1 SERVICIO DE ANOTACIONES EN CUENTA Y COMPENSACION Y LIQUIDACION DE VALORES DE LA BOLSA DE BILBAO DISCLOSURE FRAMEWORK FOR SECURITIES SETTLEMENT SYSTEMS March 2014
2 Table of contents I. BASIC INFORMATION... 3 II. RULES AND PROCEDURES OF THE SSS... 8 III. RELATIONSHIPS WITH PARTICIPANTS... 9 IV. RELATIONSHIPS WITH OTHER SSSs AND COMMERCIAL INTERMEDIARIES V. SECURITIES TRANSFERS, FUNDS TRANSFERS AND LINKAGES BETWEEN TRANSFERS VI. DEFAULT PROCEDURES VII. SECURITIES OVERDRAFTS, SECURITIES LENDING AND BACK- TO -BACK TRANSACTIONS VIII. RISK CONTROL MEASURES IX. OPERATIONAL RISKS X. GLOSSARY March
3 I. BASIC INFORMATION A. What is the name of the SSS? de la Bolsa de Bilbao (SAC). B. Where and in which time zone is the SSS located? The SAC is located in Bilbao (Spain) within the European Central Time Zone. Address : C/ José María Olábarri, Bilbao Telephone : Fax : C. What functions does the SSS perform? According to the Basque Government Decree 159/1999, March 9 th, the SAC performs the following main functions : To keep the book entry register and accounting of securities listed exclusively on Bilbao Stock Exchange and those securities under the process of admission to quotation on this Exchange. The clearing & settlement of securities listed only on Bilbao Stock Exchange. Please note the meaning of the following terms : Securities : as defined in Article 3 of the Royal Decree 1310/2005, November 4 th. Book-entry : as defined in Article 5 of the Royal Decree 116/1992, February 14 th. To keep the book-entry register and accounting of securities not listed on official secondary markets (by virtue point 7 of the Article 46 of the Royal Decree 116/1992, February 14 th ) and whose issuing entity is domiciled in the Basque Autonomous Community. To participate, in such a case, in the capital of the entities dedicated to the Clearing and Settlement, or the carrying of the Securities Book Entry activities. A participating method that Bilbao Stock Exchange will develop as agent of the service. To determine the schedule and procedure for the conversion of all those securities that are listed exclusively in Bilbao Stock Exchange in Book Entry Registers, according to the prevailing laws. March
4 In general, all those necessary or complementary functions to develop other more important ones, according to the Royal Decree 116/1992 of February 14 th, whose ordinances related to the activity of the Service will be put into practice, as it was established in point no. 3 of the 30 th article, and point no. 2 of 55 th article of that mentioned Royal Decree. 1. Does the SSS serve as a securities depository and/or provide securities settlement services? Yes, the SAC keeps the central book entry register and handle the clearing and settlement of funds and securities. a) What types of instrument are eligible for deposit at the SSS (e.g. debt, equities, warrants, etc.? Bonds issued by the Basque Government and other Autonomous Entities. Fixed-interest securities issued by private companies Equities and Warrants b) What types of instrument are eligible for transfer within the SSS? The above mentioned. c) Please describe whether eligible securities are dematerialised, immobilised or transferred physically. All securities operating in SAC are dematerialised and represented by bookentry notes. d) Does the SSS provide safekeeping for physical certificates? No. 2. Does the SSS provide cash accounts and/or provide funds transfers in conjunction with securities transfers? If so, in what currencies? The SAC does not provide cash accounts, but it does provide funds transfers. All funds transfers are effected in Euros, through the cash accounts that participants maintain at TARGET2-Banco de España. 3. Does the SSS provide a trade matching service? Do others provide such services for securities settled at the SSS? The SAC runs as an internal department of the Exchange. It operates only on those securities listed exclusively on Bilbao Stock Exchange. Thus, the trade matching is processed by the trading service and it is this department who is in charge of informing the SAC of the transactions to be cleared and settled. March
5 4. Does the SSS provide a trade netting services (as distinct from undertaking the settlement of securities transfers on a net basis)? Do others provide such services for securities settled at the SSS? In either case, what types of netting (bilateral or multilateral), if any, are performed? The SAC offers a trade netting service that calculates the net balance for each participant per settlement period. The settlement resulting from the trade netting is multilateral. 5. Does the SSS offer a securities lending or borrowing programme? Though there is no legal impediment to establish a securities lending or borrowing programme the market context has not required it, thus the assurance in the delivery of securities is made through the repurchase mechanism. 6. Does the SSS provide custodial and/or related services such as the collection of interest, dividends, principal or witholding tax reclamations? Which types of service are provided? The SAC through the position certificates informs its participants about the number of securities of the same issuing that have certain rights such as (dividends, interest, redemption, ) and informs the issuer and/or the paying agent as well. In some cases, when the issuer asks for it, the SAC performs the finance function of agent entity. 7. Does the SSS act as a central counterparty or principal to trasactions with its participants? No, the SAC doesn t act as a central counterparty with its participants. 8. Others? Please specify. Not applicable. D. What type of organisation is the SSS? The SAC is an internal department of Bilbao Stock Exchange and this latter is a public limited company. 1. Please indicate whether the SSS is a public sector or private sector entity. The Bilbao Stock Exchange is a private sector company. March
