NASDAQ OMX Clearing. Investor Risks. 1 Introduction. 2 Background. Version 1.1/

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1 Version 1.1/ NASDAQ OMX Clearing Investor Risks 1 Introduction This document describes the levels of protection and the costs associated with the different levels of segregation offered by, and certain risks that are associated with the process of clearing derivatives through, NASDAQ OMX Clearing AB ( NOMX ), based on the Clearing Rules of NASDAQ OMX Derivatives Market and the Clearing Rules of NASDAQ OMX Commodity Derivatives (together, the Rules ). The document covers risks that might arise to a client through its relationships with, among others, NOMX and Clearing Members, under the various clearing alternatives that NOMX offers. This report does not deal with other kinds of risks that are related to trading in derivatives, such as market risk, leverage risk and political risk. The information on the various clearing models and risks scenarios should be relevant regardless of which law applies. However, the outline of the consequences of these risk scenarios is based on Swedish law, although other jurisdictions may apply in a particular case, possibly entailing a different outcome. This document does not form part of the contractual documentation between NOMX and its counterparties. While the Rules are legally binding documents between NOMX and its counterparties, the purpose of this document is only to provide such counterparties, as well as such end-clients that are not counterparties to NOMX, with additional information on risks which are connected to the clearing process. Although this document has been prepared on the basis of the best information available at the moment of preparation, NOMX accepts no liability for any decision taken on the basis of this document. This document has been prepared on the basis of, and reflects solely, the law and the risks identified as at the date hereof, and the Rules as intended to be implemented upon NOMX s EMIR approval. 2 Background NOMX offers trading in and clearing of equity and fixed-income derivative instruments, such as options, forwards, futures and swaps with mainly Nordic underlying assets ( Financial Derivatives ), as well as certain commodity instruments ( Commodity Derivatives ). While both Financial Derivatives and Commodity Derivatives are cleared through NOMX, there are separate rule books, one governing the clearing of Financial Derivatives (the Financial Rulebook ), and one the clearing of Commodity Derivatives (the Commodities Rulebook ). Clearing members are therefore either members under the Financial Rulebook ( Financial Clearing Members ) and/or under the Commodities Rulebook ( Commodities Clearing Members, and together with Financial Clearing Members, Clearing Members ). Financial Clearing Members may under certain circumstances clear Commodity Derivatives under the Financial Rulebook. NOMX acts as central counterparty in respect of transactions entered into between two parties outside of NOMX in instruments which NOMX accepts for clearing. For the purposes of this document, such transactions entered into outside NOMX are referred to as Transactions. On acceptance of any such Transaction for clearing and upon 1

2 registration of such Transaction NOMX becomes the seller to every buyer and a buyer to every seller of the original Transaction (the new transactions between NOMX and the original parties being referred to as Clearing Transactions 1 ). For persons who are not Clearing Members, there are a number of options on how to access NOMX s clearing services via the accounts described below. However, each such person (the client ) must have a clearing member (the Clearing Member ) to actually open the relevant account. For some of the accounts set out below (namely the Omnibus Account set out in paragraph 3, the Single Client Account set out in paragraph 4 and the Individual Client Segregated Account set out in paragraph 5), only the Clearing Member will have any legal relationship with NOMX. The client will always have an agreement with the relevant Clearing Member, which will vary from Clearing Member to Clearing Member but will contain two main elements: (i) the Clearing Member s undertaking to clear the client s transactions and the Clearing Member s provision of collateral in connection therewith and (ii) the Clearing Member s taking of collateral from the client. However, for some of the accounts set out below (namely the Indirect Pledge Account set out in paragraph 6, the Direct Pledge Account set out in paragraph 7 and the Clearing Client s Clearing Account set out in paragraph 8), the client will have a direct legal relationship with NOMX via a tripartite agreement between NOMX, the client and the relevant Clearing Member. As security for the Clearing Transactions recorded on these accounts, the Clearing Member, Direct Pledging Customer and Clearing Client, must provide collateral to NOMX in the form of cash or securities. Moreover, the Clearing Members (and in certain circumstances the clients) must as an additional security contribute to the default fund. In certain cases, a Financial Clearing Member must also contribute to the loss sharing pool. 2.1 NOMX s capital, close-out netting in NOMX default and applicable Insolvency Law NOMX has a Default Fund into which Clearing Members (and in certain circumstances clients) contribute that is intended to contain sufficient assets to enable NOMX to withstand, under extreme but plausible market conditions, losses in respect of either the largest counterparty or of the second and third largest counterparty combined (if this sum of combined exposure is larger). In addition, NOMX holds its own regulatory capital which secures uninterrupted business activity or an orderly winding down process while covering potential losses due to operational risks. The aim of this capital structure is to mitigate the risk of an insolvency of NOMX. However, the Rules set out what will happen in the event of NOMX s insolvency. In summary, all outstanding Clearing Transactions held by a counterparty with NOMX are automatically terminated when NOMX is placed in insolvent liquidation. The value of the terminated transaction shall be calculated on the basis of the latest listed price for the relevant series at the time of termination, if available, and such values aggregated and netted to provide one or more close-out amounts for all relevant transactions, taking into account relevant segregation requirements (the Termination Amount(s) ). Once a Termination Amount has been calculated, it will be paid between the counterparty and NOMX. 1 In the Financial Rulebook, Clearing Transactions are referred to as Contracts. 2

