In case where it is deemed difficult to conclude the settlement smoothly or it fails to deliver securities etc. by the settlement deadline, a clearing member should notify the details to the Exchange.
- Liquidity Provision for Settlement Guarantee (§75-4 of the KOSPI Market Business Regulation, §31-4 of the KOSDAQ Market Business Regulation, §105 of the Derivatives Market Business Regulation)
- When a buying member fails to make payments by the deadlines, the Exchange, without delay, provides liquidity using the settlement guarantee resources to ensure that the selling member can receive the settlement amount in spite of the delay in payments. The financial resources for settlement guarantee include the settlement reserve, Joint Compensation Fund, credit lines, members' fidelity guarantee money, and etc.
- Imposition of the Loss Caused by Settlement Delay (§75-9 of the KOSPI Market Business Regulation, §31-9 of the KOSDAQ Market Business Regulation, §105-3 of the Derivatives Market Business Regulation)
A clearing member who failed to make payments for the settlement in the securities markets by the deadline should pay to the Exchange the amount of loss caused by the settlement delay. The deadline for the calculation of the loss caused by the settlement delay is the same as the deadline set to determine the liquidity provision. The amount of loss caused by the settlement delay is calculated by multiplying the unpaid settlement funds by loss ratios. The loss ratios are 2 basis points for stocks and one bp for government bonds.
A clearing member who failed to deliver the securities for settlement in the securities markets by the deadline should pay to the Exchange the amount of loss caused by the securities settlement delay. The loss amount caused by the securities settlement delay is calculated by multiplying the appraisal value of the undelivered securities by the loss ratio of 20/10,000. The loss is levied on a monthly basis unlike the loss caused by the unpaid settlement funds.
In the derivatives market, the loss amount caused by the settlement delay, which is calculated by multiplied the net settlement amount by the loss ratio of 2/10,000, is paid to the Exchange.
- Settlement by Securities Delivery Bill (§75-11 of the KOSPI Market Business Regulation)
For the settlement of debt securities, in case where a clearing member faces difficulty to deposit the sold securities by the settlement deadline, the securities delivery bill may be accepted temporarily.In the stock market, with the introduction of continuous netting settlement, the securities delivery bill is abolished.
The securities delivery bills are issued by the KSD on behalf of the Exchange. The delivery of the securities delivery bill between the KSD and the clearing member is deemed to have the same effect as the delivery of the securities delivery bill between the Exchange and the clearing member.
Upon the receipt of the KSD’s notification of the details of the clearing member's request for the issuance of settlement delivery bill, the Exchange issues to the counterparty clearing member the confirmation letter for the delivery of securities taking into consideration the time period necessary for the concerned clearing member to obtain the securities concerned. The Exchange then notifies the KSD of the details after securing the consent of the clearing member to receive the securities delivery bill.
- Exceptions in Securities Settlement (§75-12 of the KOSPI Market Business Regulation, §31-10 of the KOSDAQ Market Business Regulation)
- In case where it is obvious that the settlement is no possible, the Exchange may settle the transaction with cash or similar securities.