Entire Section

  • AMI 7 AMI 7 Additional Licensing Requirements for Operating a Clearing House

    • AMI 7.1 AMI 7.1 Application

      • AMI 7.1.1 AMI 7.1.1

        (1) This chapter applies, subject to (3), to an Authorised Market Institution Operating a Clearing House and an applicant for such a Licence.
        (2) In this chapter, a reference to a "Clearing House" is a reference to a Person in (1), except where specific reference is made to:
        (a) a Central Counterparty (CCP);
        (b) a Securities Settlement System (SSS); or
        (c) a Central Securities Depository (CSD).
        (3) Specific references in this chapter to a Clearing House undertaking any of the functions specified in (2)(a) to (c) apply only in respect of that function.
        Derived from RM118/2013 [VER15/07-13]

        • AMI 7.1.1 Guidance

          1. The Financial Service of Operating a Clearing House is defined in GEN Rule 2.18.1(1). This definition provides that Operating a Clearing House can be carried on by either the operator becoming a Central Counterparty (CCP) or by operating a Securities Settlement System (SSS) (i.e. a system that enables Investments to be transferred and settled by book entry), regardless of whether or not such a Person also acts as a Central Securities Depository (CSD) in respect of Securities cleared or settled on its facility and similar facilities.
          2. Where a Clearing House undertakes the function of acting as a CSD under its own Licence, the additional requirements in section 7.4 apply to it. The function of CSD may also be carried out by an Authorised Firm licensed to carry on the Financial Service of Providing Custody. See GEN definition in Rule 2.13.1(3). Such a firm is subject to similar requirements as in section 7.4, which are set out in COB section 10.2.
          3. Where a Clearing House which did not at the time of licensing carry on CSD functions wishes to do so subsequently, it needs to apply to the DFSA for approval under Rule 4.3.1, as it is a material change to its current arrangements.
          Derived from RM118/2013 [VER15/07-13]

    • AMI 7.2 AMI 7.2 Risk Management

      • AMI 7.2 Guidance

        1. An Authorised Market Institution which operates a Clearing House is subject to the management, systems and controls requirements in GEN chapter 5. These provisions require such an Authorised Market Institution to establish and maintain risk management systems and controls to enable it to identify, assess, mitigate, control and monitor the risks to which it is exposed and to develop and implement policies and procedures to manage the risks to which it and the users of its facilities are exposed.
        2. The requirements set out below augment the GEN obligations referred to in 1.
        Derived from RM118/2013 [VER15/07-13]

      • Risk Management Framework

        • AMI 7.2.1. AMI 7.2.1.

          (1) A Clearing House must have a comprehensive risk management framework (i.e. detailed policies, procedures and systems) capable of managing legal, credit, liquidity, operational and other risks to which it is exposed.
          (2) The risk management framework in (1) must:
          (a) encompass a regular review of material risks to which the Clearing House is exposed and the risks posed to other market participants resulting from its operations; and
          (b) be subject to periodic review as appropriate to ensure that it is effective and operating as intended.
          Derived from RM118/2013 [VER15/07-13]

          • AMI 7.2.1 Guidance

            1. The risk management framework should, for the purposes of Rule 7.2.1(2)(a), identify scenarios that may potentially prevent a Clearing House from being able to provide its critical operations and services as a going concern and assess the effectiveness of a full range of options for recovery or orderly wind-down.
            2. A Clearing House should prepare appropriate plans for resumption of its operations in such scenarios and, where it is not possible to do so, for an orderly wind-down of the operations of the Clearing House premised on the results of such assessments.
            3. Such procedures should also include appropriate early notification to the DFSA and other regulators as appropriate. See also the requirements in section 9.8 relating to disclosure to the DFSA.
            4. A Clearing House should also, to the extent possible, provide incentives to Members and other market participants to manage and contain the risks they pose to the orderly and efficient operations of the Clearing House. Those may include financial penalties to Members and other participants that fail to settle Investments in a timely manner or to repay intraday credit by the end of the operating day.
            Derived from RM118/2013 [VER15/07-13]

      • Legal Risk

        • AMI 7.2.2 AMI 7.2.2

          (1) A Clearing House must have a well-founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions.
          (2) A Clearing House must have adequate rules and procedures, including contractual arrangements, which are legally enforceable.
          (3) A Clearing House that operates in multiple jurisdictions must:
          (a) identify and mitigate the risks arising from doing business in the relevant jurisdictions, including those arising from conflicting laws applicable in such jurisdictions; and
          (b) ensure the arrangements referred to in (2) provide a high degree of certainty that actions taken by the Clearing House under its rules and procedures will not be reversed, stayed or rendered void.
          Derived from RM118/2013 [VER15/07-13]

