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CDP Clearing Rules

Practice Note 1.2 Marginable Futures Contracts

Issue Date	Cross Reference	Enquiries
Added on 21 January 2013 21 January 2013.	Rule 1.2 — Definition of Marginable Futures Contract	Please contact Clearing Risk: Facsimile No : 6532 0297

1 Introduction

1.1. This Practice Note sets out the Futures Contracts approved for listing on SGX-ST designated as Marginable Futures Contracts by CDP.

2 Marginable Futures Contracts

2.1. Marginable Futures Contracts refers to Extended Settlement Contracts.

Practice Note 3.5.4 — Business Continuity Requirements

Issue Date	Cross Reference	Enquiries
Added on 22 January 2009 22 January 2009.	Rule 3.5.4	Please contact Member Supervision: Facsimile No : 6538 8273 E-Mail Address: membersup@sgx.com

1. Introduction

1.1 Rule 3.5.4 requires Clearing Members to:

(i) maintain adequate business continuity arrangements;

(ii) document business continuity arrangements in a business continuity plan;

(iii) test and review business continuity plans regularly; and

(iv) appoint emergency contact persons.

1.2 The objective is to ensure that Clearing Members have the ability to:

(i) React swiftly to emergency situations; and

(ii) Maintain critical functions and fulfill obligations to customers and counterparties in the event of major operational disruptions.

2. Business Continuity Plan

2.1 Critical Elements of a Business Continuity Plan

2.1.1 Rule 3.5.4(1) requires Clearing Members to maintain adequate business continuity arrangements, and document such arrangements in a business continuity plan. As a guide, a Clearing Member's business continuity plan should document the following elements:

(i) Risk assessment: This includes a comprehensive assessment of business continuity risks (including financial and operational risks) and threat scenarios which may severely disrupt a Clearing Member's operations. Such scenarios may include prolonged power outages, IT system software or hardware failures, loss of voice or data communication links, acts of terrorism, and outbreak of infectious diseases;

(ii) Business impact analysis: This is an evaluation of the impact of the risks and threat scenarios identified in (i) above. The business impact analysis should identify critical business functions (including support operations and related information technology systems) and potential losses (monetary and non-monetary) to enable the Clearing Member to determine recovery strategies/priorities and recovery time objectives;

(iii) Work area recovery: This refers to continuity arrangements for a Clearing Member's critical functional capabilities in the event that the Clearing Member's primary office becomes inaccessible, for example, availability of a disaster recovery site ready for activation within a reasonable period of time;

(iv) Crisis communications: This refers to a communications plan for the Clearing Member to liaise with its internal and external stakeholders such as employees, customers and regulatory authorities during a crisis;

(v) Roles and responsibilities: This refers to the identification of a Clearing Member's key personnel and management staff, their roles and responsibilities, and reporting lines. Alternates should be identified to cover the responsibilities of absent key personnel.

(vi) Backup for critical functions*, information technology systems and data;

* Critical functions refer to business functions whose failure or disruption may incapacitate the firm.

(vii) Key service providers^: This refers to assessing a Clearing Member's dependencies on key service providers in recovery strategies and recovery time objectives, and taking steps to ensure that key service providers are capable of supporting the Clearing Member's business, even in disruptions;

^ Key service providers refer to third-parties who are performing functions that are not normally carried out by Clearing Members internally, but are critical to the Clearing Member's ability to carry on business operations. For example, IT system hardware/software vendors.

(viii) Outsourcing service providers^#: This refers to assessing whether the service provider has established satisfactory Business Continuity Plans commensurate with the nature, scope and complexity of the outsourced services; and

^# Outsourcing service providers refer to third parties who are performing functions that would normally be performed by Clearing Members internally. For example, Operations and Technology.

(ix) Any other elements that the Clearing Member deems necessary to be included in its business continuity plan or which CDP may prescribe from time to time.

2.2 Emergency Response During Crisis

2.2.1 A Clearing Member should establish and maintain a crisis management plan as part of its business continuity plan. The crisis management plan should include (but not be limited to):

(i) Emergency response procedures;

(ii) Roles and responsibilities of the crisis management team;

(iii) Command and control structures; and

(iv) Salvage and restoration procedures.

2.2.2 CDP may declare a wide-area crisis in the event of a major and widespread incident. When such declaration is made, CDP may require a Clearing Member to submit status reports to CDP. A wide-area crisis may include any incident where the operations of a large number of market participants are disrupted simultaneously.

2.3 Regular Review, Testing and Training

2.3.1 Rule 3.5.4(4) requires a Clearing Member to review and test its business continuity plan regularly. Clearing Members should do so at least once a year to ensure that their business continuity plans remain relevant.

2.3.2 Where there are material changes to a Clearing Member's business activities and operations, the Clearing Member should update its business continuity plan accordingly. Regular training should be conducted for staff to be updated and aware of any relevant changes to the Clearing Member's business continuity arrangements. As a principle, training should be conducted when:

(i) changes have been made to the Clearing Member's BCP; and

(ii) new staff are recruited.

Clearing Members should also conduct refresher courses for existing staff where appropriate.

3. Emergency Contact Persons

3.1 Rule 3.5.4(5) requires a Clearing Member to appoint emergency contact persons and furnish the contact information of such persons to CDP. Clearing Members may appoint an emergency contact person and up to two (2) alternates. A template is attached as Appendix A to this Practice Note for the notification of contact information (postal address, email, telephone, mobile telephone and facsimile numbers) to CDP.

Refer to Appendix A of Practice Note 3.5.4.

3.2 Clearing Members are to ensure that the contact information provided to CDP is updated on a semi-annual basis. Nonetheless, where there are changes to a Clearing Member's emergency contact persons and contact information, the Clearing Member should notify CDP immediately in writing.

3.3 A Clearing Member's authorized emergency contact person should immediately notify CDP in the event where:

(i) A Clearing Member's business operations are or will be significantly disrupted; and/or

(ii) A Clearing Member's business continuity plan is activated.

Appendix A to Practice Note 3.5.4 Business Continuity Management Emergency Contact Person(s)

Please click here here to view Appendix A to Practice Note 3.5.4 Business Continuity Management Emergency Contact Person(s).

Practice Note 3.9.1(3) — Pre-Execution Checks

Issue Date	Cross Reference	Enquiries
Added on 18 September 2012 18 September 2012 and amended on 15 March 2013 15 March 2013.	Rule 3.9.1(3)	Please contact Member Supervision: Facsimile No : 6538 8273 E-Mail Address: membersup@sgx.com

1. Introduction

1.1 This Practice Note explains the parameters and functions which pre-execution checks may contain as contemplated in Rule 3.9.1(3).

2. Pre-Execution Checks

2.1 Rule 3.9.1(3) requires a Clearing Member, in order to clear the trades of a Trading Member, to satisfy CDP that it has in place automated pre-execution risk management control checks to monitor the Trading Member's Exchange Trades and manage its risk exposure to such Exchange Trades. The purpose of this is to prevent overtrading and for credit risk management purposes. The parameters of such pre-execution checks and filters may include but are not limited to:—

(a) dollar limit to control the gross buy and sell value and/or net buy/sell value;

(b) security limit to control the dollar/quantity exposure to each security;

(c) dollar/quantity limit and price limit for each order. This allows for the detection of errors in inputting orders; and

(d) controls to restrict Trading Members to selected markets, order types and securities.

2.2 By way of illustration, pre-execution risk management control functions may include the following:—

(a) the ability to adjust credit or quantity limits in real time during a trading session;

(b) the ability to set permission levels (e.g. access to selected products/ instruments) and suspend the Trading Member during the trading session on a real time basis; and

2.3 Clearing Members will be able to meet the requirement in Rule 3.9.1(3) by being able to directly set and control pre-determined automated limits in the Trading Member's system, having automated alerts whenever such limits are altered, and by conducting regular post-execution reviews of trades. Clearing Members should assess and continue to ensure that the pre-execution risk management control checks are robust on an ongoing basis.

Added on 18 September 2012 18 September 2012 and amended on 15 March 2013 15 March 2013.

