Informist, Monday, Apr 29, 2024

--Sources: CCIL updating repo platform to keep up with new norms

--Sources: CCIL updating repo order matching segment 'CROMS'

--Sources: CCIL updates to allow securities lending by MFs, insurers

--Sources: CCIL held demos, trials at bks on new repo feature in Apr

By Aaryan Khanna

NEW DELHI – Clearing Corp of India Ltd is upgrading its repo platform with wider functionality that will incorporate the Reserve Bank of India's new securities lending directions. The updates to the Clearcorp Repo Order Matching System will enable insurance companies and mutual funds to lend securities in the repo market, implementing a key provision of the new guidelines, according to multiple bank officials aware of the development.

CCIL's repo platform currently allows only banks and primary dealerships to lend securities. CCIL has been giving demonstrations at various public and private sector banks and has also conducted trials for the modality throughout April, the officials said.

"It should be in the final stages of introduction now," one of the bankers said. "The portal is within the CROMS window. They had done a demo, and some issues were raised by participants."

Phone calls and e-mails to a spokesperson for the clearinghouse did not receive a response till the time of writing this report.

The RBI on Dec 27 notified final directions for the lending of government securities, a mechanism first announced in the February 2023 monetary policy review. While the move is long awaited, very few trades have been struck, if at all, in the current avatar of only over-the-counter deals, the officials said.

The RBI said securities issued by the government, excluding Treasury bills, would be eligible for lending or borrowing under the 'Government Securities Lending' transaction. Government securities obtained under a repo transaction, including through a liquidity adjustment facility, or borrowed under another transaction would also be eligible to be lent, the norms said.

The Indian clearing house hosts the domestic government bond and derivatives trading market in tandem with the RBI. 'CROMS' is an electronic anonymous order matching platform introduced in 2009 by Clearing Corp of India, in which banks and primary dealers can lend government securities overnight in a repo transaction.

"Why would a bank enter into such trades when it is not available on a secure platform?" another banker said. "Especially for a state-owned bank, there is always enough liquidity available without resorting to additional risk or leverage by entering into a trade like this over-the-counter, which carries settlement risk."

The new guidelines have seemed promising for short sellers since their introduction, as they allow traders to expand the number of parties willing to cover such a trade. The lack of this expanded mechanism with insurers and mutual funds came to the fore last week, when short sellers did not find lenders for the 10-year benchmark 7.18%, 2033 bond. A squeeze on these short sellers led to prices shooting up on Tuesday.

The volume of interbank repo trades in a given paper is a proxy for tracking the quantum of short bets, as overnight short-sellers necessarily have to borrow the securities. On the Clearcorp Repo Order Matching System, the repo turnover for the 7.18%, 2033 bond has hovered around 120 bln rupees since Apr 19. Currently, short sellers have no recourse but to approach the secondary market when covering their short sales, as the bond has gone out of regular issuance with the introduction of the 7.10%, 2034 bond earlier this month.

Meanwhile, insurers are uncertain whether they will be able to participate in securities lending at all, despite the RBI's clean chit. Under current norms, the Insurance Regulatory and Development Authority of India does not allow insurers to leverage their assets.

"The insurance regulator has not commented on it, so most insurers would be waiting for a go-ahead from them," an official at a life insurer said. "We heard some discussions going on recently, but nothing has come to fruition." End

Edited by Avishek Dutta

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved