National Securities Clearing Corporation Ltd. (NSCCL) is a wholly owned subsidiary of NSE and was incorporated in August 1995. It was the first clearing corporation to be established in the country and also the first clearing corporation in the country to introduce settlement guarantee. It was set up with the following objectives:
- to bring and sustain confidence in clearing and settlement of securities;
- to promote and maintain, short and consistent settlement cycles;
- to provide counter-party risk guarantee, and
- to operate a tight risk containment system.
Clearing & Settlement by NSCCL:
NSCCL carries out the clearing and settlement of the trades executed in the equities and derivatives segments of the NSE, It operates a well-defined settlement cycle and there are no deviations or deferments from this cycle. It aggregates trades over a trading period, nets the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities. At the end of each trading day, concluded or locked-in trades are received from NSE by NSCCL. NSCCL determines the cumulative obligations of each member and electronically transfers the data to Clearing Members (CMs). All trades concluded during a particular trading period are settled together. A multilateral netting procedure is adopted to determine the net settlement obligations(delivery/receipt positions) of CMs. NSCCL then allocates or assigns delivery of securities inter se the members to arrive at the delivery and receipt obligation of funds and securities by each member. Settlement is deemed to be complete upon declaration and release of pay-out of funds and securities. On the securities pay-in day, delivering members are required to bring in securities to NSCCL. On pay-out day, the securities are delivered to the respective receiving members. Exceptions may arise because of short delivery of securities by CMs, bad deliveries or company objections on the pay-out day.
NSCCL has set up the Settlement Guarantee Fund (SGF) through contributions of its trading members. The SGF is intended primarily to guarantee completion of settlement up to the normal pay-out for trades executed in the regular market and will not act as guarantee for company objection cases i.e., replacement of bad paper or payment of its equivalent financial value.
The SGF therefore ensures that the settlement is not held up on account of failure of trading members to meet their obligations and all market participants (trading members, custodians, investors, etc.) who have completed their part of the obligations are not affected in any manner whatsoever.
The securities are put up for auction by the NSE on account of non-delivery of securities by the selling trading member to ensure that the buying trading member receives the securities due to him. The non-delivery by the trading member could arise on account of short delivery, bad deliveries not rectified and company objections not rectified by them. The Exchange purchases the requisite quantity in the Auction Market and gives them to the buying trading member. If the shares could not be bought in the auction i.e., if shares are not offered for sale in the auction, the transactions are squared up as per SEBI Guidelines. As per the Guidelines in force, the transaction is squared up at the highest price on the NSE from the relevant trading period till the close-out day or at 20% above the last available trading price on the NSE, whichever is higher.