Rules of Transaction Clearing (non-organised trading)

In connection with the decision of the Polish Financial Supervision Authority of 7 May 2024 approving the amendments to the Rules of Transaction Clearing (non-organised trading) adopted in Resolution No. 17/596/23 of the KDPW_CCP S.A. Supervisory Board dated 14 June 2023 (subsequently amended by Resolution No. 17/626/24 of the KDPW_CCP Supervisory Board of 25 April 2024), the amendments entered into force on 16 July 2024.

The amendments to the regulations were 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 the auction operation 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; 
  • the introduction of a clause allowing for the modification of the terms of cleared transactions in connection with the cessation of the provision of the benchmark (WIBOR). KDPW_CCP S.A. will be entitled (acting on its own behalf and on behalf of clearing members on the basis of a granted power of attorney) to modify the terms of cleared transactions in order to adjust the cleared transactions to extraordinary circumstances which affect the cleared transactions and for which neither party is responsible, such as the change or cessation of the provision of the benchmark, the suspension of the benchmark or other extraordinary circumstances which affect the cleared transactions, as defined in the rules. The activation of the clause will require a statement by KDPW_CCP S.A. communicated to clearing members, containing details of the modification of transactions in accordance with the Rules of Transaction Clearing (non-organised trading) and the Detailed Rules of the OTC Clearing System, including the date on which the modification takes effect. The adjustment of the terms of a transaction may require KDPW_CCP S.A. to establish additional technical positions in the OTC clearing system in order to reflect the effects of the modification of the terms of the transaction in that system. Such positions will constitute the content of the transaction and will not create a new legal relationship. They will only be of an operational nature and will therefore not result in an increase in the nominal value of the transaction whose terms are being modified. As a result of the modification of the terms of a transaction, KDPW_CCP S.A. will determine the amount of benefits resulting from the change in the valuation of the transaction. Detailed changes to the terms of transactions (including how any payments between the parties to the transaction are agreed, and how the above-mentioned operational positions are established and recorded) will need to be set out in the Detailed Rules of the OTC Clearing System. Consequently, in the event of extraordinary circumstances, it will be necessary to adjust cleared transactions to such circumstances at the level of those specific regulations (additional amendments to the Detailed Rules of the OTC Clearing System are required). KDPW_CCP S.A. will not be obliged to compensate for any damage caused by actions taken to adjust the terms of transactions, unless caused by KDPW_CCP S.A.’s wilful misconduct or gross negligence;
  • the introduction of the principle that KDPW_CCP S.A. will use assets contributed to the OTC guarantee fund to perform the obligation of the defaulting participant, taking into account the appropriate allocation of the assets, which will depend on the participants’ involvement in the auction operation conducted by KDPW_CCP S.A., i.e.:
    • first, KDPW_CCP S.A. will use contributions made by those participants who did not participate in the auction or did not submit an offer as required under the Detailed Rules of the OTC Clearing System,
    • second, KDPW_CCP S.A. will use contributions made by those participants whose offers were not accepted by KDPW_CCP S.A., with the exception of offers corresponding to the terms of the offer which was accepted by KDPW_CCP S.A,
    • lastly, KDPW_CCP S.A. will use contributions made by those participants whose offers were accepted by KDPW_CCP S.A. or corresponded to the terms of the offers accepted by KDPW_CCP S.A. but were rejected for reasons beyond the control of the clearing members who made them.

The above rules will provide an incentive for participants to participate in an auction operation organised in the event of identification of clearing member default;
 

• 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);
• 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.

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Furthermore, in connection with the above-mentioned decision, the Management Board of KDPW_CCP S.A. announces that KDPW_CCP S.A. is suspending the provision in the OTC clearing system of the service of clearing sell transactions and repo and sell/buy-back transactions concluded in non-organised trading (OTC) in debt instruments, on the terms set out in the existing Rules of Transaction Clearing (non-organised trading).

The clearing service for these transactions in the OTC clearing system has remained inactive in the long term, as participants do not use this option, and it now requires further adjustments. Sell transactions and repo and sell/buy-back transactions in debt instruments are cleared as part of the service offered in another clearing system organised by KDPW_CCP S.A. under the Rules of Transaction Clearing (organised trading). Resolution No. 12/24 of the KDPW_CCP S.A. Management Board dated 2 July 2024 on this matter entered into force on 16 July 2024. As the Rules of Transaction Clearing (non-organised trading) also need to be amended, the service will be suspended until the amendments to the Rules of Transaction Clearing (non-organised trading) under Resolution No. 32/641/24 of the KDPW_CCP S.A. Supervisory Board dated 26 June 2024 come into force; as of the effective date of these amendments, KDPW_CCP S.A. will definitively cease to provide the service. 

In connection with the decision of the Polish Financial Supervision Authority (KNF) of 27 October 2023 on the approval of the amendments to the Rules of Transaction Clearing (non-organised trading) made by Resolution No. 27/606/23 of the Supervisory Board of KDPW_CCP S.A. of 25 September 2023, the amendments came into force on 1 January 2024.

