SEBI Mandates Uniform Risk Framework: Clearing Giants Face Overhaul as Cover 3 Norms Threaten Regulatory Disadvantage

SEBI Mandates Uniform Risk Framework: Clearing Giants Face Overhaul as Cover 3 Norms Threaten Regulatory Disadvantage​

SEBI Proposes Universal Safety Capital Standards for Clearing Corporations​

Securities and Exchange Board of India (SEBI) is actively evaluating a major overhaul of safety capital norms governing clearing corporations across all markets. The regulator has proposed introducing a uniform risk cover approach, aiming to strengthen systemic risk management in the financial market infrastructure. This initiative addresses current complexities related to different risk standards based on market share thresholds.

Clearing corporations play a vital role by guaranteeing every trade. They ensure that securities are delivered and payments are settled promptly, thereby eliminating counterparty default risk from participants. The proposed framework is designed to bring stability and predictability across the entire clearing ecosystem.

Sources indicate that SEBI has engaged with all key stakeholders regarding the implementation of the Cover 3 risk standard. This approach stipulates that the Core Settlement Guarantee Fund (Core SGF) must be sufficient to cover the simultaneous default of at least the top three clearing members.

Addressing Disparity in Risk Classification​

Currently, the regulatory structure divides clearing corporations into two categories. Category A applies to those entities with a market share exceeding 40 percent of equity derivatives clearing volumes. These firms are required to maintain Core SGF based on the higher of losses from simultaneous default (Cover 3) or a minimum corpus of Rs 10,500 crore.

Conversely, Category B corporations, which hold less than 40 per cent market share, are subject to the lower Cover 2 requirement. This dual-standard system has been under review due to concerns raised by industry players.

The proposal stems from a representation submitted by one of the largest clearing corporations. The firm argued that the existing framework creates a sharp regulatory disadvantage when it crosses the 40 per cent market share threshold. The abrupt jump in Core Settlement Guarantee Fund (SGF) requirements significantly increases capital costs for larger firms, potentially discouraging growth despite an interoperable ecosystem.

Global Standards and Regulatory Convergence​

The move towards uniform standards is supported by international norms. SEBI noted that globally, the Principles for Financial Market Infrastructures (PFMI) suggest that a central counterparty with complex risk or systemic importance should meet at least the Cover 2 requirement. Other central counterparties (CCPs) are typically expected to satisfy the Cover 1 requirement.

The regulator highlighted that India’s application of stringent Cover 3 standards, which differentiated firms based on market share, is significantly more intense than global practice. The proposal aims to align domestic requirements with these international best practices.

Accordingly, SEBI has proposed abolishing the current Category A and Category B classifications for clearing corporations. Furthermore, the mandatory Rs 10,500-crore minimum corpus requirement applicable solely to Category A entities will be removed.

Uniform Cover 3 Mandate Across All Segments​

The most significant outcome of the proposal is making the Cover 3 risk standard uniformly applicable across all clearing corporations in both the equity and commodity derivatives segments. This move seeks to achieve comprehensive stability, irrespective of a single firm's market share percentage.

SEBI has indicated that this proposed change is unlikely to have a major impact on most existing clearing firms. However, the regulator noted that one clearing corporation might be required to infuse approximately Rs 40 crore to meet the Cover 3 requirement based on its actual stress exposure.

In the equity derivatives space, NSE Clearing remains the dominant player with over 90 percent market share. It currently holds a Core Settlement Guarantee Fund of around Rs 12,000 crore, which exceeds the requisite Rs 10,500 crore. BSE Clearing is also noted as a significant entity in this segment, reporting a growing market share, rising to 9 per cent in H1FY26 from 6 percent in FY24.

As a point of reference, it should be mentioned that commodity derivatives clearing corporations were already brought under Cover 3 norms through a circular issued on March 16, 2026.