Description

Indian Clearing Corporation Ltd. (ICCL) provides revised format for renewal of bank guarantee towards base minimum capital and additional capital requirements for clearing members.

Summary

Indian Clearing Corporation Ltd. (ICCL) has issued a revised format for renewal of bank guarantees that clearing members must submit towards their Base Minimum Capital and Additional Capital (Liquid Assets) requirements. The document provides a standardized template on stamp/franked paper for banks to use when renewing guarantees on behalf of clearing members.

Key Points

  • Bank guarantee must be executed on stamp/franked paper of Rs.100/- or the prevailing value in the state, whichever is higher
  • The guarantee must be on the letterhead of the issuing bank
  • Bank must declare that the guarantee is not backed by client funds (in compliance with ICCL Notice no. 20230427-21 dated April 27, 2023)
  • For proprietary funds of stock brokers, the client funds declaration can be struck off
  • The guarantee format includes extension of validity period by specified months
  • Claims must be made in writing within three months after expiry date
  • Requires authorized signatures from the bank branch

Regulatory Changes

This circular updates the procedural format for bank guarantee renewals in line with ICCL’s requirements regarding separation of client funds from proprietary funds used for collateral purposes. The key regulatory reference is ICCL Notice no. 20230427-21 dated April 27, 2023, which prohibits bank guarantees created from client funds.

Compliance Requirements

For Clearing Members:

  • Must ensure bank guarantees submitted for capital requirements follow the prescribed format
  • Must confirm whether the guarantee is backed by proprietary funds or not
  • Need to coordinate with their banks to use the updated template

For Banks:

  • Must execute guarantees on appropriate stamp/franked paper
  • Must include declaration that guarantee is not backed by client funds (unless for proprietary funds)
  • Must specify validity period and claim period clearly
  • Must provide authorized signatures from appropriate branch officials
  • Should reference original bank guarantee number and date when renewing

Important Dates

The circular references ICCL Notice no. 20230427-21 dated April 27, 2023 regarding bank guarantees and client funds. No specific implementation deadline is mentioned for adopting this revised format, but clearing members should use this template for all new and renewal bank guarantees going forward.

Impact Assessment

Operational Impact:

  • Clearing members and their banks need to adopt the new standardized format
  • Administrative process for bank guarantee renewal becomes more structured
  • Additional compliance burden to ensure proper declarations regarding fund sources

Market Impact:

  • Minimal direct market impact as this is a procedural/documentation change
  • Enhances transparency in collateral management
  • Strengthens protection of client funds by requiring explicit declarations

Compliance Impact:

  • Clearing members must review existing bank guarantees and ensure renewals follow new format
  • Banks must update their internal templates and processes
  • Failure to follow prescribed format may result in rejection of bank guarantee submissions

Impact Justification

Procedural update for bank guarantee format affecting clearing members' collateral documentation requirements. Important for operational compliance but does not change substantive capital requirements.