New SGX rules to improve clearing house transparency

Proposed amendments cover collateral and margins.

In a release, Singapore Exchange (SGX) said it is consulting the securities and derivatives markets on new rules and refinements to make its clearing and settlement processes more transparent and clearer to market participants.

"With the proposed amendments, market participants can better understand their rights and obligations. The amendments cover topics such as margins and collateral provided to the clearing house, actions to be taken to manage the default of a Clearing Member, and processes by which customers can have their trades settled during such an event," SGX said.

Here is a summary of the proposed changes

Rules on Collateral and Trust Arrangements. The Central Depository (CDP) and Singapore Exchange Derivatives Clearing (SGX-DC) already have arrangements in place for the holding of Clearing Members’ collateral and Clearing Fund contributions, which are currently set out in various documents. SGX intends to incorporate these arrangements into the rules, which would increase clarity and provide ease of reference for Clearing Members and their customers.

For both CDP and SGX-DC, the proposed rules consolidate existing terms relating to trust arrangements for collateral. These include provisions which specify that the respective clearing houses hold Clearing Members’ and their customers’ collateral on trust, and set out the clearing houses’ rights of investment and use over collateral, and payment of interest and fees. The trust arrangements protect collateral should the clearing house become insolvent. Having trust arrangements goes further than just having segregated accounts, which is the current global best practice.

Rules on Default Management by CDP. SGX is proposing CDP Clearing Rules which will formalise certain processes and measures that may be taken in the management of a Clearing Member’s default to protect the safety and efficiency of the system. SGX is also proposing to clarify the events for which CDP may declare a default of a Clearing Member, and the processes for customers of the defaulting Member to settle their trades directly with CDP.

Rules on CDP Buying-in Process. SGX proposes to amend CDP Clearing Rules to shorten the period for buying-in of securities from three Market Days to two Market Days. This reduces the period when a short position remains outstanding.

Clarification of Rules on Novation. SGX is also proposing amendments to SGX-DC Clearing Rules and Futures Trading Rules of Singapore Exchange Derivatives Trading (SGX-DT). These amendments clarify the point at which trades are novated to SGX-DC for clearing, and the process of novation. The point of novation varies with different classes of transactions. Setting out these amendments in the rules enhances legal certainty for SGX-DC participants.