Practice Note 3.9.1(6) — Conflicts of Interest

Issue Date	Cross Reference	Enquiries
Added on 18 September 2012 18 September 2012.	Rule 3.9.1(6)	Please contact Member Supervision: Facsimile No : 6538 8273 E-Mail Address: membersup@sgx.com

1. Introduction

1.1 This Practice Note provides guidance on how front office and back office functions of Clearing Members should be separated, in accordance with Rule 3.9.1(6).

2. Separation of Key Functions

2.1 The purpose of separating a Clearing Member's various key functions is to minimise and manage conflicts of interests among these functions.

2.2 Examples of proper separation include:—

(a) the setting and authorising credit limits on customers by senior management staff who are independent of sales and marketing functions, and are not related to the customer in question; and

(b) having adequate separation of management responsibilities e.g the heads of sales, dealing or marketing functions should not have responsibilities over the middle and back office functions of Clearing Members.

2.3 The basis for determining and amending credit limits should be properly documented. Adequate audit trail reports should be maintained to show all changes to credit limits, the date and time of the modifications and the authorised person who approved the changes. In addition, sufficient checks and procedures should be in place to ensure that all limits and parameters set and modified by the credit control administrator are accurate and have been approved.

Added on 18 September 2012 18 September 2012.

Practice Note 3.9.2A, 3.9.3 Procedures to Suspend Qualification of a Trading Member

Issue Date	Cross Reference	Enquiries
Added on 11 January 2011 11 January 2011.	Rule 3.9.2A Rule 3.9.3	Please contact: Member Supervision Facsimile No : 6538 8273 E-Mail Address: membersup@sgx.com Market Control Hotline : 6236 8820

1 Introduction

1.1 Rule 3.9.2A states that a Clearing Member who wishes to suspend its qualification of a Trading Member, shall notify CDP of its decision to suspend its qualification of that Trading Member, and comply with any reasonable direction of CDP in relation to the suspension of the qualification of the Trading Member's Exchange Trades.

1.2 Rule 3.9.3 states that the Clearing Member shall clear and settle all the Exchange Trades of the Trading Member which are done right up to the point when the Trading Member has been disabled from entering Exchange Trades to be qualified by the Clearing Member.

1.3 This Practice Note sets out the operational procedures that a Clearing Member should follow to notify CDP of its decision to suspend its qualification of a Trading Member.

2 Procedures for Suspending A Trading Member

Designated Officers

2.1 Clearing Members shall at all times have at least two Designated Officers whose role is to notify CDP of the Clearing Member's decision to suspend a Trading Member.

2.2 For each Designated Officer, the Clearing Member shall submit to Market Control the Designated Officer's name, identification number, contact details, and a sealed envelop containing authentication information stipulated by Market Control. (For security reasons, the required authentication information will not be published in this Practice Note. Clearing Members are to contact Market Control regarding the required information.)

2.3 Clearing Members must promptly update Market Control of changes in Designated Officers, and any changes to a Designated Officer's information.

Notification of Suspension of Trading Member

2.4 Once a Clearing Member has decided to suspend a Trading Member, the Clearing Member's Designated Officer shall contact Market Control by telephone during trading hours at the Market Control Hotline, 6236 8820, and notify Market Control of the suspension.

2.5 Market Control will verify the identity of the caller by requiring the caller to respond correctly to two authentication questions.

2.6 If the caller is authenticated as the Clearing Member's Designated Officer, Market Control will effect the suspension of the Trading Member. The suspension will be effected within one hour of the authentication of the Designated Officer.

2.7 SGX will suspend the Trading Member's trading access and cancel all open orders for the suspended Trading Member. Market Control will notify the Designated Officer when this is done.

Final Traded Position

2.8 For the purposes of Rule 3.9.3, the Clearing Member shall accept the Trading Member's final traded position as stated in the trade report produced by SGX.

2.9 For clarifications, the Clearing Member may contact CDP Client Services at 6236 8250.

Added on 11 January 2011 11 January 2011 and amended on 15 September 2017 15 September 2017 and 3 June 2019 3 June 2019.

Practice Note 5A.2.1, 5A.2.2 — Position Account Reporting

Issue Date	Cross Reference	Enquiries
Added on 1 July 2016 1 July 2016 and amended on 3 June 2019 3 June 2019.	Rules 5A.2.1, 5A.2.2.	Please contact Member Supervision: Facsimile No : 6538 8273 Please contact Risk Management: Facsimile No : 6532 0297 E-Mail Address: rm-securities@sgx.com

1. Introduction

1.1. Rule 5A.2.1 requires each Clearing Member to report to CDP such information as CDP may require for each Position Account opened with CDP as soon as practicable, and in any event, no later than such time as may be required for timely and orderly settlement of the first trade cleared by the Clearing Member for the Customer into the intended Securities Account. In addition, Rule 5A.2.2 requires each Clearing Member to report to CDP any change in information previously reported to CDP for any Position Account as soon as practicable.

1.2. This Practice Note provides guidance on some of the types of information in relation to Position Accounts that are to be reported to CDP under Rule 5A.2.1.

1.3. This Practice Note also provides guidance on the timelines within which reporting of Position Account information and reporting of changes in Position Account information are to be completed by.

1.4 The terms "Trading Representative" and "Remisier" as used in this Practice Note shall have the meanings as ascribed to them in the SGX-ST Rules.

2. Type of Information

2.1. Each Clearing Member shall report to CDP such information as CDP may require in relation to Position Accounts. The information required may be communicated by CDP to Clearing Members through technical specifications or other mediums as CDP may determine.

2.2 For the following types of information, each Clearing Member shall report in accordance with the criteria set out in the tables below:

(a) Origin

Description of origin	Criteria
Customer	The origin of a Position Account shall be reported as "Customer" if the Position Account holder is a customer, as defined in Part III of the Securities and Futures (Licensing and Conduct of Business) Regulations.
House	The origin of a Position Account shall be reported as "House" if the Position Account holder is neither a customer, as defined in Part III of the Securities and Futures (Licensing and Conduct of Business) Regulations, nor a Remisier, as defined in the SGX-ST Rules.
Remisier of the Member	The origin of a Position Account shall be reported as "Remisier" if the Position Account holder is a Remisier of the member, as defined in SGX-ST Rules.

(b) Ownership Type

Description of origin	Criteria
SGX Member	The ownership type of the account shall be reported as "SGX Member" if the account holder is the Clearing Member itself.
Individual Person	The ownership type of the account shall be reported as "Individual Person" if the account holder is an individual, except where such individual is an officer, employee, non-executive director or Trading Representative of the Clearing Member. This value shall be used for joint accounts of two or more individuals, except where any party to the account is an officer, employee, non-executive director or Trading Representative of the Clearing Member.
Officers and employees of the Member (excluding Trading Representatives)	The ownership type of the account shall be reported as "Officers and employees of Member (excluding Trading Representatives)" if the account holder is (a) a Chief Executive Officer of the Clearing Member (regardless of whether such approved executive director is a Trading Representative); or (b) an officer or employee of the Clearing Member, but not a Trading Representative of the Clearing Member.
Non-executive Director of Member	The ownership type of the account shall be reported as “Non-executive Director of Member” if the account holder is a non-executive director of the Clearing Member.
Trading Representative of Member – Remisier	The ownership type of the account shall be reported as "Trading Representative of Member – Remisier" if the account holder is a Remisier of the Clearing Member.
Trading Representative of Member – non-Remisier	The ownership type of the account shall be reported as "Trading Representative of Member – non-Remisier" if the account holder is a Trading Representative of the Clearing Member and not a Remisier of the Clearing Member.
Related Entity	The ownership type of the account shall be reported as "Related Entity" if the account holder is a related entity of the Clearing Member. "Entity" here includes corporates, unincorporated societies/associations, trusts, partnerships and limited liability partnerships, but excludes statutory boards and government bodies.
Non-Related Entity	The ownership type of the account shall be reported as "Non-Related Entity" if the account holder is an entity that is not a Related Entity. "Entity" here includes corporates, unincorporated societies/associations, trusts, partnerships and limited liability partnerships, but excludes statutory boards and government bodies.
Statutory Board/ Government Body	The ownership type of the account shall be reported as "Statutory Board/Government Body" if the account holder is a statutory board or government body, including those of a foreign jurisdiction.

