SEBI issues Circular: Dispute Resolution Mechanism for Limited Purpose Clearing Corporation (LPCC)

SEBI issues Circular: Dispute Resolution Mechanism for Limited Purpose Clearing Corporation (LPCC)

The market watchdog Securities Exchange Board of India (SEBI) has issued circular regarding dispute resolution mechanism for Limited Purpose Clearing Corporation (LPCC) to settle disputes and claims arising out of transactions cleared by it.

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 monetize their debt holdings without selling the underlying, thus meeting their temporary need for funds.

Regulation 22F of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (‘SECC Regulations’) mandates a recognized LPCC to put in place a dispute resolution mechanism, for settlement of disputes or claims arising out of transactions cleared and settled by it, in the manner as specified by the Board in consultation with the Reserve Bank of India (RBI).

The mechanism is stated to be used for settling of 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.

Firstly, as per the circular, a LPCC shall adopt an appropriate dispute resolution mechanism for deciding disputes between the clearing members as prescribed by SEBI.

Secondly, subject to the mechanism prescribed by SEBI from time to time in terms of 2(a)(i) above, the disputes arising between Clearing Members inter-se of the LPCC shall be settled by conciliation and/or by an arbitration panel consisting of three Clearing Members other than the Clearing Member(s) who are party to the dispute. The decision of the arbitration panel shall be final and binding on the parties to the dispute.

Thirdly, subject to the mechanism prescribed by SEBI from time to time in terms of 2(a)(i) above, a Clearing Member, if not satisfied with the decision of the arbitration panel, may follow the procedure laid down in the Payment and Settlement Systems Act, 2007 and rules/ directions notified thereunder.

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.

According to SEBI’s circular 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.

Moreover, disputes arising between the LPCC and its vendors/ suppliers/ service providers shall be resolved as per the dispute resolution mechanism prescribed by SEBI from time to time.

Additionally, SEBI has directed LPCC to bring the provisions of the circular to the notice of its Clearing Members and also disseminate the same on its website; and make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above circular and communicate regarding the same to SEBI.

The new framework would come into force with immediate effect, as specified by the Circular.