6 2. Please indicate whether the SSS is organised on a for-profit or a non-profit basis. Bilbao Stock Exchange being a public limited company operates on a for-profit basis. 3. What is the legal basis for the establishment of the SSS and for securities transfers made through it? National Law Art. 54, Spanish Market Act 24/1988 July 28 th. Royal Decree 116/92 February 14 th. Autonomous Law (Basque Government) Decree 159/1999, March 9 th E. Please describe and provide a diagram outlining the organisational and ownership structure of the SSS Board of Directors C.E.O. & Member of the Board Operations Dept. Legal Advisor Dept. Systems Dept. Administrative Dept. SAC March
7 1. Who are the owners of the SSS? The SAC belongs to the Bilbao Stock Exchange structure. It is owned by BME (Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas Financieros). 2. What entity or entities operate the SSS? Which functions of the SSS, if any, are outsourced to third parties? The SAC is backed by the technical & human resources of Bilbao Stock Exchange and do not outsource any task. 3. Does the SSS have a Board of Directors? Being the SAC an internal department, it has the same Board of Directors of Bilbao Stock Exchange. However, this service has its own responsible. a) What is its composition? The Bilbao Stock Exchange Board of Directors is formed by five members and the Secretary (non-member of the Board). b) What are its responsibilities? The general policy of the company, the annual budget and the supervision of the day to day running of the company. F. Please describe the financial resources of the SSS. 1. Amount of paid-in capital and retained earnings? Not applicable. The SAC hasn t got a financial structure. 2. Guarantees, insurance coverage or the other similar arrangements? The SAC has the guarantee arrangements to ensure the success of the settlement process. It is materialized in an insurance coverage regulated in the Royal Decree 116/92. On the basis of the figures provided by the SAC, it is the Basque Government who decides the total amount of this insurance coverage and the quota corresponding to each participant. 3. Credit lines or letters of credit? They do not exist. March
8 4. Powers to assess participants or equity holders? It is the Basque Government who decides a participant s membership in the SAC. Prior to this, the SAC elaborates a report stating that the participant meets the requirements established in its rules and procedures. On this basis the Basque Government decides. G. Please describe whether the SSS or its operator is subject to authorisation, supervision or oversight by an external authority. As an internal department, the SAC is subject to the supervision of the Bilbao Stock Exchange governance body and of the Basque Government as well, and in some cases of the National Securities Market Commission (CNMV). II. RULES AND PROCEDURES OF THE SSS A. Does the SSS maintain a complete list of the rules and procedures governing the rights and obligations of participants and the duties of the SSS? The SAC offers to its participants an updated information of the rules and procedures, releases and instructions, user guides and any piece of news concerning the legal and technical responsibilities not only of participants but of the same SAC as well. 1. How can participants obtain a copy of the rules and procedures? A complete set of all the documents mentioned above is given to the entity that requests its admission to the SAC. Instructions are sent to all participants and releases are published in the Bilbao Stock Exchange Bulletin. 2. Does other documentation provided to participants (e.g. user guides) have the same status as the rules and procedures? There are no more documentation with the same status than those mentioned above. 3. Describe the process for changing rules and procedures, including any need for regulatory approval. a) What authority is required, and how does this differ depending on the type of change involved? b) How are participants notified of changes in rules and procedures? c) Is there a procedure for participants or others to comment on proposed rule changes? March
9 The rules and procedures are published in the Releases and Instruction papers. Releases require a resolution passed by the CEO and the Basque Government and CNMV are informed. They are published in the Bilbao Stock Exchange Bulletin and they are sent to all participants. The Instructions, as they simply refer to technical aspects, only requires the approval of the CEO or a proxy. Of course any changes of Releases and Instructions are previously consulted with all participants. B. Are the rules and procedures binding on the SSS as well as its participants? Under what conditions and on whose authority can written rules and procedures be waived or suspended by the SSS? All legal rules (Law, Royal Decrees, Decrees) and procedures (Releases and Instructions) are binding on the SAC as well as for its participants. Under any condition written rules and procedures can be waived or suspended by the SAC in an unilateral way. III. RELATIONSHIPS WITH PARTICIPANTS A. Please describe the types of membership offered by the SSS. 1. How do the types differ? The following entities may be participants of the SAC : Banks and Saving Banks and other entities mentioned in a) number 2 Article 76 of the Royal Decree 116/92 Broker dealer firms and broker firms not members of the market. Foreing entities developing the same tasks as the SAC. The SCL and the SSS created by the Stock Exchanges by virtue of number 2 Article 54 of the Spanish Securities Market Act. March
