The amendments to the regulations are specifically aimed at:
- aligning the rules with the provisions of Regulation (EU) 2021/23 of the European Parliament and of the Council (EU) 2021/23 of 16 December 2020 on a framework for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 648/2012, (EU) No 600/2014, (EU) No 806/2014 and (EU) 2015/2365 and Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132. The following key issues have been set out in the rules:
- second dedicated resources – intended to cover any losses arising in the event of non-performance by clearing members of their obligations arising from transactions accepted by KDPW_CCP S.A. for clearing or as a result of an event unrelated to the non-performance of such obligations which, in the event of an identified case of default, should be used after the contributions to the relevant default fund have been used. Accordingly, KDPW_CCP S.A. will be obliged to cover losses in the event of non-performance of obligations arising from transactions cleared by KDPW_CCP S.A., which it is obliged to perform using its own assets:
- before using the assets contributed to the relevant fund, excluding the contribution of the defaulting participant – using the assets constituting the first dedicated resources, taking into account the allocation of these assets,
- after using all assets contributed, respectively, to the clearing fund or the relevant guarantee fund – using the assets constituting the second dedicated resources, taking into account the allocation of these assets, and subsequently
- using the remaining own resources earmarked for covering those losses.
- the possibility for KDPW_CCP S.A., in the cases specified therein, to request clearing members to terminate, in whole or in part, cleared transactions to which they are the other clearing counterparty (tear up) or to reduce the value of the entitlement/interest coupon to which such clearing members are or will be entitled (VMGH). Accordingly, KDPW_CCP S.A. may approach participants in special situations, if the actions taken by KDPW_CCP S.A. do not result in the full performance of the obligation arising from the clearing of a transaction accepted into the clearing system:
- after using the assets of the guarantee system in the order and in the amount specified in the rules (VMGH),
- after taking actions in organised trading which do not result in the performance of that obligation in full (tear up). A change to the terms of the transaction will require the consent of clearing members that are the clearing counterparty to at least 2/3 of the value of the positions registered in the clearing system affected by the change, and such clearing members will be required to declare whether or not they give such consent (if they do not give such declaration in due time, they will not be included in the calculation of the qualified majority). In the event of a change to the terms in respect of VMGH, KDPW_CCP S.A. will not be obliged to make payments in respect of the marking to market of transactions in excess of a set haircut distribution ratio, and clearing members will remain obliged to KDPW_CCP S.A. in full to make such payments. In the case of tear up, the clearing counterparties will not be obliged to perform the cleared transaction in the amount subject to a set limit.
- the right of KDPW_CCP S.A., which may be exercised against a clearing member if KDPW_CCP S.A. identifies a case of default, to withhold payments to clearing members of:
- all assets of the transaction clearing liquidity guarantee system, and
- all marking-to-market payments to which such clearing members are or will be entitled. Such payments will be withheld until actions related to the handling of the clearing member’s default are completed and the clearing member’s positions are closed out, but no later than for a period of 10 business days counting from the date on which the default is identified. KDPW_CCP S.A. will remain obliged to calculate on an ongoing basis the marking-to-market payments to which such clearing members are or will be entitled during the period in which such payments are withheld. After the end of the period in which such payments are withheld, KDPW_CCP S.A. will make such payments to the clearing members (netted to a single cash credit);
- if KDPW_CCP S.A. activates the recovery plan referred to in Article 9 (1) of Regulation (EU) 2021/23 of the European Parliament and of the Council of 16 December 2020 on a framework for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 648/2012, (EU) No 600/2014, (EU) No 806/2014 and (EU) 2015/2365 and Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132, KDPW_CCP S.A. may propose to a clearing member which is party to an obligation in respect of which KDPW_CCP S.A. has not made the payment in accordance with the rules, a different way of fulfilling that obligation, in particular deferring the payment date or modifying the content of that obligation (the consent of that clearing member is required);
- an increase in the amount of additional contributions to a given fund managed by KDPW_CCP S.A., which will be required to be made by clearing members in the process of handling the default of a clearing member (up to a maximum of 100% of the existing contribution). Accordingly, if, as a result of KDPW_CCP S.A.’s actions taken to bring about the fulfilment of an obligation resulting from the clearing of a transaction accepted into the clearing system, the amount of KDPW_CCP S.A.’s own funds falls to 110% of the capital requirement, KDPW_CCP S.A. will, before using the remaining own funds, call on the clearing members to make additional contributions to the fund, not exceeding 100% of the maximum amount of the existing contributions resulting from their last update, provided that the obligation arising from the transaction that should be performed is guaranteed by that fund;
- setting out the obligation of participants to comply with the requirements set out in the relevant anti-money laundering and counter-terrorist financing legislation in relation to the business relationships they undertake. A requirement has been set out for entities seeking the participant status and for participants to provide information necessary to identify money laundering and terrorist financing risks associated with the business relationships they undertake. They will be required to provide KDPW_CCP S.A. with an up-to-date Correspondent Banking Due Diligence Questionnaire (CBDDQ, template published by the Wolfsberg Group). The Correspondent Banking Due Diligence Questionnaire will be updated by participants on an annual basis;
- clarification of certain specific issues, including:
- any surplus of assets posted by the clearing member as a margin to the relevant account maintained for KDPW_CCP S.A. in excess of the required margin also constitutes financial collateral posted as such margin;
- participation in the clearing system may be suspended also in the event that KDPW_CCP S.A. identifies a risk of money laundering and terrorist financing associated with the participant’s business relationships, in particular in connection with information on the application of restrictive measures against the participant in accordance with the relevant legal provisions, information on the initiation of proceedings in connection with the provision of financial services on the basis of which administrative sanctions may be imposed on the participant for breach of the laws applicable to the participant, or information on a decision to impose such administrative sanctions on the participant;
- a defaulting participant which causes the suspension of the settlement of a transaction remains liable for any losses incurred by KDPW_CCP S.A. in connection with the withdrawal of the settlement order for the affected transaction or withholding of the execution of that settlement order if a fee for such actions has not been set, as referred to in the Table of Fees, up to a maximum amount equivalent to the initial margin required to secure the clearing of such transaction (KDPW_CCP S.A. will inform participants of the costs incurred in connection with the suspension of the settlement of an affected transaction);
- second dedicated resources – intended to cover any losses arising in the event of non-performance by clearing members of their obligations arising from transactions accepted by KDPW_CCP S.A. for clearing or as a result of an event unrelated to the non-performance of such obligations which, in the event of an identified case of default, should be used after the contributions to the relevant default fund have been used. Accordingly, KDPW_CCP S.A. will be obliged to cover losses in the event of non-performance of obligations arising from transactions cleared by KDPW_CCP S.A., which it is obliged to perform using its own assets:
- defining the principle that, if any amendments are made to the rules imposing an obligation for clearing members or entities seeking participant status to provide additional documents, participants which hold this status on the effective date of such amendments are obliged to provide such documents to KDPW_CCP S.A.,
- defining the rules applicable to any surplus that may arise after KDPW_CCP S.A. has fulfilled all of its obligations to participants,
- defining the rule in the buy-in process applicable to cases where the price of the buy-in securities is lower than the price resulting from the affected transaction whose settlement has been suspended. In that case, KDPW_CCP S.A. will not be obliged to transfer the price difference to the defaulting participant,
- other editorial, aligning, and transitional amendments.