News
Implementation Of A Clearing Guarantee Fund ("CGF") For Securities Clearing And Settlement
BackMay 09, 2006
Bursa Malaysia Berhad ("Bursa") is pleased to announce that its wholly-owned subsidiary Bursa Malaysia Securities Clearing Sdn. Bhd. (the securities clearing house, "Bursa Securities Clearing") is implementing the CGF with effect from 1 July 2006, the details of which are as follows:-
(a) Background
The CGF is a fund comprising assets which may include cash, bank guarantee and/or other financial resources including but not limited to bank facilities and policies of insurance, established by the securities clearing house to deal with potentially large credit and/or liquidity risks that may arise through the payment or delivery default of its Trading Clearing Participants ("TCPs") on any settlement day. Hence the CGF will only be utilized in respect of the obligations and liabilities of the securities clearing house arising out of market contracts, typically where there is a default by a TCP.
The purpose or function of the CGF is to provide the securities clearing house with readily available financial resources to meet its obligation to complete settlement of trades when a TCP defaults on its payment or delivery obligation to the securities clearing house, and also to ensure stability in the securities market.
A CGF is a common feature of most developed markets and a prescribed requirement by the International Organisation of Securities Commission.
(b) Structure of the CGF
Based on a risk-based model that has been benchmarked against other relevant jurisdictions and taking into account the trading value, netting efficiency, liquidation risk, default rate, settlement cycle and probability of market movement, the quantum of the CGF is set at RM100 million. TCPs will contribute 15% (with a fixed contribution of RM10,000 in cash by each TCP) of the CGF while Bursa Securities Clearing will contribute 25%. Bursa Securities Clearing has procured a RM60 million Standby Credit Facility from Bursa for the remaining 60% of the CGF.
(c) Financial and Operational Impact
There will be no impact on earnings arising from the implementation of the CGF. However, the Group's commitment towards the financial resources of Bursa Securities Clearing to meet its obligation to complete settlement of trades when a TCP defaults on its payment or delivery obligation to Bursa Securities Clearing will be reduced from RM200 million to RM85 million. Hence, the Group will be able to redeploy the difference of RM115 million for other operating and development purposes. Notwithstanding this reduction in quantum of commitment, the establishment of a CGF is one measure to ensure that the operations of Bursa Securities Clearing comply with international best-practices.
(d) Application of the CGF
Payment out of the CGF will be applied in the following order:-
(i) Defaulting TCP's contribution;
(ii) Other non-defaulting TCPs' contribution on pro-rated basis;
(iii) Securities clearing house's contribution of RM25 million;
(iv) RM60 million Standby Credit Facility from Bursa; and
(v) Replenishment from all TCPs on pro-rated basis.
The CGF may be applied towards the settlement of on-market transactions only. The CGF will not be applied towards the settlement of Direct Business Transactions.
(e) Implementation date of the CGF
The CGF will be implemented effective 1 July 2006. The relevant amendments to the Rules of Bursa Securities Clearing to provide for the CGF has been issued today and will come into effect on 15 May 2006.
This announcement is dated 9 May 2006.
(a) Background
The CGF is a fund comprising assets which may include cash, bank guarantee and/or other financial resources including but not limited to bank facilities and policies of insurance, established by the securities clearing house to deal with potentially large credit and/or liquidity risks that may arise through the payment or delivery default of its Trading Clearing Participants ("TCPs") on any settlement day. Hence the CGF will only be utilized in respect of the obligations and liabilities of the securities clearing house arising out of market contracts, typically where there is a default by a TCP.
The purpose or function of the CGF is to provide the securities clearing house with readily available financial resources to meet its obligation to complete settlement of trades when a TCP defaults on its payment or delivery obligation to the securities clearing house, and also to ensure stability in the securities market.
A CGF is a common feature of most developed markets and a prescribed requirement by the International Organisation of Securities Commission.
(b) Structure of the CGF
Based on a risk-based model that has been benchmarked against other relevant jurisdictions and taking into account the trading value, netting efficiency, liquidation risk, default rate, settlement cycle and probability of market movement, the quantum of the CGF is set at RM100 million. TCPs will contribute 15% (with a fixed contribution of RM10,000 in cash by each TCP) of the CGF while Bursa Securities Clearing will contribute 25%. Bursa Securities Clearing has procured a RM60 million Standby Credit Facility from Bursa for the remaining 60% of the CGF.
(c) Financial and Operational Impact
There will be no impact on earnings arising from the implementation of the CGF. However, the Group's commitment towards the financial resources of Bursa Securities Clearing to meet its obligation to complete settlement of trades when a TCP defaults on its payment or delivery obligation to Bursa Securities Clearing will be reduced from RM200 million to RM85 million. Hence, the Group will be able to redeploy the difference of RM115 million for other operating and development purposes. Notwithstanding this reduction in quantum of commitment, the establishment of a CGF is one measure to ensure that the operations of Bursa Securities Clearing comply with international best-practices.
(d) Application of the CGF
Payment out of the CGF will be applied in the following order:-
(i) Defaulting TCP's contribution;
(ii) Other non-defaulting TCPs' contribution on pro-rated basis;
(iii) Securities clearing house's contribution of RM25 million;
(iv) RM60 million Standby Credit Facility from Bursa; and
(v) Replenishment from all TCPs on pro-rated basis.
The CGF may be applied towards the settlement of on-market transactions only. The CGF will not be applied towards the settlement of Direct Business Transactions.
The CGF will be implemented effective 1 July 2006. The relevant amendments to the Rules of Bursa Securities Clearing to provide for the CGF has been issued today and will come into effect on 15 May 2006.
This announcement is dated 9 May 2006.