Clearing refers to a series of procedures for guaranteeing settlement finality where KRX, as a CCP, intervenes for the trades executed among members by becoming a buyer to all sellers and a seller to all buyers, finalizing the settlement details through the netting process, issuing the settlement instruction to the settlement institution and providing the guarantee for the finalization of settlement. As such, the KRX takes up the role of the CCP by assuming the obligations of its members.
If a settlement default occurs, according to a set of procedures, the KRX as the CCP, takes measures to guarantee for implementation of final settlement.
It is stipulated in the FSCMA (§397) that the Exchange, as the clearing organization in the securities and derivatives markets, executes trade confirmation, assumption of liability, netting, finalization of the securities to be delivered and the amount to be paid for settlement, settlement guarantee, dealing with settlement defaults and settlement instruction.
The FSCMA also prescribes that the Exchange sets the settlement method in its Business Regulation (§393), collects Joint Compensation Funds from members (§394), appropriates members deposits and margins for redemption of obligations (§397), takes up the compensation responsibility from a member’s defaults (§399), and has claim priority over other creditors to the default member(§400), which enables the Exchange to serve the substantial CCP function.
Also, the KRX Regulations such as Membership Regulation (§21), KOSPI Market Business Regulation (§73), KOSDAQ Market Business Regulation (§29) and Derivatives Market Business Regulation (§94) provide the basis for the KRX to assume the member’s claims and obligations from trading.