Co-authored with Navneeta Shankar and Pranjal Kinjawadekar, associates at Finsec Law Advisors.
The long-delayed listing of the National Stock Exchange (NSE) has once again taken centre stage—not due to valuation hurdles or market sentiment, but because of a structural concern. This seemingly narrow issue is, in fact, a flashpoint in a larger conversation about how India governs its market infrastructure institutions.
While stock exchanges are always under the market glare, the real grunt work is done by the arcane institution known as the clearing corporations, which transfer funds and securities and manage risk and collateral. They also act as guarantors to every trade, acting as a buyer to every seller and as a seller to every buyer. They work under immense pressure, managing both concentrated risk and hard timelines. Though, not celebrated, they are the unseen heroes who ensure the stock markets don’t suffer. In a way, their lack of limelight is a good sign of health for the markets.
Under the current regulatory framework, clearing corporations must be majority-owned by one or more recognised stock exchanges. This 51% minimum holding was designed to ensure close coordination between trading and post-trade infrastructure. The introduction of interoperability in 2018 between clearing corporations brought in added competition.
In November 2024, Securities and Exchange Board of India (Sebi) proposed a reimagination of this structure through two alternative models depending on the applicability of the Payment and Settlement Systems (PSS) Act, 2007, which brings all payment and settlement service providers under the Reserve Bank of India’s (RBI) regulatory framework. However, clearing corporations are currently excluded from its purview—largely because they remain owned majorly by Sebi-regulated stock exchanges. If this ownership structure is diluted, the rationale for their exclusion becomes less certain, raising the question of whether such clearing corporations should then fall under RBI’s supervision.
But whether diversified ownership automatically translates into institutional independence remains an open question. Replacing a single dominant shareholder with a loose federation of financial entities does not necessarily eliminate conflicts. Banks or their subsidiaries would have multiple roles in the clearing ecosystem—bankers, clearing members, and custodians, to name three. A 100% exchange-owned clearing corporation is, at the very least, structurally answerable to a single, regulated entity with reputational skin in the game. Fragmented ownership, in contrast, may lead to diluted responsibility and strategic drift, especially in times of market stress. Socrates said that a slave with two masters is free. Thus, a clearing corporation with a dozen owners would be free as well—free of accountability and responsibility.
This brings into focus a critical question: Is the goal structural independence or effective accountability? If it is the latter—as it should be—then the solution must go beyond just rebalancing shareholding patterns. It must address the real sources of influence and control.
One such source is the boardroom. Sebi’s proposals remain vague on who would govern these newly independent clearing corporations. Without clearly defined caps on board composition, voting rights, and conflict mitigation, diversified ownership could become a shell exercise, less a check on power than a redistribution of it into a vacuum. A range of newly introduced conflict of interest would require hundreds of pages of rules on minimising such conflicts.
There is also the fundamental issue of capitalisation. Clearing corporations are not passive entities; they are capital-intensive institutions, expected to invest heavily in technology, risk management systems, and, most importantly, in their Settlement Guarantee Fund (SGF)—the second-last line of defence in case of a broker default. As of April 2025, NSE Clearing Limited’s (NCL) contribution to the SGF stood at Rs 12,083 crore, the bulk of it funded by NSE and NCL from their pockets. If parent exchanges are mandated to exit and these institutions are spun off into independent, diversified entities, it is unclear who will step in to meet future capitalisation needs. Sebi assumes that clearing corporations will remain viable, profit-making entities without needing to raise investor-facing fees. But this assumption may prove overly optimistic.
International examples offer no clear blueprint. While entities like Depository Trust & Clearing Corporation (DTCC) and Euroclear have diversified ownership, others like LCH (the UK) and ASX Clear (Australia) remain exchange-owned. Moreover, many global clearing corporations benefit from different capital frameworks, public guarantees, or deeper institutional markets. Importing their structures without contextual calibration may do more harm than good. Most of the entities are regular profit driven entities, with several like DTCC being listed.
Sebi’s concurrent proposal to preserve a multi-entity clearing ecosystem is thus a welcome counterbalance. A diverse clearing landscape ensures competitive discipline, offers market participants more choice, and avoids over-reliance on any single institution. It also serves as a buffer during systemic events. But Sebi must resist the temptation to micromanage outcomes, instead, it should set clear rules of the road and let market forces decide how clearing evolves.
What Sebi must continue to do well is enforcing governance standards, ensuring transparency, and demanding robust capitalisation. Every clearing corporation, regardless of size or ownership, should meet high regulatory thresholds for risk management, operational resilience, and investor protection. That is the essence of good regulation: not directing institutional architecture, but supervising it with rigour, something Sebi has done well over the past 25 years.
Clearing corporations perform a quasi-public function and must be structurally insulated from solely commercial pressures. But ownership is not the problem, and changing it is not the cure. Real independence will come from better governance protocols, functional separation, meaningful user representation, and perhaps, most importantly, a regulatory framework that evolves with the market.
Mandating that exchanges fully relinquish control may be a problem rather than a solution. A more market-driven approach, informed by commercial viability, systemic risk, and public interest, may offer a better path forward. After all, institutional resilience depends not just on who owns the system, but on who is accountable when it is tested. Ideally, neither a minimum nor maximum ownership should be prescribed and it should be left to the market to decide which model to adopt. Clearing corporations should, of course, be very intrusively regulated and supervised and be run more as a utility. Finally, it would be a unwieldy for one regulator to supervise the clearing corporation which is otherwise regulated and understood by another. Recall what Socrates said.
