 bill no 182 of 2014 the  payment and settlement systems (amendment)  bill,  2014 a billto amend the payment and settlement systems act, 2007be it enacted by parliament in the sixty-fifth year of the republic of india as follows:—1 (1) this act  may be called the payment and settlement systems (amendment) act,2014short title and commencementamendment of section 251 of 20072 in section 2 of the payment and settlement systems act, 2007 (hereinafter referred to as the principal act),—5(i) after clause (d), the following clauses shall be inserted, namely:––  '(da) "issuer" means a person who issues a legal entity identifier or such other unique identification (by whatever name called), as may be specified by the reserve bank from time to time;10(db) "legal entity identifier" means a unique identity code assigned to a person by an issuer for the purpose of identifying that person in such derivatives or financial transactions, as may be specified by the reserve bank from time to time;';(ii) after clause (q), the following clause shall be inserted, namely:––15'(r) "trade repository" means a person who is engaged in the business of collecting, collating, storing, maintaining, processing or disseminating electronic records or data relating to such derivatives or financial transactions, as may be specified by the reserve bank from time to time'3 in section 23 of the principal act,––amendment of section 2320 2510 of  1949 1 of 1956 18 of  201330 3510 of 1949 1 of 1956 18 of 201335 4010 of 1949 1 of 1956 18 of 201345(i) in sub-section (1), after the words "to a payment system" occurring at the end, the words "under section 7, or, such gross or netting procedure as may be approved by it under any other provisions of this act" shall be inserted;(ii) for sub-section(4), the following sub-section shall be substituted, namely:—"(4)where, by an order of a court, tribunal or authority––(a) a system participant is declared as insolvent or is dissolved or wound up; or(b) a liquidator or receiver or assignee (by whatever name called), whether provisional or otherwise, is appointed in a proceeding relating to insolvency or dissolution or winding up of a system participant, then, notwithstanding anything contained in the banking regulation act,1949 or the companies act,1956 or the companies act, 2013 or any other law for the time being in force, such order shall not affect any settlement that has become final and irrevocable prior to such order or immediately thereafter, and the right of the system provider to appropriate any collaterals contributed by the system participants towards its settlement or other obligations in accordance with the rules, regulations or bye-laws relating to such system provider";(iii)  after sub-section (4), the following sub-sections shall be inserted, namely:—"(5) where an order referred to in sub-section (4) is made with respect to a central counter party, then, notwithstanding such order or anything contained in the banking regulation act,1949 or the companies act,1956 or the companies act, 2013 or any other law for the time being in force, the payment obligations and settlement instructions between the central counter party and the system participants including those arising from transactions admitted for settlement at a future date, shall be determined forthwith by such central counter party in accordance with the gross or netting procedure, as the case may be, approved by the reserve bank, while issuing authorisation  or under any other provisions of this act, and such determination shall be final and irrevocable(6) notwithstanding anything contained in the banking regulation act,1949 or the companies act, 1956 or the companies act, 2013 or any other law for the time being in force, the liquidator or receiver or assignee (by whatever name called) of the central counter party, whether appointed as provisional or otherwise, shall––(a) not re-open any determination that has become final and irrevocable;(b) after appropriating in accordance with the rules, regulations or bye-laws of the central counter party, the collaterals provided by the system participants towards their settlement or other obligations, return the collaterals held in excess to the system participants concerned";5(iv) the existing explanation shall be numbered  as explanation 1 thereof and after explanation 1, as so numbered, the following  explanation shall be inserted, namely:––10'explanation 2––for the purposes of this section, the expression "central counter party" means a system provider who by way of novation interposes between system participants in the transactions admitted for settlement, thereby becoming the buyer to every seller and the seller to every buyer, for the purpose of effecting settlement of their transactions'4  after section 23 of the principal act, the following section shall be inserted, namely:—insertion of new section 23a15protection of funds collected from customers'23a (1) the reserve bank may, in public interest or in the interest of the customers of designated payment systems or to prevent the affairs of such designated payment system from being conducted in a manner prejudicial to the interests of its customers, require system provider of such payment system to––20(a) deposit and keep deposited in a separate account or accounts held in a scheduled commercial bank; or(b) maintain