Central Idea

The European Securities and Markets Authority (ESMA) has de-recognised 6 clearing corporations in India as Third Country Central Counterparty (TC-CCP) with effect from April 30.
However, it allowed European banks to continue business with them till April 2023 without penal consequences.

What are Clearing Corporations?

Clearing corporations, also known as central counterparties (CCPs), are financial institutions that act as intermediaries between buyers and sellers in financial markets.
They help to manage the risk of default by ensuring that each party involved in a trade has the necessary funds or securities to fulfil their obligations.
Clearing corporations also ensure that trades are settled in a timely and efficient manner.
In the context of this article, clearing corporations refer to those involved in the clearing and settlement of trades in India’s cash and derivatives market.

ESMA has withdrawn recognition of six Indian clearing corporations including- CCIL, Indian Clearing Corporation Ltd, NSE Clearing Ltd, Multi Commodity Exchange Clearing, India International Clearing Corporation, and NSE IFSC Clearing Corporation.
ESMA asked Indian regulators to sign an agreement to give it the power to monitor and supervise the clearing corporations.
Indian regulators refused to give supervisory power to foreign entities in Indian clearing corporations.
ESMA recognised these clearing corporations as Third Country Central Counterparty (TC-CCP) in the EU region.

ESMA had asked the RBI and the Securities and Exchange Board of India (SEBI) to sign an agreement giving it the power to monitor and supervise the clearing corporations.
Indian regulators did not agree to give supervisory power to a foreign entity on Indian clearing corporations.