3 It should be noted that collateral is posted to NOMX by way of title transfer in the case of cash and a pledge in the case of securities. Therefore, as title to securities remains with the counterparty, these should not form part of NOMX s estate in the event of its insolvency. NOMX is a Swedish company, with a Norwegian branch. However, since the branch is not an independent legal person and NOMX is the counterparty in relation to all rights and obligations under the Rules, the insolvency of NOMX would therefore be governed by Swedish law. 3 Omnibus Account 3.1 Basic Features An Omnibus Account is administered by a Clearing Member as account holder for such Clearing Member s clearing of Transactions on behalf of such group of clients that have opted for such account. The Omnibus Account evidences all Clearing Transactions registered on such account and reflects the outstanding Clearing Transactions attributable to such group of clients. A Clearing Member may operate more than one Omnibus Account Margin/Collateral NOMX will open a Margin Requirement Account for the margin calculation with respect to each Omnibus Account. A Clearing Member must open a Collateral Custody Account for the provision of collateral in respect of each Margin Requirement Account opened for it. Each Omnibus Account must be fully collateralised (by the relevant Clearing Member) by reference to the Margin Requirement of the outstanding Clearing Transactions on such Omnibus Account. The collateral provided in respect of one Omnibus Account cannot be used to collateralise or meet the losses attributable to any other Omnibus Account (or any other account) or meet the losses attributable to another client (except clients in the same Omnibus Account), Clearing Member or NOMX. Although collateral is transferred (in the case of cash) and pledged (in the case of securities) to NOMX, and held by NOMX on a commingled basis at the level of the relevant bank account or CSD account, the type of collateral held for each Clearing Member in respect of each Omnibus Account s collateral custody account is specifically recorded by NOMX, by way of entry in a custody account held in the name of the Clearing Member and associated with the Omnibus Account. However, NOMX will not recognise the interests of any particular client within that Omnibus Account to any particular assets. Accordingly, this account is regarded as an omnibus segregated account for the purposes of EMIR Settlement Cash settlement is performed on a daily basis. For Financial Clearing Members, client and house flows are separated but all client cash settlements are aggregated to one net amount per member, currency and settlement day. For Commodities Clearing Members, there is the option to either perform cash settlement per client 3

4 3.2 Risks account or aggregated cash settlement to one netted client amount per day and currency. Under the Financial Rulebook, physical settlement of securities takes place on a daily basis in the relevant CSDs. Client and house flows are separated. Under the Commodities Rulebook, physical settlement only occurs in relation to carbon allowances and electricity certificates Default Fund Contributions The Clearing Member contributes to the default fund in accordance with the default fund rules Porting If all clients whose positions are represented in an Omnibus Account have entered into arrangements with the same back-up clearing member, it may be possible for an omnibus account to be ported to such back-up clearing member in the event of the original Clearing Member s default. The main risk for a client who has opted for an Omnibus Account is the default of the relevant Clearing Member. In the event of such a default, the following process will be followed: 1) NOMX will try to port the Omnibus Account to a new Clearing Member. However, as set out in paragraph above, this will only be possible where agreement has been reached between all the clients represented in the Omnibus Account and the new Clearing Member. There is a risk that it will not be possible for such agreement to be reached in the necessary time frame 2 ; 2) Where the Omnibus Account cannot be ported to a new Clearing Member, NOMX will close out the Clearing Member s Clearing Transactions (including those held in an Omnibus Account) and realise collateral. In connection with this process, a positive balance on an Omnibus Account may not be netted or set-off against a negative balance on the member s House Account. Any positive balance on the Omnibus Account will be returned to the Clearing Member (or its bankruptcy estate, if relevant) for the account of the relevant clients. Where possible, this payment will be ringfenced so it is not available to the Clearing Member s other creditors. This means that any loss arising on the Omnibus Account is mutualised across all the clients represented therein. Whether or not the above processes will be respected on the insolvency of the relevant Clearing Member will depend on the insolvency law in the jurisdiction of the relevant Clearing Member. 2 The Rules allow at least a 24 hour window for porting to occur. 4