          • AMI 7.2.2 Guidance

            1. This Rule is designed to address legal risks faced by a Clearing House, particularly where it operates in multiple jurisdictions. For example, an unexpected application of a law or regulation may render a contract between itself and a counterparty void or unenforceable, thereby leading to a loss.
            2. A Clearing House should be able to demonstrate to the DFSA that the legal basis on which it operates, including in multiple jurisdictions, is well founded. A well founded legal basis would generally include well defined rights and obligations of the Clearing House, its Members and other users, including its service providers such as custodians and settlement banks, or would provide a mechanism by which such rights and obligations can be ascertained. This would enable the Clearing House to identify and address risks that arise from its operations involving such parties.
            3. A Clearing House should, in order to form clear views about the legally binding nature of its contractual arrangements in the relevant jurisdictions, obtain independent legal opinions as appropriate to its activities. Such legal opinions should, to the extent practicable, confirm the enforceability of the rules and procedures of the Clearing House in the relevant jurisdictions and be made available to the DFSA upon request.
            4. A Clearing House may be conducting its activities in multiple jurisdictions in circumstances such as:
            a. where it operates through linked CCPs, SSSs or CSDs;
            b. where its Members and other participants are incorporated, located, or otherwise conducting business in jurisdictions outside the DIFC; or
            c. where any collateral provided is located or held in a jurisdiction outside the DIFC.
            Derived from RM118/2013 [VER15/07-13]

      • Liquidity Risk

        • AMI 7.2.3 AMI 7.2.3

          (1) A Clearing House must:
          (a) determine the amount of its minimum liquid resources;
          (b) maintain sufficient liquid resources to be able to effect same-day, intra-day or multi-day settlement, as applicable, of its payment obligations with a high degree of confidence under a wide range of potential stress scenarios;
          (c) ensure that all resources held for the purposes of meeting its minimum liquid resource requirement are available when needed;
          (d) have a well-documented rationale to support the amount and form of total liquid resources it maintains for the purposes of (b) and (c); and
          (e) have appropriate arrangements in order to be able to maintain, on an on-going basis, such amount and form of its total liquid resources.
          (2) A Clearing House must have a robust framework for managing its liquidity risks. Such a framework must enable it to manage liquidity risks arising from its Members and other participants on its facilities, and any other involved parties, such as settlement banks, custodian banks, liquidity providers ("Members and other involved parties"). For that purpose, the framework must, at a minimum, include:
          (a) rules and procedures that:
          (i) enable it to meet its payment obligations on time following any individual or combined default of its Members and other involved parties; and
          (ii) address unforeseen and potentially uncovered liquidity shortfalls to avoid unwinding, revoking, or delaying the settlement of its payment obligations arising under the same-day, intraday or multiday settlement obligations, as applicable;
          (b) effective operational and analytical tools to identify, measure and monitor its settlement and funding flows on an on-going and timely basis; and
          (c) rigorous due diligence procedures relating to its liquidity providers to obtain a high degree of confidence that each provider (whether the provider is a Member or other participant using its facilities or an external party) has:
          (i) sufficient information to assess, understand and manage its own liquidity risks; and
          (ii) the capacity to perform as required under their commitment.
          (3) A Clearing House must regularly:
          (a) review the adequacy of the amount of its minimum liquid resources as determined in accordance with (1);
          (b) test the sufficiency of its liquid resources maintained to meet the relevant amount through rigorous stress testing; and
          (c) test its procedures for accessing its liquid resources at a liquidity provider.
          Derived from RM118/2013 [VER15/07-13]

          • AMI 7.2.3 Guidance

            1. A Clearing House should be able to effectively measure, monitor, and manage its liquidity risk. Some of the systems, controls and procedures set out under Rule 7.2.3 above to address liquidity risk are also commonly used to address credit risks, and therefore, the same procedures, adjusted as appropriate, can be used for both purposes.