10 According to the current procedures, one participant may authorize another to do the keeping of its book-entry register on its behalf, although in this case the authorizing participant is not exempted from its obligations either to the SAC or to its customers or other entities. 2. Within each membership category, are all participants subject to the same rules and procedures? Please describe important exceptions, including both differences in rules across participants and the rationale for these differences. All participants are subject to the same rules and procedures. B. Can participants establish accounts for their customers assets that are segregated from their own asset accounts at the SSS? The book-entry register of the SAC it s set up as a double level register: A first level formed by the central register in the SAC s charge, in which for each security identification code it s mantained separately the entitie s own account balance and the third party account balance. A second level, responsability of the participant entity, in which it s included the clients individualised balance. As a link between these two levels, we find the Register Reference which is basically a code that identifies each operation. 1. If so, is this accomplished through a single omnibus customer account or through a multiplicity of accounts and/or sub-accounts? The segregation of the third party accounts is being carried out through a multiplicity of accounts, althoug in some cases it s used the nominees accounts. 2. Is the segregation optional o compulsory? Compulsory. 3. Does the fact that a sub-account at the SSS bears the name of a third party give any rights to that third party as a participant under the rules of the system? No March
11 C. Please describe participant requirements for each type of membership. All the participant entities must have the control systems and the proper technical ways to develop the functions that the laws have conferred to them. These systems will be evaluated by the SAC who will issue some reports for the Basque Government and this one will decide the petition. 1. Are participants required to be domiciled or resident in a particular jurisdiction? Up to now, all the participant entities are Spanish. 2. Are participants required to be subject to a supervisory regime? If so, please describe. The participants of the SAC are under supervision of the Bilbao Stock Exchange, the Basque Government, and in such a case, the National Securities Market Commission (CNMV). 3. Are participants required to hold an equity stake in the SSS? Not applicable. 4. Are there financial, economic, personal or other requirements (e.g. minimum capital requirements, fit and proper tests)? If so, please describe. The requirements are those mentioned above, not being anything in addition to what it has been exposed in the prevailing legality. D. Does the SSS engage in oversight of its participants to ensure that their actions are in accordance with its rules and procedures? If so, please describe. The SAC supervises that the participant entities carry out a proper accounting register according with the prevailing laws. For this purpose, the balances and the Register References are being cashed- up periodically. E. Under what conditions can participants terminate their membership in the SSS? Does this mark the end of all liabilities of the participant? If not, please describe what liabilities could remain. The condition of participant terminates by: a) Renunciation. b) Loss of the legal condition that allowed its access to the Service. c) Lack of adaptation to the technical demands that impose some modifications or improvements introduced by the Service or the specific normative. March
12 d) To remain in delay of any debit payment incurred with the Bilbao Stock Exchange. e) To not reach the minimun levels of clearing and settlement that the Finance Department of the Basque Government sets up. f) Repeated nonfulfillment of its tasks in the clearing process. The loss of that condition will be resolved by the Finance Department, previous proceeding instruction where it must appear a report of the Stock Exchange. The Resolution will be published in the Bilbao Stock Exchange Bulletin. The suspension of participant entity for a determined period of time could take place when any of the previous causes from c) to f) happen, following the procedure exposed in the paragraph above. F. Under what conditions can the SSS terminate a participant s membership in the SSS? See previos paragraph. G. Please describe the scope of the SSS s liability to participants, including the standard of liability (negligence, gross negligence, wilful misconduct, strict liability or other), the force majeure standard, and any limitation to the scope of liability of the SSS (e.g. indirect or consequential damages). Where are these liabilities and their limitations set out (e.g. in statute or contract)? The nature of the relationship between the SAC and the participants is basically contractual, though it s submitted to some specific public regulations. Accordingly to this nature, the liability of the SAC to participants derives from the contract stipulated with all and each of them. The scope of this liability nevertheless, is extended, by virtue of the Royal Decree 116/1992, February 14 th and the Basque Government Decree, only to the damages caused to a participant directly for the SAC conduct. It is not liable for any indirect damages. Apart from this limitation, there is no other alteration to the general contractual liability regime. That means that the SAC is liable for negligence and of course, for wilful misconduct. March
