7.03.2 Losses Borne by Clearing House

Past version: Effective up to 06 Aug 2012

7.03.2.1 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 2.30.1), 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 cause; or

e. any failure by a Clearing Member to post Performance Deposits with the Clearing House within the time specified in the relevant Contract Specifications.

7.03.2.2 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 that 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 7.03.2.2.b.i and 7.03.2.2.b.ii collectively referred to as the "Relevant Periods").

c. Further Assessment Amounts (as prescribed under Rule 7.15A, and excluding any Clearing Member who is insolvent or deemed to be insolvent) of the same Clearing Members referred to in Rule 7.03.2.2.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 all Clearing Members referred to in Rule 7.03.2.2.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 all Clearing Members referred to in this Rule 7.03.2.2.d, PROVIDED ALWAYS that if such Clearing Member's Security Deposit had been applied pursuant to Rule 7.03.2.2.b, its Security Deposits shall not be applied again pursuant to this Rule 7.03.2.2.d.

e. Further Assessment Amounts (as prescribed under Rule 7.15A) of the same Clearing Members referred to in Rule 7.03.2.2.d (excluding any Clearing Member which has been levied the maximum amount that may be levied against it pursuant to Rule 7.03.2.2.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 all Clearing Members referred to in Rule 7.03.2.2.d; and

f. any other contributions to the Clearing Fund.

Amended on 27 March 2006 27 March 2006, 22 September 2006 22 September 2006, 20 July 2007 20 July 2007, 10 August 2007 10 August 2007, 1 October 2009 1 October 2009, 10 May 2010 10 May 2010 and 3 November 2010 3 November 2010.