Sebi frames dispute resolution mechanism

New Delhi: Capital markets regulator Sebi on Monday put in place a dispute resolution mechanism for Limited Purpose Clearing Corporation (LPCC) to settle disputes and claims arising out of transactions cleared by it. The mechanism will be used to settle disputes between clearing members; contention between the clearing members and their clients; differences between the LPCC and its vendors; and disputes between clearing members or its clients and the LPCC.

The new framework would come into force with immediate effect, the Securities and Exchange Board of India (Sebi) said in a circular.

LPCC is an entity established to undertake the activity of clearing and settlement of repo transactions.

A well-functioning repo market contributes to the development of the debt securities market by way of boosting the liquidity of the underlying debt securities and allowing market participants to monetise their debt holdings without selling the underlying, thus meeting their temporary need for funds.

In its circular, the markets regulator said that LPCC will have to adopt an appropriate dispute resolution mechanism for deciding disputes between the clearing members as prescribed by Sebi. It further said that the disputes arising between clearing members of the LPCC will be settled by conciliation and/or by an arbitration panel consisting of three clearing members, other than the clearing members who are party to the dispute.

The decision of the arbitration panel would be final and binding on the parties. Also, Sebi said that all disputes between a clearing member and the LPCC would be resolved as per the dispute resolution mechanism prescribed by it. In case a clearing member or the LPCC is not satisfied with the decision as per the mechanism specified by Sebi, then the disputes between the clearing member and LPCC would be resolved under the procedure laid down in the Payment and Settlement Systems Act, 2007 and rules/ directions notified thereunder. Last week, Sebi put in place a framework for an upfront collection of funds from eligible issuers of debt securities to build the Settlement Guarantee Fund of the LPCC.

The eligible issuers would be notified by the LPCC as per its risk management policy. Under the framework, an amount of 0.5 basis points of the issuance value of debt securities per annum based on the maturity of debt securities will be collected by the stock exchanges and placed in an escrow account before the allotment of the debt securities. This amount is applicable on a public issue or private placement of debt securities.