10.—(1) The exchange must have default rules which, in the event of a member of the exchange being or appearing to be unable to meet his obligations in respect of one or more market contracts, enable action to be taken in respect of unsettled market contracts to which he is a party.U.K.
(2) The rules may authorise the taking of the same or similar action in relation to a member who appears to be likely to become unable to meet his obligations in respect of one or more market contracts.
(3) The rules must enable action to be taken in respect of all unsettled market contracts, other than those entered into F1... for the purposes of or in connection with the provision of clearing services for the exchange.
[F2(4) Sub-paragraph (5) applies where the exchange has arrangements for transacting business with, or in relation to common members of, a recognised clearing house [F3, a recognised CSD] or another recognised investment exchange.
(5) A recognised investment exchange must have default rules which in the event of the clearing house [F4, the central securities depository] or the investment exchange being or appearing to be unable to meet its obligations in respect of one or more market contracts, enable action to be taken in respect of unsettled market contracts to which that person is a party.]
Textual Amendments
F1Words in Sch. para. 10(3) omitted (1.11.2007) by virtue of The Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) (Amendment) Regulations 2006 (S.I. 2006/3386), regs. 1, 12
F2Sch. paras. 10(4)(5) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(a)
F3Words in Sch. para. 10(4) inserted (28.11.2017) by The Central Securities Depositories Regulations 2017 (S.I. 2017/1064), regs. 1, 4(6)(b)(i)(aa) (with regs. 7(4), 9(1))
F4Words in Sch. para. 10(5) inserted (28.11.2017) by The Central Securities Depositories Regulations 2017 (S.I. 2017/1064), regs. 1, 4(6)(b)(i)(bb) (with regs. 7(4), 9(1))
Commencement Information
I1Sch. para. 10 in force at 1.12.2001, see reg. 2
11.—(1) This paragraph applies as regards contracts falling within section 155(2)(a) of the Companies Act.U.K.
(2) The rules mentioned in paragraph 10 must provide—
(a)for all rights and liabilities between those party as principal to unsettled market contracts to which the defaulter is party as principal to be discharged and for there to be paid by one party to the other such sum of money (if any) as may be determined in accordance with the rules;
(b)for the sums so payable in respect of different contracts between the same parties to be aggregated or set off so as to produce a net sum; and
(c)for the certification by or on behalf of the exchange of the net sum payable or, as the case may be, of the fact that no sum is payable.
(3) The reference in sub-paragraph (2) to rights and liabilities between those party as principal to unsettled market contracts does not include rights and liabilities—
(a)in respect of margin; or
(b)arising out of a failure to perform a market contract.
(4) The rules may make the same or similar provision, in relation to non-members designated in accordance with the procedures mentioned in sub-paragraph (5), as in relation to members of the exchange.
(5) If such provision is made as is mentioned in sub-paragraph (4), the exchange must have adequate procedures—
(a)for designating the persons, or descriptions of person, in respect of whom action may be taken;
(b)for keeping under review the question which persons or descriptions of person should be or remain so designated; and
(c)for withdrawing such designation.
(6) The procedures must be designed to secure that—
(a)a person is not, or does not remain, designated if failure by him to meet his obligations in respect of one or more market contracts would be unlikely adversely to affect the operation of the market; and
(b)a description of persons is not, or does not remain, designated if failure by a person of that description to meet his obligations in respect of one or more market contracts would be unlikely adversely to affect the operation of the market.
(7) The exchange must have adequate arrangements—
(a)for bringing a designation or withdrawal of designation to the attention of the person or description of persons concerned; and
(b)where a description of persons is designated, or the designation of a description of persons is withdrawn, for ascertaining which persons fall within that description.
Commencement Information
I2Sch. para. 11 in force at 1.12.2001, see reg. 2
12.—(1) This paragraph applies as regards contracts falling within section 155(2)(b) [F5or (c)] of the Companies Act.U.K.
(2) The rules mentioned in paragraph 10 must provide—
(a)for all rights and liabilities of the defaulter under or in respect of unsettled market contracts to be discharged and for there to be paid by or to the defaulter such sum of money (if any) as may be determined in accordance with the rules;
(b)for the sums so payable by or to the defaulter in respect of different contracts [F6entered into by the defaulter in one capacity for the purposes of section 187 of the Companies Act] to be aggregated or set off so as to produce a net sum;
[F7(bb)if relevant, for that sum to be aggregated with, or set off against, any sum owed by or to the investment exchange by or to AP under an indemnity given or reimbursement or similar obligation in respect of a margin set off agreement in which the defaulter chose to participate so as to produce a net sum;]
[F8(c)for the net sum referred to in paragraph (b) or, if relevant, the net sum referred to in paragraph (bb)—
(i)if payable by the defaulter to the exchange, to be set off against—
(aa)any property provided by or on behalf of the defaulter as cover for margin (or the proceeds of realisation of such property);
(bb)to the extent (if any) that any sum remains after set off under paragraph (aa), any default fund contribution provided by the defaulter remaining after any application of such contribution;
(ii)to the extent (if any) that any sum remains after set off under paragraph (i), to be paid from such other funds, including the default fund, or resources as the exchange may apply under its default rules;
(iii)if payable by the exchange to the defaulter, to be aggregated with—
(aa)any property provided by or on behalf of the defaulter as cover for margin (or the proceeds of realisation of such property);
(bb)any default fund contribution provided by the defaulter remaining after any application of such contribution;]
(d)for the certification by or on behalf of the exchange of the sum finally payable or, as the case may be, of the fact that no sum is payable.
