Default Management

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 by the applicable deadline the collateral, default fund contribution or the daily multinet settlement related financial settlement requirements.

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 in case of default in the own account of the Clearing Member the principal collaterals cannot be used.

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 the securities settlement obligations arising from multinet clearing.

During the management of securities default KELER CCP cancels the defaulted multinet transaction, then it returns the purchase price of the defaulted transaction to the non-defaulting Clearing Member. With respect to the defaulting Clearing Member the cash or securities credits are kept back to cover the return.

The defaulting Clearing Member has two (2) clearing days to acquire voluntarily the missing securities if it is financially covered for the so-called correction amount (that is the variation margin of the trade day purchase price and the Settlement Day calculated amount). The final settlement deadline is 11:00 on the second (2) day after Settlement Day (11:00 on SD+2, where SD = Settlement Day). Thereafter KELER CCP attempts to acquire the missing securities is compulsory buy-in.

If the correction amount is financially uncovered the defaulting Clearing Member has one (1) 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.

If the compulsory buy-in is not successful, KELER CCP compensates the non-defaulting Clearing Member financially (so-called default surcharge).

Once default is closed KELER CCP calculates and collects the default fees.

In line with the General Business Rules of KELER CCP the parties involved in default can deviate from the general rules of default and withdraw from compulsory buy-in subject to mutual agreement and with notification to KELER CCP.