MUMBAI: To safeguard stock markets from any systemic risks arising out of trade and payment defaults, regulator Sebi is bringing in a new regulatory regime to ensure timely payment settlements and to keep the systems robust by way of daily 'stress tests'.

The new mechanism, which would come into force from December 1, are aimed to mitigate the risks faced by overall markets due to defaults by certain entities and would also include setting 'default waterfall' marks to limit the liability of non-defaulting entities.

The new stress testing norms would require that at least on a monthly basis, the Clearing Corporation perform a comprehensive and thorough analysis of stress testing scenarios, models, and underlying parameters and assumptions used to ensure necessary default protection measures in light the of current and evolving market conditions.

The stress testing norms will also capture the risk posed due to possible default in institutional trades, as per the new guidelines.

Besides, a daily stress test would need to be conducted to determine the Minimum Required Corpus of Core Settlement Guarantee fund, which would be needed to be set aside from the overall Settlement Guarantee Fund of a market infrastructure institution.

This new core fund would be created within the existing Settlement Guarantee Fund (SGF), against which no exposure is given and which is readily and unconditionally available to meet settlement obligations of clearing corporation in case of clearing members failing to honour settlement obligation.

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