[F9(2A) In sub-paragraph (2), “margin set off agreement” means an agreement between the exchange and AP permitting any eligible position to which the Participant Member is party with the exchange and any eligible position to which the Participant Member is party with AP to be taken into account in calculating a net sum owed by or to the Participant Member to either the exchange or AP and/or margin to be provided to, either or both, the exchange and AP.
(2B) In sub-paragraph (2)—
“AP” means a recognised clearing house or another recognised investment exchange of whom a Participant Member is a member;
“eligible position” means any position which may be included in the set off calculation;
“Participant Member” means a person who—
is a member of the exchange;
is a member or participant of AP; and
chooses to participate, in accordance with the rules of the exchange, in such agreement.
(2C) The property, contribution, funds or resources referred to in paragraph (2)(c), against which the net sum is to be set off (or with which it is to be aggregated) are subject to any unsatisfied claims arising out of the default of a defaulter before the default in relation to which the calculation is being made.]
(3) The reference in sub-paragraph (2) to the rights and liabilities of a defaulter under or in respect of an unsettled market contract includes (without prejudice to the generality of that provision) rights and liabilities arising in consequence of action taken under provisions of the rules authorising—
(a)the effecting by the exchange of corresponding contracts in relation to unsettled market contracts to which the defaulter is party;
(b)the transfer of the defaulter’s position under an unsettled market contract to another member of the exchange;
(c)the exercise by the exchange of any option granted by an unsettled market contract.
(4) A “corresponding contract” means a contract on the same terms (except as to price or premium) as the market contract but under which the person who is the buyer under the market contract agrees to sell and the person who is the seller under the market contract agrees to buy.
(5) Sub-paragraph (4) applies with any necessary modifications in relation to a market contract which is not an agreement to sell.
(6) The reference in sub-paragraph (2) to the rights and liabilities of a defaulter under or in respect of an unsettled market contract does not include, where he acts as agent, rights or liabilities of his arising out of the relationship of principal and agent.
Textual Amendments
F5Words in Sch. para. 12(1) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(b)(i)
F6Words in Sch. para. 12(2)(b) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(b)(ii)
F7Sch. para. 12(2)(bb) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(b)(iii)
F8Sch. para. 12(2)(c) substituted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(b)(iv)
F9Sch. para. 12(2A)-(2C) inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(b)(v)
Commencement Information
I3Sch. para. 12 in force at 1.12.2001, see reg. 2
[F1012A. The rules of the exchange must provide that, in the event of a default, any default fund contribution provided by the defaulter shall only be used in accordance with paragraph 12(2)(c)(i) or (ii).]U.K.
Textual Amendments
F10Sch. para. 12A inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(c)
13. The exchange must have adequate arrangements for ensuring that—U.K.
(a)in the case of unsettled market contracts with a defaulter acting as principal, parties to the contract are notified as soon as reasonably practicable of the default and of any decision taken under the rules in relation to contracts to which they are a party; and
(b)in the case of unsettled market contracts with a defaulter acting as agent, parties to the contract and the defaulter’s principals are notified as soon as reasonably practicable of the default and of the identity of the other parties to the contract.
Commencement Information
I4Sch. para. 13 in force at 1.12.2001, see reg. 2
14. The exchange must be able and willing to cooperate, by the sharing of information and otherwise, with the Secretary of State, any relevant office-holder within the meaning of section 189 of the Companies Act, and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a member of the exchange or any non-member designated in accordance with the procedures mentioned in paragraph 11(5) above [F11or the default of a recognised clearing house [F12, a recognised CSD] or another recognised investment exchange].U.K.
Textual Amendments
F11Words in Sch. para. 14 inserted (15.6.2009) by The Financial Markets and Insolvency Regulations 2009 (S.I. 2009/853), regs. 1(1), 4(3)(d)
F12Words in Sch. para. 14 inserted (28.11.2017) by The Central Securities Depositories Regulations 2017 (S.I. 2017/1064), regs. 1, 4(6)(b)(ii) (with regs. 7(4), 9(1))
Commencement Information
I5Sch. para. 14 in force at 1.12.2001, see reg. 2
F1315. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.K.
Textual Amendments