3. Manner of reporting to CDP

3.1. Each Clearing Member shall report to CDP such information as CDP may require in relation to Position Accounts in such manner as may be determined by CDP.

4. Timelines for Position Account reporting

4.1. Each Clearing Member is required to perform the obligations required under Rule 5A.2.1 as soon as practicable, and in any event, no later than such time as may be required for timely and orderly settlement of the first trade cleared by the Clearing Member for the Customer into the intended Securities Account. Each Clearing Member is also required to perform the obligations required under Rule 5A.2.2 as soon as practicable.

4.2. For Rule 5A.2.1, each Clearing Member shall report to CDP such information as CDP may require for a Position Account opened with CDP before the Clearing Member first clears a trade for the relevant Position Account holder.

4.3. For Rule 5A.2.2, each Clearing Member shall report to CDP any change in information previously reported to CDP for any Position Account by the end of the next Market Day from the time when the Clearing Member receives notice of the change. If there is a delay, the Clearing Member shall ensure that there are valid reasons to explain the delay. An example of a valid reason for delay includes when the customer has first notified the Clearing Member of a change in information, but fails to provide sufficient or complete information in time for the Clearing Member to update the change in information by the required time, and such delay is not due to the Clearing Member's negligence and/or other internal control weaknesses.

Practice Note 5A.3.1, 5A.3.4 — Position Account Allocation

Issue Date	Cross Reference	Enquiries
Added on 1 July 2016 1 July 2016 and amended on 10 December 2018 10 December 2018.	Rules 5A.3.1, 5A.3.4.	Please contact Member Supervision: Facsimile No: 6538 8273

1. Rule 5A.3.1 requires each Clearing Member to allocate the position of each trade cleared by the Clearing Member for a Customer to that Customer's Position Account or in accordance with that Customer's instructions, as soon as practicable, and in any event no later than such time as may be required for timely and orderly settlement of the relevant trade into the intended Securities Account. This Practice Note provides guidance on the timelines within which such allocation is to be completed by in various circumstances.

2. With the exception of warehoused trades, each Clearing Member shall allocate the position of each trade cleared by the Clearing Member for a Customer to that Customer's Position Account or in accordance with that Customer's instructions immediately upon the trade being cleared, or at the latest by the end of the next Market Day immediately following the trade date.

3. For warehoused trades under Rule 5A.3.4, each Clearing Member shall ensure that no trades are warehoused for more than one Market Day, unless under exceptional circumstances. Each Clearing Member shall allocate the position of each trade to the relevant Customer's Position Account or in accordance with that Customer's instructions, immediately after the order is completed, or at the latest by the end of the Market Day on which the order is completed.

Practice Note 5A.4.2, 5A.4.3 — Requirement for Clearing Member to Ensure Compliance of Position Account Rules by Authorized Trading Member

Issue Date	Cross Reference	Enquiries
Added on 1 July 2016 1 July 2016.	Rules 5A.4.2., 5A.4.3.	Please contact Member Supervision: Facsimile No: 6538 8273

1. Rules 5A.4.2 and 5A.4.3 requires a Clearing Member who authorizes an Authorized Trading Member to open and maintain Authorized Accounts, or to open, maintain and allocate positions to Authorized Accounts, to ensure that the Authorized Trading Member performs the relevant obligations in relation to the Authorized Accounts.

2. There may be circumstances where a Clearing Member is unable to directly ensure that its Authorized Trading Member performs the relevant obligations in relation to the Authorized Accounts in compliance with Rules 5A.1 and 5A.2 or with Rules 5A.1, 5A.2, 5A.3 and 5A.6 (as may be applicable). This Practice Note clarifies the expectations on the Clearing Member in such circumstances.

3. Where a Clearing Member is unable to directly ensure that its Authorized Trading Member complies with the above-mentioned rules, the Clearing Member is to implement reasonable measures to ensure that the Authorized Trading Member complies with the relevant rules. The following are non-exhaustive examples of the steps which the Clearing Member should take:

a. The Clearing Member should ensure that the Authorized Trading Member is aware of its obligations relating to Authorized Accounts under the Rules and under the SGX-ST Rules.

b. The Clearing Member should obtain an undertaking from the Authorized Trading Member stating that the Authorized Trading Member will put in place adequate internal controls and processes to comply with all rules relating to Authorized Accounts.

Practice Note 6.5.1B(2), 6.6.2, 6.7.11 and 8.2.2(3E) — Determination of Cash Settlement Amount

Issue Date	Cross Reference	Enquiries
Added on 10 December 2018 10 December 2018.	Rules Rule 6.5.1B(2), 6.6.2, 6.7.11, 8.4.1A, 8.5.2A, 8.6F.2.	Please contact Clearing Ops: E-Mail Address: securitiesclearing@sgx.com

Cash settlement under Rules 6.5.1B(2), 6.7.11 and 8.2.2(3E)

1. Under Rules 6.5.1B(2), 6.7.11 and 8.2.2(3E), CDP has the power to cash settle an obligation to deliver or a right to receive securities in respect of a Novated Contract in whole or in part.

2. The monetary sum to be paid or received pursuant to such cash settlement shall be as set out in this Practice Note.

3. When a Novated Contract for the sale of securities (a "Sell Contract"), or any part of it, is cash settled, a Novated Contract for the purchase of securities (a "Buy Contract"), or such part of it, comprising the same number of securities, will be correspondingly cash settled. In addition, a Buy Contract, or part of it, may be cash settled when there is an Event of Default in respect of the Clearing Member that is responsible for the corresponding Sell Contract.

4. Unless otherwise specified by CDP, the Cash Settlement Amount for both the Sell Contract and the Buy Contract, if applicable, will be the number of securities to be cash settled multiplied by:

(a) the highest of:

(i) the selling price of the trade that gave rise to the Sell Contract;

(ii) the purchase price of the trade that gave rise to the Buy Contract;

(iii) the following as may be applicable:

(I) for shares: 120% of the latest closing price;

(II) for rights and company warrants: 120% of the latest closing price of the underlying security, less the exercise price, taking into account the conversion ratio;

(III) for structured warrants: 120% of the final settlement value; or

(b) such other price, based on such methodology, as CDP shall in its discretion determine.

Cash settlement under Rule 6.6.2

5. Under Rule 6.6.2, CDP has the power to cash settle an obligation to deliver securities in respect of a Novated Contract, in whole or in part.

6. The monetary sum to be paid pursuant to such cash settlement shall be a fair and appropriate sum as determined by CDP.

Amended on 6 September 2021.

Practice Note 6.5.1B(2) — Priority Considerations when Selecting Buy Trades to Cash Settle

Issue Date	Cross Reference	Enquiries
Added on 10 December 2018 10 December 2018.	Rule 6.5.1B(2).	Please contact Clearing Ops: E-Mail Address: securitiesclearing@sgx.com

1. Rule 6.5.1B(2) states that on any Settlement Day, if and to the extent that the securities available to CDP are insufficient for CDP to settle its delivery obligations in respect of Novated Contracts that are due for settlement on that Settlement Day, CDP may cash settle any of those delivery obligations in whole or in part.

2. This Practice Note sets out the general principles CDP may consider when deciding which buy trade(s) to cash settle when there are insufficient securities available to CDP to settle its delivery obligations.

3. The general principle that CDP considers in selecting which buy trade(s) to cash settle is to minimise knock-on impact and reduce risk to CDP's clearing facility. In particular, the factors that CDP considers, in decreasing order of priority, include the following:

(a) Whether CDP has been informed of any onward sell trade in respect of the buy trade, in which case that buy trade will not be selected for cash settlement.

(b) Age of the buy trade, generally giving priority to the oldest buy trade.

(c) Quantity of securities in the buy trade, generally giving priority to the buy trade with the largest quantity of securities.

4. With respect to paragraph 3(a) above, Clearing Members should immediately inform CDP of any onward sell trade when so informed by a Customer.