5 3.3 Fees NOMX applies fees per registered transaction. Different fees may apply to different types of transactions. There are no fees for opening a particular clearing account, although a standard fee applies for opening any custody account. All fees are set out in the fee list available at NOMX s website and from NOMX. 4 Single Client Account ( SCA ) 4.1 Basic Features This account is only available for clearing under the Financial Rulebook. An SCA is an integrated trading and clearing account administered by a Clearing Member as account holder for such Clearing Member s clearing of Transactions on behalf of an individual client that has opted for such account. For the purposes of the Rules, an SCA is regarded as a sub-account of an Omnibus Account. The SCA evidences all Clearing Transactions registered on such account and reflects the outstanding Clearing Transactions attributable to such individual client. A Clearing Member must operate one separate SCA for each client that has opted for such account. In the event that a client has more than one SCA, whether or not with different Clearing Members, NOMX shall not be entitled to combine or consolidate the balances on such SCAs (or on any other account) Margin/Collateral An SCA shall be regarded as a sub-account of an Omnibus Account. NOMX will therefore open a Margin Requirement Account for margin calculation with respect to the relevant Omnibus Account, including the SCA. Each SCA must be fully collateralised by reference to the Margin Requirement of the open positions on such SCA, which shall be calculated on a net aggregate position basis across all Clearing Transactions credited to the SCA (which will be for a single client only), but on a gross basis vis-à-vis the connected Omnibus Account. As the SCA is regarded as a sub-account of an Omnibus Account, the collateral provided in respect of one SCA cannot be used to collateralise or meet the losses attributable to a different Omnibus Account (or any other account) or meet the losses attributable to another client (except clients in the same Omnibus Account), Clearing Member or NOMX. However, Collateral provided in respect of an SCA may be used to cover losses of clients within the Omnibus Account as a whole. Although collateral is transferred (in the case of cash) and pledged (in the case of securities) to NOMX, and held by NOMX on a commingled basis at the level of the relevant bank account or CSD account, the type of collateral held for each Clearing Member in respect of each Omnibus Account s collateral custody account is specifically recorded by NOMX, by way of entry in a custody account held in the name of the Clearing Member and associated with the Omnibus Account. However, NOMX will not recognise the interests of a particular client holding an SCA within that Omnibus Account to any particular assets, as these assets will be posted on 5

6 4.2 Risks 4.3 Fees the custody account opened for the Omnibus Account as a whole, for which there is no segregation by client (see section above). Accordingly, this account is regarded as an omnibus segregated account for the purposes of EMIR Settlement As an SCA is regarded as a sub-account of an Omnibus Account for the purposes of the Rules, please refer to the provisions in respect of settlement in relation to Omnibus Accounts under paragraph above Default Fund Contributions As an SCA is regarded as a sub-account of an Omnibus Account for the purposes of the Rules, please refer to the provisions in respect of default fund contributions for Omnibus Accounts under paragraph above Porting As an SCA is regarded as a sub-account of an Omnibus Account for the purposes of the Rules, please refer to the provisions in respect of porting of Omnibus Accounts under paragraph above. As an SCA is regarded as a sub-account of an Omnibus Account for the purposes of the Rules, please refer to the provisions in respect of risks in relation to Omnibus Accounts under paragraph 3.2 above. NOMX applies fees per registered transaction. Different fees may apply to different types of transactions. There are no fees for opening a particular clearing account, although a standard fee applies for opening any custody account. All fees are set out in the fee list available at NOMX s website and from NOMX. 5 Individual Client Segregated Account ( ICA ) 5.1 Basic Features An ICA is administered by a Clearing Member as account holder for a Clearing Member s clearing of Transactions on behalf of an individual client that has opted for such account. The ICA evidences all Clearing Transactions registered on such account and reflects the outstanding Clearing Transactions attributable to such individual client. A Clearing Member must operate one separate ICA for each client that has opted for such account. In the event that a Client has more than one ICA, whether or not with different Clearing Members, NOMX shall not be entitled to combine or consolidate the balances on such ICAs (or on any other account) Margin/Collateral NOMX will open a Margin Requirement Account for the margin calculation with respect to each Individual Client Account. A Clearing Member must open a Collateral Custody Account for the provision of collateral in respect of each Margin Requirement Account opened for it. 6

