The Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001

PART IV U.K. Recognition requirements applying to clearing houses: default rules in respect of market contracts

Modifications etc. (not altering text)

C1 Sch. Pts. 3, 4 applied (with modifications) (26.8.2013) by The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) (No. 2) Regulations 2013 (S.I. 2013/1908), regs. 1(3)(c), 6(2)-(4)

Default rules in respect of market contracts U.K.

24.—(1) The clearing house must have default rules which, in the event of a member of the clearing house being or appearing to be unable to meet his obligations in respect of one or more market contracts, enable action to be taken to close out his position in relation to all unsettled market contracts to which he is a party. U.K.

(2) The rules may authorise the taking of the same or similar action where a member appears to be likely to become unable to meet his obligations in respect of one or more market contracts.

[F1 (3) Sub-paragraph (4) applies where the clearing house has arrangements for transacting business with, or in relation to common members of, a recognised investment exchange or another recognised clearing house.

(4) A recognised clearing house must have default rules which in the event of the investment exchange or the clearing house being or appearing to be unable to meet its obligations in respect of one or more market contracts, enable action to be taken in respect of unsettled market contracts to which that person is a party.]

Textual Amendments

F1 Sch. paras. 24(3)(4) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(g)

Commencement Information

I1 Sch. para. 24 in force at 1.12.2001, see reg. 2

Content of rules U.K.

25.—(1) The rules must provide— U.K.

(a) for all rights and liabilities of the defaulter under or in respect of unsettled market contracts to be discharged and for there to be paid by or to the defaulter such sum of money (if any) as may be determined in accordance with the rules;

(b) for the sums so payable by or to the defaulter in respect of different contracts [F2 entered into by the defaulter in one capacity for the purposes of section 187 of the Companies Act] to be aggregated or set off so as to produce a net sum;

[F3 (bb) if relevant, for that sum to be aggregated with, or set off against, any sum owed by or to the clearing house by or to AP under an indemnity given or reimbursement or similar obligation in respect of a margin set off agreement in which the defaulter chose to participate so as to produce a net sum.]

[F4 (c) for the net sum referred to in paragraph (b) or, if relevant, the net sum referred to in paragraph (bb)—

(i) if payable by the defaulter to the clearing house, to be set off against—

(aa) any property provided by or on behalf of the defaulter as cover for margin (or the proceeds of realisation of such property);

(bb) to the extent (if any) that any sum remains after set off under paragraph (aa), any default fund contribution provided by the defaulter remaining after any application of such contribution;

(ii) to the extent (if any) that any sum remains after set off under paragraph (i), to be paid from such other funds, including the default fund, or resources as the clearing house may apply under its default rules;

(iii) if payable by the clearing house to the defaulter, to be aggregated with—

(aa) any property provided by or on behalf of the defaulter as cover for margin (or the proceeds of realisation of such property);

(bb) any default fund contribution provided by the defaulter remaining after any application of such contribution; and]

(d) for the certification by or on behalf of the clearing house of the sum finally payable or, as the case may be, of the fact that no sum is payable.

[F5 (1A) In sub-paragraph (1), “margin set off agreement” means an agreement between the clearing house and AP permitting any eligible position to which the Participant Member is party with the clearing house and any eligible position to which the Participant Member is party with AP to be taken into account in calculating a net sum owed by or to the Participant Member to or by either the clearing house or AP and/or margin to be provided to, either or both, the clearing house and AP.

(1B) In sub-paragraph (1A)—

“AP” means a recognised investment exchange or another recognised clearing house of whom a Participant Member is a member;

“eligible position” means any position which may be included in the set off calculation;

“Participant Member” means a person who—

(a)

is a member of the clearing house;

(b)

is a member or participant of AP; and

(c)

chooses to participate, in accordance with the rules of the clearing house, in such agreement.

