The basic aim of securities market clearing is to make sure that the transactions concluded and accepted for clearing are settled fully; to this end KELER CCP operates a clearing membership and guarantee system.
On the cash markets two types of default can be differentiated:
- financial default
- securities default
Financial default occurs if the Clearing Member fails to meet the collateral, default fund contribution or the daily multinet settlement related financial settlement requirements by the applicable deadline.
Once default is declared, KELER CCP takes steps without delay to suspend the trading right of the defaulting Clearing Member and starts to take the available collaterals in line with the default waterfall stated in the General Business Rules. The default waterfall pays particular attention to segregation, as a result the principal collaterals cannot be used in case of default in the own account of the Clearing Member. In case of principal default, Clearing Member own assets are used as well.
The collaterals of the individually segregated clients are fully protected in case of default by the Clearing Member or its principals; as such collaterals can only be used if the client concerned is in default.
Securities default occurs if the Clearing Member fails to meet by the applicable deadline of the securities delivery obligations arising from multinet clearing.
During the management of securities default, KELER CCP cancels the defaulted multinet transaction, and then returns the so-called correction amount (which is the variation margin of the trade day purchase price and the Settlement Day calculated amount) for the defaulted transaction to the non-defaulting Clearing Member. With respect to the defaulting Clearing Member, the cash and/or securities credits may be kept back to cover the return.
In case it is financially covered for the so-called correction amount, the defaulting Clearing Member has 4 (four) (extension period) according to the rules of the Settlement Discipline Regulation (SDR) to voluntarily acquire the missing securities. The final settlement deadline is 17:20 on the 4th (fourth) clearing day after Settlement Day. Thereafter KELER CCP attempts to acquire the missing securities in compulsory buy-in on SD+5. clearing day (where SD = Settlement Day).
In case the correction amount is financially uncovered, the defaulting Clearing Member has 1 (one) hour to cover the shortage; if this deadline is missed, KELER CCP acts in line with the rules on financial default, and at the same time starts compulsory buy-in to acquire the missing securities.
Once default is closed KELER CCP calculates and collects the default fees as per the Fee Schedule, while KELER simultaniously calculates and reports the penalty amounts according to the SDR. The SDR penalty amount is collected by KELER CCP from the defaulting clearing member and distributed among the innocent clearing members once in a month.