SGX seeks feedback on clearing rules of SGX-DC and CDP
19 July 2018 Singapore
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The Singapore Exchange (SGX) is seeking public feedback on proposed amendments to the clearing rules of Singapore Exchange Derivatives Clearing Limited (SGX-DC) and the Central Depository Limited (CDP) and clearing rules.
According to SGX, the information given through this feedback aims to enhance clearinghouses’ default management capabilities.
SGX is proposing to amend the SGX-DC Clearing Rules to introduce an auction protocol for liquidating a defaulted SGX-DC clearing member’s positions in exchange-traded derivatives contracts and over-the-counter commodities contracts.
This will include a loss distribution mechanism to address losses arising from such an auction.
According to SGX, it will also allow SGX-DC to unilaterally terminate positions of non-defaulting SGX-DC clearing members that offset those of the defaulted clearing member for all classes of contracts SGX-DC clears.
In addition, it aims to revise the existing loss distribution mechanism for auctions for over-the-counter financial derivatives contracts and modify the SGX-DC Clearing Fund “waterfall”, which allocates losses arising from a clearing member default.
SGX is proposing to amend the CDP clearing rules to give CDP the power to write off, as a loss to CDP, a defaulted CDP clearing member’s unsettled buy trades if those securities are not force-sold by the seventh day after the clearing member is declared to be in default.
The proposed changes to the SGX-DC Clearing Rules and the CDP Clearing Rules will reinforce the robustness of SGX-DC’s and CDP’s risk management, and are consistent with international best practices, said SGX.
The public consultation is open until 16 August 2018 and SGX expects to implement the amendments in the fourth quarter of 2018, subject to regulatory approval.
Agnes Koh, chief risk officer at SGX, said: “SGX’s primary remit of upholding the health and efficiency of Singapore’s financial market means we have a duty to ensure the continuity of the broader market in the event a clearing member defaults.”
She added: “We are constantly reviewing and enhancing our risk management practices. We have sought to do so with this consultation by balancing global best practices, commercial practicalities and operational feasibility.”
According to SGX, the information given through this feedback aims to enhance clearinghouses’ default management capabilities.
SGX is proposing to amend the SGX-DC Clearing Rules to introduce an auction protocol for liquidating a defaulted SGX-DC clearing member’s positions in exchange-traded derivatives contracts and over-the-counter commodities contracts.
This will include a loss distribution mechanism to address losses arising from such an auction.
According to SGX, it will also allow SGX-DC to unilaterally terminate positions of non-defaulting SGX-DC clearing members that offset those of the defaulted clearing member for all classes of contracts SGX-DC clears.
In addition, it aims to revise the existing loss distribution mechanism for auctions for over-the-counter financial derivatives contracts and modify the SGX-DC Clearing Fund “waterfall”, which allocates losses arising from a clearing member default.
SGX is proposing to amend the CDP clearing rules to give CDP the power to write off, as a loss to CDP, a defaulted CDP clearing member’s unsettled buy trades if those securities are not force-sold by the seventh day after the clearing member is declared to be in default.
The proposed changes to the SGX-DC Clearing Rules and the CDP Clearing Rules will reinforce the robustness of SGX-DC’s and CDP’s risk management, and are consistent with international best practices, said SGX.
The public consultation is open until 16 August 2018 and SGX expects to implement the amendments in the fourth quarter of 2018, subject to regulatory approval.
Agnes Koh, chief risk officer at SGX, said: “SGX’s primary remit of upholding the health and efficiency of Singapore’s financial market means we have a duty to ensure the continuity of the broader market in the event a clearing member defaults.”
She added: “We are constantly reviewing and enhancing our risk management practices. We have sought to do so with this consultation by balancing global best practices, commercial practicalities and operational feasibility.”
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