Practice Note 6.6A.1 [Rule has been deleted.]

Deleted on 21 January 2013 21 January 2013.

Appendix A to Practice Note 6.6A.1 [Rule has been deleted.]

Deleted on 21 January 2013 21 January 2013.

Practice Note 6.7.2(1A), 6.7.4(8), 6.7.7A and 6.7.11 — Buying-in, Procurement and Cash Settlement if Intended Settlement Day is Day with Half Day Trading

Issue Date	Cross Reference	Enquiries
Added on 10 December 2018 10 December 2018.	Rule 6.7.2(1A), Rule 6.7.4(8), Rule 6.7.7A and Rule 6.7.11.	Please contact Clearing Ops: E-Mail Address: securitiesclearing@sgx.com

1. Rule 6.7.2(1A) states that subject to Rule 6.7.12(1), buying-in in respect of a Novated Contract will commence on the Intended Settlement Day of the Novated Contract.

2. Rule 6.7.4(8) states that subject to Rule 6.7.12(1), if securities to be bought-in are not bought-in on the first day scheduled for buying-in and unless the securities are withdrawn from buying-in or the short Clearing Member makes the securities available for delivery to CDP by such time as specified by CDP on the following Market Day, the buying-in shall continue on the following Market Day.

3. Rule 6.7.7A states that subject to Rule 6.7.12(1), if securities to be bought-in are not bought-in by the second day scheduled for buying-in, the short Clearing Member shall procure the securities.

4. Rule 6.7.11 states that if a Clearing Member's obligation to deliver securities remains outstanding on the fifth (5^th) Settlement Day (or such other number of Settlement Days as CDP may specify) after delivery is due, CDP shall, on the next Settlement Day, cash settle the Clearing Member's delivery obligation.

5. This Practice Note clarifies the timelines for buying-in, procurement and cash settlement in respect of those Novated Contracts with Intended Settlement Days that fall on a day with half day trading.

6. Where the Intended Settlement Day of a Novated Contract falls on a day with half day trading, there will be no buying-in conducted on the first day scheduled for buying-in (i.e. the Intended Settlement Day). Any buying-in will be conducted only on the second day scheduled for buying in (i.e. the Market Day following the Intended Settlement Day). There shall only be one day of buying-in.

7. If the securities to be bought-in are not bought-in by that day, the short Clearing Member shall procure the securities, whether by transacting on the ready market or otherwise, to discharge its delivery obligation.

8. If the short Clearing Member's obligation to deliver securities remains outstanding on the fifth (5th) Settlement Day (or such other number of Settlement Days as CDP may specify) after the Intended Settlement Day, CDP shall, on the next Settlement Day, cash settle the Clearing Member's delivery obligation.

9. This Practice Note does not limit CDP's discretion with regard to buying-in, procurement and cash settlement, as provided in the Rules.

Practice Note 6A.5.2 Calculation of Amount of Clearing Member Required Margins

Issue Date	Cross Reference	Enquiries
Added on 21 January 2013 21 January 2013 and amended on 14 September 2017 14 September 2017, 10 December 2018 10 December 2018 and 21 October 2019 21 October 2019.	Rule 6A.5.2	Please contact Clearing Risk: Facsimile No : 6532 0297 E-Mail Address: margins@sgx.com

1 Introduction

1.1. This Practice Note sets out the procedures pursuant to Rule 6A.5.2, for the calculation of the amount of Clearing Member Required Margins that a Clearing Member must deposit with CDP.

2 Composition of Clearing Member Required Margins

2.1. Pursuant to Rule 6A.5.1, a Clearing Member is required to deposit Clearing Member Required Margins with CDP by such time as CDP prescribes.

2.2. Clearing Member Required Margins comprise margin requirements in respect of Marginable Futures Contracts and Novated Contracts other than Marginable Futures Contracts.

2.3. The procedures for the calculation of margin requirements in respect of Marginable Futures Contracts and Novated Contracts other than Marginable Futures Contracts differ, and their respective procedures are set out in this Practice Note.

3 Calculation of Clearing Member Required Margins for Novated Contracts other than Marginable Futures Contracts

3.1. The Clearing Member Required Margins for Novated Contracts other than Marginable Futures Contracts cannot be met by collateral belonging to customers of the Clearing Member, as defined under the SFA in relation to Part 3 of the SFA.

Calculation of Clearing Member Maintenance Margins for Novated Contracts other than Marginable Futures Contracts

3.2. The Clearing Member Maintenance Margins for Novated Contracts other than Marginable Futures Contracts is calculated based on the Valuation Price of securities in the Novated Contracts.

3.3. The Clearing Member Required Margins that a Clearing Member is required to place for Novated Contracts other than Marginable Futures Contracts is calculated with reference to all outstanding settlement obligations of such Clearing Member. The calculation methodology is set out below:

3.3.1. A margin rate will be applied on the Clearing Member's Aggregate Net Buy Position or Net Sell Position, whichever is higher.

3.3.2. The Clearing Member's Aggregate Net Buy Position or Aggregate Net Sell Position are derived by:

a) calculating the value of the Clearing Member's buy and sell positions in each security which have not been settled, based on the Valuation Price and quantity of securities in the buy and sell trades;

b) in respect of each security, netting the total value of the Clearing Member's buy positions, against the total value of its sell positions to arrive at a net buy value or a net sell value in respect of that security;

c) aggregating the net buy values and the net sell values separately in respect of all of the Clearing Member's unsettled Novated Contracts to arrive at the Aggregate Net Buy Position and Aggregate Net Sell Position. The net buy value for a security with an inverse payoff function (for example, put warrant and inverse ETFs) will be treated as a net sell value for aggregation purpose. Conversely, its net sell value will be treated as a net buy value.

3.3.3. Sell transactions for which the Clearing Member has not made available the required number of shares for delivery and therefore failed to deliver on Intended Settlement Day, will be included in the aggregation process set out in paragraph 3.3.2.

3.3.4. Presently, CDP clears securities denominated in Singapore Dollars, as well as the following foreign currencies: Australian Dollars, Chinese Yuan, US Dollars, Euros, British Pounds and Hong Kong Dollars. For the purpose of determining the Aggregate Net Buy Position and Aggregate Net Sell Position, CDP will convert net buy values and net sell values into a common currency for aggregation.

3.3.5. The margin rate comprises two components:

a) base rate calculated based on the volatility of the FTSE Straits Times Index; and

b) mark-up rate calculated based on the volatility of relevant indices of the Singapore securities market, subject to a minimum of 0.5%.

3.3.6. The margin rate is reviewed regularly by CDP and the applicable margin rate will be published on SGX's website.

3.3.7. CDP may prescribe higher margin rates in respect of specific securities that exhibit higher volatility or unusually high trading value to cover their potential future price fluctuations.

Calculation of Clearing Member Variation Margins for Novated Contracts other than Marginable Futures Contracts

3.4. Novated Contracts other than Marginable Futures Contracts are individually marked-to-market in order to determine the Clearing Member Variation Margins. The marked-to-market gain or loss of each Novated Contract is calculated based on the difference between the Valuation Price of the security of the Novated Contract and the price at which the Novated Contract is bought and sold, as well as the quantity of securities in the Novated Contract.

3.5. The marked-to-market gains and losses of a Clearing Member's Novated Contracts are aggregated to determine its Clearing Member Variation Margins:

Clearing Member Variation Margins = Sum of (Valuation Price − Traded Price) × (buy quantity − sell quantity) of securities in each Novated Contract across all unsettled Novated Contracts of the Clearing Member

Positive results are Clearing Member Variation Margin gains. Negative results are Clearing Member Variation Margin losses.

3.6. Clearing Member Variation Margins will be collateralised. This means that:

a) Mark to market losses must be met by depositing acceptable collateral with CDP; and

b) Mark to market gains will not paid out by CDP, but will be used to offset Clearing Member Maintenance Margins.

3.7. The Clearing Member Variation Margins is calculated separately for Marginable Futures Contracts and Novated Contracts other than Marginable Futures Contracts. Mark to market gains for Novated Contracts other than Marginable Futures Contracts cannot be used to offset margin requirements for Marginable Futures Contracts, and vice versa.

