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Chapter 1 Application of Rules
Chapter 2 Clearing Membership
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Chapter 7 Clearing and Margins
Chapter 7A Suspension and Default
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Rule Amendments

7A.02.1

Past version: effective from Sep 19 2016 - Jul 16 2019.
To view other versions open the versions tab on the right.

When a Clearing Member having open positions has defaulted upon its obligation to the Clearing House, or has been suspended, the Clearing House may:—

7A.02.1.1 transfer or facilitate the transfer of all or any part of positions in Customer Contracts held by the defaulted or suspended Clearing Member to one (1) or more Clearing Members designated by the Clearing House in accordance with applicable laws, provided that all or any part of positions held in Cleared Swaps Customer Accounts may be transferred only to one (1) or more FCM Clearing Members designated by the Clearing House. When such positions are so transferred, the following shall apply:
a. subject to Rule 7A.02.1.1.c. and to the extent permitted by applicable laws, margins deposited with the Clearing House in respect of the positions shall be entrusted to the designated Clearing Member or Clearing Members;
b. the margins entrusted to a designated Clearing Member pursuant to this Rule 7A.02.1.1 may not be in such form as was originally deposited with the Clearing House;
c. the Clearing House shall have the discretion not to transfer all or any part of the margins to a designated Clearing Member as described in Rule 7A.02.1.1.a., if:
i. those margins cannot be attributed to the positions that are transferred to that Clearing Member; or
ii. those margins may be applied pursuant to Rule 7A.05.1.2 or 7A.05.1.2A,
provided that where margins are not transferred to the designated Clearing Member, the designated Clearing Member shall be required to collect the required margins from its Customer; and
d. The margins not entrusted to designated Clearing Members shall be retained by the Clearing House and may be applied in accordance with Rule 7A.05.1.2 or 7A.05.1.2A. Any unused margins shall be returned to the defaulted or suspended Clearing Member, or entrusted to the designated Clearing Members, as the Clearing House deems appropriate:
i. following the settlement of losses arising from the event of default; or
ii. at such time that the Clearing House determines that the margins may not be used.
7A.02.1.1A transfer or facilitate the transfer of all or any part of positions in Affiliate Contracts held by the defaulted or suspended Clearing Member to one (1) or more Clearing Members designated by the Clearing House in accordance with applicable laws. When such positions are so transferred, the following shall apply:
a. subject to Rule 7A.02.1.1A.c. and to the extent permitted by applicable laws, margins deposited with the Clearing House in respect of the positions shall be entrusted to the designated Clearing Member or Clearing Members;
b. the margins entrusted to a designated Clearing Member pursuant to this Rule 7A.02.1.1A may not be in such form as was originally deposited with the Clearing House;
c. the Clearing House shall have the discretion not to transfer all or any part of the margins to a designated Clearing Member as described in Rule 7A.02.1.1A.a., if:
i. those margins cannot be attributed to the positions that are transferred to that Clearing Member; or
ii. those margins may be applied pursuant to Rule 7A.05.1.1A, 7A.05.1.2 or 7A.05.1.2A,
provided that where margins are not transferred to the designated Clearing Member, the designated Clearing Member shall be required to collect the required margins from the Affiliate; and
d. The margins not entrusted to designated Clearing Members shall be retained by the Clearing House and may be applied in accordance with Rules 7A.05.1.1A, 7A.05.1.2 and 7A.05.1.2A. Any unused margins shall be returned to the defaulted or suspended Clearing Member, or entrusted to the designated Clearing Members, as the Clearing House deems appropriate:
i. following the settlement of losses arising from the event of default; or
ii. at such time that the Clearing House determines that the margins may not be used.
7A.02.1.2 execute hedging transactions, on behalf of and at the risk of the defaulted or suspended Clearing Member, to eliminate or reduce market risk resulting from such open positions;
7A.02.1.3
a. close out or liquidate via auction or otherwise such open positions in House Contracts (including any Affiliate Contracts that have not been transferred pursuant to Rule 7A.02.1.1A), and/or any Customer Contracts that have not been transferred pursuant to Rule 7A.02.1.1, including any hedging transaction executed pursuant to Rule 7A.02.1.2; or
