SGX proposes changes to clearing rules for derivatives and securities
The Singapore Exchange (SGX) is proposing changes to clearing rules for derivatives and securities, with a public feedback exercise launched yesterday.
They will enhance the default management capabilities of both clearing houses, SGX said. It expects to put the measures in place in the fourth quarter .
The Central Depository (CDP) for securities trading could be given the power to write off defaulted members' unsettled buy trades at a loss to the CDP, if the securities are not force-sold within seven days of the default being declared.
Meanwhile, the SGX-Derivatives Clearing (SGX-DC) could have an auction protocol for liquidating defaulted members' positions in exchange-traded derivatives contracts and over-the-counter commodities contracts.
That may involve "sub-waterfalls" for losses from auctions as well as over-the-counter financial derivatives contract auctions to be folded into the SGX-DC Clearing Fund "waterfall" for allocating losses from a clearing member's default.
The clearing house default waterfall refers to how central counterparties take on trading members' default risks. The waterfall structure typically taps the clearing houses' own capital if defaulting members cannot absorb losses.
SGX-DC would also be able to terminate positions of non-defaulting members that offset the defaulted clearing members' positions, for all classes of contracts, as well as revise the existing loss distribution mechanism for over-the-counter financial derivatives contract auctions.
SGX chief risk officer Agnes Koh said in a statement: "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."
Public consultation closes on Aug 16. - THE STRAITS TIMES
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