Singapore Stock Exchange

SGX enhances default management framework of derivatives market

Singapore Exchange is enhancing the rules to strengthen its default management framework to protect its derivatives market against systemically destabilising events, which include the possibility of multiple member defaults. 

This enhancement follows a public consultation issued in September 2011.   

Clearing houses globally have been called upon to provide greater clarity and transparency in their default management practices. Their members would like to have more certainty with regard to their obligations in the event of default of other participants.  
 
The move to make it mandatory to clear over-the-counter derivatives through a central counterparty by early 2013 concentrates more risks in CCPs and increased participation of global institutions in CCP clearing raises the risk of contagion effects arising from the interconnectedness of financial markets.  SGX is making a change in anticipation of expansion in the scope of its clearing business and to address the needs of its members. 
 
The rule enhancements include the following: 
 

  1. Establishing the clearing member’s liabilities in circumstances of multiple defaults (i.e. where several defaults occur in quick succession) if the clearing member resigns. 
  2. Allowing SGX-Derivatives Clearing to apply the clearing fund continually to meet the losses arising from all defaults which occur within a fixed period of 90 days. 
  3. Various clarifications and refinements to SGX-DC’s powers in managing a default, including clarifying SGX-DC’s authority to transfer and manage customer positions and margins from the defaulted clearing member to a non-defaulting clearing member.
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