{"id":35206,"date":"2023-05-04T12:15:14","date_gmt":"2023-05-04T06:45:14","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=35206"},"modified":"2025-04-20T22:40:07","modified_gmt":"2025-04-20T17:10:07","slug":"india-maldives-bilateral-relation","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/india-maldives-bilateral-relation\/","title":{"rendered":"Central Counterparties (CCPs)"},"content":{"rendered":"<h3><strong>What\u2019s in today\u2019s article?<\/strong><\/h3>\n<ul>\n<li><strong>Why in news?<\/strong><\/li>\n<li><strong>What is a CCP?<\/strong><\/li>\n<li><strong>What is the Issue?<\/strong><\/li>\n<li><strong>What will be the Impact of the Move?<\/strong><\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>Why in news?<\/strong><\/h2>\n<p>The European Securities and Markets Authority (ESMA), the European Union (EU\u2019s) financial markets regulator has derecognised six Indian central counterparties (CCPs) from April 30, 2023.<\/p>\n<p>&nbsp;<\/p>\n<h2><strong>What is a CCP?<\/strong><\/h2>\n<p><img decoding=\"async\" src=\"https:\/\/vajiramandravi-test.s3.us-east-1.amazonaws.com\/media\/content\/ckeditor\/2023\/05\/05\/image-20230505234843-1.png\" alt=\"\" \/><\/p>\n<ul>\n<li>It is <strong>a financial institution <\/strong>that perform two main functions as the intermediary in a market transaction &#8211;\n<ul>\n<li><strong>Clearing and settlement <\/strong>for trades in foreign exchange, securities, options, and derivative contracts.<\/li>\n<li><strong>Guarantee the terms of trade<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<li><strong>CCP is a system provider<\/strong>, who by way of <strong>novation<\/strong> (act of replacing an obligation with another) &#8211;\n<ul>\n<li>Interposes between system participants in the transactions admitted for settlement,<\/li>\n<li>Thereby becoming the<strong> buyer to every seller and the seller to every buyer<\/strong>, for the purpose of effecting settlement of their transactions.<\/li>\n<\/ul>\n<\/li>\n<li>CCPs are highly regulated institutions that specialise in managing counterparty credit risk.<\/li>\n<li>In India, a CCP is authorised by the Reserve Bank of India (RBI) to operate under the<strong> Payment and Settlement Systems Act, 2007.<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<figure class=\"media\">\n<div data-oembed-url=\"https:\/\/www.youtube.com\/watch?v=gKTOaK5fhkU&amp;t=30s\">\n<div><iframe src=\"https:\/\/www.youtube.com\/embed\/gKTOaK5fhkU?start=30\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/div>\n<\/div>\n<\/figure>\n<p>&nbsp;<\/p>\n<p><strong>What is the Issue?<\/strong><\/p>\n<ul>\n<li><strong>The six CCPs derecognised are:<\/strong>\n<ul>\n<li>The Clearing Corporation of India (CCIL),<\/li>\n<li>Indian Clearing Corporation Ltd (ICCL),<\/li>\n<li>NSE Clearing Ltd (NSCCL),<\/li>\n<li>Multi Commodity Exchange Clearing (MCXCCL),<\/li>\n<li>India International Clearing Corporation (IFSC) Ltd (IICC) and<\/li>\n<li>NSE IFSC Clearing Corporation Ltd (NICCL).<\/li>\n<\/ul>\n<\/li>\n<li><strong>Why are they derecognised?<\/strong>\n<ul>\n<li>As per the European Market Infrastructure Regulations (EMIR), a CCP in a third country (TC-CCPs) can provide clearing services to European banks <strong>only if it is recognised by ESMA.<\/strong><\/li>\n<li>The decision to derecognise Indian CCPs came due to \u2018<strong>no cooperation arrangements<\/strong>\u2019 between ESMA and Indian regulators &#8211; the RBI, the SEBI and the International Financial Services Centres Authority (IFSCA).<\/li>\n<\/ul>\n<\/li>\n<li><strong>Regulations of CCPs:<\/strong>\n<ul>\n<li>According to the Financial Stability Report 2022 (RBI), after the global financial crisis of 2007-09, the legislations governing CCPs were enacted in some advanced jurisdictions to give them an extra-territorial reach.<\/li>\n<li>Such regulations <strong>created a parallel maze of laws with overlapping requirements or restrictions<\/strong> and showed a lack of trust in the capabilities and quality of oversight exercised by other regulators.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Argument of Indian regulators:<\/strong>\n<ul>\n<li>Since these domestic CCPs <strong>operate in India and not in the EU<\/strong>, these entities cannot be subjected to the ESMA regulations.<\/li>\n<li>These CCPs <strong>have robust risk management and there is no need for a foreign regulator<\/strong> to inspect them.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What will be the Impact of the Move?<\/strong><\/h2>\n<ul>\n<li><strong>On the TC-CCPs:<\/strong> With the withdrawal of recognition, these TC-CCPs will <strong>no longer be able to provide services<\/strong> to clearing members and trading venues established in the EU.<\/li>\n<li><strong>On the lenders (European banks): <\/strong>They will have to set aside additional capital to trade in the domestic market.<\/li>\n<li><strong>On the<\/strong> <strong>clearing members: <\/strong>They will also be impacted by way of higher capital requirements, enhanced credit risk, etc.<\/li>\n<li><strong>On the Indian economy: <\/strong>Of the total foreign portfolio investors (FPI) registered in India, <strong>close to 20% are from Europe<\/strong>. However, the SEBI has said that the derecognition is unlikely to have any impact.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3><strong>Q1) What is the Payment and Settlement Systems Act 2007?<\/strong><\/h3>\n<p>It is an Act to provide for the regulation and supervision of payment systems in India and to designate the Reserve Bank of India as the authority for that purpose.<\/p>\n<p><strong>\u00a0<\/strong><\/p>\n<h3><strong>Q2) What is the International Financial Services Centres Authority (IFSCA)?<\/strong><\/h3>\n<p>IFSCA is a unified regulator responsible for the development and regulation of financial products, financial services and institutions in the IFSCs.<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/derecognition-six-indian-central-counterparties-by-esma-8588951\/\" target=\"_blank\" rel=\"nofollow noopener\"><u>Derecognition of six Indian central counterparties by EU regulator: What will be the impact?<\/u><\/a><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>CCP is a the intermediary in a market transaction tasked with settlement and guarantee of terms of trade.<\/p>\n","protected":false},"author":5,"featured_media":35207,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-35206","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/35206","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=35206"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/35206\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/35207"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=35206"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=35206"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=35206"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}