Amendments of the Detailed Rules of Transaction Clearing (Organised Trading) adopted in Resolution No. 13/22 of the KDPW_CCP S.A. Management Board dated 11 April 2022 entered into force on 25 April 2022.
The amendments to the Detailed Rules of Transaction Clearing (Organised Trading) are designed to support the following:
- alignment of regulation in connection with the start of the clearing of repos. which will be concluded in organised trading. KDPW_CCP S.A. will accept for clearing classic repo transactions in Treasury securities registered in KDPW, excluding index-linked bonds;
- start of buy-ins/auctions in the GUI system. KDPW_CCP S.A. will take actions in this process in order to buy securities subject to a transaction affected by a settlement fail by buying such securities. KDPW_CCP S.A. will carry out the process within, respectively, four business days after the expected settlement date of the transaction (where the transaction is in shares) or seven business days after the expected settlement date of the transaction (where the transaction is in securities other than shares). If a buy-in fails or is not possible, the participant affected by default may request KDPW_CCP S.A. to defer the buy-in until an appropriate later date calculated in accordance with Commission Delegated Regulation (EU) 2018/1229 of 25 May 2018 supplementing Regulation (EU) No 909/2014 of the European Parliament and of the Council with regard to regulatory technical standards on settlement discipline (OJ L 230 of 13 September 2018, p. 1).
KDPW_CCP S.A. will carry out the buy-in primarily by way of auctions (i.e., by sending a proposal to buy securities to clearing members within the GUI system). The securities will be delivered within, respectively, four business days after the expected settlement date of the transaction (where the transaction is in shares) or seven business days after the expected settlement date of the transaction (where the transaction is in securities other than shares).
If a buy-in is not possible or fails, KDPW_CCP S.A. will calculate and collect compensation from the defaulting participant and pay it to the participant affected by default. The compensation will also constitute a substitute benefit paid in accordance with the Act on Trading in Financial Instruments;
- introduction of additional buyer protection. Accordingly, a clearing member responsible for a settlement fail will be obliged to pay a cash benefit in the amount and on the terms set out in the Rules of Transaction Clearing (Organised Trading) in respect of the lost benefit of a participant affected by default or its client which it would have obtained as a result of the exercise of the property right attached to the affected securities provided that, among others, the right was exercised in direct connection with an optional corporate action (an event, other than a general meeting, such as a tender offer or an offer to exchange shares or an optional profit distribution). As a condition to use the additional buyer protection, clearing members are required to deliver in due time an appropriate declaration, in accordance with the template defined by KDPW_CCP S.A., of its or its client’s intention to exercise a property right attached to securities in connection with such optional corporate action and to use the additional buyer protection (if the exercise of such right requires that it or its client expresses its intention to exercise such right and it or its client has such intention). If a clearing member does not present the declaration, it or its client will be deemed to have waived the additional buyer protection and KDPW_CCP will not be obliged to provide the benefit in respect of the lost pecuniary benefit in connection with the optional corporate action;
- introduction of the processing of auctions to close the positions of a defaulting participant resulting from transactions concluded in securities trading The operation will be carried out in the event that KDPW_CCP S.A. terminates the participation agreement with the defaulting participant with immediate effect upon identification of an event of participant default. KDPW_CCP S.A. will, upon termination of the participation agreement with a clearing member with immediate effect, send to the other clearing members a proposal to open positions in order to close the position of the defaulting participant (KDPW_CCP S.A. may limit the number of clearing members to which it sends a proposal to open positions). A clearing member which has received a proposal to open positions will be entitled (but not obliged) to submit to KDPW_CCP S.A. an offer to conclude a transaction and will be bound by the offer until the end of the auction. Upon receipt of an offer, KDPW_CCP S.A. will either accept the terms of the received offer to conclude the transaction, and subsequently send a settlement order to the settlement institution to settle the transaction, or reject the offer;
- adjusting the scope of actions taken by KDPW_CCP S.A. in case of clearing member default. In particular, the regulations have been amended with a view to the planned start of the clearing of repo transactions, the introduction of buy-ins and auctions, as well as the obligation to pay compensation, refund the difference in the price of securities or pay a cash benefit under the additional buyer protection;
- the introduction of mandatory communications with clearing members via the GUI system in cases specified in the Rules of Transaction Clearing (Organised Trading) and the Detailed Rules of Transaction Clearing (Organised Trading). This will be additional communication, which is ultimately to be used by participants for certain activities in clearing systems;
- payment agents’ obligation to ensure the execution of payments to clearing members during the availability of the systems within which such function is performed;
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changes to the margining model. As part of initial margins, add-ons will be determined for wrong way risk (WWR) and liquidity and concentration risk (LCR). The concentration of positions and concentration limits will no longer be determined. The add-ons will be calculated on an ongoing basis, at clearing account level, separately for cash and derivatives positions. Accordingly, the initial margins required from clearing members will be determined using the risk parameters determined in accordance with the Detailed Rules of Transaction Clearing (Organised Trading) in respect of the members’ exposures including the following components:
- a requirement covering the member’s potential future exposure following the identification of an event of member default (SPAN® margin),
- a requirement reflecting the member’s current exposure as a result of actual market price movements (marking-to-market),
- a requirement covering risks arising from the liquidity of financial instruments and the concentration of positions to the extent of the member’s exposure (Liquidity and Concentration), and
- a requirement covering the risk arising from the correlation between a member’s exposure and its credit risk (Wrong Way Risk).
