The Reserve Bank of India (RBI) revised the guidelines for custodian banks to issue Irrevocable Payment Commitments (IPCs) in light of the T+1 settlement regime for stocks.
Banking & Finance
The Reserve Bank of India (RBI) revised the guidelines for custodian banks to issue Irrevocable Payment Commitments (IPCs) in light of the T+1 settlement regime for stocks. Capital Market Exposure (CME) Limit: The maximum intraday risk to the custodian banks issuing IPCs would be considered as CME at 30 percent of the settlement amount. Basis for the 30% Risk Limit: It is based on the assumption of a 20 percent downward price movement of the equities on T+1, with an additional margin of 10 percent for further downward movement of price. Earlier, the risk mitigation measures were prescribed based on T+2 rolling settlement for equities (T being the trade day). Only custodian banks, who have an agreement with clients giving them an inalienable right over the securities for receiving a payout in the settlement, are permitted to issue IPCs.
T+1 Trade Settlement means trade-related settlements happen within a day, or within 24 hours of the actual transaction.
T+2 Trade Settlement: In this, Indian stock exchanges are settled in two working days after the transaction is done (T+2).
T+0 Trade Settlement: This would mean settlements on the same day (within an hour) and instant settlement would ensure trades are settled immediately.
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