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7.6.2

Validations of DVP instructions prior to their Settlement Day can only take place upon satisfaction of the following conditions:

(a) The value of the proposed DVP instruction shall not cause the Principal's net debit balance for the Settlement Day on which the advance matching and validation is due for settlement to exceed the Principal Net Debit Cap applicable at the time the validation is to be made; and
(b) The value of the proposed DVP transaction shall not cause the Principal's total net debit balance to exceed the Principal Net Debit Cap applicable at the time the validation is to be made.

Example 1: Assume that the Principal's Principal Net Debit Cap is $1 million on Settlement Day 1 and the net debit balance on Settlement Day 1 is $600,000. The net debit balance on Settlement Day 2 is $200,000 as a result of the advance affirmations. The total net debit balance is therefore $800,000.

Proposed DVP instruction: A receiving instruction of $300,000.

This proposed DVP instruction will not be accepted for DVP Settlement because although it satisfies Rule 7.6.1(a), it does not satisfy Rule 7.6.1(b); the value of the proposed submission would cause the Principal's total net debit balance on Settlement Day 1 to exceed the Principal Net Debit Cap of $1 million.

Proposed DVP instruction submitted for advance matching and validation: A receiving instruction of $200,000 which is due on Settlement Day 2.

This proposed instruction will be accepted for DVP Settlement because it satisfies Rule 7.6.2(a) and (b); i.e. it will not cause the Principal's net debit balance for Settlement Day 2 to exceed the Principal Net Debit Cap ($200,000 + $200,000 = $400,000) and neither will it cause the Principal's total net debit balance to exceed the same. The total net debit balance would be $1 million after the advance matching and validation.

Example 2: Assume that the Principal in Example 1 does not submit any of the proposed instructions referred to in Example 1. The Principal then submits a delivery instruction which is due on Settlement Day 1 of $100,000. This would have the effect of reducing his net debit balance on Settlement Day 1 to $500,000. His net debit balance on Settlement Day 2 is unaffected and remains at $200,000. His total net debit balance would be reduced to $700,000. After submitting this delivery instruction, he proposes to submit the following instruction:

Proposed DVP instruction: A receiving instruction of $300,000.

This proposed instruction will be accepted for DVP settlement because it now satisfies Rule 7.6.1(a) and (b). After submitting this instruction, the Principal's net debit balance for Settlement Day 1 will be $800,000 and the total net debit balance will be $1 million. The Principal's net debit balance for Settlement Day 2 remains unchanged at $200,000.

Proposed DVP instruction submitted for matching and validation in advance: A receiving instruction of $400,000 which is due on Settlement Day 2.

(Assume that the above receiving instruction of $300,000 is not submitted.) This proposed instruction for advance matching and validation will be accepted for validation as it satisfies Rule 7.6.2(a) in that it will not cause the Principal's net debit balance for Settlement Day 2 to exceed the Principal Net Debit Cap (the Principal's net debit balance for Settlement Day 2 would now stand at $600,000). However, it does not satisfy Rule 7.6.2(b) because it would cause the total net debit balance to exceed the Principal Net Debit Cap ($700,000 + $400,000 = $1.1 million) and will not be accepted for DVP Settlement.

Amended on 3 October 20093 October 2009.