BME CLEARING objective is to protect members and clients' positions. In addition to the margin schema set by BME CLEARING, a procedure has been developed to protect the CCP and its clearing members and clients' positions if a Clearing Member enters in default.
In case a Clearing Member (CM) fails to comply with its obligations described in the Rule Book and the relevant circulars, BME CLEARING SWAPS may declare such CM in default. With this declaration begins the Default Management Process (DMP), which comprises the following steps:
- Constitution of the Default Management Group, which advises the CCP at any time of the default process.
- Portability of positions of the Defaulting Clearing Member’s (DCM) Clients accounts to another non-defaulting Clearing Member (NDCM) within a period of two days from the declaration of default.
- Aggregation of the proprietary DMC‘s Position and the clients’ position that have not been ported. It will be possible the netting between the two positions. This means that long /short position of the DCM will be netted with the client’s short /long position where both of them were counterparties.
- Hedging of exposure to interest rate risk of the aggregated portfolio, by conducting open market transactions in the most liquid tenors of the rate curve or hedging buckets of liquid coverage.
- Auction of the aggregated position and corresponding hedging transactions among the NDCM. This position can be divided into manageable similar portfolios, either by number of operations or rate curve tenors, contained in that position, at the discretion of BME CLEARING SWAPS advised by the GGI.
- Publication of the auction’s result by BME CLEARING SWAPS. Thus may be resulting of a single or multiple winners. Likewise, the auction will be considered void for BME CLEARING SWAPS if the price offered by the NDCM is not acceptable for the CCP.
- Total or partial position’s portability assigned in the auction to the account of the winner NDCM.
- Loss-sharing, if the case, incurred by auctioning the position of DCM.