            Acceptable types of liquid resources

            2. For the purposes of meeting its minimum liquid resource requirement referred to above, a Clearing House's qualifying liquid assets/resources may include cash held in appropriate currencies at a central bank in its or other relevant jurisdiction, or at creditworthy commercial banks, committed lines of credit, committed foreign exchange swaps and repos, as well as highly marketable collateral held in custody and investments that are readily available and convertible into cash with prearranged and highly reliable funding arrangements, even in extreme but plausible market conditions.
            3. If a Clearing House has access to a routine line of credit made available by a central bank in its or other relevant jurisdiction, it may count such access as part of its liquid resources to the extent it has collateral that is eligible for pledging to (or for conducting other appropriate forms of transactions with) the relevant central bank. Even if it does not have access to a routine line of credit made available by a central bank, it should still take account of what collateral is typically accepted by the relevant central bank as such assets may be more likely to be liquid in stressed circumstances. However, a Clearing House should not assume the availability of emergency central bank credit as a part of its liquidity plan.
            4. A Clearing House may supplement its qualifying liquid resources with other forms of liquid resources. If it does so, then such liquid resources should be in the form of assets that are likely to be saleable, or acceptable as collateral, for lines of credit, swaps, or repos on an ad hoc basis following a default, even if this cannot be reliably prearranged or guaranteed in extreme market conditions.
            5. Where a Clearing House has access to a central bank lines of credit or accounts, payment services, or securities services, it should use those services as far as practicable, as such use is likely to enhance its ability to manage liquidity risk more effectively.

            Review

            6. A Clearing House should have clear procedures to report the results of its stress tests undertaken for the purposes of this Rule to its Governing Body and senior management as appropriate. It should use the results of stress testing to evaluate the adequacy of its liquidity risk-management framework and make any appropriate adjustments as needed.
            7. In conducting stress testing, a Clearing House should consider a wide range of relevant scenarios. Scenarios should include relevant peak historic price volatilities, shifts in other market factors such as price determinants and yield curves, multiple defaults over various time horizons, simultaneous pressures in funding and asset markets, and a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions. Scenarios should also take into account the design and operation of the Clearing House, and include all entities that may pose material liquidity risks to the Clearing House (such as settlement banks, custodian banks, liquidity providers, and other involved entities), and where appropriate, cover a multi-day period.
            8. A Clearing House should record the results of such stress testing and the rationale for any adjustments made to the amount and form of total liquid resources it maintains.

            Participant default

            9. A Clearing House's rules and procedures should also indicate any liquidity resources it may deploy, in the event of default by a Member or other involved parties, during a stress event to replenish the available liquid resources and the associated process, so that it can continue to operate in a safe and sound manner.
            Derived from RM118/2013 [VER15/07-13]

      • Custody and Investment Risk

        • AMI 7.2.4 AMI 7.2.4

          (1) A Clearing House must have effective means to address risks relating to:
          (a) custody of its own assets, in accordance with (2); and
          (b) investments, in accordance with (3).
          (2) For the purposes of (1)(a), a Clearing House must:
          (a) hold its own assets with entities which are Licensed by the DFSA or a Financial Services Regulator for holding deposits or providing custody, as appropriate;
          (b) be able to have prompt access to its assets when required; and
          (c) regularly evaluate and understand its exposures to entities which hold its assets.
          (3) For the purposes of (1)(b), a Clearing House must ensure that:
          (i) it has an investment strategy which is consistent with its overall risk-management strategy and is fully disclosed to its Members and other participants using its facilities; and
          (ii) its investments comprise instruments with minimal credit, market, and liquidity risks. For this purpose, the investments must be secured by, or be claims on, high-quality obligors, allowing for quick liquidation with little, if any, adverse price effect.
          Derived from RM118/2013 [VER15/07-13]

          • AMI 7.2.4 Guidance

            A Clearing House which holds assets for its Members and other participants is subject to the "safe custody" requirements in section 5.10. In addition to those requirements, a Clearing House is required to manage risks associated with custody of its own assets (which may comprise cash) under Rule 7.2.4.

            Derived from RM118/2013 [VER15/07-13]

      • Money Settlement

        • AMI 7.2.5

          (1) Where a Clearing House conducts its money settlements using commercial bank money, it must adopt appropriate measures to minimise and strictly control the credit and liquidity risk arising from such use.
          (2) For the purposes of (1), a Clearing House must:
          (a) conduct its money settlements using only such settlement assets with little or no credit or liquidity risk;
          (b) monitor, manage, and limit its credit and liquidity risks arising from commercial settlement banks. In particular, it must establish and monitor adherence to strict criteria for the use of settlement banks, which take into account, among other things, the regulation and supervision, creditworthiness, capitalisation, access to liquidity, and operational reliability of the relevant settlement banks;
          (c) monitor and manage the concentration of credit and liquidity exposures to its commercial settlement banks; and
          (d) ensure that its legal agreements with any settlement banks, at a minimum:
          (i) specify clearly when transfers on the books of individual settlement banks are expected to occur and when they are final; and
          (ii) ensure that funds received are transferable as soon as possible, if not intra-day, at least by the end of the day to enable it and its Members and other participants on its facilities to manage their credit and liquidity risks.
          Derived from RM118/2013 [VER15/07-13]