7 5.2 Risks Each ICA must be fully collateralised by reference to the Margin Requirement of the outstanding Clearing Transactions on such account, which shall be calculated on a net aggregate position basis across all Clearing Transactions credited to the ICA (which will be for a single client only). The specific collateral provided in respect of one ICA shall not be used to collateralise or to meet the losses attributable to any other ICA (or any other account) or to meet the losses attributable to another client, Clearing Member or NOMX. The collateral is provided by the Clearing Member to NOMX. Although it is transferred (in the case of cash) and pledged (in the case of securities) to NOMX, and held by NOMX on a commingled basis at the level of the relevant bank account or CSD account, the type of collateral held for the Clearing Member on behalf of each client holding an ICA is specifically recorded by NOMX in its books and records, by way of entry on a custody account that is held in the name of the Clearing Member and associated with such ICA. Accordingly, this account is regarded as an individual segregated account for the purposes of EMIR Settlement Cash settlement is performed on a daily basis. Client and house flows are separated but all client cash settlements are aggregated to a single net amount per member, currency and settlement day. Under the Financial Rulebook, physical settlement of securities takes place on a daily basis in the relevant CSDs. Client and house flows are separated. Under the Commodities Rulebook, physical settlement only occurs in relation to carbon allowances and electricity certificates Default Fund Contributions The Clearing Member contributes to the default fund in accordance with the default fund rules Porting The client can appoint a back-up clearing member in the account agreements when the ICA is initially opened (or at a later date). The intention is that, in the event of the original Clearing Member s default, the positions and collateral connected to an ICA can be ported to such back-up clearing member. The main risk for a client who has opted for an ICA is the default of the relevant Clearing Member. In the event of such a default, the following process will be followed: 1) NOMX will try to port the ICA to a new Clearing Member. This will only be possible where agreement has been reached between the client and the new Clearing Member. There is a risk that it will not be possible for such agreement to be reached in the necessary time frame 3, although as only one client is involved in this process it is more 3 The Rules allow at least a 24 hour window for porting to occur. 7

8 5.3 Fees likely that porting will be available on an ICA than it is in respect of an Omnibus Account; 2) Where the ICA cannot be ported to a new Clearing Member, NOMX will close out the Clearing Member s Clearing Transactions (including those held in an ICA) and realise collateral. In connection with this process, a positive balance on an ICA may not be netted or set-off against a negative balance on the member s other accounts. Any positive balance on the ICA will be returned directly to the client. In the unlikely event that NOMX does not know the identity of the client, this balance will be returned to the Clearing Member (or its bankruptcy estate, if relevant) for the account of the client. This means that the client will not share in any losses incurred by the Clearing Member on any other account. Whether or not the above processes will be respected on the insolvency of the relevant Clearing Member will depend on the insolvency law in the jurisdiction of the relevant Clearing Member. NOMX applies fees per registered transaction. Different fees may apply to different types of transactions. There are no fees for opening a particular clearing account, although a standard fee applies for opening any custody account. All fees are set out in the fee list available at NOMX s website and from NOMX. 6 Indirect Pledge Account ( IDP Account ) 6.1 Basic Features This account is only available for clearing under the Financial Rulebook. A client who opens an Indirect Pledge Account is called an Indirect Pledging Customer. An Indirect Pledging Customer shall have an IDP Account that is an integrated trading and clearing account (administered by the Clearing Member acting both as a Trading Account Administrator and Clearing Account Administrator). The IDP Account evidences all Clearing Transactions registered on such account and reflects the outstanding Clearing Transactions to which the Indirect Pledging Customer is counterparty. In the event that an Indirect Pledging Customer has more than one IDP Account with different Clearing Members, NOMX shall not be entitled to combine or consolidate the balances on such Indirect Pledge Accounts (or on any other account) Margin/Collateral NOMX will open a Margin Requirement Account for margin calculation with respect to all IDP Accounts which the Clearing Member administers. A Clearing Member must open a Collateral Custody Account for the provision of collateral in respect of each Margin Requirement Account opened for it. The IDP Account must be fully collateralised by reference to the outstanding Clearing Transactions on such integrated trading and clearing account. Indirect Pledging Customers holding such an integrated trading and clearing account must provide collateral to the relevant Clearing Member which in turn provides collateral to NOMX. The Indirect Pledging Customer does not provide collateral directly to 8