Calculation of Clearing Member Required Margins for Novated Contracts other than Marginable Futures Contracts

3.8. The Clearing Member Required Margins for Novated Contracts other than Marginable Futures Contracts is the sum of the Clearing Member Maintenance Margins and Clearing Member Variation Margins for such Novated Contracts: Clearing Member Required Margins = Maximum of (Clearing Member Maintenance Margins − Clearing Member Variation Margins, 0)

3.9. Clearing Member Variation Margins gains decrease the Clearing Member Required Margins and Clearing Member Variation Margins losses increase the Clearing Member Required Margins.

3.10. Where the Clearing Member Variation Margins is greater than the Clearing Member Maintenance Margins, the Clearing Member Required Margins is zero. This means the Clearing Member's Maintenance Margins is fully met through its Clearing Member Variation Margins gains.

3.11. Clearing Member Variation Margins will reset to zero when all outstanding positions are settled.

Examples

3.12. An example of the calculation of Clearing Member Maintenance Margins for Novated Contracts other than Marginable Futures Contracts is set out below.

Clearing Member Maintenance Margins for Novated Contracts other than Marginable Futures Contracts

• Calculation of Maintenance Margin ("MM") requirement

• Hypothetical member's outstanding positions for cash securities (in S$),

• Clearing Member MM requirements = S$12,000 × Maintenance Margin Rate

3.13. An example of the calculation of Clearing Member Variation Margins for Novated Contracts other than Marginable Futures Contracts is set out below.

Clearing Member Variation Margins for Novated Contracts other than Marginable Futures Contracts

• Calculation of Clearing Member Variation Margins ("VM")

• This VM gains will be collateralized (ie not paid out by CDP), and can be used to meet Clearing Member's Maintenance Margin requirements.

3.14. An example of the calculation of Clearing Member Required Margin for Novated Contracts other than Marginable Futures Contracts is set out below.

Clearing Member Required Margins for Novated Contracts other than Marginable Futures Contracts

• Clearing Member Required Margins = Higher of [ (Maintenance Margin − Variation Margin), 0 ]

• Examples of Clearing Member Required Margins (in S$). Assume margin rate = 5%

4 Calculation of Clearing Member Required Margins for Marginable Futures Contracts

Calculation of Clearing Member Required Margins for Marginable Futures Contracts

4.1. The Clearing Member Required Margin for Marginable Futures Contracts is calculated on a gross basis with reference to all accounts carried by the Clearing Member, by aggregating the margin requirements for all such accounts. In addition, Marginable Futures Contracts that fail to settle on the Intended Settlement Day are added to the Clearing Member Required Margin in respect of House Accounts.

Calculation of Clearing Member Maintenance Margin for Marginable Futures Contracts

4.2. The calculation methodology is set out below:

4.2.1. An outright margin rate and a spread margin rate are determined for each underlying security of Marginable Futures Contract. A delivery margin rate is determined for each contract month of Marginable Futures Contract.

4.2.2. The relevant outright margin rate for each underlying security is based on the volatility for the price of the corresponding Marginable Futures Contracts.

4.2.3. The relevant spread margin rate for each underlying security is based on the volatility for the spread differential between different contract months of the corresponding Marginable Futures Contracts.

4.2.4. The margin rates are reviewed regularly by CDP and the applicable margin rates will be published on SGX's website.

Calculation of Clearing Member Maintenance Margin in respect of a single account

4.3. The outright margin requirement for each underlying security for each account is determined by multiplying the net buy or sell quantity across all contract months by the valuation price and outright margin rate of the underlying security.

4.4. The spread margin requirement for each underlying security for each account is determined as follows:

a) determine net position in each contract month by netting the total quantity of securities in outstanding buy contracts against total quantity of securities in outstanding sell contracts to obtain net long position or net short position in the contract month;

b) aggregate the net positions across all contract months with net long positions to obtain gross long position and gross short position;

c) determine the number of spreads formed by taking the minimum of gross long and gross short positions; and

d) determine spread margin requirement by multiplying the number of spreads formed by spread margin rate and valuation price of the underlying security.

4.5. The Clearing Member Maintenance Margin in respect of an account is the sum of outright margin requirement and spread margin requirement of each underlying security across all underlying securities of Marginable Futures Contracts in unsettled contracts held in the account.

Calculation of Clearing Member Variation Margin in respect of a single account

4.6. The Clearing Member Variation Margin for each account is calculated based on the difference between the Valuation Price of such Marginable Futures Contracts and the price at which such Marginable Futures Contracts are bought and sold, in accordance with the methodology below:

Clearing Member Variation Margins for each account = Sum of (Valuation Price − Traded Price) × (buy quantity − sell quantity) of securities in each unsettled Marginable Futures Contract across all unsettled Marginable Futures Contracts in the account

4.7. Mark to market gains will not be paid out, but can be used to offset the Clearing Member Maintenance Margins for the same account.

Calculation of Clearing Member Required Margin

4.8. The Clearing Member Maintenance Margin and Clearing Member Variation Margin for each account are aggregated to arrive at the Clearing Member Required Margin for the account, in accordance with the formula below:

Clearing Member Required Margin = Maximum of (Clearing Member Maintenance Margin − Clearing Member Variation Margin, 0)

4.9. The Clearing Member Required Margin for each Customer Account is aggregated across all Customer Accounts of the Clearing Member.

Clearing Member Required Margin for Customer Accounts = Sum of Account Required Margin across all Accounts of the Clearing Member

4.10. The Clearing Member Required Margin for each House Account is aggregated across all House Accounts of the Clearing Member.

Clearing Member Required Margin for House Accounts = Sum of Account Required Margin across all House Accounts of the Clearing Member

Amended on 18 January 2022.

Practice Note 6A.6 Forms of Collateral Acceptable by CDP as Margins

Issue Date	Cross Reference	Enquiries
Added on 21 January 2013 21 January 2013 and amended on 29 July 2013 29 July 2013.	Rule 6A.6	Please contact Clearing Risk: Facsimile No : 6532 0297 E-Mail Address: margins@sgx.com

1 Introduction

1.1. This Practice Note sets out the forms of collateral that CDP accepts as margins.

2 Forms of Monies and Assets Acceptable by CDP as Margins

2.1. Rule 6A.6.1 states, among other things, that CDP accepts the following forms of monies and assets as margins:

a) cash

b) Singapore and US government securities, and

c) selected common stocks, units of listed business trusts and units of real estate investment trusts.

Cash

2.2. Cash denominated in Singapore Dollars and US Dollars are accepted as collateral.

Singapore and US government securities, and selected common stocks

2.3. Singapore and US government debt securities of varying maturities are acceptable as collateral.

2.4. CDP also accepts constituent stocks of the MSCI Singapore Free Index and FSSTI Index as collateral. This may include units of listed business trusts and units of real estate investment trusts.

3 Collateral is subject to appropriate hair-cuts

3.1. The collateral, referred to in paragraph 2, are subjected to appropriate hair-cuts as prescribed by CDP to reflect the price risk of the collateral.

3.2. The haircuts for government securities are available on the SGX website
http://www.sgx.com/wps/portal/sgxweb/home/clearing/securities/acceptable_collaterals.

Practice Note 6A.9A — Additional Margins

Issue Date	Cross Reference	Enquiries
Added on 21 January 2013 21 January 2013 and amended on 8 August 2016 8 August 2016 and 15 September 2017 15 September 2017.	Rule 6A.9A	Please contact Risk Management: rm-securities@sgx.com

1 Introduction

1.1 Rule 6A.9A.1 states that in relation to Novated Contracts, CDP may call for additional margins from one or more Clearing Members in the following situations:

(1) when, in CDP's opinion, unstable conditions exist or market conditions or price fluctuations relating to one or more securities or Futures Contracts at any time require additional margins to maintain an orderly market or to preserve financial integrity or for any other reason;

(2) when CDP believes that any Clearing Member is carrying exposure that:

(a) is larger than is justified by the financial condition of that Clearing Member; or

(b) places or may place CDP at risk;

(3) where the Clearing Member is found to have a record of frequent rule violations or inadequate or unsound management or serious operational defects which, in CDP's opinion, places or may place CDP at risk; or

(4) where market conditions or price fluctuations are such that CDP deems it necessary, to call upon the Clearing Members whom it believes are affected by such conditions or fluctuations to deposit additional funds.

