Clearing operation

Currently KELER CCP provides multinet securities market clearing for the following five (5) trading platforms:

Budapest Stock Exchange

• BÉT main markets (cash, derivative, commodity market; market operator is the Budapest Stock Exchange Plc.)
• BÉT MTF Markets (market operator is the Budapest Stock Exchange Plc.)
  • BÉTa Market 
  • Xtend Market 
  • XBond Market 

MTS Hungary (market operator is MTS S.p.A.)

KELER CCP receives in real time the trades that were matched and were executed in line with segregation, and clears such trades in line with the most advanced multilateral netting principle (BIS Model 3). In accordance with the model, KELER CCP performs total netting by ISIN on the securities side and by currency on the cash side, in line with the applicable segregation level. KELER CCP guarantees the positions that are formed as the result of multilateral netting. Thus, in line with segregation, KELER CCP determines the securities and financial settlement positions by Clearing Members. The financial settlement position, i.e the purchase price is determined based on trade price. Due to multilateral netting the considerable number of transactions to be settled daily is reduced to a fraction of the original number of transactions, this serves the interest of market participants efficiently and securely.

During the securities market clearing, in line with the best practice in Europe, all trades are settled on the 2. (second) clearing day after trading (on T+2, where T = Transaction Day).

KELER CCP calculates margin requirement for the open positions; this is to be met on the 1. (first) day after calculation.

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 spot securities clearing financial positions are settled on a T+2 basis. The settlement currency is in line with the product specification provided by the exchange in Forint (HUF), in Euro (EUR) or in Dollar (USD).
During securities market clearing the purchase price on trade day is settled in line with segregation and the European market practice, with respect to all securities transactions on the 2. (second) clearing day after the day the transaction is made (on T+2 where T = Transaction Day).
During financial settlement, the financial settlement positions are formed at the segregation levels of Clearing Member own and omnibus principal, while Non-clearing Member positions are settled jointly with the Clearing Member omnibus principal positions. The place of settlement on the cash side is KELER, or in the case of credit institutions the MNB. The place of financial 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 not later than 15:00 on Settlement Day (SD, where SD = Settlement Day). From these accounts KELER CCP withdraws them to its technical account for the entire amount. (Partial financial settlement is not available). In case of all the cash transactions (debit) are settled till 12:00 , the clearing system of KELER CCP posts credit transactions automatically related to both securities and cash settlement; regardless of whether there is an uncovered securities position. Uncovered securities at 12:00 need to be covered by 15:00 the latest, othervise the default procedure will be initiated. KELER CCP sends debit orders to the settlement system at the end of T day closing process (SD-2 day).
Should any Clearing Member fail to meet financial obligations by the applicable deadline, KELER CCP declares default, then settlement is completed and KELER CCP starts the default procedure, whereby KELER CCP stands in the financial settlement as performing party by withdrawing the collaterals provided by the defaulting Clearing Member and at the same time suspending the clearing right of the Clearing Member.
Related to settlements, in addition to the settlement of securities and financial positions, Clearing Members are required to meet the daily margin and default fund contribution requirements.
The margin requirement is to be met until 8:50, while the normal monthly default fund contribution is to be provided until 8:50 on the  clearing day after being determined.
As part of intraday clearing, KELER CCP may make margin calls on open positions during the day in order to cover the negative variation margin; this call is to be met within 15 minutes of being made.

In securities market clearing, the securities position on trade day is settled in line with segregation and the European market practice, with respect to all securities transactions on the 2. (second) clearing day after the day the transaction is made (on T+2, where T = Transaction Day).
During settlement, the securities settlement positions are formed at the Clearing Member own and omnibus principal segregation levels, while for Non-clearing Members, generally in line with the decision of the Clearing Member, the securities positions are consolidated in the Non-clearing Member account. The place of settlement on the securities side is always the securities account held at KELER central securities depository.
Clearing Members are required to make sure that the securities positions in line with segregation are available in the settlement accounts not later than 15:00 on Settlement Day (SD), from these accounts KELER CCP withdraws the available quantity to its technical account. In case of all the cash transactions (debit) are settled till 12:00, the clearing system of KELER CCP posts credit transactions automatically related to both securities and cash settlement; regardless of whether there is an uncovered securities position. Uncovered securities at 12:00 need to be covered by 15:00 the latest, othervise the default procedure will be initiated. KELER CCP sends debit orders to the settlement system at the end of T day closing process, (SD-2 day).
Should any Clearing Member fail to meet securities delivery obligations by the applicable deadline, KELER CCP declares default (with the possibility of partial settlement), suspends the defaulted transactions, then settlement is completed and KELER CCP starts the default procedure.

Related to the securities market transactions, only the fees due to KELER CCP are invoiced.

Payment is based on the basis of the invoice issued until the 5. (fifth) workday after the subject month, and need to be paid by bank transfer.

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.

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 from the defaulting clearing member and distributed among the innocent clearing members once in a month.