liquid assets in such manner and form as it may specify from time to time,25of an amount equal to such percentage of the amounts collected by the system provider of designated payment system from its customers and remaining outstanding, as may be specified by the reserve bank from time to time:provided that the reserve bank may specify different percentages and the manner and forms for different categories of designated payment systems30(2) the balance held in the account or accounts, referred to in sub-section (1), shall not be utilised for any purpose other than for discharging the liabilities arising on account of the usage of the payment service by the customers or for repaying to the customers or for such other purpose as may be specified by the reserve bank from time to time3510 of 1949 1 of 1956 18 of 201340(3) notwithstanding anything contained in the banking regulation act, 1949 or the companies act, 1956 or the companies act, 2013 or any other law for the time being in force, the persons entitled to receive payment under sub-section (2) shall have a first and paramount charge on the balance held in that account and the liquidator or receiver or assignee (by whatever name called) of the system provider of the designated payment system or the scheduled commercial bank concerned, whether appointed as provisional or otherwise, shall not utilise the said balances for any other purposes until all such persons are paid in full or adequate provision is made thereforexplanation––for the purposes of this section, the expressions––(a) "designated payment system" shall mean a payment system or a class of payment system, as may be specified by the reserve bank from time to time, engaged in collection of funds from their customers for rendering payment service;4510  of 1949 1 of 1934(b) "scheduled commercial bank" shall mean a "banking company","corresponding new bank", "state bank of india" and "subsidiary bank" as defined in section 5 of the banking regulation act, 1949 and included in the second schedule to the reserve bank of india act,1934'5  after section 34 of the principal act, the following section shall be inserted, namely:—insertion of new section 34a'34a (1) the provisions of this act shall apply to, or in relation to, a designated trade repository or issuer, as they apply to, or in relation to, payment systems to the extent applicable, subject to the modification that, throughout this act, unless the context otherwise requires,—act to apply to designated trade repository and issuer5(a) references to a "payment system" or "system provider" shall be construed as references to a "designated trade repository" or "issuer", as the case may be;10(b) references to "commencement of this act" shall be construed with reference to––(i) a designated trade repository, as references to the date on which a trade repository is specified by the reserve bank as a designated trade repository; and15(ii) an issuer, as references to commencement of the payment and settlement systems (amendment) act, 2014(2)  the reserve bank may, on an application by a designated trade repository or otherwise, permit or direct the designated trade repository to provide such other services as are deemed necessary from time to time20explanation––for the purposes of this section, the expression "designated trade repository" shall mean a trade repository or a class of trade repositories, as may be specified by the reserve bank from time to time' statement of objects and reasonsthe payment and settlement systems act, 2007 (the said act) was enacted for the regulation and supervision of payment systems in india and to designate the reserve bank of india as the authority for that purpose and for matters connected therewith2 subsequent to the enactment of the said act, the country has witnessed orderly growth of payment systems, and these payments systems are granted authorisation on the principles of safety, security, soundness, efficiency and accessibility after the global financial crisis in 2007-08, several developments took place, driven primarily by the g20, for reforming the over the counter derivatives markets some of these new initiatives include setting up of trade repositories and legal entity identification system3 the trade repositories have emerged as a new type of financial market infrastructure and are growing in importance, particularly in the over the counter derivatives market however, there is no specific legal provision in any of the laws administered by the reserve bank of india to regulate and supervise the trade repositories in india therefore, compliance of the trade repositories with international norms needs to be ensured by the regulator through appropriate legal powers in line with the g20 commitment and the global developments, the reserve bank of india has designated the clearing corporation of india limited as a trade repository4 the global financial crisis in 2007-08 and the resultant difficulties experienced by banks and regulatory agencies to identify the complicated business ventures and to efficiently establish connections between issuers and securities brought forth the need for a standard uniform code to properly attribute over the counter derivatives activity to a party or group recognising the importance of a global  identifier as a key component of necessary improvements