1.2 The objective of additional margin requirements is to provide greater assurance that specific risks which may potentially not be captured under CDP's margin setting methodologies are appropriately accounted for and collateralised for a safer and more robust clearing system.

1.3 CDP conducts daily stress testing of Clearing Members' positions under a comprehensive range of stressed scenarios, to monitor Clearing Members' exposures and to ascertain the adequacy of the CDP Clearing fund. In addition, as part of its continuing risk management process, CDP monitors news and developments which may affect Clearing Members, and conducts risk-based inspections on Clearing Members' risk and credit management practices.

1.4 In the event that any of the circumstances specified in paragraph 1.1 ("Specified Circumstances") exist, CDP may impose additional margin requirements. Such additional margin requirements will typically be one of the following:

(1) Concentration risk add-on;

(2) Default Fund risk add-on;

(3) Credit risk add-on; or

(4) Specific Security risk add on.

1.5 This Practice Note provides guidance on the additional margin requirements set out in paragraph 1.4.

2 Concentration risk add-on

2.1 CDP may impose a concentration risk add-on if the Clearing Member's portfolio is concentrated in a security.

2.1.1 For guidance, a Clearing Member portfolio is deemed to be concentrated in a security if its net Mark-to-Market (MTM) buy or sell value in that security is more than 10% of its Aggregate (across all securities) net MTM buy or sell value respectively.

2.1.2 The concentration risk add-on is imposed as a percentage add-on to a Clearing Member's maintenance margin requirements. The add-on would typically be up to 50%, but deviations may occur depending on factors such as the risk profile of the security, the concentration level of the portfolio in that security, and the side (buy or sell) that is used to compute the portfolio maintenance margin.

2.1.3.A Clearing Member will be notified if concentration margin add-on is to be imposed. The concentration add-on will be effective until such time that trades are settled and CDP considers that there is no longer any undue concentration risk in the Clearing Member's portfolio. CDP may impose the add-on as early as the next clearing cycle after the Clearing Member is notified.

3 Default Fund risk add-on

3.1 CDP may impose a default fund risk add-on for Clearing Members with significant potential tail risk exposure under CDP's stress testing regime.

3.2 CDP conducts stress testing of Clearing Members' outstanding positions in line with CPMI-IOSCO¹ and other global best practice standards to assess Clearing Fund adequacy. CDP applies a comprehensive range of stressed scenarios and provides sufficient resources to cover the simultaneous default of the Clearing Member and its affiliated Clearing Members with the largest aggregate loss ("Top 1"), and two other financially weakest Clearing Members ("Weak 1", "Weak 2"). CDP also simulates its obligation to settle outstanding cash trades with the direct customers of the Clearing Member should the Clearing Member default ("re-novation"). Stress testing is performed at every end of day, as well as intraday.

3.2.1 While stress testing focuses on the mutualized resources to cover a default of the Top 1, Weak 1 and Weak 2, CDP would also want to secure appropriate amount of resources from an individual Clearing Member with significant potential tail risk exposure. This provides a balance between mutualization and the defaulter pay principle.

3.2.2 CDP may require this additional margin to be deposited with CDP not later than the day after the trades are executed or reported to SGX-ST.

3.2.3 To provide Clearing Members with more time to prepare any necessary funding arrangements to meet the higher margin requirements, Clearing Members are encouraged to engage CDP early on potential additional margin requirements if they expect significant traded values or large direct business transactions that may result in unusually large potential stress test exposures.

3.2.4 For early engagement with CDP, Clearing Members should notify CDP when their aggregated 3-day gross buy value or gross sell value, whichever is higher, is expected to exceed S$500 mil or any figure that may be communicated by CDP.

3.2.5 For guidance, the potential tail risk exposure is the worst loss estimated from different stressed scenarios, net of margins and any add-ons. The potential tail risk exposure is considered to be significant if:

(a) the potential tail risk exposure of any Clearing Member and its affiliated Clearing Members (“Member Group”) exceeds a percentage (a threshold as determined by SGX) of CDP Clearing Fund resources ("Threshold 1"); or

(b) the aggregate potential tail risk exposure of any Member Group, together with Weak 1 and Weak 2, exceeds a percentage (a threshold as determined by SGX) of CDP Clearing Fund resources ("Threshold 2"). Threshold 2 will be higher than Threshold 1² .

3.2.6 CDP will determine the quantum of the default fund risk add-on based on the potential tail risk exposure from each Clearing Member relative to each of the two thresholds, as described below:

• In respect of Threshold 1, the applicable add-on for a Member Group is equal to the difference between its potential tail risk exposure and Threshold 1;

• In respect of Threshold 2, the total applicable add-on is equal to the difference between (i) the potential tail risk exposure aggregated across the Member Group, Weak 1 and Weak 2, (provided the Member Group does not include Weak 1 or Weak 2) after offsetting any add-on arising from Threshold 1, and (ii) Threshold 2. The applicable add-on is then allocated to the Member Group, Weak 1 and Weak 2 proportional to their exposure; and

• The add-on for a Clearing Member is equal to the sum of its applicable add-on arising from Threshold 1 and/or Threshold 2. CDP may at its sole discretion not impose on Weak 1 or Weak 2 the add-on if it is not significant.

3.2.7 An illustration of the calculation is provided at the end of this Practice Note.

4 Credit risk add-on

4.1 CDP may impose a credit risk add-on if there are concerns regarding the liquidity, solvency or credit-worthiness of a Clearing Member. Indicators of potential heightened credit risk posed by a Clearing Member includes, without limitation:

(a) deterioration in the credit standing of the Clearing Member as assessed through SGX's internal credit risk rating model, downgrading of the credit rating or credit outlook of the member or its parent/affiliates by external credit agencies, widening credit default swaps of the member or its parent/affiliates;

(b) adverse market sentiments/news on the Clearing Member or its parent/affiliate or when CDP believes the Clearing Member or its parent/affiliate may be adversely affected by unstable market conditions or price fluctuations which CDP deems a concern;

(d) in CDP's view, there is an increase in the Clearing Member's risk exposure, for example, increased operational risk due to unsound risk or credit practices or exceptional large non-SGX exposures, that potentially places CDP at greater risk; and

(e) other specific issues or concerns relating to the Clearing Member, which may arise from CDP's on-site inspection, the Authority's audit findings; or frequent rule violations committed by the Clearing Member.

4.2 For guidance, the quantum of the credit risk add-on for Clearing Members will be determined by considering the following:

(a) for a Clearing Member with credit standing CDP deems equivalent to B rating and below (based on the indicators described in paragraph 4.1 of this Practice Note), the quantum is equal to the difference between the member's potential tail risk exposure and a threshold. This threshold³ will be determined by SGX, as a percentage of actual CDP Clearing Fund resources and will be lower than the Threshold 1 described in paragraph 3.2.5 of this Practice Note; and

(b) the Clearing Member's available financial resources, prevailing market conditions, the size of Clearing Member's positions.

5 Specific security add-on

5.1 CDP may impose a specific security add-on if there are concerns that trading in the security may be unfair or disorderly. This includes, without limitation:

(a) where there is news that may have a significant impact on its market price (e.g. irregular practices in the listed company); or

(b) where the security is declared a designated security in accordance with SGX-ST Rule 8.8.

5.2 In determining whether a specific security add-on is warranted, CDP will take into account all relevant factors, including the following:

(a) trading value of the security relative to total traded value; and

(b) observable or expected price volatility of the security.

5.3 The Margin Circular issued by CDP will indicate the list of securities that will be margined at different rates. In respect of changes arising from an ad-hoc review arising from exceptional events, CDP will give Clearing Members at least a 1-day notice period before applying the specific security margin.

ILLUSTRATION ON THE CALCULATION OF THE DEFAULT FUND RISK ADD-ON

Assumptions:

(i) Actual Clearing Fund resource is $100.