      • Physical Delivery

        • AMI 7.2.6

          (1) A Clearing House incurring obligations that require physical delivery of commodities must:
          (a) provide adequate information to its Members and other participants using its facilities relating to its obligations with respect to physical delivery of commodities. Such information must also be made publicly available;
          (b) identify, monitor, and manage the risks associated with such physical deliveries; and
          (c) identify, monitor, and manage the risks and costs associated with the storage and delivery of commodities.
          (2) A Clearing House must have adequate arrangements, including service agreements, which enable it to meet its physical delivery obligations.
          Derived from RM118/2013 [VER15/07-13]

      • Collateral

        • AMI 7.2.7

          (1) A Clearing House which requires collateral to manage its own, its Members' or other participants' credit risks arising in the course of or for the purposes of its payment, clearing, and settlement processes must:
          (a) only accept collateral with low credit, liquidity, and market risks; and
          (b) set and enforce appropriately conservative haircuts and concentration limits.
          (2) A Clearing House must, for the purposes of meeting the requirement in (1), establish and implement a collateral management system that is well designed and operationally flexible. Such a system must, at a minimum:
          (a) limit the assets it accepts as collateral to those with low credit, liquidity, and market risks;
          (b) establish prudent valuation practices and develop haircuts that are regularly tested and take into account stressed market conditions;
          (c) to reduce the need for procyclical adjustments, establish, to the extent practicable and prudent, stable and conservative haircuts that are calibrated to include periods of stressed market conditions;
          (d) avoid concentrated holdings of certain assets where that would significantly impair the ability to liquidate such assets quickly without significant adverse price effects; and
          (e) mitigate, if it accepts cross-border collateral, the risks associated with such use. Such measures must ensure that the collateral can be used in a timely manner.
          Derived from RM118/2013 [VER15/07-13]

      • Settlement Finality

        • AMI 7.2.8 AMI 7.2.8

          (1) A Clearing House must have adequate arrangements to ensure clear and certain final settlement of payments, transfer instructions or other obligations of Members and other participants using its facilities and where relevant, its own obligations.
          (2) For the purposes of (1), a Clearing House's arrangements for final settlement must:
          (a) ensure that, if intra-day or real-time settlement is not feasible, settlement occurs at least by the end of the value date of the relevant transaction; and
          (b) clearly define:
          (i) the point at which the final settlement occurs; and
          (ii) the point after which unsettled payments, transfer instructions, or other obligations may not be revoked by the parties to the underlying contract.
          (3) For the purposes of this Rule:
          (a) "final settlement" is the irrevocable and unconditional transfer of an asset or financial instrument, or the discharge of obligations arising under the underlying contract by the parties to the contract; and
          (b) "value date" is the day on which the payment, transfer instruction, or other obligation arising under the underlying contract is due and, accordingly, the associated funds or Investments are available to the respective parties under the contract.
          Derived from RM118/2013 [VER15/07-13]

          • AMI 7.2.8 Guidance

            1. Final settlement is usually dependent on the legal environment of where the settlement occurs. Generally, in the case of certain assets, final settlement includes the transfer of title.
            2. Completing final settlement by the end of the value date is important because deferring final settlement to the next-business day can create both credit and liquidity pressures for a Clearing House's Members and other participants on its facilities and stakeholders. This may also be a potential source of systemic risk. Therefore, where possible, a Clearing House should provide intra-day or real-time settlement finality to reduce settlement risk.
            Derived from RM118/2013 [VER15/07-13]

    • AMI 7.3 AMI 7.3 Additional Requirements for a CCP

      • Credit Risk

        • AMI 7.3.1 AMI 7.3.1

          (1) A Clearing House acting as a CCP must establish and implement a robust process to manage:
          (a) its current and potential future credit and market risk exposures to market counterparties, including Members and other participants on its facilities; and
          (b) credit risks arising from its payment, clearing, and settlement processes.
          (2) For the purposes of (1), a CCP must, on a regular basis as appropriate to the nature, scale and complexity of its operations:
          (a) perform stress tests using models containing standards and predetermined parameters and assumptions; and
          (b) carry out comprehensive and thorough analysis of stress testing models, scenarios, and underlying parameters and assumptions used to ensure that they are appropriate for determining the required level of default protection in light of current and evolving market conditions.
          (3) A CCP must:
          (a) undertake the analysis referred to in (2)(b) at least on a two-month basis, unless more frequent analysis is warranted because the Investments cleared or markets served display high volatility, become less liquid, or when the size or concentration of positions held by its participants increase significantly; and
          (b) perform a full validation of its risk-management models at least annually.
          Derived from RM118/2013 [VER15/07-13]

