Settlements and Clearing

To include Clearing Participants’ obligations and claims resulting from making a securities trade or margin call in the calculation of net obligations and claims (multilateral netting) the trade or margin call must pass through the coverage control procedure. Uncovered trades or margin calls (that have not passed through the coverage control procedure) are not included in the calculation of net obligations and claims (multilateral netting).

During the implementation of the coverage control procedure, changes in cash and securities positions are recorded in the Clearing System and the collateral provided by the Clearing Participants used to fulfill their respective obligations under completed and/or planned trades and margin calls is monitored to ensure its sufficiency.

A securities trade with the settlement code T0 can pass through the coverage control procedure by checking current cash and securities positions at the time that the order is entered.

A securities trade made in negotiated deal mode with the settlement code B0-B30 does not have pass through the coverage control procedure at the time that it is made.

For a securities trade with the settlement code B0-B30 to pass through the coverage control procedure, the Clearing Participants who are parties to the trade must register their reports on the trade on the date that obligations under the trade are to be fulfilled. Clearing Participants are also allowed to execute a trade with the settlement code B02-B30 in advance beginning on the day after the trade is made.

A securities trade with the settlement code B0-B30 will be regarded as covered (having passed the coverage control procedure) when both Clearing Participants who are parties to the trade have registered their reports.

A REPO transaction with the settlement code R00-R90 or Rb can pass through the coverage control procedure for fulfillment of obligations under the first part of the REPO transaction by checking current cash and securities positions at the time that the order is entered.

For a REPO trade with the settlement code S0-S2 to pass the coverage control procedure for fulfillment of obligations under the first part of the REPO trade, the Clearing Participants who are parties to the trade must register their reports on the first part of the REPO trade on the date that the first part of the REPO trade is executed.

The first part of a REPO trade with the settlement code S0-S2 will be regarded as covered (having passed the coverage control procedure) when both Clearing Participants who are parties to the REPO trade have registered their reports on the first part of the trade.

In addition, for a REPO trade with the settlement code R00-R90, Rb or S0-S2 to pass through the coverage control procedure for fulfillment of obligations under the second part of the REPO trade, the Clearing Participants who are parties to the trade must register their reports on the second part of the REPO trade on the date that the REPO trade is executed. The Clearing Participants are also allowed to execute the second part of the REPO trade in advance, beginning on the date that the REPO trade is made. The second part of a REPO trade will be regarded as covered (having passed the coverage control procedure) **when both Clearing Participants who are parties to the trade have registered their reports on the second part of the REPO trade.

To pass through the coverage control procedure for a margin call, the Clearing Participant who has the obligation to make the margin call must register the report on the date that the margin call is made.

A margin call will only be regarded as covered (having passed through the coverage control procedure) if the report is registered by the Clearing Participant who has the obligation to make the margin call on the date that the margin call is made.

Clearing Participants are allowed to refuse a margin call. To do so, the Clearing Participants who are counterparties to a trade must register their instructions refusing the margin call in the Clearing System on the date that the margin call is made.