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TMI BlogPrinciples of Financial Market Infrastructures (PFMIs)X X X X Extracts X X X X X X X X Extracts X X X X ..... inforce the importance of strong safeguards and consistent oversight of derivatives CCPs in particular. Financial Market Infrastructure (FMI) 3. The Principles apply to systematically important FMI entities such as Central Counterparty (CCP), Central Securities Depository (CSD)/ Securities Settlement System (SSS), Payment and Settlement Systems (PSS) and Trade Repository (TR) which are responsible for providing clearing, settlement and recording of monetary and other financial transactions. The principles are international standards set forth to - 3.1. Enhance safety and efficiency in payment, clearing, settlement, and recording arrangements, 3.2. Reduce systemic risk. 3.3. Foster transparency and financial stability and 3.4. Promote protection of participants and investors. 4. The different categories of FMIs, as identified under PFMIs, are listed below - Central Counterparties (CCP) A central counterparty interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the performance of open contracts. A CCP becomes counterparty to trades with market parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfrastructure. Trade Repositories (TR) A trade repository is an entity that maintains a centralised electronic record (database) of transaction data. TRs have emerged as a new type of FMI and have recently grown in importance, particularly in the OTC derivatives market. By centralising the collection, storage, and dissemination of data, a well-designed TR that operates with effective risk controls can serve an important role in enhancing the transparency of transaction information to relevant authorities and the public, promoting financial stability, and supporting the detection and prevention of market abuse. An important function of a TR is to provide information that supports risk reduction, operational efficiency and effectiveness, and cost savings for both individual entities and the market as a whole. Such entities may include the principals to a trade, their agents, CCPs, and other service providers offering complementary services, including central settlement of payment obligations, electronic novation and affirmation, portfolio compression and reconciliation, and collateral. FMIs Regulated by SEBI 5. SEBI regulated Depositories and Clearing Corporations are FMIs. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have to make Qualitative Disclosures only. 7. The periodicity of self-assessment and disclosure by the FMIs shall be as follows: Self-assessment and Disclosures Periodicity Quantitative Quarterly (within 30 days from the end of the quarter - June, September, December and March) Qualitative Annually (within 30 days from the end of the financial year) 8. FMIs shall be monitored and assessed against the PFMIs on annual basis by the Regulatory Oversight Committee (ROC) of the FMI and the ROC shall submit a report to the governing board of the FMI and SEBI within 60 days from the end of the financial year. 9. Applicability 9.1. The provisions of this Circular shall come into force from the quarter end December, 2023. 9.2. Circular No. CIR/MRD/DRMNP/26/2013 dated September 04, 2013 and Circular No. SEBI/HO/CDMRD/DMP/CIR/P/2016/137 dated December 16, 2016 shall be rescinded with effect from the date of implementation of this circular. 10. Clearing Corporations and Depositories are advised to: 10.1. take necessary steps and put in place necessary systems for implementation of above. 10.2. make necessary amendments to the relevant bye-laws, rules and regulations, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be limited to, the default of the two participants and their affiliates that would potentially cause the largest aggregate credit exposure to the CCP in extreme but plausible market conditions. All other CCPs should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would potentially cause the largest aggregate credit exposure to the CCP in extreme but plausible market conditions. Principle 5: Collateral An FMI that requires collateral to manage its or its participants' credit exposure should accept collateral with low credit, liquidity, and market risks. An FMI should also set and enforce appropriately conservative haircuts and concentration limits. Principle 6: Margin A CCP should cover its credit exposures to its participants for all products through an effective margin system that is risk-based and regularly reviewed. Principle 7: Liquidity risk An FMI should effectively measure, monitor, and manage its liquidity risk. An FMI should maintain sufficient liquid resources in all relevant currencies to effect same-day and, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t's customers and the collateral provided to the CCP with respect to those positions. General Business and Operational Risk Management Principle 15: General business risk An FMI should identify, monitor, and manage its general business risk and hold sufficient liquid net assets funded by equity to cover potential general business losses so that it can continue operations and services as a going concern if those losses materialise. Further, liquid net assets should at all times be sufficient to ensure a recovery or orderly wind-down of critical operations and services. Principle 16: Custody and investment risks An FMI should safeguard its own and its participants' assets and minimise the risk of loss on and delay in access to these assets. An FMI's investments should be in instruments with minimal credit, market, and liquidity risks. Principle 17: Operational risk An FMI should identify the plausible sources of operational risk, both internal and external, and mitigate their impact through the use of appropriate systems, policies, procedures, and controls. Systems should be designed to ensure a high degree of security and operational reliability and should have adequate, scal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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