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Default Management

HKFE Clearing Corporation Limited (HKCC)

While the risk management techniques at HKCC are specifically designed to prevent an HKCC Participant from defaulting on its obligations, the Clearing House, by rule and by operational practice, has prepared contingencies to deal with such an event. The following summarizes the steps that would be taken in the event an HKCC Participant failed to meet its financial obligations to HKCC.

The HKCC managed Reserve Fund provides instant liquidity to the market in the event that the HKCC Participant cannot meet margin calls and his margin monies have been exhausted. When an HKCC Participant defaults, customer positions are netted against each other and the HKCC Participant's margin money is applied to any deficits after netting. If the deficit exceeds funds available in the HKCC Participant's margin deposits, the balance will be applied from the Reserve Fund in layers.  In the event that the Reserve Fund is insufficient to cover HKCC’s liabilities even after its resources have been fully depleted as result of the application, HKCC may apply any funding available under the HKCC Contingent Advance Capital towards the satisfaction of its outstanding liabilities.  Under no circumstances will customer segregated margin deposits held by the Clearing House for one HKCC Participant be used to cover either a house or customer default of another HKCC Participant. Customers doing business through an HKCC Participant not involved in a default are insulated from losses incurred by the failure of another HKCC Participant.

The SEHK Options Clearing House Limited (SEOCH)

While the risk management techniques at SEOCH are specifically designed to prevent an SEOCH Participant from defaulting on its obligations, the Clearing House, by rule and by operational practice, has prepared contingencies to deal with such an event. The following summarizes the steps that would be taken in the event an SEOCH Participant failed to meet its financial obligations to SEOCH.

The SEOCH managed Reserve Fund provides instant liquidity to the market in the event that the SEOCH Participant cannot meet margin calls and his margin monies have been exhausted. When an SEOCH Participant defaults, customer positions are netted against each other and the SEOCH Participant's margin money is applied to any deficits after netting. If the deficit exceeds funds available in the SEOCH Participant's margin deposits, the balance is withdrawn from the Reserve Fund in layers. Under no circumstances will customer segregated margin deposits held by the Clearing House for one SEOCH Participant be used to cover either a house or customer default of another SEOCH Participant.


Updated 22 Jan 2018

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