Rules and Procedures of OTC Clear 
29/09/2017 
 

OTC Clear Rates and FX Derivatives Clearing Rules

OTC Clearing Hong Kong Limited Clearing Procedures

PRC Clearing Member Schedule 

 

OTC Clear Rates and FX Derivatives Clearing Rules

 

Table of Contents

Preface

 

PART I 

GENERAL PROVISIONS

 

 

Chapter 1

Definitions and Interpretation

 

 

101

Definitions

102-110 

Interpretation

 

 

Chapter 2

General Provisions

 

 

201

Amendment

202-205

Liability

206-211

Force Majeure Events and Illegality

212-214 

Disclosure of Information

215-218

Governing Law

219-223

Notice

224

Process Agent

225

Time Reference

226-227

Calculations and Currency

228 Third Party Rights

 

 

PART II 

MEMBERSHIP

 

 

Chapter 3

General Provisions

 

 

301

OTC Clear Membership

302

Clearing Members

303

Qualification

304-309

Applications and Approval

 

 

Chapter 4

Legal Obligations

 

 

401-402

Continuing Obligations

403-404

Capital Requirement

405-408

Transfer of Membership

409-412 Reporting Obligation

 

 

Chapter 5

Information Obligations

 

 

501

Notifications by Clearing Members

502

Right to Demand Documents

503

Organization Structure

504 

Financial Information

505

Record Keeping

 

 

Chapter 6

Suspension and Termination of Membership

 

 

601-603

Suspension

604-606

Resignation

607

Termination

608-612 

Resignation and Termination

613

Former Clearing Members

 

 

Chapter 7

Designated Person

 

 

701-707

General

708

Continuing Authority of a Designated Person

709

Acknowledgment by a Designated Person

 

 

PART III  

CLEARING OPERATIONS

 

 

Chapter 8

Clearing by OTC Clear

 

 

801-805

Acceptance for Registration of Original Transactions

806-811

Creation of Contracts through Submission of Original Transactions by Clearing Members or Clients

812

Clearing Members’ Representations as at Registration Time

813

Creation of Contracts other than through Submission of Original Transaction by Clearing Members or Clients

814-814B

Termination of Contracts relating to Ineligible Original Transactions after Registration

815

Transfers of Contracts

816-818

Client Clearing

819-822

Types of Client Clearing Categories

823-824 

Segregation of Client Accounts

825-829 Porting of Contracts relating to Clients
830 Full Portfolio Porting
831 Partial Portfolio Porting
832 Porting of Client Collateral
833 Conditions Precedent to Porting of Contracts relating to Clients
834-835 Completion of Porting

 

 

Chapter 9

Accounts

 

 

901

Accounts

902

Position Accounts

903-904

Collateral Accounts

905-906

GF Accounts

907 Multiple Client Accounts
908-909 Accounts for Holding of Non-Cash Collateral

 

 

Chapter 10

Payments

 

 

1001

Contract Payments

1002

Margin and Rates and FX Contribution

1002A Reimbursement of Costs and Expenses

1003

Default Interest

1004

Interest Rates

1005

Income on Cash Collateral

1006-1008C

Income and Redemption Proceeds on Non-Cash Collateral

1009-1011

Fees, Levies and Charges

1012-1015

Payments Calculation

 

 

Chapter 11

Tax

 

 

1101-1105

Tax

 

 

PART IV

RISK MANAGEMENT AND DEFAULT PROCEDURES

 

 

Chapter 12

Margin

 

 

1201-1203

Margin and Collateral

1204-1208

Initial Margin, Additional Margin, Variation Margin, and Intra-day Variation Margin

1209-1213

Margin Settlement

1214-1218

Acceptable Collateral for Margin and Rates and FX Contribution

1219-1221

Rights relating to Collateral in respect of Margin and Rates and FX Contribution and Representations of Clearing Members

1222-1224 

Position Limits

 

 

Chapter 13

Default Procedures

 

 

1301-1302

Clearing Member Event of Default

1303-1305

Termination following a Clearing Member Event of Default

1306-1310

Calculations of Net Payment following a Clearing Member Event of Default

1311

Termination of the Membership of a Defaulting Clearing Member

1312-1315

General Provisions relating to Clearing Member Event of Default

1316

Indemnity

1317-1321

OTC Clear Failure to Pay Event

1322-1323

OTC Clear Insolvency Event

1324-1325

Calculations of Net Payment following OTC Clear Default

 

 

Chapter 14

Disciplinary Actions and Proceedings

 

 

1401-1402

Situations Calling for Disciplinary Action

1403

Co-operation

1404

Notification

1405

Disciplinary Actions

1406-1408

Procedures relating to Disciplinary Committee

1409-1410

Appeals to the Disciplinary Appeals Committee

1411-1414

Grounds for Appeal

1415-1417

Order as to Costs

 

