SEBI, MII (Market Infrastructure Institutions) always work in tandem towards development of stock market and to protect investor interest. In this blog, will try to understand one such regulation “Interoperability” which has contributed to operational efficiency in a stock broking firm
With the objective of protecting trading community and to avoid malpractices, SEBI, and Exchanges, have taken varied measures in the recent past. We, at Rupeeseed have incorporated these changes in our trading platform suite in a very quick and logical manner. In-fact, it can be proudly said that we were the early implementers of the exchange regulations such as Interoperability, Peak Margin Handling, Fund Allocation etc.,
What is Interoperability?
SEBI proposed the idea of interoperability amongst Exchanges/Clearing Corporations via its circular no CIR/MRD/DRMNP/CIR/P/2018/145 dated Nov27th, 2018.
Generally, trades done on NSE are cleared through NSE Clearing Limited and trades done on BSE through ICCL. Interoperability between clearing corporations ensures that trades made on both NSE and BSE (Equity, CDS, and NFO) are settled through a single clearing corporation.
Both exchanges have made Interoperability functionality mandatory asking members to be compliant and introduced penalty structure for not extending this facility to all clients.
How does this functionality work in Rupeeseed Trading Application?
Option is provided for the member to allow inter-ops via a segment wise flag. Likewise, option for selecting the Clearing Member is also provided for calculating MTM and triggering Intraday and MTM Square Off orders
An additional filter is provided as INTEROPS in Position tab. If interoperability is opted, positions will be displayed in INTEROPS tab after netting off across exchanges with the exchange column as ALL for the segment which is under interoperability.
Let us understand this with an example:
Suppose If a client buys TCS 1 qty as intraday in NSE and sells it in BSE. Without interoperability, the system would treat these as 2 different positions in respective exchanges, charge margin and trigger 2 different orders during intraday/timer based square off process. Post interoperability, considering the above given example, system would not generate any square off orders since the positions are netted off across exchanges and the open net qty is treated as ‘0’
Advantages of Interoperability:
Interoperability offers multiple benefits in front office as well in back-office applications-
Netting and Margining Benefit –
Risk Management System of front office application would charge margins based on the interoperability selection and clearing member opted. It will validate and capture margins for a client at scrip/underlying level across exchanges. After offsetting the position, all the applicable margins (Initial Margin, Exposure Margin etc..,) is released after considering the realized loss/profit. An investor trading through the same broker across exchanges will be eligible for netting benefits for his/her trades in each security across exchanges. The margin requirement shall be netted at level of individual client, for trades across exchanges.
For instance, if a client takes a position in NSE and sells it in BSE, then RMS will treat the sell order in BSE as the square-off order and will not ask for any extra/additional margin.
Client Financial Ledgers and Common Contract Note –
With respect to Segments forming part of interoperability, Client financial ledgers can be prepared segment wise and consolidated across Exchanges. (For instance, in case of CM, FO & CD Segment, Member shall maintain separate ledger for CM Segment across all Exchanges & separate ledger for FO segment across all Exchanges & separate ledger for CD segment across all Exchanges). Instead of doing it individual exchange and segment wise.
Overall Interoperability is a very good feature which can help in managing risk and also ensures that clients are able to trade freely across exchanges.