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Rule Amendments

  Versions
(3 versions)
 

7A.06.5 Losses Borne by Clearing House

Past version: effective from Aug 7 2012 - Nov 7 2012.
To view other versions open the versions tab on the right.

7A.06.5.1 On the occurrence of any of the following events, or if the Clearing House in its discretion determines that any of the following events has occurred, the Clearing House may declare an event of default:—
a. the insufficiency of a Clearing Member's Security Deposit, margins on deposit with the Clearing House, or any of its other assets or securities available to the Clearing House to fully discharge such Clearing Member's obligations to the Clearing House; or
b. the insufficiency of the Letters of Credit, margins or any other assets or securities of any other Relevant Market, including a Participating Market, available to the Clearing House to fully meet such other Relevant Market's and/or its clearing house's obligations to the Clearing House; or
c. the insolvency of a Clearing Member (as determined by Rule 7A.01.3), any other Relevant Market which clears the opposite side of any Contract, including a Participating Market, and/or its clearing house or any depository (as defined in Rule 2.35.4); or
d. conversion, theft, breach of trust, embezzlement, or any other similar cause, caused or suffered by or in connection with a Clearing Member.
7A.06.5.2 Subject to Rule 7A.06.6.4, any loss suffered by the Clearing House arising from or in connection with an event of default shall be met and made good promptly by the use and application of funds from the following sources (collectively known as the "Clearing Fund") in the order of priority hereafter listed, with each source of funds to be completely exhausted, subject to the limitations contained therein, before the next source is applied:—
a. Clearing House Contribution.
b. Security Deposits of Clearing Members (excluding any Clearing Member who is insolvent or deemed to be insolvent) where each Clearing Member had:
i. cleared Contracts belonging to the Contract Class in which the event of default occurred, during the six (6) month period preceding the day the event of default was declared by the Clearing House; or
ii. an open commitment in Contracts belonging to the same Contract Class in which the event of default occurred, during the six (6) month period preceding the day the event of default was declared by the Clearing House (with the periods at Rules 7A.06.5.2.b.i and 7A.06.5.2.b.ii collectively referred to as the "Relevant Periods").
Such Clearing Member shall be liable for the loss remaining on a pro-rata basis, calculated as the proportion of its Security Deposit requirement relative to the aggregate Security Deposit requirement for the category of Clearing Members referred to in this Rule 7A.06.5.2.b.
c. Further Assessment Amounts (as prescribed under Rule 7A.06.3, and excluding any Clearing Member who is insolvent or deemed to be insolvent) of the same category of Clearing Members referred to in Rule 7A.06.5.2.b. Such Clearing Member shall be liable for the loss remaining on a pro-rata basis, calculated as the proportion of its Further Assessment Amount requirement relative to the aggregate Further Assessment Amount requirement for the category of Clearing Members referred to in Rule 7A.06.5.2.b.
c1. Any contributions to the Clearing Fund by the Clearing House or any of its related entities to that Contract Class in which the event of default occurred, the amount of such contributions (if any) to be determined by the Clearing House in its sole discretion.
d. Security Deposits of Clearing Members (excluding any Clearing Member who is insolvent or deemed to be insolvent) where that Clearing Member had:—
i. cleared Contracts, not belonging to the same Contract Class in which the event of default occurred, during the six (6) month period preceding the day the event of default was declared by the Clearing House; or
ii. an open commitment in Contracts, not belonging to the same Contract Class in which the event of default occurred, during the six (6) month period preceding the day the event of default was declared by the Clearing House; or
iii. not cleared or had no open commitment in Contracts belonging to the same Contract Class in which the event of default occurred, during the Relevant Periods.
Such Clearing Member shall be liable for the loss remaining on a pro-rata basis, calculated as the proportion of its Security Deposit requirement relative to the aggregate Security Deposit requirement for the category of Clearing Members referred to in this Rule 7A.06.5.2.d, PROVIDED ALWAYS that if such Clearing Member's Security Deposit had been applied pursuant to Rule 7A.06.5.2.b, its Security Deposits shall not be applied again pursuant to this Rule 7A.06.5.2.d.
e. Further Assessment Amounts (as prescribed under Rule 7A.06.3 of the same category of Clearing Members referred to in Rule 7A.06.5.2.d (excluding any Clearing Member which has been levied the maximum amount that may be levied against it pursuant to 7A.06.5.2.c). Such Clearing Member shall be liable for the loss remaining on a pro-rata basis, calculated as the proportion of its Further Assessment Amount requirement relative to the aggregate Further Assessment Amounts requirement for the category of Clearing Members referred to in Rule 7A.06.5.2.d; and
f. any other contributions to the Clearing Fund.
7A.06.5.3 Where Clearing Members' Security Deposit or Further Assessment Amounts are used and applied in accordance with Rules 7A.06.5.2.b, c, d or e, the limits to one or more Clearing Members' liabilities in respect of such funds as set out in Rule 2.28.2A or Rule 7A.06.6.6 may be reached. As a consequence of the foregoing, the contributions of Clearing Members which remain liable in respect of the relevant source of funds may remain unexhausted, while outstanding losses remain following such use and application of the source of funds. In such instances, the following shall apply:
a. the remaining contributions of Clearing Members in respect of the relevant source of funds shall be applied to meet the outstanding loss, subject to their limits set out in Rule 2.28.2A and Rule 7A.06.6.6; and
b. the liability of each Clearing Member for such loss shall be determined as described in Rules 7A.06.5.2.b, c, d or e, whichever is applicable, subject always to the operation of Rule 7A.06.6.5.
7A.06.5.4 If the Clearing House is unable to ascertain any of its losses in relation to a potential Flat Rate adjustment promptly after an event of default, the Clearing House may estimate its loss as if such estimated loss has already been ascertained, and apply the Clearing Fund accordingly. Upon ascertaining its actual loss suffered in relation to a Flat Rate adjustment, the Clearing House will debit or credit the monies to the Clearing Fund accordingly.
7A.06.5.5 For the purpose of Rules 7A.06.5.2.b, c, d, and e, an event of default shall fall within either of the following:
a. Contracts that are listed for trading on the Exchange or Relevant Market;
b. OTC Contracts; or
c. OTCF Contracts
(each a “Contract Class”, and collectively, “Contract Classes”)

