The Securities Exchange Board of India vide notification dated the 8th October 2020 has published the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2020 to provide recognition to limited purpose clearing corporations. “limited purpose clearing corporation” means an entity that is established to undertake the activity of clearing and settlement of repo transactions. “Repo” refers to an instrument for borrowing by selling debt securities with an agreement to repurchase the debt securities on an agreed future date at an agreed price which includes interest on funds borrowed.
The Amendment provides that for the first five years from the date of grant of recognition by the board, there shall be no distribution of dividend to the shareholders and the profits of recognized limited purpose clearing corporation shall be transferred to the fund to guarantee settlement of trades. Also the limited purpose clearing corporation shall not carry on any activity whether involving deployment of funds or otherwise without the prior approval of the Board.
