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TMI BlogFramework for Orderly Winding Down of Critical Operations and Services of a Clearing CorporationX X X X Extracts X X X X X X X X Extracts X X X X ..... vent a CC from being able to provide its critical operations and services as a going concern and may lead to wind down of its critical operations and services, shall be identified. Some of the reasons for winding down of CC can be: 1.1. Voluntary: The CC is solvent and is able to meet all its obligations towards Clearing Members (CMs) as well as other creditors; however, wishes to wind down its critical operations and services and exit as a strategic or business decision. 1.2. Involuntary: The winding down of critical operations and services on involuntary basis may be due to various factors including but not limited to the following: 1.2.1. Losses due to default by CM(s): The default management resources maintained by the CC may get exhausted due to default by CM(s), and, consequently, the CC fails to fulfil its obligations towards CM(s) and/or its constituents. 1.2.2. Losses due to other factors: There is no CM default and the settlements have been happening in a timely manner; however, the solvency of a CC may get adversely affected as a result of some large operational expenses, legal expenses, business or investment losses, etc. thereby rendering a CC unable in ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their governing board, inter alia, outlining the manner in which the critical operations and services of the CCs shall be carried out in an orderly manner so as to not cause any disruption to the financial system, upon triggering of any of the scenarios as mentioned at paragraphs 1.1 and 1.2 above. A notice or intimation regarding winding down of critical operations and services shall be issued by the CC as and when the scenarios get triggered, with prior approval of SEBI. 3.2. The SOP shall, inter alia, include details of infrastructure and premises, technological systems including back-up, outsourcing activities/ vendors/ service providers, etc. which would need to be retained or continued for orderly winding down of critical operations and services. The SOP shall also contain details of key employees or staff members, along with their roles and obligations, etc., who shall be retained and responsible for development, review, and ongoing monitoring etc. of the critical operations and services, once the process of orderly winding down of critical operations and services is initiated. 3.3. The CCs shall include the operational modalities relating to transfer or close-out of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The exiting CC shall be permitted to distribute its assets subject to conditions as laid down in its framework, guidelines issued by SEBI from time to time, or any other direction issued by SEBI or any other statutory authority. 5.2. For the purpose of valuation of the assets of the CC, a valuation agency may be appointed by SEBI. 5.3. The quantum of assets available for distribution shall be arrived at after payment of statutory dues, including applicable taxes; contribution to SEBI as specified in para 5.4 and 5.5 below, return of refundable collateral and membership deposits of CMs, return of deposits to warehouse service providers, if any, and the unutilized Core SGF contributions of CMs and Stock Exchanges, as the case may be, depending upon the scenario triggering winding down of critical operations and services. 5.4. Subsequent to exit, the CC shall also be required to contribute upto 20% of its assets (after applicable taxes) towards SEBI Investor Protection and Education Fund (IPEF) in order to provide for settlement of any claims pertaining to pending arbitration cases, unresolved complaints or grievances lying with the CC, etc. The contribution percentage may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical operations and services. C. Obligations of Exchange(s) and Clearing Member(s) 1. For non-interoperable segments, if the exchange (whose trades are cleared by the exiting CC) intends to continue to offer trading in the concerned segment(s), then it shall engage with another clearing corporation within the notice period. 2. For both non-interoperable and interoperable segments, the CMs of exiting CC shall have to become members of new or another CC within the notice period. Alternatively, such CMs may close-out their open positions within the notice period. D. Modification to SEBI circular on Core-SGF dated August 27, 2014 1. With regard to paragraph 6.1 above, it may be noted that the existing regulatory provision in SEBI circular No.SEBI/HO/MRD/DRMNP/CIR/P/2019/55 dated April 10, 2019 , stipulates that while computing the capital requirements for winding down, a CC shall consider a minimum time span of six months for ensuring an orderly winding down or restructuring of its activities and thus, hold liquid net assets equal to at least six months of gross operational expenses. 2. Since the abovementioned capital requirement for carrying out winding down in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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