Practice Note 7.5.1(a)(i) Priority Considerations when Securities or Money are Insufficient
1. Rule 7.5.1(a)(i) states that if, and to the extent that, CDP is of the opinion that the securities or money made available in respect of a Batch Settlement Run are insufficient to enable the execution of all the Settlement Instructions eligible for settlement in that Batch Settlement Run, CDP shall determine, in its discretion, the Settlement Instructions that will not be executed in that Batch Settlement Run or the extent to which a Settlement Instruction will be executed.
2. This Practice Note sets out the general principles CDP may consider when deciding which Settlement Instructions not to execute or to execute only partially.
3. The principle applied in selecting which Settlement Instructions not to execute or to execute only partially due to shortage of money is to settle as many securities as possible with the available money in order to minimise knock-on impact from the payment shortfall. This is achieved by choosing to back out from the Batch Settlement Run, those Settlement Instructions which will have the least impact on:
(a) onward delivery;
(b) settlement of other Settlement Instructions due to Linked Settlement Instructions; and
(c) onward payment.
4. The principle applied in selecting which Settlement Instructions not to execute or to execute only partially due to shortage of securities is to minimise knock-on impact from the securities shortfall and reduce risk to CDP's clearing facility. This is achieved by considering the following:
(a) Receive counterparty.
(b) Age of Settlement Instruction.
(c) Trade price of delivering Settlement Instruction. This only applies when delivery is to be made to or from CDP as a central counterparty.
(d) Submission time of delivering Settlement Instruction.
(e) Quantity of securities to be delivered in the relevant delivering Settlement Instruction.