9 6.2 Risks NOMX. The Indirect Pledging Customer must provide collateral to the Clearing Member. Such collateral must comply with the Collateral List. The Clearing Member provides collateral to NOMX in the form of cash (title transfer) and/or securities (pledged). The collateral provided by a Clearing Member in respect of its Indirect Pledging Customers may not be used to collateralise any other account or to meet the losses of any Clearing Member, any client (except Indirect Pledging Customers of the same Clearing Member) or NOMX.. Although the collateral is transferred (in the case of cash) and pledged (in the case of securities) to NOMX, and held by NOMX on a commingled basis at the level of the relevant bank account or CSD account, the type of collateral held for all IDP Accounts administered by a certain Clearing Member is specifically recorded by NOMX, by way of entry in a custody account held in the name of the Clearing Member and associated with such IDP Accounts. However, NOMX will not recognise the interests of any particular Indirect Pledging Customer to any particular assets. Accordingly, this account is regarded as an omnibus segregated account for the purposes of EMIR Settlement Cash settlement is performed on a daily basis. Client and house flows are separated but all client cash settlements (which will include any settlement amounts in relation to any IDP Account) are aggregated to a single net amount per member, currency and settlement day. Physical settlement of securities takes place on a daily basis in the relevant CSDs. Client and house flows are separated Default Fund Contributions The Clearing Member contributes to the default fund in accordance with the default fund rules Porting The Indirect Pledging Customer can appoint a back-up clearing member. The intention is that, in the event of the original Clearing Member s default, the limited obligations of the member and collateral connected to an IDP Account can be ported to such back-up clearing member where all Indirect Pledging Customers of such Clearing Member have entered into arrangements with the same back-up clearing member. The main risk for a client who has opted for an IDP Account is the default of the relevant Clearing Member. In the event of such a default, the following process will be followed: 1) NOMX will try to port the IDP Account to a new Clearing Member. However, as set out in paragraph above, this will only be possible where agreement has been reached between all the Indirect Pledging Customers of such Clearing Member and the new Clearing Member. There is a risk that it will not be possible for such 9

10 6.3 Fees agreement to be reached in the necessary time frame 4, although as only collateral and certain limited obligations are being ported, it is more likely that porting will be available on an IDP Account than it is in respect of an Omnibus Account; 2) Where the IDP Account cannot be ported to a new Clearing Member, NOMX will close out the Clearing Transactions in the account and realise collateral (with any proceeds from the realisation of collateral being shared pro-rata their respective margin requirements). In connection with this process, a positive balance in respect of positions on an IDP Account may not be netted or set-off against a negative balance on the member s other accounts. Any positive balance on the IDP Account will be returned either directly to the Indirect Pledging Customers or, if NOMX does not know the identities of the Indirect Pledging Customers, to the Clearing Member (or its bankruptcy estate, if relevant) for the account of the Indirect Pledging Customers. Where possible, this payment will be ringfenced so it is not available to the Clearing Member s other creditors. This means that the Indirect Pledging Customer will not share in any losses incurred by the Clearing Member on any other account. Whether or not the above processes will be respected on the insolvency of the relevant Clearing Member will depend on the insolvency law in the jurisdiction of the relevant Clearing Member. NOMX applies fees per registered transaction. Different fees may apply to different types of transactions. There are no fees for opening a particular clearing account, although a standard fee applies for opening any custody account. All fees are set out in the fee list available at NOMX s website and from NOMX. 7 Diirect Pledge Account ( DP Account ) 7.1 Basic Features This account is only available for clearing under the Financial Rulebook. A client who opens a Diirect Pledge Account is called a Direct Pledging Customer. A Direct Pledging Customer shall have separate trading accounts (each administered by a Clearing Member acting as a Trading Account Administrator) and clearing accounts (administered by a Clearing Member acting as a Clearing Account Administrator) which together constitute its DP Account. Transactions cleared by a Clearing Member on behalf of a Direct Pledging Customer shall be registered on a trading account. Each trading account must be connected to a clearing account, but more than one trading account can be connected to the same clearing account. The clearing account evidences all Clearing Transactions registered on the trading accounts connected to it and reflects the outstanding Clearing Transactions to which the Direct Pledging Customer is counterparty. In the event that a Direct Pledging Customer has more than one clearing account with different Clearing Members, NOMX shall not be entitled to combine or consolidate the balances on such clearing accounts (or on any other account). 4 The Rules allow at least a 24 hour window for porting to occur. 10