13 IV. RELATIONSHIPS WITH OTHER SSSs AND COMMERCIAL INTERMEDIARIES A. Does the SSS maintain linkages (including sub-custodian or cash correspondent relationships) or other relationships with other SSSs? Nowadays the SAC has no direct or indirect linkages with other SSS though a new linkage procedure is under consideration through the SCL. 1. Please identify each of the other SSSs used and the type of securities transferred via the linkages. Not applicable. a) What is the name of the other SSS? Where is it located? Not applicable b) What securities are eligible for transfer via the linkage to the other SSS? Not applicable. c) Are transfers of securities made via the linkage to the other SSS limited to only those that are free of payment or are transfers against payment also made via the linkage to the other SSS? If against payment, please describe the timing of the transfers and the corresponding payments. Not applicable. d) Does the other SSS provide custody services to the SSS and, if so, who bears any credit or custody risks? Not applicable. B. Does the SSS use securities custodians (other than the other SSSs addressed in the previous question) and/or commercial cash correspondents? Please identify the custodians or cash correspondents used and the duties thath each performs. Not applicable. C. Please describe the standards used in approving or reviewing realtionships with other SSSs, custodians or cash correspondents, including any financial or operational requirements or the presence of insurance or public supervision. Not applicable D. Does the SSS advance funds or securities to or on behalf of other intermediaries such as issuing or paying agents? If so, please identify the circumstances in which such exposure could arise. Not applicable. March
14 E. Please describe measures in place to protect the SSS and its members against the failure of other SSSs or commercial intermediaries to meet obligations to the SSS, including risk controls, collateral or alternative sources of funds and securities. Not applicable. V. SECURITIES TRANSFERS, FUNDS TRANSFERS AND LINKAGES BETWEEN TRANSFERS A. Please discuss whether and how settlement instructions are matched between participants prior to processing by the SSS. 1. Is matching required for all transactions without exception? Yes. All transactions settled by SAC are traded on Bilbao Stock Exchange floor, once the outcry session is over, the trading services of Bilbao Stock Exchange inform the SAC of the total turnover traded and the breakdown by member firm. The member firm must report which participant will settle the transaction. The participant receives from the SAC all transactions to be settled and matched following the matching settlement instructions. The participant must confirm whether it accept or reject them. 2. What procedure is used when instructions do not match? Then the transaction will be allocated for settlement to the securities member firm who has acted as it broker. 3. Are matched settlement instructions binding on participants? Yes. a) If so, please describe the consequences of failure by participants to meet obligations (e.g. forced settlement, penalties, short positions). Sanctions may be taken as the consequences of failure by participants. Delays, unfulfilment and failure to make payments could mean the loss of a participant s membership status. However, the procedures the SAC has to resolve these failures are the following : Repurchase in case of securities delivery failure. Sale of the securities purchased in case of payment failure. In both cases the insurance coverage hedges the market price risk due to price shifts. March
15 b) Please describe whether this is a feature of the SSS s rules and procedures or of national law or regulations. The procedures described above are regulated on the Royal Decree 116/92. c) Please provide a time line indicating the points at which matched instructions become binding, as well as any pre-matching process that takes place. The SAC develops two different technical procedures, one for those transactions traded on equities and fixed-income and the other one when public debt is concerned. Due to the purpose of this report we will describe only the procedure on public debt, though it must be pointed out that the procedure on equities is similar to the one employed by the SCL. Transactions take place on Bilbao Stock Exchange floor in the morning of T (trading date), that very morning entities in charge of the settlement process will be indentified. Once the SAC has matched all transactions, participants are reported and they must confirm whether they accept or reject them before h of T. Afterwards the settlement account is set up so the cash transfer will become final in T+1 and participants will be informed of their own settlement account. Once a week (on Monday) all participants send to the SAC a magnetic tape called Cinta de Terceros in which all movements of their clients are recorded, the final trade volume has to correspond to the figure provided by the Central Book-entry Register. Each transaction will receive a Reference Register number and this will be the link of reference between the Central Register managed by the SAC and the detailed registers run by each participant. B. Are securities transferred within the SSS registered? All securities tranfers are registered within the SAC either in its own accounts or in third party accounts, according to the register system mentioned in paragraphs above. 1. Who is the registrar? The SAC is at the time the SSS and the CSD of the securities. 2. Is it normal practice to register the securities in the name of the SSS (or its nominee) or in the name of the beneficial owner? Are there instances in which securities housed within the SSS are registered to neither the SSS (or its nominee) nor the beneficial owner? March