The amendments to the Table of Fees in Appendix 1 to the Rules of Transaction Clearing (non-organised trading), concern the fee for management and administration of assets paid in by clearing members as margins and contributions to the OTC fund, and are as follows:

1. in the case of the fee for management and administration of cash assets paid to the OTC fund and assets paid as margins – the variable fee has been reduced from 20% to 18% of income generated on behalf of the participant from the management of the collateral;
2. in the case of the fee charged for cash contributions in EUR:

• if the deposit interest rate published by the European Central Bank is positive or nil – the participants will pay fees equal to the EUR equivalent of the product of 1/360, a rate of 0.2%, and the basis used for the calculation of the fee, where the fee amount is no less than the equivalent of EUR 50 for a given calendar month;  
• if the deposit interest rate published by the European Central Bank is negative – the provisions in the Table of Fees are not amended.

Further to the decision of the Polish Financial Supervision Authority of 14 October 2021 approving amendments to the Rules of Transaction Clearing (non-organised trading) adopted in Resolution No. 50/533/21 of the Supervisory Board of KDPW_CCP S.A. dated 13 September 2021 the amendments entered into force on 1 January 2022.

The amendments in the Table of Fees defined in Appendix No. 1 to the Rules of Transaction Clearing (non-organised trading) concern fees for the management and administration of assets posted by clearing members as margins and contributions to relevant funds. The amendment is designed to introduce a fee structure which is universal regardless of the macroeconomic situation and interest rates. As a result, the structure and amount of the fee for the management and administration of assets contributed to the relevant fund and assets posted as margins has been modified and will consist of a fixed part calculated on the value of collateral deposited in cash, equal to 0.07% (a reduction from the current level of 0.1% per quarter) multiplied by the basis for calculating the fee in a given quarter, as well as a variable part in the amount of 20% of profits generated for the participants from the management of the collateral. The fee charged on posted securities will be reduced from 0.1% to 0.07% per quarter.

Temporary reduction of the fee for the management and administration of assets posted as contributions to the OTC guarantee fund and asstes posted as margins (point 5.1 of the Table of Fees)
The reduction of the fees applied from 1 January 2021 to 31 December 2021.
Resolution No. 11/494/21 of the KDPW_CCP Supervisory Board dated 29 March 2021 amended by Resolution No. 31/514/21 of the KDPW_CCP Supervisory Board dated 29 June 2021

Reduction of the fee for the participation type of “non-clearing member”. The fee for the year 2021 shall be PLN 5,000, If a participation agreement for the participation type of “non-clearing member” is concluded in the first half of 2021, the fee for the year shall be equal to the full amount of the reduced fee (PLN 5,000), and if in the second half of 2021, the fee shall be equal to ½ of the reduced fee (PLN 2,500). (point 1.2 of the Table of Fees)
Resolution No. 13/496/21 of the KDPW_CCP Supervisory Board dated 29 March 2021.

Temporary reduction of the fee for management and administration of cash assets (other than cash assets in EUR) paid in as contributions to the OTC guarantee fund and posted as margins (point 5.2 of the Table of Fees)
The reduction of the fees applied from 1 July 2021 to 31 December 2021.
Resolution No. 33/516/21 of the KDPW_CCP Supervisory Board dated 29 June 2021.

Temporary reduction of the fee for the management and administration of cash posted as contributions to the OTC guarantee fund and cash posted as margins (point 5.2 of the Table of Fees)
The reduction of the fees applied from 1 July 2020 to 31 December 2020.
Resolution No. 28/436/20 of the KDPW_CCP Supervisory Board dated 15 May 2020.

In connection with the decision of the Polish Financial Supervision Authority of 23 October 2020 approving amendments to the Rules of Transaction Clearing (non-organised trading) adopted in Resolution No. 8/416/20 of the Supervisory Board of KDPW_CCP S.A. dated 4 March 2020 amended by Resolution No. 54/462/20 of the Supervisory Board of KDPW_CCP S.A. dated 6 August 2020 the Management Board of KDPW_CCP S.A. announces that the amendments entered into force on 1 December 2020. The amendments of the Rules of Transaction Clearing (non-organised trading) under those Resolutions aim to:

• introduce an additional channel of electronic communications (GUI system) to the regulations, which not only gives users access to the clearing system but also supports the submission of information and declarations in electronic format in the system as referred to in the Rules of Transaction Clearing (non-organised trading) or regulations issued thereunder, including in particular orders to open or close clearing accounts, orders concerning collateral, and (at a later date) orders concerning position transfers. The GUI system in its proposed form (i.e., including the aforementioned functionalities) will be available on the KDPW_CCP S.A. website under a dedicated agreement to be proposed by KDPW_CCP (the content of the new agreement and the new access request applications required to join the GUI system in its proposed form will be communicated at a later date). It should be noted that the SWI system will continue to operate as the mandatory communication system for participants while the GUI system, including the functionalities defined in the KDPW_CCP regulations and operated via the KDPW S.A. system, will be optional;
• introduce provisions governing the terms and conditions of communications in special circumstances, including in the event of a contingency or other significant threats, such as the current epidemic threat. Consequently, in such circumstances, derogations will be allowed from the requirements of the Rules of Transaction Clearing (non-organised trading) or regulations issued thereunder regarding the format of documents containing declarations or information, subject to mutual consent of KDPW_CCP and the participant. The Management Board of KDPW_CCP S.A. may, in its Resolution, define circumstances where declarations or information should be submitted in electronic format via the SWI system or the GUI system or in writing;
• introduce provisions authorising the use, in the event of default of a clearing member participating in more than one clearing system organised by KDPW_CCP, of any surplus which:
  • remains after the payment of the member’s debits due by virtue of its participation in another system organised by KDPW_CCP;
  • represents such member’s own funds; or
  • has been contributed by that member as collateral securing all transactions cleared by such member or transactions concluded and cleared on the member’s account. In that case, in accordance with ESMA guidance, KDPW_CCP should freely pay any debits arising from the clearing of transactions by using also such own funds of the member rather than returning such funds and using contributions of other members posted in the fund. Consequently, such funds should constitute part of the of each transaction clearing liquidity guarantee system. Therefore, such surplus will, once posted in the relevant account managed for KDPW_CCP, constitute financial collateral contributed as initial deposit to each of the systems;
• introduce other amendments of editorial nature.

In connection with the decision of the Polish Financial Supervision Authority of 15 June 2020 approving amendments to the Rules of Transaction Clearing (non-organised trading) adopted in Resolution No. 26/434/20 of the Supervisory Board of KDPW_CCP S.A. dated 15 May 2020, entered into force on 1 July 2020.

The amendments concern the Table of Fees laid out in Appendix 1 to the Rules of Transaction Clearing (non-organised trading), including:

• fees for the management and administration of cash posted as contributions to the relevant fund and cash posted as margins (excluding cash in EUR) – change of the minimum fee threshold;
• fees charged on posted securities – reduction of the fee from 0.2% to 0.1% per quarter and removal of maximum and minimum fee amounts.

In connection with Resolution No. 28/436/20 of the Supervisory Board of KDPW_CCP S.A. dated 15 May 2020, the fee for the management and administration of cash posted as contributions to the OTC guarantee fund and cash posted as margins, referred to in point 5.2 of the Table of Fees, will be reduced from the effective date of the amendments of the Table of Fees under Resolution No. 26/434/20 of the Supervisory Board of KDPW_CCP S.A. to 31 December 2020 as follows: if the amount of the fee equal to 0.1% times the basis for the calculation of the fee in a quarter is more than 100% of the income earned for the participant in the quarter, the fee charged to the participant for the quarter will be equal to 100% of such income.

Temporary reduction of the fee for the management and administration of assets deposited as contributions to the OTC guarantee fund and assets posted as deposits or margins (point 5.1 of the Table of Fees))
The reduction of the fees applied from 1 January 2019 to 29 February 2020.
Resolution No. 4/351/19 of the KDPW_CCP S.A. Supervisory Board dated 31 January 2019 amended by Resolution No. 49/396/19 of the KDPW_CCP Supervisory Board dated 23 September 2019.

Temporary waiver of the fees clearing of EUR transactions in KDPW_CCP (point 2.1 of the Table of Fees)
The waiver of the fee applied from 1 January 2019 to 29 February 2020.
Resolution No. 5/352/19 of the KDPW_CCP S.A. Supervisory Board dated 31 January 2019 amended by Resolution No. 56/403/19 of the KDPW_CCP Supervisory Board dated 23 September 2019.

Amendments of the Rules of Transactions Clearing (non-organised trading) entered into force on 1 October 2019 following the decision of the Polish Financial Supervision Authority (KNF) of 5 September 2019 approving the amendments adopted under Resolution No. 43/345/18 of the KDPW_CCP S.A. Supervisory Board dated 21 December 2018, as amended by Resolution No. 38/385/19 of the KDPW_CCP S.A. Supervisory Board dated 17 June 2019 and Resolution No. 47/394/19 of the KDPW_CCP S.A. Supervisory Board dated 12 August 2019.

The following modifications are to be expected as a result of the entry into force of the aforementioned amendments to the Rules of Transaction Clearing (non-organised trading):

• clearing members’ required contributions to the OTC guarantee fund managed by KDPW_CCP will be updated on a daily basis,
• the methodology of calculating the fund value and the participants’ contributions will be modified,
• additional margins will no longer be required,
• the maximum value of the fund will no longer be determined,
• the first (initial) contribution to the fund will be adjusted,
• a single institution code will be used for the purposes of participation in the fund,
• certain matters concerning clearing member default will be clarified in the regulations,
• the amount of the flat-rate withholding tax charged to non-resident clearing members will be defined.