Clearing operation

KELER CCP provides derivative market clearing for the Budapest Stock Exchange (BSE) in the following segments:

• BSE Commodities section
• BSE Financial products
• BSE Equity and index products

KELER CCP receives the trades in real time that are matched and were executed in line with segregation, and keeps the positions in real time. Not later than the end of the day, KELER CCP registers the trades that were not allocated during the day on the Clearing Member own account.

At the moment the transactions are accepted KELER CCP novates them. With novation KELER CCP interposes itself between the counterparties of the original transaction, and becomes the buyer of the seller and the seller of the buyer. This way KELER CCP eliminates counterparty risk.

Transactions are cleared in line with the ’mark-to-market’ principle, with the variation margin of derivative trades determined each day and settled the following day. Based on the ’mark-to-market’ principle, on trade day the variation margin is determined based on trade price and the same day settlement price, thereafter it is the difference of the same day and the previous day settlement prices for open positions.

When option transactions are cleared, the option premium is settled financially, i.e. the option holder (the buyer of the option) meets the obligation of option premium payment as part of the daily variation margin, after which it has no payment obligation until the exercise / expiry date of the option.

KELER CCP calculates margin requirement for the open derivative positions, that is to be met until 8:50 on the 1. (first) clearing day after calculation.

The financial settlement of derivative market transactions is completed at 8:50 on the 1. (first) clearing day after the day the transaction is made (8:50 on T+1, where T = Transaction Day).

As part of intraday clearing, KELER CCP may make margin calls on open positions during the day; this call is to be met within 15 minutes of being made.

KELER CCP offers segregation possibilities stated in Article 37 (9) of EMIR to its Clearing Members.

The following document includes the summary table on segregation possibilities and risks:

The dimensions of segregation are as follows:

• position management
• margin determination and collateral pledging
• settlement

With segregation KELER CCP ensures that Clearing Member own and principal positions are registered separately. In multilateral clearing the principal positions are posted in a so-called omnibus principal position management account, i.e. the transactions of individual principals are not registered one by one.

KELER CCP ensures the segregated management of Non-clearing Member positions, thus Non-clearing Member own and principal positions are registered separately from Clearing Member own and principal positions. Non-clearing Member principal trades, identically to the Clearing Member principal positions, are posted in the omnibus principal position management account.

In order to mitigate default risks, KELER CCP calculates initial margin, in line with segregation, for the open positions arising from multinet settlement. The daily margin requirement is calculated separately for the Clearing Member own and omnibus principal positions, within which the cash market negative variation margin is to be provided in collateralized form (collateral asset). Thus – opposed to the clearing of futures contracts – only the purchase price is settled, variation margin settlement is not made in accordance with securities clearing.

The Clearing Member own and omnibus principal collaterals are registered separately from the assets of KELER CCP and other Clearing Members.

In the interest of increased protection of indirect clients (Non-clearing Members, principals), KELER CCP offers so-called individual segregation (ISA - Individually Segregated Account). In these accounts KELER CCP registers the positions of the given client separately from other client positions.

For individually segregated clients the margin requirement for the positions of the client concerned is determined separately, and related collateral is registered separately from the Clearing Member own and omnibus principal collaterals.

The client can request individual segregation from the Clearing Member; the Clearing Member is required to report to KELER CCP accordingly.

The individually segregated client can select a Back-up Clearing Member that in case of final default by the original Clearing Member is entitled to take over the non-defaulting individually segregated client and its collaterals. The client and the Back-up Clearing Member are required to make an agreement to use this function; the Back-up Clearing Member is required to inform KELER CCP on its client.

Related to derivative clearing financial positions are settled daily. The settlement currency is in line with the product specification provided by the exchange, by default Forint (HUF).

During derivative clearing the calculated variation margin is settled on the 1. (first) clearing day after the day the trade is made (on T+1, where T = Transaction Day).

During settlement, the financial settlement positions are formed at the segregation levels of Clearing Member own and omnibus principal, while Non-clearing Member financial settlement positions are settled jointly with the omnibus principal positions.

The place of settlement for HUF is KELER, or in the case of credit institutions the MNB. The place of settlement for products with FX settlement is always KELER.

