< Procedures for Handling Settlement Defaults in Securities and Derivatives Markets >
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- Judgment of a Default
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- In cases where a member fails to fulfill its settlement obligation by the settlement deadline
- The KRX may take such measures as trade suspension or payment suspension in cases where a clearing member fails to fulfill settlement of transactions (including deposit of margin in the derivatives market) or in cases where the exchange deems such a situation possible.
- In cases where the exchange decides that a possibility of a default exists
- The KRX may decides the situation as a default when it deems there is a possibility of a default even before the settlement deadline. The possibility is determined through a comprehensive review of all the circumstances including the situation of the concerned member and the market.
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- Decision on Measures against a Default and Public Notice
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- Decision on Measures against a default
- The decision on measures against a default is made under discreet consideration but rapidly so that the loss from the default shall not be expanded further.
- Public notice
- The KRX makes a notice of the occurrence of the default to the default member, all clearing members, supervisory organizations, organizations related to clearing and settlement business.
(Enforcement Rules of KOSPI Market Business Regulation §129, Enforcement Rules of Derivatives Market Business Regulation §166, Membership Regulation §39)
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- Measures against a Default
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- Measures against a default
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- The KRX may take such measures as trade suspension or payment suspension in cases where a clearing member fails to perform settlement of transactions (including payment of margin in the derivatives market) or in cases where it deems such a situation possible.
- Trade suspension refers to the halt of trades, in whole or in part, for a certain period of time or until the reason is resolved. Payment suspension refers to the halt of payment, in whole or in part, of the cash or the securities (including underlying securities to be net settled in the derivatives market) which the default member is expected to receive from the Exchange. In derivatives market, the margin is also subject to payment suspension. (KOSPI Market Business Regulation §76, KOSDAQ Market Business Regulation §32, Derivatives Market Business Regulation §107)
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- Settlement Implementation by the Exchange
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- The settlement responsibility of the Exchange
- The KRX assumes the responsibility for the settlement implementation in cases of a default of a clearing member subsequent to the assumption of the clearing member’s obligation and novation thereafter.
(FSCMA §398, Membership Regulation §32, KOSPI Market Business Regulation §73, KOSDAQ Market Business Regulation §29, KONEX Market Business Regulation §35, Derivatives Market Business Regulation §94) - Settlement implementation by the Exchange
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- In case of a fund settlement default, the KRX performs fund settlement using the settlement resources.
- In case of a securities settlement default, the KRX performs settlement by issuing the securities delivery bill or purchase and delivery of the securities concerned.
- In case of an underlying asset default by a clearing member in derivatives market, the KRX performs settlement by securing the underlying asset concerned, or paying equivalent amount.
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- Follow-up Measures
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- Exercise of the right of indemnification against default member (FSCMA §399 & §400)
- The KRX takes up the responsibility to compensate for the damage from member’s breach of contract for the trades. When the KRX has compensated the damage, the KRX holds the right of indemnification against the default member up to the amount of the compensation and related expenses. When a member fails to fulfill trade obligations and incurs damage to the KRX or other members, the KRX and the other members have the preferential repayment right over other creditors on the default member’s fidelity guarantee money, member margin and contribution to the joint compensation fund.
- Report to the FSC (Enforcement Decree of FSCMA §363)
- When the KRX has compensated for the damage from a member’s breach of trade contract, the KRX reports the fact to the FSC.
- Dispatch of KRX staff member (KOSPI Market Business Regulation §76, KOSDAQ Market Business Regulation §32, Derivatives Market Business Regulation §107)
- The KRX may, when deemed necessary, dispatch its staff member to support smooth settlement when it takes the measures against the default member.
- Termination of measures against default (KOSPI Market Business Regulation §76-2, KOSDAQ Market Business Regulation §32-2, Derivatives Market Business Regulation §109-2)
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When the KRX imposed trade suspension of the default member without a determined suspension period, the clearing member concerned may apply for a termination of the measure after the reason for the suspension is resolved.