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The Singapore Stock Exchange (SGX) proposed changes to the clearing rules for derivatives and securities, with a public exercise of feedback launched yesterday.
The proposed amendments will improve the default management capabilities of both clearing houses. He expects to put the measures in place in the fourth quarter of this year, subject to regulatory approval.
The Central Securities Depository (CDP) for securities trading may have the power to write off unsettled purchases of defaulting members at a loss. the CDP, if these securities are not forcibly sold within seven days of the declaration of default.
Meanwhile, the Singapore Stock Exchange (SGX-DC) could potentially have a bidding protocol to liquidate the positions of defaulting members. over-the-counter derivative contracts and over-the-counter commodities contracts, with a loss distribution mechanism to compensate for losses arising from such auctions.
This could imply "sub-cascades" for the losses of these auctions. the auctions of financial derivative contracts, which will be consolidated into the "cascade" of the SGX-DC Compensation Fund for the allocation of losses resulting from the default of a clearing member.
The default waterfall of the clearing house is how central counterparties (CCPs) bear the risk of default of their members. The cascading structure usually uses own-house capital of clearing houses – and in an extreme case, non-defaulting members – if defaulting members can not absorb losses themselves.
SGX-DC could also unilaterally terminate clearing positions. non-defaulting members who exactly offset the positions of defaulting Clearing Members, for all categories of contracts, as well as the revision of the existing loss distribution mechanism for OTC financial derivative contract auctions.
The proposed amendments will improve the default management capabilities of both clearing houses, SGX said. He plans to implement the measures in the fourth quarter of this year, subject to regulatory approval.
"In the ordinary course of business, any position of a CCP towards a Clearing Member is always offset by a counter-position with a second Clearing Member," said the Singapore Stock Exchange Regulation in the "This ensures that CCPs are not exposed to market risk because of changes in the market value of the transactions to which they are linked." However, when a clearing member SGX-DC or CDP does default on outstanding contracts, having a matching book The CCP will be exposed to market risk and could potentially incur losses In an extreme scenario, such losses could hinder the provision by CCP of counterparty clearing services, this could trigger or disrupt Singapore's financial system and beyond. "
Agnes Koh, SGX Risk Officer: The SGX's primary mission of preserving the health and efficiency of the Singaporean financial market means that we have a duty to ensure market continuity in the event of a defaulting Clearing Member.
"We constantly review and improve our risk management practices. have sought to do so with this consultation by balancing global best practices, business practices and operational feasibility. "
The public consultation ends on August 16.
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