Executive Summary:
This circular from the Securities and Exchange Board of India (SEBI) outlines the establishment of a Limited Purpose Clearing Corporation (LPCC) by Asset Management Companies (AMCs) of Mutual Funds. AMCs are required to contribute INR 150 Cr. towards the share capital of the LPCC, proportional to their AUM of open-ended debt-oriented mutual fund schemes (excluding specific categories) for FY 2019-20. AMFI will calculate and inform each AMC of their required contribution.
Key Points / Main Content:
* **Establishment of LPCC:**
* AMCs of Mutual Funds are to set up a Limited Purpose Clearing Corporation (LPCC) for clearing and settling repo transactions in corporate debt securities.
* **Contribution Amount:**
* AMCs must contribute INR 150 Cr. towards the share capital of LPCC.
* **Contribution Calculation:**
* Contribution is proportional to the Asset Under Management (AUM) of open-ended debt-oriented mutual fund schemes, excluding overnight, gilt fund and gilt fund with 10-year constant duration, but including conservative hybrid schemes.
* The AUM will be based on the average for the Financial Year (FY) 2019-20.
* **Role of AMFI:**
* AMFI will calculate the contribution per AMC based on the Average AUM for FY 2019-20 and inform all AMCs.
* **Obligation to Contribute:**
* It is obligatory for AMCs to contribute towards the share capital of LPCC.
* **Compliance:**
* The setting up of LPCC and contribution should comply with net worth requirements, other conditions, and timelines as per Securities Contracts Regulation (Stock Exchanges and Clearing Corporations) Regulations, 2018 (SECC Regulations) and related circulars.
* **Net Worth Maintenance:**
* AMCs must maintain the net worth as prescribed under Regulation 21(f) of SEBI Mutual Funds Regulations, 1996, over and above the contribution made towards setting up the LPCC.
Impact Analysis:
* **Asset Management Companies (AMCs):**
* *Impact:* Required to contribute financially to the LPCC, impacting their capital allocation and net worth calculations.
* *Action Required:* Calculate contribution amount based on AMFI guidelines, ensure compliance with SECC Regulations, and maintain prescribed net worth after contribution.
* **Association of Mutual Funds in India (AMFI):**
* *Impact:* Responsible for calculating individual AMC contributions.
* *Action Required:* Calculate the contribution per AMC based on the Average AUM of specified schemes for FY 2019-20 and inform all AMCs.
Key Entities Referenced
Securities and Exchange Board of India: Regulatory body issuing the circular.
Asset Management Companies: Entities required to set up Limited Purpose Clearing Corporation (LPCC).
Limited Purpose Clearing Corporation: Clearing corporation to be set up by AMCs for clearing and settling repo transactions in corporate debt securities.
Association of Mutual Funds in India: Industry body responsible for calculating AMC contributions to LPCC.
Mutual Fund Advisory Committee: Committee of SEBI that constituted a Working Group for deliberation on development of corporate bond market.
Clearing Corporation of India Limited: Organization whose representatives were part of the Working Group.
Securities Contracts Regulation Stock Exchanges and Clearing Corporations Regulations, 2018: Regulations amended to facilitate setting up of LPCC.
Securities and Exchange Board of India Act, 1992: Act under which the circular is issued.
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Securities and Exchange Board of India
CIRCULAR
SEBI/HO/IMD/DF2/CIR/P/2021/17 February 2, 2021
Asset Management Companies (AMCs)/
Trustee Companies/ Board of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)
Sir / Madam,
Subject: Setting up of Limited Purpose Clearing Corporation (LPCC) by Asset
Management Companies (AMCs) of Mutual Funds
1. With the objective of development of the corporate bond market from the
perspective of mutual funds, the Mutual Fund Advisory Committee (MFAC) of
SEBI had constituted a Working Group consisting of representatives of various
Mutual Funds, Clearing Corporation of India Limited (CCIL) and AMFI for
detailed deliberation. The Working Group amongst other suggestions
recommended that AMCs of Mutual Funds should set up a Limited Purpose
Clearing Corporation (LPCC) for clearing and settling repo transactions in
corporate debt securities by contributing an amount of INR 150 Crore. This was
recommended as it was felt that mutual funds would be natural beneficiaries of
such a clearing corporation. The recommendation of setting up LPCC was also
deliberated with various issuers of corporate bonds and in Corporate Bonds and
Securitization Advisory Committee (CoBoSAC).
2. Upon deliberations, SEBI Board in its meeting held on September 29, 2020,
approved a proposal to facilitate setting up of a LPCC for clearing and settling
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Securities and Exchange Board of India
repo transactions in corporate debt securities and accordingly Securities
Contracts (Regulation) (Stock Exchanges and Clearing Corporations)
Regulations, 2018 (SECC Regulations), have been amended vide gazette
notification no. SEBI/LAD-NRO/GN/2020/32 dated October 08, 2020.
3. Accordingly, it has been decided that AMCs shall contribute INR 150 Cr. towards
share capital of LPCC in proportion to the Asset Under Management (AUM) of
open ended debt oriented mutual fund schemes (excluding overnight, gilt fund
and gilt fund with 10 year constant duration but including conservative hybrid
schemes) managed by them.
4. The contribution shall be based on Average AUM of debt oriented schemes as
detailed above for the Financial Year (FY) 2019-20. In this regard, AMFI shall
calculate contribution per AMC based on the Average AUM of aforementioned
schemes for the FY 2019-20 and inform all AMCs. Accordingly, it will be
obligatory on the part of AMC(s) to contribute towards the share capital of LPCC.
5. The setting up of LPCC and making the aforesaid contribution shall be in
compliance with the networth requirements, other conditions and timelines, if
any, as per SECC Regulations and circulars issued thereunder from time to time.
6. AMCs shall ensure that the networth as prescribed under Regulation 21(f) of
SEBI (Mutual Funds) Regulations, 1996 shall be maintained over and above the
contribution made towards setting up of the LPCC.
7. This circular is issued in exercise of powers conferred under Section 11 (1) of
the Securities and Exchange Board of India Act, 1992, read with the provisions
of regulations 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the
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Securities and Exchange Board of India
interest of investors in securities and to promote the development of, and to
regulate the securities market.
Yours faithfully,
Hruda Ranjan Sahoo
Deputy General Manager
Tel no.: 022-26449586
Email: hrsahoo@sebi.gov.in
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