N Title ENFORCEABLE ON NOVEMBER 1 ST 2012

Transcription

1 N Title LCH.Clearnet SA Instruction III.4-2 PROCEDURE FOR SETTLING NET FAILS ON TRANSACTIONS REGISTERED IN THE CASH AND DERIVATIVES CLEARING SYSTEM ENFORCEABLE ON NOVEMBER 1 ST 2012 Pursuant to Articles to of the Clearing Rule Book. In this Instruction, the terms selling Clearing Member are referring to the selling Open Positions of the Clearing Member and the terms buying Clearing Member are referring to the buying Open Positions of the Clearing Member. CHAPTER 1 BUY IN PROCEDURES Article 1 Except for Open Positions related to non-novated Transactions, LCH.Clearnet SA initiates a buy-in for any selling Open Position (and subject to Articles 19 and 20, for any buying net Open Positions), which remains wholly or partially unsettled the evening of the fourth Clearing Day following the intended Settlement Date. Article 2 LCH.Clearnet SA can reduce the timeframe for a buy-in, at its discretion, if it deems that excessive risk would be incurred otherwise. An alert is made to the concerned Clearing Member by LCH.Clearnet SA. Article 3 On the evening of the third Clearing Day following the intended Settlement Date (intended Settlement Date +3), the selling Clearing Member receives an electronic alert from LCH.Clearnet SA, through its access solution. Such alert requires the selling Clearing Member to settle the relevant Open Position by making sufficient provision on its central Securities depository, or Securities settlement system account, to allow the Net Fail to be settled in the normal daily settlement process, at the latest on the evening of the fourth Clearing Day following the intended Settlement Date (intended Settlement Date + 4), otherwise LCH.Clearnet SA initiates the buy-in procedure for the quantity of Securities necessary to settle the Net Fails. Article 4 On the evening of the fourth Clearing Day following the intended Settlement Date (intended Settlement Date +4), the selling Clearing Member and the corresponding buying Clearing Member(s) receive an electronic confirmation that the buy-in will be initiated, through its access solution. Article 5 LCH.Clearnet SA charges a flat fee as defined in the fee grid, pertaining to the initiation of the buy-in, to the selling Clearing Member, even if such Clearing Member delivers the Securities under Article 11. Instruction III.4-2 1/8 Published on October 26, 2012

2 Article 6 Neither the alert mentioned in Article 3 nor the confirmation mentioned in Article 4, is a condition precedent to the buy-in. Failure to receive such alert or confirmation does not prevent LCH.Clearnet SA from executing the buy-in and charging it. Article 7 On the morning of the fifth Clearing Day following the intended Settlement Date (intended Settlement Date +5), a buy-in attempt is launched using a tender price. For any type of Security the tender price is deemed to be a maximum amount above which no offer of buy-in will be made. It is defined in a Notice. The tender price together with the list of Securities to be bought in and for each Security the relevant quantity are posted on LCH.Clearnet SA website. Article 8 During the fifth Clearing Day following the intended Settlement Date (intended Settlement Date +5), the selling Clearing Member shall provide LCH.Clearnet SA with: - a notification of delivery, if it delivers (fully or partially) the relevant Securities; or - a notification of non-delivery, if it cannot deliver the relevant Securities. Such notification shall be sent by fax or by electronic mail, using exclusively LCH.Clearnet SA standard document which is available on the website, and within the timeframe set out in a Notice. Failure to provide such a notification within the hereabove mentioned timeframe will be deemed to constitute a non-delivery statement. Article 9 Any other Securities provider wishing to participate to the buy-in shall provide LCH.Clearnet SA with a notification of delivery, by the same means, using the dedicated form and within the same timeframe as set out hereabove. Article 10 The notification of delivery sent to LCH.Clearnet SA, by the selling Clearing Member or the Security provider, is a unilateral promise of delivery which constitutes an obligation to deliver the relevant Securities and quantity if LCH.Clearnet SA requests its execution pursuant to Article 13. In case of failure to execute fully its obligation to deliver, a penalty is applicable as defined in a Notice. The fine will be passed onto the relevant buying Clearing Member(s). Article 11 After having received the notification mentioned in Articles 8 and 9, by fax or electronic mail, LCH.Clearnet SA determines the conditions under which the buy-in can be executed, under the two following principles: - If the selling Clearing Member executes wholly or partially its obligation to deliver the Securities then LCH.Clearnet SA gives priority to its full or partial delivery upon any other Security provider offer. - If the selling Clearing Member does not deliver at all the Securities or delivers partially, LCH.Clearnet SA chooses for the whole or remaining quantity the cheapest provider and if there is more than one Securities provider with the same price and quantity, LCH.Clearnet SA will choose the first one presented. Article 12 LCH.Clearnet SA requests by any means the chosen Securities provider and/or selling Clearing Member to deliver the relevant Securities, to LCH.Clearnet SA's buy-in account opened in the books of the central Securities depository or Securities settlement system, free of payment. Instruction III.4-2 2/8 Published on October 26, 2012