 

Chapter 15

Rates and FX Guarantee Resources

 

 

1501-1502

Rates and FX Guarantee Resources Purpose

1503

Calculations relating to the Rates and FX Guarantee Fund, Rates and FX Assessments and Rates and FX Contribution Balance

1504

Initial Rates and FX Contribution

1505 

Further Rates and FX Contribution

1506-1507

Rates and FX Assessments Demand

1508-1511

Rates and FX Contribution due to Recalculations or Replenishments

1512-1513

Changes to Calculations relating to the Rates and FX Guarantee Fund and Rates and FX Assessments

1514

OTC Clear Use of the Rates and FX Guarantee Resources

1515-1518

Reduction of Losses on a DMP Event and Application of the Rates and FX Guarantee Resources

1519-1521

Accounts of Rates and FX Guarantee Resources

1522

Recoveries

1523-1528

Loss Distribution Process

1529

Rates and FX Clearing Service Limited Recourse

1530-1540 

Winding Down of the Rates and FX Clearing Services

1541-1543

Voluntary Recapitalisation

1544-1545

Multiple DMP Events

1546-1549

Terms of Redelivery or Repayment of Rates and FX Contribution

 

 

PART V 

DEFAULT MANAGEMENT PROCESS

 

 

Chapter 16

Default Management Process

 

 

1601-1604

Default Management Process

1605-1608

Default Management Group

1609 

Undertaking by Clearing Members

1610-1612

Amendments to Default Management Process

 

 

Chapter 17

Porting

 

 

1701-1709

Porting

 

 

Chapter 18

Hedging

 

 

1801-1804

Hedging

 

 

Chapter 19

Auction

 

 

1901-1904

Auction Portfolios

1905

Auction for Multiple Auction Portfolios

1906-1909

Conduct of Auction

1910-1912

Bidding

1913-1913C

Initial Allocation of Resources

1914-1917

Loss Allocation

1918-1919

Successive Auction

1920 

OTC Clear Financial Resources

1921-1922 

Registration of Auction Contracts

1923-1924

Failed Registration

 

 

Chapter 20

Confidentiality Obligations relating to Receipt of DMP Information

 

 

2001-2004

Confidentiality

2005

Term

2006

Rights to DMP Information

2007

Liability of OTC Clear

2008-2009

Relief

 

 

Chapter 21

Obligations, Undertaking and Liability of Clearing Members relating to Participation in the Default Management Group

 

 

2101-2104

Confidentiality Obligations

2104

Conflict of Interest

2105

Representations and Warranties

2106

No Liability

 

 

PART VI 

PRODUCT SPECIFIC TERMS

 

 

Chapter 22

Product Specific Terms for Standard Rates Derivatives Contracts

 

 

2201-2202

Product Specific Terms for Standard Rates Derivatives Contracts

2203-2210

Interpretation

2211-2215

Economic Terms

2216

General Terms

2217

Clearing Rules

2218-2221

Economic and Monetary Union (EMU) Provisions

2222

Negative Interest Rates

2223

Standard Rates Derivatives Contracts Denominated in Hong Kong dollar

2224

Rounding

2225

Tax Provisions

2226

Calculation Agent

2227

Governing Law

 

 

Chapter 23

Product Specific Terms for Non Deliverable Rates Derivatives Contracts

 

 

2301-2302

Product Specific Terms for Non Deliverable Rates Derivatives Contracts

2303-2310

Interpretation

2311-2315

Economic Terms

2316

General Terms

2317

Clearing Rules

2318

Calculation Agent

2319

Negative Interest Rates

2320

Rounding

2321

Tax Provisions

2322

Governing Law

 

 

Chapter 24

Product Specific Terms for FX Derivatives Contracts

 

 

2401-2402

Product Specific Terms for FX Derivatives Contracts

2403-2411

Interpretation

2412-2416

Economic Terms

2417

General Terms

2418

Clearing Rules

2419

Calculation Agent

2420

Rounding

2421

Tax Provisions

2422 

Governing Law

Chapter 25 Product Specific Terms for Standard Cross-currency Rates Derivatives Contracts
2501-2502 Product Specific Terms for Standard Cross-currency Rates Derivatives Contracts
2503-2510 Interpretation
2511-2515 Economic Terms
2516 General Terms
2517 Clearing Rules
2518 Negative Interest Rates
2519 Rounding
2520 Tax Provisions
2521 Calculation Agent
2522 Governing Law

Appendix I

Chapter XVII - (deleted)

 

 

OTC Clearing Hong Kong Limited Clearing Procedures

 

 

Table of Contents

Preface

 

 

Chapter 1

Introduction to Clearing Procedures

 

 

1.1

Interpretation

1.2

Amendments

1.3

Operations of the Rates and FX Clearing Services

 

 

Chapter 2

Membership

 

 

