NSE, BSE and MCX-SX fail to transfer share to settlement fund

The three national level stock exchanges have failed to transfer 25% of their profits to the settlement guarantee fund, or SGF, of their respective clearing corporations despite a Sebi diktat last year. But, the exchanges said the transfer was not effected since they were waiting for a report by a Sebi-appointed expert committee, set up last year, on clearing corporations. Based on their profits in fiscal year 2013, NSE has to transfer a huge chunk of Rs 220 crore, BSE Rs 27 crore and MCX-SX Rs 5 crore, respectively, or cumulatively Rs 253 crore, to the fund. The fund enables the clearing corporation (CC) of the respective exchanges, that clear and settle trades, to provide guarantee against counterparty risk. The larger the fund the more able an exchange is to guarantee against default by brokers to honour trades. To increase the risk-management capacity of CCs, Sebi last year notified that all stock exchanges should transfer 25% of their profits to the SGF. However, a leading exchange and a few investors from all three bourses were averse to transferring 25% of profit, as it would directly impact their bottom line. The exchanges also said that the transfer was pending a Sebi expert committee report on the SGF and sharing of profits. In statements issued with their audited financial results for FY13, all the three bourses gave a similar reason for not transferring the funds.

"Pending clarification from Sebi regarding the norms for sourcing, including transfer of profits by stock exchanges to the above mentioned fund, no transfer of profits has been recorded in the books of account as at March 31, 2013," said BSE in its statement. "BSE will continue to follow all rules and regulations of Sebi and other relevant authorities as applicable," said BSE spokesperson. Once the committee report is available and accepted by Sebi, rules and regulations prepared and published by Sebi in this regard, BSE will implement the recommendations. "Pending the report of the expert committee, no transfer of profits to the settlement guarantee fund in terms of the regulations has been made," said NSE. According to the securities contracts (regulation) (stock exchange & clearing corporations) regulations, 2012, issued on June 20, 2012, every recognised stock exchange is required to transfer 25% of its annual profits every year to a fund to guarantee settlement of trade by the recognised clearing corporation. Later, Sebi formed an expert committee for, among other things, finalising the norms on adequacy of the core corpus of the settlement guarantee fund (SGF) / trade guarantee fund (TGF) and its sourcing, including transfer of profits by stock exchanges to SGF/TGF in the long run.

NSE has been enjoying supernormal profits and highest profit margins in the country. For FY13, NSE reported a net profit of Rs 878 crore up from Rs 705 crore in the previous year. However, its revenue declined by 6% to Rs 1,000 crore. NSE profit margin was nearly 88%. BSE's FY13 annual report painted a grim picture mainly because of the incentive payout. Net profit of Asia's oldest bourse fell 37% to Rs 109 crore in FY13 compared with Rs 178 crore a year ago.

Source : Economic Times