3 Article 13 If the Securities provider does not receive the request to deliver from LCH.Clearnet SA before the time set out in a Notice, LCH.Clearnet SA shall be deemed to have rejected the proposal and therefore the obligation to deliver, mentioned in Article 10, is void. Article 14 The delivery of the relevant Securities occurs the fifth Clearing Day following the intended Settlement Date. The timing within which the Securities provider and/or the Clearing Member shall deliver the Securities depends on the settlement cycles of the Securities settlement system and/or central Securities depository. Such timing is described in a Notice. If the selling Clearing Member and/or the Securities Provider credits too many Securities, in such exceptional case, LCH.Clearnet SA will do its best effort to credit back the unused Securities within the same Clearing Day. Article 15 After receiving the Securities, LCH.Clearnet SA performs the buy-in, either partly or fully, by sending, for intended Settlement Date + 6: - an instruction to credit the Securities provider and/or the selling Clearing Member which has provided the Securities, of the relevant amount using the price agreed for the buy-in for the selected Securities provider, and the Net Fail amount for the selling Clearing Member; and - a delivery versus payment instruction to the relevant cash and Securities accounts of the relevant buying Clearing Member(s) ; and - an instruction to debit the selling Clearing Member, of the amount of the Net Fail minus the amount credited to the entity which has provided Securities when appropriate. CHAPTER 2 CONTINUOUS NET SETTLEMENT Article 16 The continuous net settlement objective is to reduce the number of Net Fails. Within each Delivery Account the continuous net settlement works as follows. Open Positions to be settled, calculated as described in the Article of the Clearing Rule Book, are netted with Net Fails on the same Security, under the following conditions: Oldest Net Fails are offset in priority; The amounts are netted together independently from the quantities and; The intended Settlement Date, of the Open Positions and/or Net Fails having the greatest amount in absolute value is applied to the result. Article 17 Remaining Open Positions related to the same Security, for which the intended Settlement Date is before or on the next Clearing Day, are aggregated into one unique delivery versus payment instruction. This instruction is sent to the Settlement Addresses corresponding to this Delivery Account. Article 18 A buy-in procedure is triggered to process the remaining Net Fails when they have reached the deadline mentioned in Article 1, subject to Articles 19 to 22, when applicable. If so, the relevant Net Fails are removed from the next process dedicated to the preparation of the settlement instruction. Article 19 As a consequence of the process described in Article 16, the age of selling and buying Net Fails can be different and the quantity of Securities that are not delivered (across all the Delivery Accounts) per intended Settlement Date may be unbalanced. Instruction III.4-2 3/8 Published on October 26, 2012