in financial data systems, the g20 endorsed the development and maintenance of a global legal entity identifier system the legal entity identifier is a 20-character unique identity code assigned to entities which are parties to a financial transaction and would be unique across the globe currently, there is no legal provision under any of the laws administered by the reserve bank of india for regulation and oversight of the legal entity identifier issuer the reserve bank of india has selected the clearing corporation of india limited to act as a local operating unit for issuing globally compatible legal entity identifier in india the use of the legal entity identifier numbers is likely to be mandated for over the counter derivative transactions and large borrowers in a phased manner5 given the markets being served by the clearing corporation of india limited, the participating banks run significant exposures against the said corporation, in its role as central counter party hence, it is necessary to provide a sound and enforceable legal basis for "netting" of banks exposures to said corporation so that their exposure is reduced significantly the said act, though providing for netting protection and settlement finality in the event of insolvency or dissolution of system participants, does not expressly contemplate a situation which may warrant netting on account of insolvency or dissolution of the central counter party itself the proposed amendments on enforceability of netting in the event of  insolvency or dissolution of the system provider would provide finality to the determination of the payment obligations and settlement instructions between a central counter party and system participants in the event of insolvency, dissolution or winding up of a central counter party6 further, there are some legal difficulties in securing the customers' interest held in escrowed accounts in the event of insolvency or bankruptcy of prepaid instruments, operators, which are required to be addressed7 the amendments to the said act have been proposed to increase transparency and stability of indian financial markets in line with globally accepted norms the payment and settlement systems (amendment) bill, 2014, inter alia, proposes:—(a) to substitute sub-section (4) of section 23 of the said act so as to provide that where by an order of the court, tribunal or authority, the system participant is declared as insolvent or is dissolved or wound up, such order shall not affect any settlement that has become final and irrevocable prior to such order or immediately thereafter;(b) to insert a new sub-section (5) in section 23 of the said act so as to provide that where an order under sub-section (4) of section 23 is made with respect to a"central counter party", the payment obligations and settlement instructions between the central counter party and the system participants shall be determined by such central counter party in accordance with the gross or netting procedure, as the case may be, approved by the reserve bank of india;(c) to insert a new sub-section (6) in section 23 of the said act so as to provide that the liquidator or receiver of the central counter party shall not re-open the determination which has become final and irrevocable and after appropriating the collateral provided by system participants towards their settlement obligations, return the excess collaterals to system participants;(d) to insert a new section 23a relating to "protection of funds collected from the customers by the payment system providers";(e) to insert a new section 34a so as to apply the said act to the designated trade repository and legal entity identifier issuer 8 the bill seeks to achieve the above objectsnew delhi;arun jaitleythe 1st december, 2014 annexure extract from the payment and settlement systems act, 2007 (51 of 2007)    settlement and netting23  (1) the payment obligations and settlement instructions among the system participants shall be determined in accordance with the gross or netting procedure, as the case may be, approved by the reserve bank while issuing authorisation to a payment system     1 of 1956 10  of 1949(4) where a system participant is declared by a court of competent jurisdiction as insolvent or is dissolved or wound up, then notwithstanding anything contained in the companies act, 1956 or the banking regulation act, 1949 or any other law for the time being in force, the order of adjudication or dissolution or winding up, as the case may be, shall not affect any settlement that has become final and irrevocable and the right of the system provider to appropriate any collaterals contributed by the system participant towards its settlement or other obligations in accordance with the rules, regulations or bye-laws of such system providerexplanation—for the removal of doubts, it is hereby declared that the settlement, whether gross or net, referred to in this section is final and irrevocable as soon as the money, securities, foreign exchange or derivatives or other transactions payable as a result of such settlement is determined, whether or not such money, securities or foreign exchange or derivatives or other transactions is actually paid     ———— a billto amend the payment and settlement systems act, 2007————(shri arun jaitely, minister of finance)gmgipmrnd—3334ls—05122014