(ii) Assume SGX assigns percentages of 70% and 90% to Threshold 1 and Threshold 2 respectively.

Threshold 1: 70% x 100 = 70 (Any Member Group)

Threshold 2: 90% x 100 = 90 (Any Member Group + Weak 1 + Weak 2)

Example 1—Add-on applies to a Member Group X only

Assume only one stress testing scenario generates exposure that exceed the thresholds,

• Exposure (X + Weak 1 + Weak 2) = 85

• Exposure (X) = 80

• Exposure (Weak 1) = 5

• Exposure (Weak 2) = 0

		Loss exceeds threshold		Potential add-on
	Loss	Threshold 1	Threshold 2	Threshold 1	Threshold 2
X + Weak 1 + Weak 2	85		No
X	80	Yes		80-70=10
Weak 1	5	No
Weak 2	0	No

• Therefore, credit risk add-on of 10 applies to Member Group X only.

Example 2—Add-on applies to a Member X, and Weak 1 and Weak 2 by apportionment Assume only one stress testing scenario generates exposure that exceed the thresholds,

• Exposure (X + Weak 1 + Weak 2) = 95

• Exposure (X) = 65

• Exposure (Weak 1) = 15

• Exposure (Weak 2) = 15

		Loss exceeds threshold		Potential add-on
	Loss	Threshold 1	Threshold 2	Threshold 1	Threshold 2
X + Weak 1 + Weak 2	95		Yes		95-90=5
X	65	No
Weak 1	15	No
Weak 2	15	No

• Therefore, credit risk add-on of 5 applies to (Member Group X + Weak 1 + Weak 2). The add-on for each of the three members will be proportionate to their share of the aggregate exposure.

• For X, add-on = 65/(65+15+15)*5 = 3.5

• For Weak 1, add-on = 15/(65+15+15)*5 = 0.8

• For Weak 2, add-on = 15/(65+15+15)*5 = 0.8

¹ Principles for Financial Market Infrastructures issued by the Committee on Payments and Market Infrastructure (CPMI) and the Technical Committee of the International Organization of Securities Commissions (IOSCO).

² Threshold 1 and 2 is currently defined as 70% and 90% respectively, but may be revised from time to time.

³ The threshold is currently defined as 15%, but may be revised from time to time.

Practice Note 7.10.5, 7.10.6 — Limit on Non-Defaulting Clearing Members’ Liability for Multiple Events of Default

Introduction
1. Rule 7.10.5 states that the aggregate amount of a non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that can be applied for all Events of Default occurring within a period of 30 calendar days shall not exceed an amount equal to three times of that Clearing Member's Prescribed Contributions as at the start of that 30-day period.
2. Rule 7.10.6 states that where an Event of Default occurs, the amount of a non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for application in respect of that Event of Default is the lower of:
  1. an amount equal to three times of the Clearing Member’s Prescribed Contributions as at the start of the 30-day period that ends on the day of the Event of Default less the aggregate amount of that Clearing Member’s Collateralised Contribution and Contingent Contribution that has already been utilised for all other preceding Events of Default that had occurred in that 30-day period; or
  2. where the Clearing Member’s Collateralised Contribution was adjusted during the aforementioned 30-day period, an Adjusted Amount equal to three times of the consequently adjusted Prescribed Contributions less the aggregate amount of the Clearing Member’s Collateralised Contribution and Contingent Contribution that has already been utilised for Events of Default that occurred after the day of that adjustment but before the Event of Default.
  In the event the Clearing Member’s Collateral Contribution is adjusted multiple times during the 30-day period, a separate Adjusted Amount shall be calculated for each adjustment and the lowest Adjusted Amount shall apply for the purpose of Rule 7.10.6(2).
3. This Practice Note illustrates the operation of Rules 7.10.5 and 7.10.6. The scenarios set out are meant only to illustrate the calculation of the usage limits applicable under the Rules in various hypothetical scenarios, and are not representative of how Events of Defaults are managed by CDP nor the actions that CDP can and may take to maintain a fair, orderly, safe and efficient market.
Operation of Rule 7.10.5
Scenario 1
1. Scenario 1: On Day 1, the non-Defaulting Clearing Member’s Prescribed Contributions is $100. On Day 2, the Clearing Member’s Prescribed Contributions is increased to $200. This scenario illustrates how the aggregate amount of a non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that can be applied in respect of all Events of Default occurring within a 30-day period shall not exceed an amount equal to three times of the Clearing Member’s Prescribed Contributions as at the start of the 30-day period.
2. In accordance with Rule 7.10.5, the aggregate amount of the Clearing Member’s Collateralised Contribution and Contingent Contribution that can be applied in respect of all Events of Default occurring within Day 1 to Day 30 shall not exceed an amount equal to three times of that Clearing Member's Prescribed Contributions on Day 1. Therefore, even though the Clearing Member’s Prescribed Contributions were increased to $200 on Day 2, the aggregate amount of the Clearing Member’s Collateralised Contribution and Contingent Contribution which can be applied to meet default losses occurring within Day 1 to Day 30 will not exceed $300 (i.e. 3 x $100).

Operation of Rule 7.10.6

The following scenarios (Scenarios 2 to 5) illustrate how the amount of a non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that can be used to meet losses is capped in the event of multiple defaults within a 30-day period.
Scenario 2
Scenario 2: On Day 1, the non-Defaulting Clearing Member’s Prescribed Contributions is $100. On Day 26, the Clearing Member’s Prescribed Contributions is reduced to $90. Subsequently, an Event of Default occurred on Day 30. This scenario illustrates the amount of a non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for application in respect of the Event of Default that occurred on Day 30.

Pursuant to Rule 7.10.6, the amount of a non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available in respect of the Event of Default on Day 30 is the lower of:

(a) an amount equal to three times of the Clearing Member’s Prescribed Contributions as at the start of the 30-day period that ends on the day of the Event of default (i.e. Day 1) less the aggregate amount utilised for all preceding events of default (i.e. from Day 1 up until the current Event of Default); or	3 x Prescribed Contributions on Day 1	= 3 x $100 = $300
	Aggregate amount utilised for all preceding Events of Default from Day 1 until the current Event of Default on Day 30	= $0
	Amount that results under limb (a)	= $300 - $0 =$300
(b) where the Clearing Member’s Collateralised Contribution was adjusted during the 30-day period, an Adjusted Amount equal to three times of the consequently adjusted Prescribed Contributions (i.e. the Prescribed Contributions on Day 26) less the aggregate amount of the Clearing Member’s Collateralised Contribution and Contingent Contribution that has already been utilised in respect of Events of Default that occur after the day of that adjustment but before the Event of Default (i.e. from Day 26 up until the current Event of Default).	3 x adjusted Prescribed Contributions on Day 26	= 3 x $90 = $270
	Aggregate amount utilised for all Events of Default from Day 26 until the current Event of Default on Day 30	= $0
	Adjusted Amount that results under limb (b)	= $270 - $0 = $270

Under this scenario, the amount that results under limb (b) is lower than the amount that results under limb (a). Therefore, the amount of the non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for the Event of Default that occurred on Day 30 is the amount that results under limb (b), which is $270.
Scenario 3
Scenario 3: Continuing from Scenario 2, $90 of the Clearing Member’s Collateralised Contribution and Contingent Contribution was used for the Event of Default on Day 30. On Day 33, the Clearing Member’s Prescribed Contributions is increased to $75. A second default occurs on Day 35. This scenario illustrates the amount of the non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for application in respect of the second Event of Default that occurred on Day 35.