Clearing Members are required to make sure that the financial positions in line with segregation are available in the settlement accounts until 8:50. From these accounts KELER CCP withdraws the funds for the entire amount (partial financial settlement is not available). Parallel with this, in line with segregation, KELER CCP posts credit entriesin the settlement accounts of the obligees.

Related to settlements, in addition to the settlement of financial positions, Clearing Members are required to comply with the daily margin and default fund contribution requirements.

The deadline to meet the margin requirement is 8:50, while the normal monthly default fund contribution is to be provided until 8:50 on the 2. (second) clearing day after being determined.

Related to derivative clearing certain transactions are settled with securities or physical delivery, these transactions are as follows:

• futures equities transactions (‘FISZER’ trade)
• futures commodity transactions

The securities transactions with delivery are settled at 10:00 on the 2. (second) clearing day after expiry, based on the so-called Delivery Versus Payment (DvP) principle. For the trades that remain open upon expiry, KELER CCP determines the securities and cash settlement positions in line with the segregation. First, KELER CCP settles the available quantity of securities, i.e. it takes the settled securities from the seller to the KELER CCP technical account and credits the securities account of the buyer, and then it debits the cash account of the buyer with KELER or the MNB against the KELER technical account and credits the cash account of the seller.

In the Commodities Section some products are settled with physical delivery, with settlement to be completed until the 45. (forty-fifth) day after expiry (T+45 where T = Transaction Day), however, the delivery cycle can be extended based on the statement of the counterparties. KELER CCP guarantees physical settlement only if settlement is with warehouse warrants. As counterparty involved in physical settlement, KELER CCP ensures that the seller gets the payable purchase price for the quantity delivered. As a precondition of this, the buyer is required to issue the delivery certificate on the commodities it received. The counterparties involved in the physical settlement of the transaction are matched with so-called drawing.

Related to derivative market transactions only the fees due to KELER CCP are invoiced. Related to commodities transactions the counterparties to the trade issue the purchase price invoices to each other.

Payment is based on the invoice issued until the 5. (fifth) workday after the subject month; the due amounts are collected by debiting the Clearing Member accounts kept by KELER. Credit institution Clearing Members are required to pay the due amount by transfer in case the Clearing Member concerned has no cash account kept by KELER.

Related to derivative market clearing KELER CCP prepares end-of-day clearing reports for the Clearing Members, these reports can be viewed and downloaded in the KID system.

The detailed report structure can be found in KIDIO, the KID interface description of KELER.

Regarding all derivative transactions KELER CCP prepares the TR reports with respect to KELER CCP and the Clearing Member and then sends the reports to the KELER TR system. The KELER TR system forwards the reports to RegisTR.

As part of the TR service, based on the mandate received, KELER CCP prepares the reports for the Clearing Member clients as well, and based on the choice of the Clearing Member it sends these reports to the Clearing Member or directly to the KELER TR system.

The basic aim of derivative market clearing is to make sure that the daily variation margin of the transaction traded and accepted for clearing and the related transactions with physical delivery are settled fully. To this end KELER CCP operates a clearing membership and guarantee system.

On the derivative market three types of default can be differentiated:

• financial default
• default on securities delivery (‘FISZER’ trade)
• physical commodities default

Financial default occurs if the Clearing Member fails to meet the margin, default fund contribution, daily variation margin requirement or the financial settlement requirement related to a trade with physical delivery by the applicable deadline.

Once default is established 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 client collaterals cannot be used in case of default in the own account of the Clearing Member.

The collaterals of the individually segregated clients are fully protected in case of default by the Clearing Member or its clients; as such instruments can only be used if the client concerned is in default.

Securities delivery default occurs if the Clearing Member fails to meet the securities settlement requirement arising from the securities transaction with delivery by the applicable deadline.

Upon default on securities KELER CCP attempts to acquire the missing securities in compulsory buy-in; if it is successful it settles with the non-defaulting buyer. The process of compulsory buy-in is identical to the practice followed in the case of securities transactions with multinet settlement. Financial settlement takes place if the buy-in is unsuccessful.

For commodities transaction with physical settlement KELER CCP guarantees settlement only if settlement is with warehouse warrants. In case of warehouse warrant default KELER CCP follows the rules of two-round delivery drawing, thus if the seller is in default it transfers back the purchase price margin made by the buyer to the non-defaulting Clearing Member.

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