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RBI inks pact with Bank of England on bond clearing settlement

Mumbai: The Reserve Bank of India on Friday signed an agreement with the Bank of England (BoE) on exchange of information for settlement of bond trades through Clearing Corporation of India Ltd (CCIL).

Under the new memorandum of understanding (MoU), the BoE will assess and recognize CCIL as a counterparty to clear and settle bonds and overnight indexed swap trades done by England-based banks and investors.

CCIL is the RBI-supervised central counterparty which hosts the trading platform for Indian government bonds and overnight indexed swaps.

The agreement states that “It is the mutual understanding of the RBI and the BoE that the cooperation arrangements specified under this MoU recognise the primacy of the RBI and its mandate in the supervision of Covered CCPs; they are also based on mutual respect for each jurisdiction’s current regulatory regime and each authority’s supervisory practices.” CCP is short for clearing counterparty

In October 2022, the European Securities and Markets Authority (ESMA) had derecognized six Indian clearing houses, including the CCIL, after RBI refused to permit the overseas body the rights of inspection and audit over the domestic clearing house.

However, in June this year, the UK Treasury accorded equivalence to central counterparties authorized by RBI, the first such decision after Brexit. Subsequently, CCIL had filed a fresh application to BoE for recognition as a third-country central counterparty with effect from 31 January this year.

“Today’s agreement with Bank of England could set precedent for the ESMA-RBI standoff. UK had engaged in negotiations with the RBI before enacting a law on this matter. This MOU could set a backdrop for the negotiation between RBI and ESMA as they explore changes to the existing law,” said a person aware of the matter.

UK-based banks like Standard Chartered Bank, Barclays and HSBC, with a significant presence in Indian bond and derivative markets, handle transactions worth billions of dollars. These banks are also custodians of foreign investment flows into India. Lack of access to the CCIL would severely curtail such trade.

Earlier this year, the French financial market regulator had also granted an 18-month extension to French banks after these lenders raised concerns over the termination of their membership towards the Indian CCPs following the ESMA order.

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Updated: 01 Dec 2023, 10:10 PM IST

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