Pursuant to Rule 7.10.6, the amount of a non-defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for application in respect of the Event of Default on Day 35 is the lower of:

(a) an amount equal to three times of the Clearing Member’s Prescribed Contributions as at the start of the 30-day period that ends on the day of the Event of Default (i.e. Day 35 – 29 days = Day 6) less the aggregate amount utilised for all preceding Events of Default (i.e. from Day 6 up until the current Event of Default); or	3 x Prescribed Contributions on Day 6	= 3 x $100 = $300
	Aggregate amount utilised for all preceding events of default from Day 6 until the current Event of Default on Day 35	= $90*
	* From the default on Day 30
	Amount that results under limb (a)	= $300 - $90 =$210
(b) where the Clearing Member’s Collateralised Contribution was adjusted during the 30-day period, an Adjusted Amount equal to three times of the consequently adjusted Prescribed Contributions less the aggregate amount of the Clearing Member’s Collateralised Contribution and Contingent Contribution that has already been utilised in respect of Events of Default that occurred after the day of that adjustment but before the Event of Default.	Rule 7.10.6 also states that in the event the Clearing Member’s Collateralised Contribution is adjusted multiple times during the 30-day period, a separate Adjusted Amount shall be calculated for each adjustment and the lowest Adjusted Amount shall apply for the purpose of Rule 7.10.6(2).
	In this case, the Clearing Member’s Collateralised Contribution was adjusted twice resulting in two adjusted Prescribed Contributions within the relevant 30-day period. Therefore two separate Adjusted Amounts will be calculated.
	Adjusted Amount A:
	3 x adjusted Prescribed Contributions on Day 26	= 3 x $90 = $270
	Aggregate amount utilised for Events of Default from Day 26 until the current Event of Default on Day 30	= $90*
	* From the default on Day 30
	Adjusted Amount A	= $270 - $90 =$180
	Adjusted Amount B:
	3 x adjusted Prescribed Contributions on Day 33	= 3 x $95 = $285
	Aggregate amount utilised for Events of Default from Day 33 until the current Event of Default on Day 35	= $0
	Adjusted Amount B	= $285 - $0 =$285
	Adjusted Amount A ($180) is lower than Adjusted Amount B ($285), therefore Adjusted Amount A applies for the purpose of Rule 7.10.6(2) and the amount that results under limb (b) is $180.

In this scenario, the amount of the non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for the second Event of Default that occurred on Day 35 is the lowest Adjusted Amount calculated pursuant to limb (b), which is $180.
Scenario 4
Scenario 4: Continuing from Scenario 3, $90 of the Clearing Member’s Collateralised Contribution and Contingent Contribution was used in respect of the second default on Day 35. A third default occurred on Day 37. This scenario illustrates the amount of the non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for the default that occurred on Day 37.

Pursuant to Rule 7.10.6, the amount of a non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for utilisation in respect of the Event of Default on Day 37 is the lower of:

(a) an amount equal to three times of the Clearing Member’s Prescribed Contributions as at the start of the 30-day period that ends on the day of the Event of Default (i.e. Day 37 – 29 days = Day 8) less the aggregate amount utilised for all preceding Events of Default (i.e. from Day 8 up until the current Event of Default); or	3 x Prescribed Contributions on Day 8	= 3 x $100 = $300
	Aggregate amount utilised for all preceding Events of Default from Day 8 until the current Event of Default on Day 37	= $90+ 90* = $180
	* From the default on Day 30
	** From the default on Day 35
	Amount that results under limb (a)	= $300 - $180 = $120
(b) where the Clearing Member’s Collateralised Contribution was adjusted during the 30-day period, an Adjusted Amount equal to three times of the consequently adjusted Prescribed Contributions less the aggregate amount of the Clearing Member’s Collateralised Contribution and Contingent Contribution that has already been utilised in respect of Events of Default that occurred after the day of that adjustment but before the Event of Default.	Rule 7.10.6 states that in the event the Clearing Member’s Collateralised Contribution is adjusted multiple times during the 30-day period, a separate Adjusted Amount shall be calculated for each adjustment and the lowest Adjusted Amount shall apply for the purpose of Rule 7.10.6(2).
	In Scenario 3 from which this scenario continues, the Clearing Member’s Collateralised Contribution was adjusted twice resulting in two adjusted Prescribed Contributions within the relevant 30-day period. Therefore two separate Adjusted Amounts will be calculated.
	Adjusted Amount A:
	3 x adjusted Prescribed Contributions on Day 26	= 3 x $90 = $270
	Aggregate amount utilised for Events of Default from Day 26 until the current Event of Default on Day 37	= $90+$90* =$180
	* From the default on Day 30
	** From the default on Day 35
	Adjusted Amount A	= $270 - $180 =$90
	Adjusted Amount B:
	3 x adjusted Prescribed Contributions on Day 33	= 3 x $95 = $285
	Aggregate amount utilised for Events of Default from Day 33 until the current Event of Default on Day 37	= $90**
	** From the default on Day 35
	Adjusted Amount B	= $285 - $90 =$195
	Adjusted Amount A ($90) is lower than Adjusted Amount B ($195), therefore Adjusted Amount A applies for the purpose of Rule 7.10.6(2) and the amount that results under limb (b) is $90.

The amount of the non-defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for the third Event of Default that occurred on Day 37 is the lowest Adjusted Amount calculated pursuant to limb (b), which is $90.
Scenario 5
Scenario 5: Continuing from Scenario 4, $90 of the Clearing Member’s Collateralised Contribution and Contingent Contribution was used to meet losses suffered by the Clearing House arising from the third default on Day 37. A fourth default occurred on Day 45. This scenario illustrates the amount of the non-defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available to meet losses suffered by the Clearing House arising from or in connection with the default that occurred on Day 45.

Pursuant to Rule 7.10.6, the amount of a non-defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution that is available for use in respect of the Event of Default on Day 45 is the lower of:

(a) an amount equal to three times of the Clearing Member’s Prescribed Contributions as at the start of the 30-day period that ends on the day of the Event of Default (i.e. Day 45 – 29 days = Day 16) less the aggregate amount used to meet default losses from all preceding events of default (i.e. from Day 16 up until the current Event of Default); or	3 x Prescribed Contributions on Day 16	= 3 x $100 = $300
	Aggregate amount utilised for all preceding Events of Default from Day 16 until the current Event of Default on Day 45	= $90* + $90** + $90^ = $270
	* From the default on Day 30
	** From the default on Day 35
	^ From the default on Day 37
	Amount that results under limb (a)	= $300 - $270 = $30
(b) where the Clearing Member’s Collateralised Contribution was adjusted during the 30-day period, an Adjusted Amount equal to 3 times of the consequently adjusted Prescribed Contributions less the aggregate amount of the Clearing Member’s Collateralised Contribution and Contingent Contribution that has already been utilised in respect of Events of Default that occurred after the day of that adjustment but before the Event of Default.	Rule 7.10.6(2) states that in the event the Clearing Member’s Collateralised Contribution is adjusted multiple times during the 30-day period, a separate Adjusted Amount shall be calculated for each adjustment and the lowest Adjusted Amount shall apply for the purpose of Rule 7.10.6(2).
	In Scenario 3 from which this scenario continues, the Clearing Member’s Collateralised Contribution had been adjusted twice resulting in two adjusted Prescribed Contributions within the relevant 30-day period. Therefore two separate Adjusted Amounts will be calculated.
	Adjusted Amount A:
	3 x adjusted Prescribed Contributions on Day 26	= 3 x $90 = $270
	Aggregate amount utilised for Events of Default from Day 26 until the current Event of Default on Day 45	= $90* + $90** + $90^ = $270
	* From the default on Day 30
	** From the default on Day 35
	^ From the default on Day 37
	Adjusted Amount A	= $270 - $270 =$0
	Adjusted Amount B:
	3 x adjusted Prescribed Contributions on Day 33	= 3 x $95 = $285
	Aggregate amount utilised for Events of Default from Day 26 until the current Event of Default on Day 45	= $90** + $90^ = $180
	** From the default on Day 35
	^ From the default on Day 37
	Adjusted Amount B	= $285 - $180 =$105
	Adjusted Amount A ($0) is lower than Adjusted Amount B ($105), therefore Adjusted Amount A applies for the purpose of Rule 7.10.6(2) and the amount that results under limb (b) is $0.

In this case, the non-Defaulting Clearing Member’s Collateralised Contribution and Contingent Contribution cannot be utilised for the fourth Event of Default that occurred on Day 45 as the lowest Adjusted Amount calculated pursuant to limb (b) is $0.

Added on 31 October 2024.