1.9F FX Default Management Commitment Rules

Transcription

1 Appendix F FX Default Management Commitment Rules 1. APPLICATION These FX Default Management Commitment Rules ( FX DMC Rules ) are part of the Clearing Rules and shall apply to all Clearing Members that submit Transactions in FX OTC Instruments for Registration on their own behalf and on behalf of Customers and Clients. Certain provisions in these FX DMC Rules shall also apply to Clearing Members applying to be approved as an Eligible FX OTC Clearing Member to the extent indicated herein. 2. DEFINITIONS 2.1 Capitalized terms herein shall have the meanings assigned to them below and in the definition list to the Clearing Rules. Bucket shall mean a part of a Defaulted FX Portfolio. Affected Customer shall mean a Direct Pledging Customer holding positions in FX OTC Instruments. FX Default shall mean the default (as further set out in sections and of the Clearing Rules) of an Eligible FX OTC Clearing Member or an Affected Customer holding FX OTC Instruments in its Defaulted Fixed Income Portfolio. FX Default Process shall for the purposes of these FX DMC Rules be deemed to start when the Eligible FX OTC Clearing Member receives the Clearing House s notification of an FX Default in accordance with Section 5.1 below and end when the Clearing Member is so informed by the Clearing House. Defaulted Counterparty shall mean an Eligible FX OTC Clearing Member or an Affected Customer which is in FX Default. Defaulted FX Portfolio shall mean any FX Contracts registered on the account(s) of an Eligible FX OTC Clearing Member (whether House or Client Accounts) or of an Affected Customer at the time of its Default, however for the avoidance of doubt including any FX Contracts entered into by the Clearing House following the Default for the purposes of reducing the Clearing House s market risk in respect of the portfolio (through hedges). In order to qualify as a Defaulted FX Portfolio, the portfolio must include FX OTC Instruments at the time of the FX Default. FX DMC Dealer shall mean an individual appointed by the FX Advisory Board to assist and advise the Clearing House in the event of an FX Default as further set out in Section 4.1 below. FX Advisory Board means an advisory board appointed and operated in accordance with these FX Default Management Commitment Rules and the FX Advisory Board Charter adopted by the Clearing House. 1 JULY 2015 APPENDIX 25 FX DMC RULES PAGE 1 ( 7)

2 Relevant Currency Pair(s) means, in respect of a Clearing Member, all currency pairs to which such Clearing Member has been exposed by way of cleared FX OTC Instruments within the most recent three month period. Surviving Members shall mean all Eligible FX OTC Clearing Members, except any Eligible FX OTC Clearing Member which is a Defaulted Counterparty. 3. PRECONDITION FOR CLEARING OF FX OTC INSTRUMENTS 3.1 In order to participate in the clearing of FX OTC Instruments with the Clearing House, the Clearing Member must be able to receive and handle information relevant for the pricing of portfolios containing FX OTC Instruments, and submit prices on such portfolios that the Clearing House deems reasonable, within a timeframe specified by the Clearing House. 3.2 Before the Clearing Member is allowed to begin submitting and clearing FX OTC Instruments with NASDAQ OMX, the Clearing Member must demonstrate that it is able to fulfil the requirement set out in Section 3.1 above. The Clearing House will, at its discretion, determine whether the Clearing Member fulfils the requirement. A Clearing Member that has been approved by the Clearing House hereunder shall be deemed to be an Eligible FX OTC Clearing Member in accordance with these FX DMC Rules. 4. FX ADVISORY BOARD AND DEFAULT MANAGEMENT DRILLS 4.1 Role and composition of the FX Advisory Board and the FX DMC Dealers The Clearing House shall establish an FX Advisory Board through the adoption of an FX Advisory Board Charter. The FX Advisory Board shall be composed of representatives of the Clearing House, all Eligible FX OTC Clearing Members and, to the extent decided by the Clearing Members, any other Clearing Members that are involved in the clearing of FX Contracts, as further set out in the FX Advisory Board Charter. The Clearing House and the Eligible FX OTC Clearing Member (and their representatives) shall actively participate in the work of the FX Advisory Board and shall participate in the meetings of the board as further set out in the FX Advisory Board Charter The FX Advisory Board shall be consulted in matters including, but not limited to: The development and maintenance of the Clearing House s default management process in respect of FX Defaults. The manner in which FX default management drills are conducted. The further development of the Clearing House s offering of clearing of FX related products, e.g. introduction of new instruments and services. The review, as necessary, of the FX Advisory Board Charter and any amendments proposed to the charter. Any other related matter that any Eligible FX OTC Clearing Member or the Clearing House finds appropriate to address The FX Advisory Board shall be responsible to appoint at least three FX DMC Dealers as further set out in the FX Advisory Board Charter. The FX DMC Dealers shall be employees or contractors of an Eligible FX OTC Clearing Member, with the appropriate 1 JULY 2015 APPENDIX 25 FX DMC RULES PAGE 2 ( 7)