16 The securities must always be registered under each beneficial owner and never under the name of the SAC. 3. If the SSS offers custodial services, will it hold securities registered in the name of the beneficial owner? Not applicable. 4. Under what circumstances does the SSS initiate registration of securities in the buyer s name? The registration of securities in the buyer s name follows the DVP principle, thus the final delivery takes place only if final payment occurs, that is to say, both circumstances occur the same day. 5. How long does the registration process typically take? Are participants notified when registration is complete? The registration process is a rapid batch process that takes an average of 15 minutes. The SAC informs daily to all participants about their accounts. 6. Can securities be transferred within the SSS before registration in the buyer s name is complete? If so, do the rules and procedures of the SSS provide for an unwind or reversal of such transfers in case of bankruptcy or other events which result in the buyer s name not being entered on the register? The securities cannot be transferred before their registration in the buyer s account. In any case, the operations made with purchased securities, will have their settlement conditioned to the correct settlement and register of those purchases. C. Please describe how securities transfers are processed within the SSS. 1. Please indicate whether the transfers are processed as debits and credits to members accounts or via some other method. The SAC registers the securities transfers resulting from the clearing of buyings and sellings, as debits and credits in the participant entities s accounts. 2. On a continous (real-time) basis, or in one or more batches? In general, it is a daily batch process. 3. If continuous, during what hours does the processing occur? If in batches, at what time or times is the processing initiated and completed? The batch process is done daily between and March
17 4. Do securities settlements occur daily? Please identify securities for which settlement occurs only on specific days of the week or month. The process of settlement for every security occurs daily. D. Please describe whether final funds transfers in conjunction with the SSS are made as debits and credits to balances held at the SSS, at one or more commercial banks, at the central bank, or via some other method. Cash settlement is always made through the accounts of the participants in TARGET2-Banco de España. Those participants that do not hold an account in TARGET2-Banco de España must arrange their settlement through an account in TARGET2-Banco de España of any other participant, always providing that the SAC is informed of this situation. The amounts to be debited or credited to the participants account are communicated to the TARGET2-Banco de España. 1. Does the SSS maintain cash accounts for its participants? Are these accounts equivalent to deposit accounts at a commercial or central bank or do they serve only as cash memorandum accounts? No, it dosen t. Now this procedure is being revised to reach a cash movement through the accounts that the participant entities have in the Banco de España. 2. On what entity (SSS or other) does the participant bear cash deposit risk? In any case the SAC can incur in this risk, this one is being taken by the commercial bank or their clients, according to the billateral arrangements established between them. 3. Under what circumstances does the SSS provide credit extensions or advances of funds to its participants and thereby expose itself to credit risk? Not applicable. In any circumstance. 4. How long can such credit extension last? How long do they typically last? Not applicable, March
18 E. Is the SSS a DVP system? If so, please describe the DVP model used according to the models outlined in the DVP Report (see the Introduction). Please also provide a diagram indicating the timing of events in the processing of securities and funds transfers in the SSS. Where the SSS provides more than one alternative for settlement processing, please provide a response for each alternative and indicate the relative importance of each alternative. The SSS managed by the SAC is a DVP system (model 2), that is to say, gross settlement of securities and net of cash, being final and inconditional both the securities transfer from the seller and the funds transfer from the buyer. There is also a settlement multilateral cycle (model 4) and bilateral cycles. 