Inside NCCPL’s Rulebook Shift

July 13, 2025 (MLN): The National Clearing Company of Pakistan Limited (NCCPL) has issued proposed amendments to its 2015 regulations, inviting public commentary. These proposals cover revisions to margin structures and broaden access to clearing and settlement mechanisms, notably for digital banks and equity-based Exchange Traded Funds (ETFs).

While progressive in spirit, they warrant close scrutiny for their broader implications on market resilience and risk visibility.

Margins: Simpler, But Safer?

NCCPL proposed to remove Market-Wide and UIN-Wide concentration margin requirements, and raising Broker-Wide margin rates by absorbing UIN-level margins into the broker’s slab.

It will help Streamlining risk management, align margin collection with actual exposure bearers and reducing complexity in calculations and application.

However, Simplification may aid execution but risks diluting systemic oversight. Eliminating Market-Wide metrics removes an important safety net that captured multi-broker accumulation in thinly traded scrips.

The proposal assumed concentrated exposure is best monitored at the broker level. However, a client’s spread across multiple brokers could remain opaque.

In addition, by dropping the client-level margin, NCCPL shifts risk exposure upward without enforcing a granular tracing mechanism.

To address these concerns, retain periodic Market-Wide stress indicators as a non-intrusive check. Further, the authority should introduce voluntary UIN-level exposure dashboards for broker surveillance.

In addition, pilot-test the enhanced margin table across historical volatility events to calibrate effectiveness.

Digital Banks in the clearing system

NCCPL proposed admitting SBP-licensed digital banks as Clearing Members and Settling Banks.

 Key relaxations include no physical branch requirement and rating waiver for six months with conditions to modernize settlement channels, facilitate fintech integration and enhance participant choice.

While supportive of digital entrants, the provisional rating waiver needs tighter controls to prevent undercapitalized participants.

Absence of physical branches means robust technical frameworks must exist to ensure real-time settlement without failovers. Further, digital-only models might present verification hurdles unless paired with enhanced scrutiny protocols.

To ensure the tighter controls, mandate external audits or system readiness certifications before final admission. In addition, include contingency clauses addressing tech outages or systemic disruption.

ETFs and Clearing Membership

NCCPL is also planning to exempt equity-based ETFs from mandatory admission as Non-Broker Clearing Members (NBCMs) and from volume-based trading thresholds that trigger such admissions.

The aim of this intent is to align local practice with global standards, reduce unnecessary regulatory overhead, and enhance operational agility for ETFs.

It is important to note that passive structure does not equal to passive risk. Though passive by design, ETFs can show sudden spikes in turnover during rebalancing or market volatility.

Moreover, lack of clear-cut definitions for “equity-based ETF” might invite regulatory arbitrage or misapplication.

Thus, it is recommended to define qualifiers for equity-based ETFs (e.g., percentage equity holdings, turnover window), develop ETF-specific flags or benchmarks to track unusual activity and keep voluntary NBCM pathways open with optional risk assessment incentives.

Conclusion

These proposals clearly showcase NCCPL’s intent to simplify regulation, embrace fintech growth, and align clearing structures with operational realities.

However, markets thrive not only on efficiency but also on robust checks and balances. The removal of certain margin tiers and expansion to digital entities should be offset by stronger analytic, systemic, and contingency protocols to uphold the financial ecosystem's stability.

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