3 skills and expertise to assist and advise the Clearing House in the event of an FX Default. When so asked by the Clearing House, the Clearing Member shall nominate and make available a representative for appointment as FX DMC Dealer. The Clearing House shall be entitled to require a substitution of such nominee where the Clearing House does not have confidence in the ability of the nominee to fulfil the tasks of an FX DMC Dealer In relation to an FX DMC Dealer nominated by the Clearing Member, the Clearing Member shall agree to ensure that the FX DMC Dealer is available as the Clearing House may require during a FX Default Process to fulfil the tasks of an FX DMC Dealer, regardless of his or her regular work duties. During an, the FX DMC Dealers shall assist and advise the Clearing House on matters including, but not limited to, the following: The neutralisation of the Defaulted Counterparty s obligations. The splitting of a Defaulted FX Portfolio into Buckets. The closing-out by way of auctions or otherwise of the Defaulted FX Portfolio The Eligible FX OTC Clearing Member shall agree, and as applicable ensure that its representatives (whether as member of the FX Advisory Board or as an FX DMC Dealer) agree, to the following: Representatives of the Clearing Member serving on the FX Advisory Board or as FX DMC Dealer are doing so in the interest of ensuring the integrity of the Clearing House s clearing service and in the interest of all Eligible FX OTC Clearing Members. Confidential Information received by representatives of the Clearing Member (whether as member of the FX Advisory Board or as an FX DMC Dealer) must not be disclosed or used by the Clearing Member or its representatives for purposes outside the scope of the FX Advisory Board or outside the function as FX DMC Dealer, respectively, and procedures must be established within the Clearing Member s organisation to achieve such aim The Clearing House agrees to use all its reasonable efforts to reach a common position with the FX Advisory Board and the FX DMC Dealers on matters within the scope of the FX Advisory Board or the function as FX DMC Dealer, as the case may be, however nothing in this Section shall prevent the Clearing House from acting in a way which it reasonably determines necessary to manage its risk or otherwise meet its regulatory obligations. 4.2 Default Management Drills The Clearing House will arrange regular default management drills to ensure, among other things, that its default procedures are updated and that the Eligible FX OTC Clearing Members are able to receive, analyse and react upon relevant information from the Clearing House The Eligible FX OTC Clearing Member shall upon the Clearing House s request participate in default management drills relating to FX OTC Instruments. Such request shall be made by giving the Clearing Member six weeks notice. Any drills will be planned and lead by the Clearing House at its reasonable discretion. 1 JULY 2015 APPENDIX 25 FX DMC RULES PAGE 3 ( 7)

