What is the Settlement Guarantee Fund? LPCC repo

The Settlement Guarantee Fund is the reason a small charge appears on Indian debt issuances that has nothing to do with the issuer's own borrowing. It funds the default protection behind a repo market in corporate bonds, and it is collected from issuers rather than from the traders who use that market. This guide covers what the Settlement Guarantee Fund is, the 0.5 basis point charge, who collects it and when, and which issues it touches. It is not investment advice.

What is the Settlement Guarantee Fund for debt securities?

Chapter XXIV of the Master Circular for issue and listing of non-convertible securities, securitised debt instruments, security receipts, municipal debt securities and commercial paper, dated 15 October 2025, sets out the framework. The chapter's own title is a description of the mechanism: contribution by eligible issuers of debt securities to the Settlement Guarantee Fund of the Limited Purpose Clearing Corporation for repo transactions in debt securities.

The chapter opens with why a repo market is wanted at all. A repo lets a holder raise short term funds against debt securities without selling them, so it boosts liquidity in the underlying bonds and gives participants a way to monetise holdings for a temporary need. The chapter then makes the argument that reaches the issuer: an active repo market can improve liquidity, which may positively affect yields, which reduces the cost of raising funds in the primary market.

That is the justification for charging issuers for infrastructure they do not directly use. The claimed benefit is cheaper future borrowing.

Where did the framework come from?

The SEBI Board, meeting on 29 September 2020, permitted the setting up of a Limited Purpose Clearing Corporation to clear and settle repo transactions in debt securities. In the same decision the Board determined that an amount of 0.5 basis points of the issuance value of debt securities per annum be collected upfront, prior to the listing of such securities, in order to build the Settlement Guarantee Fund.

AMC Repo Clearing Limited was then granted recognition as the Limited Purpose Clearing Corporation by SEBI. The Reserve Bank of India separately accorded the approvals for it to function as a clearing corporation with a limited purpose and to offer central counterparty services for repo transactions in debt securities. Two regulators, two approvals, one entity.

How much is collected, and by whom?

Half a basis point is 0.005%, charged per annum and scaled by the maturity of the securities. On a longer dated bond the total is proportionately larger, which is what the phrase based on the maturity of debt securities does in paragraph 4.2.

The collection path runs through the exchanges rather than the clearing corporation. Stock exchanges collect the amount and place it in an escrow account prior to the allotment of the debt securities. They then transfer what they collected to the bank account of the Limited Purpose Clearing Corporation within one working day of receipt, and inform it of the details. Exchanges also disclose the amounts collected on their websites.

Paragraph 4.5 fixes the day count: charges are collected on the basis of actual by actual. The same convention governs cash flow disclosure elsewhere in the rulebook, where an issuer filing into the centralised corporate bond database gives an undertaking that the day count convention is calculated as actual by actual. The chapter also requires the clearing corporation to publish an illustration of how the contribution is calculated.

Which issuers and which issues are covered?

Not everyone. Paragraph 4.1 leaves the definition of eligible issuers to the Limited Purpose Clearing Corporation, which notifies them as per its risk management policy. So eligibility is a risk judgment made by the clearing corporation, not a category fixed in the circular.

For those issuers, the charge applies on a public issue or a private placement of debt securities under the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. Both routes are caught, which is consistent with the broader design where private placements proposed to be listed carry most of the same obligations as public issues.

The commencement is dated by filing rather than by allotment. Paragraph 5 applies the provisions to offer documents filed on or after 1 May 2023, for private placements and public issues of debt securities by such eligible issuers as the clearing corporation specifies, with the clearing corporation to issue its own circular to operationalise the collection.

How this fits the rest of the corporate bond plumbing

The Settlement Guarantee Fund sits at the settlement end of a set of reforms aimed at the same problem, which is that Indian corporate bonds trade thinly. Different pieces attack it from different directions.

Price discovery in the primary market runs through the electronic book provider platform. Secondary market execution has the RFQ platform and, for smaller investors, online bond platform providers. Where an issuer chooses to offer one, a liquidity window facility puts the issuer itself on the other side of the trade. Repo clearing, backed by this fund, addresses a different need again: monetising a holding without giving it up.

For anyone reading a debt offer document, the practical point is narrow. A 0.5 basis point per annum line collected before allotment is a fixed cost of issuance for eligible issuers, disclosed on exchange websites in aggregate, and it exists to capitalise a default fund rather than to compensate any party to the issue. Flock reports public regulatory filings with every claim sourced and dated. What any of it means for your money is your call to make.