11 7.2 Risks Margin/Collateral NOMX shall open a Margin Requirement Account for margin calculation with respect to each DP Account. A Direct Pledging Customer must open and be the account holder of a Collateral Custody Account for provision of collateral in respect of each Margin Requirement Account opened for it. The Direct Pledging Customer s clearing account must be fully collateralised by reference to the outstanding Clearing Transactions on such clearing account. A Direct Pledging Customer holding a clearing account must provide such collateral directly to NOMX. The collateral provided in respect of a Direct Pledging Customer s clearing account must be provided separately to a separate Collateral Custody Account in respect of such clearing account and shall not be used to collateralise or meet the losses attributable to any other Direct Pledging Customer s clearing account (or any other account) or to meet the losses of another client, Clearing Member or NOMX. Although the collateral is transferred (in the case of cash) and pledged (in the case of securities) to NOMX, and held by NOMX on a commingled basis at the level of the relevant bank account or CSD account, the type of collateral held for each Direct Pledging Customer is specifically recorded by NOMX in its books and records, by way of entry in a custody account in such Direct Pledging Customer s name. Accordingly, this account is regarded as an individual segregated account for the purposes of EMIR Settlement Cash settlement is performed on a daily basis. Client and house flows are separated but all client cash settlements (which will include any settlement amounts in relation to any DP Account) are aggregated to a single net amount per member, currency and settlement day. Physical settlement of securities takes place on a daily basis in the relevant CSDs. Client and house flows are separated Default Fund Contributions The Direct Pledging Customer contributes to the default fund in accordance with the default fund rules Porting The Direct Pledging Customer can appoint a back-up clearing member. The intention is that, in the event of the original Clearing Member s (i.e. the Clearing Account Administrator) default, the administrative obligations connected to a DP Account can be ported to such back-up clearing member. The main risk for a client who has opted for a DP Account is the default of the relevant Clearing Member (i.e. the Clearing Account Administrator). In the event of such a default, the following process will be followed: 1) NOMX will try to port the DP Account to a new Clearing Member. This will only be possible where agreement has been reached between the Direct Pledging Customer 11

