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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 ..... tem. Global central clearing requirements reinforce 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 op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the arrangement, and the transfer of funds is effected using an agreed-upon operational infrastructure. 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 collatera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Quantitative and Qualitative CCs 13 Participant-default rules and procedures Qualitative CCs and Depositories 14 Segregation and portability Quantitative and Qualitative CCs 15 General business risk Quantitative and Qualitative CCs and Depositories 16* Custody and investment risks Quantitative and Qualitative CCs and Depositories 17* Operational risk Quantitative and Qualitative CCs and Depositories 18 Access and Participation Requirements Qualitative CCs and Depositories 19* Tiered participation arrangements Quantitative and Qualitative CCs and Depositories 20 FMI links ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange Board of India Act 1992 read with Regulation 51 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 , Section 26(3) of the Depositories Act, 1996 and Regulation 97 of Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. 12. This circular is available on SEBI website at www.sebi.gov.in . Yours faithfully, Hruda Ranjan Sahoo Deputy General Manager Market Regulation Department Email: [email protected] Ph. No. 022-2644 9586 Annexure 1 Principles for Financial Market Infrastructures (PFMIs) General Organisation Principle 1: Legal basis An FMI should have a well-founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions. Principle 2: Governance An FMI should have governance arrangements that are clear and transparent, promote the safety and efficiency of the FMI, and support the stability of the broader financial sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default of the participant and its affiliates that would generate the largest aggregate liquidity obligation for the FMI in extreme but plausible market conditions. Settlement Principle 8: Settlement finality An FMI should provide clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, an FMI should provide final settlement intraday or in real time. Principle 9: Money settlements An FMI should conduct its money settlements in central bank money where practical and available. If central bank money is not used, an FMI should minimise and strictly control the credit and liquidity risk arising from the use of commercial bank money. Principle 10: Physical deliveries An FMI should clearly state its obligations with respect to the delivery of physical instruments or commodities and should identify, monitor, and manage the risks associated with such physical deliveries. Central Securities Depositories and Exchange-of-value Settlement Systems Principle 11: Central securities depositories A CSD should have appropriate rules and procedures to help ensure the integrity of securities issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the FMI s obligations, including in the event of a wide-scale or major disruption. Access Principle 18: Access and participation requirements An FMI should have objective, risk-based, and publicly disclosed criteria for participation, which permit fair and open access. Principle 19: Tiered participation arrangements An FMI should identify, monitor, and manage the material risks to the FMI arising from tiered participation arrangements. Principle 20: FMI links An FMI that establishes a link with one or more FMIs should identify, monitor, and manage link-related risks. Efficiency Principle 21: Efficiency and effectiveness An FMI should be efficient and effective in meeting the requirements of its participants and the markets it serves. Principle 22: Communication procedures and standards An FMI should use, or at a minimum accommodate, relevant internationally accepted communication procedures and standards in order to facilitate efficient payment, clearing, settlement, and recording. Transparency Principle 23: Disclosure of rules, key procedures, and market data An FMI should have clear and comprehen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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