4 4.2.3 FX DMC Dealers shall at the request of the Clearing House assist and advise the Clearing House in default management drills from NASDAQ OMX s offices in London or Stockholm If the Eligible FX OTC Clearing Member, in connection with a default management drill, is unable to fulfil the requirements set out in Section 3 above, then the Clearing Member shall be given the opportunity within three (3) months from the first attempt, to make a second attempt. If the Clearing Member still fails to fulfil the requirements in the second attempt, the Clearing House may suspend the Clearing Member from clearing of FX OTC Instruments, provided that the Clearing House deems that the Clearing Member as a consequence of such failure is unfit to participate in a default management process Following a suspension in accordance with section above, the Clearing House shall allow the Clearing Member reasonable time to close out or otherwise terminate all its remaining positions in FX OTC Instruments. Should the Clearing Member be unable or unwilling to terminate its positions within such reasonable time as deemed by the Clearing House, the Clearing House will have the right to declare the Clearing Member in default in accordance with the Clearing Rules. 5. NOTIFICATION OF DEFAULT 5.1 In the event of an FX Default, the Clearing House will send a separate notification to the Eligible FX OTC Clearing Members by , in addition to the default notification made in accordance with the Clearing House s ordinary default notification procedure, informing the Eligible FX OTC Clearing Members that an FX Default has occurred and providing the name, telephone number and address to the contact persons appointed by the Clearing House to manage the contacts with the Eligible FX OTC Clearing Members in respect of the FX Default. 5.2 Following a notification in accordance with the foregoing, the FX DMC Dealers shall report at NASDAQ OMX s offices in London or Stockholm as soon as practical and thereafter at adequate intervals for as long as may be necessary to assist and advise NASDAQ OMX in accordance with Section In case an FX DMC Dealer is unavailable, the Eligible FX OTC Clearing Member that nominated the FX DMC Dealer shall upon request by the Clearing House provide an alternate with appropriate skills and expertise. 6. DEFAULT MANAGEMENT COMMITMENT 6.1 In the event that an FX Default has been declared by the Clearing House and notified in accordance with Section 5.1 above, the Clearing Member undertakes to co-operate actively with the Clearing House and the other Eligible FX OTC Clearing Members with a view to manage the FX Default in an effective and orderly manner. In particular, the Clearing Member undertakes to act in compliance with Sections below. 6.2 Updated indicative prices To enable the Clearing House to maintain updated valuations and margin values in relation to open FX positions, the Clearing Member shall within 60 minutes of a request by the Clearing House during an FX Default Process, on a reasonable efforts basis, submit indicative, non-binding, bid and ask prices to the Clearing House in respect of the instruments and tenors reasonably required by the Clearing House and notified in writing from time to time. The Clearing House shall have full discretion to decide on the 1 JULY 2015 APPENDIX 25 FX DMC RULES PAGE 4 ( 7)

5 instruments and tenors to be included in such notification; however it shall consult the FX Advisory Board before doing so For the purposes of Section 6.2.1, indicative, non-binding, bid and ask prices shall reflect the Clearing Member s reasonable opinion of the prices in the prevailing market conditions and be posted through the ordinary channels. Any price requests made by the Clearing House outside regular trading hours are provided by the Clearing Member on a voluntary basis. 6.3 Bids on hedges The Clearing House may, in consultation with and supported by the FX DMC Dealers to the extent possible, at any time and on one or several occasions during the FX Default Process, at its discretion, enter into hedges with a view to reduce its market risk in respect of the Defaulted FX Portfolio. The Clearing House will not disclose the identities of the bidders to the FX DMC Dealers. Hedges entered into with Surviving Members will only be made by way of transactions eligible for clearing as FX Contracts The Clearing Member shall, in respect of hedges in FX Contracts on Relevant Currency Pairs and on a best efforts basis, provide the Clearing House with binding bid and ask prices on such hedges. In respect of other hedges, the Clearing Member shall be free, but not obligated, to bid. Any bids provided by the Clearing Member shall be binding and shall be accepted or rejected by the Clearing House immediately following receipt. The invitation by the Clearing House and the bids by the Clearing Member shall be made by telephone or via Instant Bloomberg and verified by The Clearing House retains the discretionary right to accept or reject, in consultation with the FX DMC Dealers to the extent possible, any and all bids for hedges The FX Advisory Board may approve the use of other communication means for the purposes of this Section 6.3, such as electronic chat or trading services. 6.4 Bids in auctions The Clearing House may, in consultation with and supported by the FX DMC Dealers to the extent possible, at any time and on one or several occasions during the FX Default Process, at its discretion, initiate auctions in relation to the Defaulted FX Portfolio and/or Buckets. The Clearing House will not disclose the identities of the bidders to the FX DMC Dealers. Before the first auction is initiated, the Clearing House will, if possible, consult with the Surviving Members regarding the suitable time for performing such auction. Auctions will, in relation to the Surviving Members, only be carried out (and the results of such auctions will only be executed) by way of transactions eligible for clearing as FX Contracts The Clearing House will initiate an auction by providing the Surviving Members and, subject to Section 6.5 below, any third parties with the following information by telephone and verified by 1. Information regarding, as applicable, the Defaulted FX Portfolio and/or Buckets offered in the auction. 2. The currency in which the bid shall be expressed. 1 JULY 2015 APPENDIX 25 FX DMC RULES PAGE 5 ( 7)

