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Default management process

DEFAULT MANAGEMENT

The measures to be taken in the event of Default as outlined in BME CLEARING’s Rule Book, are aimed at containing losses, ensuring operations are not disrupted and that Non-Defaulting Clearing Members are not exposed to losses that they cannot anticipate or control.

According to Article 34 of BME CLEARING’s Rule Book, upon declaration of Default of a Member, BME CLEARING, as applicable, may adopt any of the following measures:

-   Suspend the Member, or maintain any suspension resolved, as the case may be, in application of Article 32.

-   Immediately restrict the registration of new Trades of the Defaulting Member.

-   Undertake any Trades as may be necessary, including trades over financial instruments, for the purpose of reducing unhedged risks, until total coverage thereof.

-   Close-out the Defaulting Member’s Positions, in accordance with the provisions of Article 35.

-   Close-out or transfer to another Member, as applicable, the Individual Clients Accounts, the Segregated Clients Accounts and the corresponding Segregated Accounts, in accordance with the provisions of Article 35.

-   BME CLEARING may sell off, in whole or in part, the Collateral of any kind posted in favour of BME CLEARING.

-   Obtain, on behalf and at the expense of the Defaulting Member, any kind of professional advice or assistance which BME CLEARING may reasonably require in connection with the management of the Default, including a mandate to manage the closing of Positions to another entity.

-   Any other measure required by the exceptional circumstances resulting from the Default and which BME CLEARING considers necessary, even if not expressly contemplated in the Rule Book, and informing the Competent Authorities thereof.

BME CLEARING must inform the Defaulting Member of the measures adopted, as soon as possible; fully cooperate with the Competent Authorities; and co-operate, as long as there is reciprocity, in the exchange of information with any market, clearing house, or settlement system in which the Defaulting Member should be acting, and co-operate with any Competent Authority, in connection with the measures adopted by BME CLEARING in connection with the Defaulting Member.

The closing of positions and transfer of accounts of the Defaulting Member and the settlement of costs, expenses and balances resulting from the Default are explained in Articles 35 and 37 of the Rule Book. The Default waterfall to be followed when closing-out positions as per the Rule Book is as follows:

1.- Initial margins for each Contract Group with debit balance;

2.- Any other type of Margin for each Contract Group with debit balance, in the following order: Extraordinary margin, Individual Fund and Default Fund Contribution

3.- If there are Contract Groups with credit balances, debit balances and credit balances can be offset.

4.- Any other Margin, Extraordinary margin or Individual Fund, which the Member has posted with BME CLEARING, the posting whereof was not assigned to a particular Contract Group, shall be enforced. Margins shall be proportionally distributed among the Contract Groups which had a debit balance (previously If balances can be offset, and the final balance is a credit balance

 

5.- BME CLEARING Fund for each Contract Group with debit balance ;

6.- Non-Defaulting Clearing Members Contributions to the Default Fund for the different Contract Groups with debit balance;

7.- BME CLEARING’s Equity.

 

The measures to limit exposure of Non-Defaulting Clearing Members to losses are detailed in the above Default waterfall procedures and in the rules covering the Default Fund as per Article 20.5 of the BME CLEARING Rule Book and Default Fund Circulars

BME CLEARING has a document, Default Management Protocol, reviewed at least annually.

 

 

 

 

 

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