b. appoint one or more Inter Dealer Brokers, Clearing Members or members of the applicable Relevant Market to close out positions in House Contracts (including any Affiliate Contracts that have not been transferred pursuant to Rule 7A.02.1.1A) and/or any Customer Contracts that have not been transferred pursuant to Rule 7A.02.1.1, including any hedging transaction executed pursuant to Rule 7A.02.1.2, all on the behalf of and at the risk of the defaulted or suspended Clearing Member;
7A.02.1.4 where the open positions relate to a Non-Relevant Market Transaction or a Contract subject to physical delivery prior to re-novation in Rule 6.02A.7, and it is in the Clearing House's good faith opinion impossible or impracticable for the open positions to be transferred or closed out pursuant to Rules 7A.02.1.1, 7A.02.1.1A and 7A.02.1.3 respectively, the Clearing House may, in addition to any other power or right it may have, invoice back such positions to the defaulting or suspended Clearing Member. The Clearing House shall then simultaneously invoice back the equivalent number of positions or as nearly equivalent number of such positions as the Clearing House may deem practical to the following:—
a. in the case of a Non-Relevant Market Transaction or a Contract subject to physical delivery prior to the matching process in Rule 6.02A.7, to other non-defaulting and non-suspended Clearing Members, and/or any other non-defaulting Relevant Market (or its clearing house) holding appropriate opposite positions (whether reported to the Clearing House as being House or Customer positions) as at the date of such invoicing back, on a pro-rata basis, calculated as the proportion of such gross opposite positions of each non-defaulting and non-suspended Clearing Member and/or Relevant Market (or its clearing house) at the date of such transfer relative to the aggregate value of such open positions held by all non-defaulting and non-suspended Clearing Members (to be rounded down or up if the number of lots is not a whole number at the Clearing House's absolute discretion); or
b. in the case of a Contract subject to physical delivery after the matching process in Rule 6.02A.7 and before re-novation in Rule 6.02A.7, to the non-defaulting and non-suspended Clearing Members and/or clearing member of another Relevant Market (or its clearing house), with which the defaulting or suspended Clearing Member has been matched in accordance with Rule 6.02A.7 (whether reported to the Clearing House as being House or Customer positions).
The invoicing back shall be carried out by the Clearing House effecting and registering opposite positions between itself and each of the relevant affected persons. The Clearing House shall then settle the open positions against such opposite positions, at a price determined by it. The Clearing House's actions, including the timing of the transfer and the price determined by the Clearing House shall be binding on all affected Clearing Members;
7A.02.1.5 where the open positions relate to OTCF Contracts, take one or more of the following actions:
a. hedge or otherwise liquidate such open positions in OTCF Contracts;
b. conduct an auction of such open positions in OTCF Contracts, whether hedged or otherwise, and a Participating Clearing Member shall participate in such auction;
c. [This rule is deleted].
c1. where outstanding losses remain following the auction described in (b), attribute such outstanding losses in the manner described in Rules 7A.01A.2 (Clearing Fund Loss Allocation Mechanism), 7A.01A.2A (Apportionment of Clearing Fund Contributions across Contract Classes and across OTCF Auctions) and 7A.01B (Clearing Fund Loss Allocation Mechanism for Default in OTCF Contracts),
provided that a Clearing Member participating in any activity set out in (b) and (c) above may authorise a qualified third party to act in its place.
7A.02.1.6 if a defaulted or suspended party:
(a) has offsetting positions with another defaulted or suspended party; or
(b) has offsetting positions between his own accounts,
the Clearing House may net such positions before undertaking any action pursuant to Rules 7A.02.1.3 to 7A.02.1.5. The net loss calculated may be attributable to either or both defaulted or suspended party's account in whatever proportionas the Clearing House deems fit; and/or
7A.02.1.7undertake any action which is ancillary or incidental to activities set out under Rule 7A.02.1.

Added on 7 August 2012 and amended on 8 November 2012, 26 April 2013, 31 December 2013, 30 June 2014, 2 May 2016 and 19 September 2016.