12 7.3 Fees and the new Clearing Member. There is a risk that it will not be possible for such agreement to be reached in the necessary time frame 5, although as only administrative obligations are being ported, and only one client is involved in this process, it is more likely that porting will be available on a DP Account than it is in respect of an Omnibus Account, an ICA or an IDP Account; 2) Where the DP Account cannot be ported to a new Clearing Member, NOMX will close out the Clearing Transactions in the account. However, as collateral is held directly in the Direct Pledging Customer s name, a default by the Clearing Member should not result in any loss of collateral by the Direct Pledging Customer. In connection with this process, a positive balance on a DP Account may not be netted or set-off against a negative balance on the Clearing Member s other accounts. Any positive balance on the DP Account will be returned directly to the Direct Pledging Customer. This means that the Direct Pledging Customer will not share in any losses incurred by the Clearing Member on any other account. Whether or not the above processes will be respected on the insolvency of the relevant Clearing Member will depend on the insolvency law in the jurisdiction of the relevant Clearing Member. NOMX applies fees per registered transaction. Different fees may apply to different types of transactions. There are no fees for opening a particular clearing account, although a standard fee applies for opening any custody account. All fees are set out in the fee list available at NOMX s website and from NOMX. 8 Clearing Client s Clearing Account ( CCCA ) 8.1 Basic Features This account is only available for clearing under the Commodities Rulebook. A client who opens a CCCA is called a Clearing Client. A Clearing Client is an entity that has been approved by NOMX to register Clearing Transactions in its own name and account as counterparty, but only through a Clearing Member (being the Client Representative of such Clearing Client). The CCCA is an account that is held by the Clearing Client as account holder in the name of the Clearing Client, under a tri-partite agreement between the Clearing Client, a Client Representative and NOMX. The CCCA evidences all Clearing Transactions recorded on such account and reflects the outstanding Clearing Transactions attributable to such individual Clearing Client. In the event that a Clearing Client has more than one CCCA, whether or not with different Client Representatives, NOMX shall not be entitled to combine or consolidate the balances on such CCCAs (or on any other account) Margin/Collateral NOMX shall open a Margin Requirement Account for margin calculation with respect to each CCCA. A Clearing Client must open a Collateral Custody Account 5 The Rules allow at least a 24 hour window for porting to occur. 12

13 8.2 Risks for provision of collateral in respect of each Margin Requirement Account opened for it. A CCCA must be fully collateralised by reference to the Margin Requirement of the outstanding Clearing Transactions on such account, which shall be calculated on a net aggregate position basis across all Clearing Transactions credited to the CCCA (which will be for a single Clearing Client only). The Clearing Client shall at all times provide collateral directly to NOMX in respect of its CCAs. The collateral provided in respect of one CCCA shall not be used to collateralise or meet the losses attributable to another CCCA (or any other account) or to meet the losses attributable to another client, Clearing Member or NOMX. The collateral is provided by the Clearing Client to NOMX. Although it is transferred (in the case of cash) and pledged (in the case of securities) to NOMX, and held by NOMX on a commingled basis at the level of the relevant bank account or CSD account, the type of collateral held for the Clearing Client is specifically recorded by NOMX in its books and records, by way of entry in a custody account in such Clearing Client s name. Accordingly, this account is regarded as an individual segregated account for the purposes of EMIR Settlement Cash settlement is performed on a daily basis. The Clearing Client s settlement flows are separate from those of its Client Representative and are aggregated to a single net amount per currency and settlement day. Physical settlement only occurs in relation to carbon allowances and electricity certificates Default Fund Contributions The Clearing Client contributes to the default fund in accordance with the default fund rules Porting The Clearing Client can appoint a back-up clearing member. The intention is that, in the event of the original Clearing Member s (i.e. the Client Representative) default, the administrative obligations connected to a CCCA can be ported to such back-up clearing member. The main risk for a client who has opted for a CCCA is the default of the relevant Clearing Member (i.e. the Client Representative). In the event of such a default, the following process will be followed: 1) NOMX will try to port the CCCA to a new Clearing Member. This will only be possible where agreement has been reached between the Clearing Client and the new Clearing Member. There is a risk that it will not be possible for such agreement to be reached in the necessary time frame 6, although as only administrative obligations are being 6 The Rules allow at least a 24 hour window for porting to occur. 13

14 8.3 Fees ported, and only one client is involved in this process, it is more likely that porting will be available on a CCCA than it is in respect of an Omnibus Account, an ICA or an IDP Account; 2) Where the CCCA cannot be ported to a new Clearing Member, NOMX will close out the Clearing Transactions in the account. However, as collateral is held directly in the Clearing Client s name, a default by the Clearing Member should not result in any loss of collateral by the Clearing Client. In connection with this process, a positive balance on a CCCA may not be netted or set-off against a negative balance on the Clearing Member s other accounts. Any positive balance on the CCCA will be returned directly to the Clearing Client. This means that the Clearing Client will not share in any losses incurred by the Clearing Member on any other account. Whether or not the above processes will be respected on the insolvency of the relevant Clearing Member will depend on the insolvency law in the jurisdiction of the relevant Clearing Member. NOMX applies fees per registered transaction. Different fees may apply to different types of transactions. There are no fees for opening a particular clearing account, although a standard fee applies for opening any custody account. All fees are set out in the fee list available at NOMX s website and from NOMX. 14