4 Hence, the buy-in algorithm will match together Net Fails having potentially different intended Settlement Dates. A buying Net Fail can be recycled for four (4) days but not necessarily the corresponding selling Net Fail, or vice versa. CHAPTER 3 EARLY BUY- IN PROCEDURE Article 20 LCH.Clearnet SA initiates an early buy-in procedure on a selling Open Position matching any buying Open Position which remains wholly or partially unsettled on the evening of the fourth Clearing Day following its intended Settlement Date. Therefore, LCH.Clearnet SA can launch an early buy-in attempt, performing the process described in Article 7, for a selling Open Position as from its intended Settlement Date. However, on request of the selling Clearing Member through the standard form of the notification of delivery, the settlement of the selling Open Position can be postponed at the latest on the fourth Clearing Day following the intended Settlement Date (intended Settlement Date + 4 at the latest). Article 21 The processes and obligations described in the provisions of Chapter 1, dedicated to the buy-in procedures, apply mutatis mutandis, except for the following: - The selling Clearing Member will not receive the alert referred to in Article 3. - Time frames applicable are as follows : Article 4, the confirmation will be sent on the Clearing Day immediately preceding the launch of the early buy-in attempt; Articles 7 to 9 and 18 are applicable on the Clearing Day of the early buy-in attempt; Article 15 applies on the Clearing Day of the early buy-in attempt or at a later date in application of the right of the selling Clearing Member to postpone the settlement as set out in Article 20. Article 22 LCH.Clearnet SA charges a flat fee as defined in the fee grid, pertaining to the initiation of the early buy-in, to the selling Clearing Member in case of partial or non-delivery. CHAPTER 4 CASH COMPENSATION Article 23 Selling Open Positions, for which Securities remain undelivered after the performance of buy-in in the evening of the fifth Clearing Day following the intended Settlement Date are settled by cash compensation. The selling Clearing Member pays the cash compensation to LCH.Clearnet SA, on the intended Settlement Date + 6 Clearing Days. On the same Clearing Day, LCH.Clearnet SA passes on the entire amount to the Clearing Member(s).suffering from the Net Fail(s). In the early-buy in procedure, selling Open Positions for which Securities remain undelivered, after the following events, are settled by cash compensation: - the performance of buy-in on the Clearing Day set out in Article 20 1 to 2; and when applicable, - the expected date of delivery, stipulated in the notification form, within the limit of Article The selling Clearing Member pays the cash compensation to LCH.Clearnet SA, on the Clearing Day following the above mentioned events. On the same Clearing Day LCH.Clearnet SA passes on the entire amount to the relevant buying Clearing Member(s). Article 24 Cash compensation can be performed earlier if the relevant Securities are not listed anymore or have expired before the evening of the fifth Clearing Day following the intended Settlement Date. Instruction III.4-2 4/8 Published on October 26, 2012

5 In case of faillure to deliver warrants, or any Financial Products, that have expired prior to the maturity date defined by the issuer (notably, but not only, knock-out warrants), the cash compensation is performed on the Clearing Day following the intended Settlement Date. As an exception to the above principle, for warrants that were negotiated and have expired on the same Clearing Day, the cash compensation is performed on the third Clearing Day following the intended Settlement Date on request of the selling Clearing Member subject that: the Securities are registered in the accounts opened in the books of the relevant CSD in the name of the selling Clearing Member but the latter is prevented from delivering such Securities on intended Settlement Date due to internal technical/operational failure; and the relevant (I)CSD maintains the Securities available in their system for settlement. Article 25 For any type of Security, the cash compensation amount is calculated as set-out in a Notice. In order to limit the damages suffered by the buying Clearing Member, notably in case of high market volatility, the cash compensation cannot be inferior to the amount corresponding to the netted absolute value of the Open Position remaining on the evening of the fifth Clearing Day following the intended Settlement Date (Intended Settlement Date +5) or the Open Position remaining at an earlier timeframe subject to Chapter 3. CHAPTER 5 SETTLEMENT FOR NET FAILS ON RIGHTS Article 26 Regarding Financial Instruments giving rights to a Security (e.g subscription rights, warrants, convertibles etc ), a Clearing Member suffering from a Net Fail on those Securities can ask LCH.Clearnet SA to be delivered: - the relevant Financial Instrument, if they are still traded and available on the market or; - corresponding new Securities, if the Financial Instruments are no longer available on the market, in which case LCH.Clearnet SA can require the Clearing Member suffering from the Net Fail to adjust its relevant Open Position or; - existing Securities, if the subscription rights are not available on the market and the corresponding new Securities have not yet been issued. LCH.Clearnet SA will comply with this request within a timeframe subject to the market conditions. Regarding Net Fails on coupons LCH.Clearnet SA shall pay to the buying Clearing Member the following amounts: the net amount of the coupon fixed by the issuer, and If as a result of the different tax regimes of coupon payments and compensation payments, the buying Clearing Member is due to pay taxes, then, in addition to the amount above mentioned, an indemnity will be paid to neutralise the tax effects under the conditions set out in a Notice. CHAPTER 6 SELL-OUT PROCEDURES Article 27 For Net Fails due to a lack of payment for which Securities have been received from the selling Clearing Member but have not been delivered to the buying Clearing Member, LCH.Clearnet SA sells out the Securities corresponding to any buying Open Position which remains unsettled on the morning of the first Clearing Day following the intended Settlement Date (intended Settlement Date + 1). Article 28 On the Clearing Day when the cash failure occurs, the relevant buying Clearing Member receives an alert from LCH.Clearnet SA, either electronically through its access solution or by fax. Article 29 This alert requires the Clearing Member to settle the relevant Open Position by crediting its central bank or commercial bank account to allow the Net Fail to be settled in the normal daily settlement Instruction III.4-2 5/8 Published on October 26, 2012

