report observes that, in general, the risk management framework for the securities and derivatives clearing and settlement systems in India is prudent, the operational reliability is high and the regulation and oversight functions are effective. The Report opines that SEBI seems to be on track in adopting global best practices for clearing and settlement systems in India. However, prudential norms governing the commodities derivatives market remain the urgent need of the hour and must be facilitated by the FMC at the earliest.
The Report recommends legal finality to the netting and settlement mechanism on the stock exchange, and SEBI has amended the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 to include a specific provision which makes payment and settlement in respect of transactions effected under the byelaws of a recognized stock exchange or recognized clearing corporation final, irrevocable and binding on such parties. This would ensure the sanctity and safety of the market place, which till now was protected not by law, but a ruling of the Supreme Court of India.