NSCCL- 7 Most Important Points about NSE Clearing

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Last updated on November 25, 2023

Basics First – NSCCL Full Form and History

In August 1995, the National Securities Clearing Corporation Limited (NSCCL) was established as a wholly-owned subsidiary of the National Stock Exchange (NSE). NSCCL, which stands for National Securities Clearing Corporation Limited, holds the distinction of being the first securities clearing house to be established in the country. It was also the pioneer in implementing a settlement guarantee in the clearing corporation.

NSCCL Account - 7 Most Important Points

Since then, NSCCL has been renamed NSE Clearing Limited. Recognized by the Security Exchange Board of India (SEBI) as a Qualified Central Counterparty (QCCP) and a systemically important market infrastructure institution, NSE Clearing Limited boasts the highest corporate credit rating of ‘AAA’ by CRISIL, signifying its exceptional strength in terms of debt repayment.

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What are the Objectives of NSCCL? 

NSE Clearing Ltd (NSCCL)

NSE Clearing Ltd aims to provide safe and efficient value-added services while setting global benchmarks through strong risk management systems and processes. The primary objectives of NSE Clearing are outlined below:

  • To facilitate the clearing & settlement of securities 
  • Ensuring strict short-cycle settlements
  • Offering counter-party risk guarantee for concerned parties
  • Facilitating a robust risk-addressing system

Who is Eligible for the Member Admission Process for NSCCL? 

Membership in NSCCL is open to the following entities, provided they meet SEBI and NSE eligibility criteria:

  1. Individuals 
  1. Partnership firms 
  1. Limited liability partnership 
  1. Corporate entities 

What is the Settlement Process Through NSE Clearing? 

The settlement process through NSE Clearing can be outlined as follows:

1- At the beginning of the settlement cycle, NSCCL (now NSE Clearing Limited) receives all the trades executed or locked in on the trading day.

2- Based on the details of all trades received, NSE Clearing calculates the cumulative obligation of each member for trade settlement.

3- The calculated settlement information is electronically transmitted to the Clearing Members (CMs). All trades completed during a specific trading period are grouped together for settlement.

4- NSE Clearing employs a multilateral netting procedure to determine the net settlement obligation of each Clearing Member, irrespective of whether they are a delivery or receiver in the transaction.

5- Following the netting process, the settlement procedure involves allocating the delivery of securities to ensure precise delivery and receipt obligations of funds and securities for each NSCCL member. 

6- Once the payout of funds and securities is declared and released, the settlement process is completed.

7- On the pay-in day, delivering members are required to bring in the specified securities, which are then delivered to the respective receiving members on the pay-out day.

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What are NSCCL’s Products? 

NSCCL offers a diverse range of products for settlement. Apart from settling stocks listed on the NSE, it acts as a centralized platform for settling various other products. The products catered by NSCCL include:

  • Equities 
  • Equity & Commodity Derivatives 
  • Currency Derivatives 
  • Retail Debt  
  • NSE Bond Futures on Government Bonds or T-Bills 
  • Corporate Bonds 
  • MFSS (Mutual Fund Service System) 
  • Security Lending and Borrowing Scheme (SLBS) 

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Who are the Partners of NSCCL?

NSCCL (now NSE Clearing Limited) collaborates with various participants and partners to facilitate the settlement of trade transactions. The key partners of NSE Clearing Limited are:

1 – Clearing Members 

Clearing Members are members of the Clearing Corporation responsible for clearing and settling transactions through the Clearing Corporation. They utilize their NSCCL accounts to clear and settle deals for specific segments according to prescribed terms, conditions, and procedures. Clearing Members may settle deals on their own account or on behalf of their clients, adhering to prescribed conditions.

2 – Clearing banks 

Clearing Banks serves as a central point of contact for all Clearing Members, providing services such as branches across cities, advanced electronic fund transfer portals, working capital facilities, deal settlements, and banking facilities like issuing bank guarantees/credit facilities.

There are a total of 15 banks that facilitate clearing services

  • Axis Bank Ltd. 
  • Bank of India Ltd. 
  • Canara Bank Ltd. 
  • Citibank
  • The Hong Kong & Shanghai Banking Corporation Ltd. 
  • ICICI Bank Ltd. 
  • HDFC Bank Ltd. 
  • IDBI Bank Ltd. 
  • IndusInd Bank Ltd. 
  • JPMorgan Chase Bank
  • Kotak Mahindra Bank Ltd. 
  • Standard Chartered Bank 
  • Union Bank of India 
  • State Bank of India 
  • Yes Bank

3 – Custodians 

Custodians settle trades on behalf of their clients by confirming their settlement and assuming the obligation assigned by the clearing house. If the settlement is not confirmed, the trading member bears the settlement obligation levied by the clearing house.

4 – Depository 

Depositories are responsible for promoting the dematerialization of listed shares on the stock exchanges. NSE Clearing is associated with both depositories in India, namely NSDL (National Securities Depository Limited) promoted by NSE, and CDSL (Central Securities Depository Limited) promoted by BSE Ltd.

The dematerialized settlement has been made mandatory by SEBI, resulting in an increase in the proportion of shares delivered in dematerialized form, with 99% of all securities settlements in India being conducted in dematerialized form.

5 – Professional Clearing Members 

Professional Clearing Members (PCM) are a special category of members admitted by the Clearing Corporation. They are clearing members who are not trading members and are typically banks, custodians, and other financial institutions. PCMs clear and settle trades executed on behalf of their clients, including individuals and institutions.

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Statistics  

On August 25, 2022, NSE Clearing Ltd. successfully concluded its 5587th Normal Settlement (Rolling T+2 following SEBI directive) with Settlement Number N-2022159. Additionally, it completed its 122nd Normal Settlement (Rolling T+1) with Settlement Number M-2022660. Below are the settlement statistics for these transactions:

NSCCL Total settlements

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Conclusion

NSE Clearing, now known as NSE Clearing Limited, is India’s largest clearing corporation, ensuring smooth clearing of trades from various segments under the NSE. With a focus on risk management and robust settlement procedures, NSCCL has been the backbone of billions of trade transactions in India. It continues to fuel seamless and structured trade settlement in the Indian securities market.

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