6 3. The time limit, being at least two hours, within which the Clearing Member may provide bids in the auction. 4. The period during which the Clearing Member s bids will be binding following the expiry of the time limit above The Eligible FX OTC Clearing Member shall on a best efforts basis submit one or several bids in an auction which is in respect of a Defaulted FX Portfolio (or a Bucket) only containing FX Contracts on Relevant Currency Pairs. In respect of auctions for other Defaulted FX Portfolios and/or Buckets, the Clearing Member shall be free, and not obligated, to bid. A bid shall be binding during the period determined in accordance with Section above. The bid shall be expressed as the amount in the currency or currencies specified in accordance with Section that the Clearing Member is willing to pay or requires to receive per the identified Bucket or Defaulted FX Portfolio. Bids by the Clearing Member shall be made by and the Clearing House shall verify the bids by telephone The Clearing House retains the discretionary right to accept or reject, in consultation with the FX DMC Dealers to the extent possible, any and all bids in auctions The FX Advisory Board may approve the use of other communication means for the purposes of this Section 6.4, such as electronic chat or trading services. 6.5 Limitation on information sharing, hedging and auctions with third parties The Clearing House may not share information regarding the Defaulted FX Portfolio with parties other than FX DMC Dealers, Surviving Members and the affected Defaulted Counterparty for the purposes of (i) hedges in accordance with Section 6.3 above, (ii) auctions in accordance with Section 6.4 above or (iii) otherwise soliciting bids for parts of or the entire Defaulted FX Portfolio, unless any of the following conditions are met: (a) (b) Three Bank Days, including the day of the FX Default, have passed since the Clearing House s notification in accordance with Section 5.1 above; or all Surviving Members have consented to such action. 7. CLEARING MEMBER S CONTACT DETAILS 7.1 The Eligible FX OTC Clearing Member shall at all times have at least two persons which the Clearing Member has appointed to receive notifications under Sections 5.1 above and otherwise manage the contacts with the Clearing House in the event of an FX Default. The Clearing Member undertakes to notify the Clearing House in writing of the name, telephone number and address to the contact persons referenced in section 7.1 above, and any substitution of such contact persons or changes to their contact information. 8. CONFIDENTIALITY 8.1 Confidential Information shall mean (i) all information that is marked confidential, restricted, or proprietary by either the Clearing House or the Clearing Member; and (ii) regardless of whether it is marked as in item (i), market sensitive data, customer information, transaction information, accounting information, information regarding business planning and operations of a party and other information which by its nature on 1 JULY 2015 APPENDIX 25 FX DMC RULES PAGE 6 ( 7)

7 the face of it is confidential. 8.2 Neither the Clearing House or the Clearing Member shall, disclose to any third party any Confidential Information communicated to it or otherwise obtained from the other under these FX Default Management Commitment Rules, furnish to any third party any equipment embodying any such information or use such information in any other way than to operate according to the provisions of these FX Default Management Commitment Rules. However, such obligation shall not apply to any such information that: (a) (b) (c) is or becomes publicly known, other than by the fault, act or omission of the receiving party; can be shown by sufficient evidence to have been rightfully in the receiving party s possession prior to the time the disclosing party disclosed or gave the receiving party access to such information; or hereafter lawfully comes into the receiving party s possession from an independent third source without any obligation of secrecy. 8.3 Notwithstanding Section 8.2, either of the Clearing House and the Clearing Member shall have the right to disclose Confidential Information as necessary under Sections 4 and 6 above, provided however that the recipient(s) is an Eligible FX OTC Clearing Member (which is thus subject to an essentially identical confidentiality undertaking) or otherwise undertakes to comply with this confidentiality undertaking, and shall have the right to disclose Confidential Information to any of its affiliates for the purpose of fulfilling its obligations under these FX Default Management Commitment Rules on a need to know basis, provided that such affiliate undertakes to comply with this confidentiality undertaking. Either party shall furthermore have the right to disclose Confidential Information to the extent such disclosure is required by applicable law or required by a party s regulator, provided that the other party shall, to the extent possible and lawful, receive prior notice of any such disclosure. This confidentiality undertaking is in addition to any confidentiality undertaking the parties may have under applicable law. 8.4 The confidentiality undertaking in this Section 8 shall apply during five (5) years after the FX DMC Rules have ceased to apply to the Clearing Member. 1 JULY 2015 APPENDIX 25 FX DMC RULES PAGE 7 ( 7)