SGX implements enhancements to default management capabilities of SGX-DC and CDP on 17 July 2019

30 July 2019

On 17 July 2019, enhancements to the default management capabilities of Singapore Exchange Derivatives Clearing Limited (“SGX-DC”) and the Central Depository (Pte) Limited (“CDP”) came into effect.

This development follows a Singapore Exchange Limited (“SGX”) consultation on proposed amendments to the clearing rules of the SGX-DC and the CDP (“SGX-DC Clearing Rules” and “CDP Clearing Rules” respectively) to enhance both clearing houses’ default management capabilities. The consultation was conducted from 19 July 2018 to 16 August 2018.

The enhancements include:

  • New default management tools for SGX-DC: 
    • ETD/OTCC Auction: Introduction of an auction protocol for liquidating a defaulted SGX-DC Clearing Member’s positions in exchange-traded derivatives (“ETD”) contracts and over-the-counter commodities (“OTCC”) contracts. 
    • Partial tear-up: Allowing SGX-DC to unilaterally terminate positions of non-defaulting Clearing Members that exactly offset those of the defaulted Clearing Member, for all classes of contracts that SGX-DC clears. 
  • Revised SGX-DC clearing fund loss allocation mechanism:
    •  New default loss allocation following an ETD/OTCC Auction: Introduction of a new loss distribution mechanism to address losses arising from an ETD/OTCC Auction.
    •  Revised default loss allocation following an OTCF auction: Modification of the loss distribution mechanism following a default auction, for over-the-counter financial derivatives (“OTCF”). 
  • New default management tool for CDP: 
    • Securities write-off: Introduction of 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.
  • Clarification of the limited circumstances under which CDP and SGX-DC may disclose information provided to them by their respective Clearing Members.

The relevant amendments to the SGX-DC Clearing Rules and the CDP Clearing Rules to implement the enhancements were issued by SGX on 15 July 2019.

SGX also released a Response to feedback on the consultation paper on 3 July 2019, in which it noted that respondents were generally supportive of the proposed amendments. 

Reference materials

The following materials are available on the SGX website www.sgx.com:

 

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