The Ministry of Finance recently inaugurated the Limited Purpose Clearing Corporation (LPCC) known as AMC Repo Clearing Limited (ARCL). This development in India’s finance sector opens door to new prospects and functionalities. The ARCL is a massive step forward for the Indian securities market, especially for corporate debt securities listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
About AMC Repo Clearing Limited (ARCL)
AMC Repo Clearing Limited (ARCL) is a Limited Purpose Clearing Corporation that offers clearing and settlement services for all trades carried out in corporate debt securities on the NSE and BSE. ARCL has received in-principle approval from the Securities and Exchange Board of India (SEBI) under the Stock Exchanges and Clearing Corporations (SECC) Regulations, 2018.
Additionally, the Reserve Bank of India (RBI) has granted ARCL a Certificate of Authorization under the Payment and Settlement Systems (PSS) Act, 2007. This allows ARCL to introduce Central Counterparty Clearing House (CCP) services for repo transactions in corporate debt securities.
Functions of ARCL
ARCL’s job profile includes offering triparty repo services and central counterparty services. These facilities are designed to aid repo transactions in corporate bonds, which are short-term borrowings backed by securities serving as collateral.
Furthermore, ARCL is envisaged to widen and deepen the corporate bond repo market, which presently is underdeveloped and illiquid compared to its counterpart, the government bond repo market. It empowers bondholders to meet their short-term liquidity requirements without having to liquidate their assets. This, in turn, provides enhanced flexibility to market participants.
Moreover, ARCL plays a significant role in reducing the counterparty risk, operational risk, and settlement risk faced by participants in the corporate bond repo market.
Tertiary Market: A Brief Overview
Also known as the aftermarket, the secondary market refers to the financial platform where previously issued financial instruments like stocks, bonds, derivatives, and other securities are bought and sold among investors.
Corporate Bonds: An Insight
Corporate bonds are debt securities corporates issue with an aim to raise capital. They serve various purposes such as expanding operations, funding projects or refinancing existing debt.
Triparty Repo Services Explained
Triparty repo services are financial transactions involving a third party (most often a custodian or clearing agent acting as an intermediary) between the two parties involved in a repurchase agreement (repo).
UPSC Civil Services Examination Questions – A Look Back
In 2019, the UPSC CSE exam included a question on what is issued by registered foreign portfolio investors to overseas investors wanting to be part of the Indian stock market without registering themselves directly. The correct answer is – Participatory Note.
Another question, poised for the future exam in 2023, asks applicants how many of the listed markets (Government Bond Market, Call Money Market, Treasury Bill Market, Stock Market) are included in capital markets. The correct answer would be – Only two.