except as provided in Rules 7A.06.5.7 and 7A.06.5.9, when an event of default is deemed to fall within (i) any combination of Contract Class, or (ii) all of the Contract Classes, as the case may be.
7A.06.5.6 An event of default shall be deemed to have fallen within a particular Contract Class if the defaulting Clearing Member had open commitment or outstanding obligations to the Clearing House in that Contract Class at the time of such default.
7A.06.5.7 An event of default that is due to the insufficiency of a Clearing Member's Security Deposit, margins, or deposit with the Clearing House, or any of its other assets or securities available to the Clearing House to fully discharge such Clearing Member's obligations to the Clearing House, or is due to the insolvency of a Clearing Member, shall be deemed for the purpose of Rules 7A.06.5.2.b, c, d and e to have occurred in each Contract Class that Clearing Member was clearing or had open commitment in at the time of default.
7A.06.5.8 Where an event of default is due to the insufficiency of the Letter of Credit, margins or any of its other assets or securities of any other Relevant Market including a Participating Market, available to the Clearing House to fully meet the obligations of such Relevant Market and/or its clearing house to the Clearing House or the insolvency of the other Relevant Market, a default shall be deemed to have occurred in the class of Contracts that are listed for trading on the Exchange or the Relevant Market.
7A.06.5.9 An event of default that is due to conversion, theft, breach of trust or embezzlement of a Clearing Member, or any other cause shall be deemed to have occurred in each Contract Class that Clearing Member was clearing or had open commitment in at the time of default.
7A.06.5.10 While application of the Clearing Fund shall be mandatory, the detailed implementation of Rule 7A.05 and 7A.06 shall be the responsibility of the Clearing House.

Added on 7 August 2012.