6 process at the latest on the following Clearing Day otherwise LCH.Clearnet SA initiates the sell-out procedure and sells the quantity of Securities necessary to settle the Net Fails. Article 30 LCH.Clearnet SA can change the timeframe for a sell-out, at its discretion, if it deems that excessive risk would be incurred otherwise. Instruction III.4-2 6/8 Published on October 26, 2012

7 ANNEX 1 EXAMPLE OF AN EARLY BUY-IN PROCEDURE A first Clearing Member (CM A) holds a buying Open Position of 100 Securities to be received on day S from LCH.Clearnet SA. Another Clearing Member (CM B) holds a selling net Open Position of 100 Securities to be delivered on S to LCH.Clearnet SA. The settlement of these two net Open Positions fails on S and therefore they are included in the recycling process. The buying Open Position of CM A remains a Net Fail in its Delivery Account while the selling Open Position of CM B remains a Net Fail in its Delivery Account. Another Clearing Member (CM C) is due for delivery of 100 Securities on day S+4 while CM B has to receive 100 Securities on S+4. DATE In application of the continuous net settlement, CM B benefits on S+3 evening from the netting of its Open Positions, as described in Article 17, resulting in no Open Position to deliver/to receive and therefore in the cancellation of its Net Fail. As a consequence, until CM C does not deliver the requested Securities, the original buying Open Position of CM A remains a Net Fail while the selling Open Position of CM C remains a Net Fail. On S+4, the buying Net Fail of CM A will become eligible for buy-in and will match the selling Open Position of CM C as if it was a four-day Net Fail. EVENT S-3 Transaction where CM A is buyer and CM B seller against LCH.Clearnet SA. S morning Instructions sent to the settlement platform are unsettled and thus recycled for the next day (Net Fails). S+1 morning Both instructions unsettled. +/+ 100 (1st day of Transaction where CM B is buyer and CM C is seller against LCH.Clearnet SA. S+2 morning The Net Fails remain (instructions unsettled) for CM A and CM B. CM B and CM C Open Position remains. CM A CM B DELIVERY DELIVERY ACCOUNT ACCOUNT Buy 100 Sell 100 +/ / /+ 100 (2nd day of -/- 100 (1st day of -/- 100 (2nd day of CM C DELIVERY ACCOUNT Buy 100 Sell 100 +/ /- 100 Instruction III.4-2 7/8 Published on October 26, 2012

8 S+3 morning The Net Fails remain (instructions unsettled) for CM A and CM B. evening S+4 morning CM B and CM C Open Position remains. Continuous net settlement between the buying Open Position which becomes due and the selling Net Fail, both belonging to CM B. no Open Position remains for CM B. Instructions sent for settlement regarding CM A buyer and CM C seller against LCH.Clearnet SA. CM A Net Fail remains. CM C did not deliver for the intended Settlement Date and thus its Open Position becomes a Net Fail. +/+ 100 (3rd day of -/- 100 (3rd day of +/ / /- 100 netted with +/ /+ 100 ZERO to settle -/ /+ 100 (4th day of -/- 100 (1st day of evening Net Fail belonging to CM A has reached S+4, CM A Net Fail matches CM C Net Fail and buyin is triggered for the latter. S+5 morning Tendering price communicated by LCH.Clearnet SA pursuant to Article 7 CM C can still contacts LCH.Clearnet SA to deliver in priority against other Securities providers, if it has provision corresponding to its selling Net Fail. If not the buy-in process carries on. S+6 morning End of regularisation of the buy-in procedure Instruction III.4-2 8/8 Published on October 26, 2012