1. Are funds transfers and securities transfers processed within the same system or in different systems? If different, how are they linked? Fund transfers are carried out through the TARGET2-Banco de España. The SAC carries out the securities transfers in parallel with cash settlements, guaranteeing delivery against payment. a) Please describe whether each securities transfer is linked to a specific funds transfer on a trade-by-trade basis or on a net basis or via some other method. The SAC performs a gross settlement of securities and net of cash, in a way that it s made an estimation of the net amounts that have to be debited or credited to each entity, which is informed in the settlement account. b) Does the SSS split large transactions into multiple transactions or require participants to do so? No. 2. When do securities transfers and funds transfers become final? The funds and securities transfers are final in T + 1. a) At what time do securities transfers become final? After what event or events? The securities transfer becomes final and irrevocable in T + 1 at h., once the cash settlement has finished. b) At what time do funds tranfers become final? After what event or events? Does this timing allow for same-day retransfer of funds received in exchange for securities? The funds transfer is final and irrevocable at 11 h. of T + 1 when it s checked out that the buyer has balance and it s credited in the seller entitie s account. March
19 c) If final delivery of securities precedes the final transfer of funds, can participants dispose freely of such securities prior to funds finality? If so, what actions will be taken if funds are not received? Not applicable. d) If final delivery of funds precedes the final transfer of securities, can participants dispose freely of such funds prior to securities finality? If so, what actions will be taken if securities are not received? Not applicable. e) Does the timing of finality differ depending on the type of security transferred or the currency in which payment is to be made? Please describe. Up to now, all the securities are being settled according to the same procedure regardless the kind of security or currency (always in euros) it is. 3. Please discuss whether participants are notified of securities or funds transfers while they are still provisional, only when they are final, or both. In order to easy the settlement procedures to the participant entities, the SAC provides them with information of the conditions of their securities accounts and cash accounts in any moment, either while they are provisional or final. F. Does the SSS itself guarantee funds or securities transfers? The SAC guarantees that the purchaser will receive the securities if they are paid for, and also guarantees that the vendor will receive funds to the value of the sale if the securities have been previously delivered. 1. Under what circumstances and at what point are transfers guaranteed by the SSS? The SAC guarantees the settlement to the buyer or the seller that give cash or securities even if the compensation of the operation does not fulfill its duties. 2. What actions does the guarantee obligate the SSS to take? In case of nonfulfillment in the delivery of securities, the SAC starts immediately a procedure of re-purchase in behalf of the nonfulfilling entity. In case of failure in the delivery of cash, the SAC proceeds to the selling of the unpaid securities bought, charging against the nonfulfilling entitie s account the sanctions and the expenses caused. The collective guarantee covers the risk of difference in prices. March
20 3. Please indicate whether the guarantee is a feature of the SSS s rules and procedures or of national law or regulations. These matters are regulated by the Royal Decree 116/92. VI. DEFAULT PROCEDURES A. Please discuss the events or circumstances that would constitute default of a participant under the rules and procedures of the SSS or that would lead the SSS to make use of exceptional settlement arrangements or unwind procedures. 1. Failure by a participant to meet a test of its solvency under the applicable laws of its jurisdiction? 2. Failure to make payments or deliveries of securities within the time specified? 3. To the extent that the rules and procedures gran discretion in the determination of the use of default or other exceptional procedures, please discuss where the authority to exercise such discretion resides and the circumstances in which this authority would be used. A default is only constituted when there is a failure to make payments or deliveries of securities, in the moment that the participant should meet these obligations, that is to say, on settlement day. The reason behind this failure is not relevant for the SAC. The exceptional settlement rules are automatically put into effect. The operations never become unwound. B. What procedures are followed by the SSS once it has determined that a default event has occurred or that exceptional settlement arrangements are to be employed? 1. How and at what point are participants notified that this has occurred? The other participants are not necessarily informed on the failure of one participant. The SAC has the mechanisms to substitute this failure. Nevertheless, if a participant entity loses its condition, this fact it is communicated to the rest of participant entities. 2. Would the SSS be expected to continue to meet all its obligations to participants under these circumstances? Please discuss the resources in place to ensure that this would occur. (e.g. collateral, participants fund, insurance, loss-sharing arrangements, etc.) Yes. The SAC sells the unpaid securities to replace the quantity paid. A permanent guarantee held by the participant in the SAC s favour covers any price difference against the SAC. March
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