(1C) The property, contribution, funds or resources referred to in paragraph (1)(c), against which the net sum is to be set off (or with which it is to be aggregated) are subject to any unsatisfied claims arising out of the default of a defaulter before the default in relation to which the calculation is being made.]

(2) The reference in sub-paragraph (1) to the rights and liabilities of a defaulter under or in respect of an unsettled market contract includes (without prejudice to the generality of that provision) rights and liabilities arising in consequence of action taken under provisions of the rules authorising—

(a) the effecting by the clearing house of corresponding contracts in relation to unsettled market contracts to which the defaulter is party;

(b) the transfer of the defaulter’s position under an unsettled market contract to another member of the clearing house;

(c) the exercise by the clearing house of any option granted by an unsettled market contract.

(3) A “corresponding contract” means a contract on the same terms (except as to price or premium) as the market contract but under which the person who is the buyer under the market contract agrees to sell and the person who is the seller under the market contract agrees to buy.

(4) Sub-paragraph (3) applies with any necessary modifications in relation to a market contract which is not an agreement to sell.

(5) The reference in sub-paragraph (1) to the rights and liabilities of a defaulter under or in respect of an unsettled market contract does not include, where he acts as agent, rights or liabilities of his arising out of the relationship of principal and agent.

Textual Amendments

F2 Words in Sch. para. 25(1)(b) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(h)(i)

F3 Sch. para. 25(1)(bb) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(h)(ii)

F4 Sch. para. 25(1)(c) substituted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(h)(iii)

F5 Sch. para. 25(1A)-(1C) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(h)(iv)

Commencement Information

I2 Sch. para. 25 in force at 1.12.2001, see reg. 2

[F6 25A.   The rules of the clearing house must provide that in the event of a default, any default fund contribution provided by the defaulter shall only be used in accordance with paragraph 25(1)(c)(i) or (ii).] U.K.

Textual Amendments

F6 Sch. para. 25A inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(i)

Notification to other parties affected U.K.

26.  The clearing house must have adequate arrangements for ensuring that parties to unsettled market contracts with a defaulter are notified as soon as reasonably practicable of the default and of any decision taken under the rules in relation to contracts to which they are a party. U.K.

Commencement Information

I3 Sch. para. 26 in force at 1.12.2001, see reg. 2

Cooperation with other authorities U.K.

27.  The clearing house must be able and willing to cooperate, by the sharing of information and otherwise, with the Secretary of State, any relevant office-holder within the meaning of section 189 of the Companies Act, and any other authority or body having responsibility for any matter arising out of or connected with the default of a member of the clearing house [F7 or the default of a recognised investment exchange or another recognised clearing house]. U.K.

Textual Amendments

F7 Words in Sch. para. 27 inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(j)

Commencement Information

I4 Sch. para. 27 in force at 1.12.2001, see reg. 2

Margin U.K.

28.—(1) The rules of the clearing house must provide that in the event of a default, margin provided by the defaulter for his own account is not to be applied to meet a shortfall on a client account [F8 other than a client account of the defaulter]. U.K.

(2) This paragraph is without prejudice to the requirements of any rules relating to clients' money made by [F9 the FCA under sections 137A and 137B of the Act].

[F10 (3) For the purposes of this paragraph, “client account of the defaulter” means an account held by the clearing house in the name of the defaulter in which relevant transactions effected by the defaulter have been recorded.

(4) In sub-paragraph (3) “relevant transaction” has the same meaning as in regulation 16(1) of the Financial Markets and Insolvency Regulations 1991.]

Textual Amendments

F8 Words in Sch. para. 28(1) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(k)

F9 Words in Sch. para. 28 substituted (1.4.2013) by The Financial Services Act 2012 (Consequential Amendments and Transitional Provisions) Order 2013 (S.I. 2013/472), art. 1(1), Sch. 2 para. 36(d)(iv)

F10 Sch. paras. 28(3)(4) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(l)

Commencement Information

I5 Sch. para. 28 in force at 1.12.2001, see reg. 2