SEBI plans to make the 'Cover 3' risk standard mandatory for all clearing corporations to ensure uniform safety. This change aims to remove the current Rs 10,500 crore minimum corpus requirement, which critics argue creates competitive imbalances. The move is designed to strengthen financial stability in the clearing ecosystem while adjusting capital requirements to actual market risk.
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The Securities and Exchange Board of India (SEBI) is working on a new framework that would standardize the safety fund requirements for all clearing corporations in the country. Clearing corporations play a vital role in the stock market by guaranteeing the settlement of trades, ensuring that even if a member defaults, the market continues to function smoothly. The Core Settlement Guarantee Fund (Core SGF) is the primary pool of capital used to manage these risks.
Currently, clearing houses are divided into two groups. Larger entities, which hold more than 40 percent of the market share in equity derivatives, must maintain a fund large enough to cover the default of the top three clearing members, known as the 'Cover 3' standard. Furthermore, they are required to keep a minimum corpus of Rs 10,500 crore. Smaller entities currently operate under a 'Cover 2' standard, which is less stringent.
Under the proposed changes, the regulator aims to remove the fixed Rs 10,500 crore threshold entirely. Instead, the focus will shift to a risk-based 'Cover 3' standard that applies universally. This adjustment is meant to ensure that the size of the safety fund is directly linked to the actual potential loss from a member default rather than an arbitrary minimum amount. Industry participants have long argued that the existing Rs 10,500 crore rule creates a sudden, high cost burden for firms that cross the 40 percent market share threshold, which can discourage growth in an interoperable clearing environment where competition is increasing.
For most clearing houses, the transition to the new uniform standard is expected to be manageable. Current data suggests that only one entity might need to inject approximately Rs 40 crore into its safety fund to align with the proposed 'Cover 3' requirements based on its current stress exposure. Meanwhile, major players like NSE Clearing, which handles over 90 percent of equity derivatives volume, already maintain a Core SGF of roughly Rs 12,000 crore, comfortably meeting the proposed standards. BSE Clearing, which has seen its market share rise to 9 percent in the first half of fiscal year 2026, would also be covered under the updated risk-based approach.
The next steps for this proposal involve further consultation with industry stakeholders to finalize the implementation timeline. Investors may monitor future exchange filings for specific directives from SEBI regarding when these rules will become effective and how individual clearing corporations will adjust their capital allocation to meet the new, risk-based safety standards.