2.1

Membership Application Process

2.2

Future Categories of Membership

2.3

Clearing Members’ On-going Requirements and Obligations

2.4

Client Clearing

2.5

Changes to conditions of Membership

2.6

Notification

2.7

Audit, Inspection or System Tests

2.8

Suspension, Termination and Resignation

2.9

Capped Liability Period

 

 

Chapter 3

Rates and FX Clearing Services

 

 

3.1

Overview

3.2

Approved Trade Registration System

3.3

Process of Registration and Rejection

3.4

Product Eligibility Requirements

3.4A Suspension of Product

3.5

Error Contract

3.6

De-registration

3.7

Accounts

3.8

Settlement Component

3.9

Procedures for Voluntary Deposit of Cash Collateral, porting of Cash Collateral representing Excess Margin and Withdrawal of Cash Collateral representing Excess Margin and Rates and FX Contribution Excess

3.10 Types of Securities Acceptable as Non-cash Collateral and Procedures for Voluntary Deposit of Non-Cash Collateral, porting of Non-Cash Collateral representing Excess Margin and Withdrawal of Non-Cash Collateral representing Excess Margin

3.11

Cash Settlement Method

3.12

Cash Settlement Time

3.13

Interest received on Non-Cash Collateral

3.14 Maturity of Non-Cash Collateral
3.15

Tax

3.16

Reporting

3.17 Porting of Client Contracts and Collateral to a Transferee Clearing Member
3.18 Porting of Contracts and Collateral amongst Client Accounts of a Clearing Member
3.19 Notional Exchange Failure Handling Procedures

 

 

Chapter 4

Margin and Valuation

 

 

4.1

Margin Requirement

4.2

Initial Margin

4.3 

Variation Margin

4.4

Intra-day Variation Margin

4.5

Additional Margin

4.6

Margin Process

4.7

End-of-Day Valuation and Settlement Process

 

 

Chapter 5

Curve Construction

 

 

5.1 

Curve Construction for Rates Derivatives Contracts

5.2

Curve Construction for FX Derivatives Contracts

 

 

Chapter 6

Rates and FX Guarantee Resources

 

 

6.1

Rates and FX Guarantee Resources

6.2

Excess Margin and CM Funded Contribution Amount

6.3

Stress Test

6.4

OTC Clear Contribution

 

 

Chapter 7

Collateral

 

 

7.1

Acceptable Collateral

7.2

Cash Collateral

7.3

Non-cash Collateral

7.4

Collateral Concentration Limit

7.5

Collateral Valuation

7.6

Treatment of Collateral

 

 

Chapter 8

Default Management

 

 

8.1

Interpretation and Overview

8.2

Member Obligations

8.3

Scope and Responsibility of Default Management Group

8.4

Suspension of Activities

8.5

Hedging (Risk Neutralizing)

8.6

Auction

8.7

Portfolio Splitting and Re-composition

8.8

Cost of Default and Loss Attribution

8.9

Post Auction Communication

8.10

Review

8.11 Porting of Affected Contracts and Collateral to a Replacement Clearing Member

 

 

Chapter 9

Special Events / Business Continuity

 

 

9.1

Arrangement for Special Events

9.2

Primary Data Center

9.3

Service Outage

9.4 

Special Arrangement for Valuation of a Standard Rates Derivatives Contract which is Denominated in HK$ under Adverse Weather Conditions

9.5 

Special Arrangement of Voluntary Deposit of Cash Collateral, Porting of Excess Margin and Withdrawal of Excess Margin and Rates and FX Contribution Excess under Adverse Weather
Conditions

 

 

Chapter 10

Determination of Close-out Value, Winding Down of the Rates and FX Clearing Service and OTC Clear Default

 

 

10.1

Close-out Value

10.2

Rates and FX Clearing Termination Event

10.3 OTC Clear Default
10.4 Product Suspension Event

 

 

Appendix I

Fee Schedule

Appendix II

Additional Financial Center

Appendix III Template Hong Kong law Deed of Charge – House Collateral Account
Appendix IV Template Hong Kong law Deed of Charge – Client Collateral Accounts
Appendix V Floating Rate Options and Designated Maturities Accepted for a Calculation Period to which Stub or Interpolation is Applicable

Glossary

 

OTC Clearing Hong Kong Limited (“OTC Clear”) has obtained a legal opinion from an independent law firm in respect of the enforceability of certain provisions of the Clearing Rules under Hong Kong law. To promote confidence among Clearing Members and transparency in the clearing system, the opinion may be disclosed to Clearing Members on request for information purposes only, on the basis that it may not be relied upon.   Further, each Clearing Member who requests and receives a copy of the opinion from OTC Clear agrees not to transmit the opinion to anyone else or quote or refer to it in any public document filed with anyone. Please contact OTC_Operations@hkex.com.hk if you wish to receive a copy of the opinion.