Singapore Exchange looks to revise derivatives clearing fund structure

Source: Singapore Exchange

Singapore Exchange Limited ("SGX") is proposing to revise the Clearing Fund structure of SGX-Derivatives Clearing (SGX-DC) to plan for growing market exposure and reinforce the integrity of the Clearing System.

With the significant increase in derivatives trading volumes and market volatility, the Exchange is of the view that the SGX-DC Clearing Fund structure should be re-modeled for scalability with market activity and risks. One such risk is SGX-DC's exposure to the possibility of the failure by a Clearing Member to discharge its financial obligations (i.e. a default).

SGX-DC operates the Clearing System by acting as the counter-party for every trade executed on SGX's derivatives market. As the Clearing House, it administers a robust risk management framework to effectively manage risks faced by the Clearing System. The Clearing Fund, comprising resources contributed by the SGX-DC and its Clearing Members, will be activated in the event of a default by a Clearing Member and only if the defaulting Clearing Member's financial resources such as margins, assets and securities are insufficient to meet its payment obligations to SGX-DC.

SGX proposes a "risk-based approach" for individual Clearing Members with the SGX-DC Clearing Fund structure. The proposed changes relate to the following aspects:-

  1. Equitable Contributions to the Clearing Fund from Clearing Members. These contributions include Clearing Members' security deposits and SGX-DC's ability to call on Clearing Members for funding, proportionate to their clearing exposure; and
  2. The utilisation of the Clearing Fund in the event of a Clearing Member's default

The consultation paper and proposed revised SGX-DC Clearing Rules in relation to the revised SGX-DC Clearing Fund structure are available on from 23 January 2009 to 20 February 2009.

Market participants and members of the public are encouraged to participate in this public consultation. All feedback and suggestions for the proposed amendments should reach us by 20 February 2009 via email and either by post/courier or fax:-

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