          • AMI 7.3.1 Guidance

            1. A robust assessment process should enable a CCP to effectively measure, monitor, and manage its risks and exposures effectively. In particular, it should be able to identify sources of credit risk and routinely measure and monitor its credit exposures. Generally, a CCP should have daily stress testing to measure and monitor its risk exposures, especially if its operations are complex or widely spread over multiple jurisdictions. It should use appropriate risk management tools to control the identified credit risks. A CCP should use margin and other prefunded financial resources in order to do so.
            2. In particular, a CCP should establish explicit rules and procedures that address fully any credit losses it may face as a result of any individual or combined default among its Members and other participants with respect to any of their obligations to the CCP. Such rules and procedures should address how any potentially uncovered credit losses would be allocated, including the repayment of any funds the CCP may borrow from its liquidity providers. They should also indicate the CCP's process to replenish any financial resources that it may employ during a stress event, so that it can continue to operate in a safe and sound manner.
            3. A CCP should document its supporting rationale for, and should have appropriate governance arrangements relating to, the amount of total financial resources it maintains. It should also have clear procedures to report the results of its stress tests to its Governing Body and senior management as appropriate, and use those results to evaluate the adequacy of its total financial resources and make any adjustments as appropriate.
            Derived from RM118/2013 [VER15/07-13]

      • Margin Requirements

        • AMI 7.3.2 AMI 7.3.2

          (1) Without limiting the generality of Rule 7.3.1, a Clearing House operating as a CCP must, for the purposes of managing its credit and market risk:
          (a) have a margin system which meets the requirements in (2) and (3);
          (b) mark participant positions to market and collect variation margin at least daily to limit the build-up of current exposures;
          (c) have necessary authority and operational capacity to make intra-day margin calls and payments, both scheduled and unscheduled, to participants; and
          (d) regularly review and validate its margin system to ensure that it operates effectively and as intended.
          (2) The margin system of a CCP must, at a minimum:
          (a) establish margin levels which are commensurate with the risks and particular attributes of each product, portfolio, and market it serves;
          (b) use a reliable source of timely price data for its margin system, and also procedures and sound valuation models for addressing circumstances in which pricing data is not readily available or reliable; and
          (c) adopt initial margin models and parameters that are risk-based and generate margin requirements sufficient to cover its potential future exposure to Members and other participants using its facilities in the interval between the last margin collection and the close-out of positions following a participant default.
          (3) The initial margins established pursuant to (2)(c) must:
          (a) if the CCP calculates margins:
          (i) at the Member's portfolio level, be applied in respect of each portfolio's distribution of future exposure; and
          (ii) at more granular levels, meet the corresponding distribution of future exposures; and
          (b) use models which, among other things:
          (i) rely on conservative estimates of the time horizons for the effective hedging or close out of the particular types of products cleared by the CCP, including in stressed market conditions; and
          (ii) have an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products, and, to the extent practicable and prudent, limit the need for destabilising procyclical changes.
          Derived from RM118/2013 [VER15/07-13]

          • AMI 7.3.2 Guidance

            1. A CCP should adopt comprehensive and stringent measures to ensure that it has adequate total financial resources to effectively manage its credit risk and exposures.
            2. A CCP should determine the amount of the total financial resources available to it and regularly test the sufficiency of such amount, particularly in the event of a default or multiple defaults in extreme but plausible market conditions through rigorous stress testing.
            3. In conducting stress testing, a CCP should consider the effect of a wide range of relevant stress scenarios in terms of both defaulters' positions and possible price changes in liquidation periods. Scenarios should include relevant peak historic price volatilities, shifts in other market factors such as price determinants and yield curves, multiple defaults over various time horizons, simultaneous pressures in funding and asset markets, and a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions.
            4. A CCP which is involved in activities with a more-complex risk profile, or is systemically important in multiple jurisdictions, should maintain additional financial resources to cover a wide range of potential stress scenarios. These should include the default of the two of its market counterparties (including their affiliates) that would potentially cause the largest aggregate credit exposure for the CCP in extreme but plausible market conditions. In all other cases, a CCP should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios, which include the default of the market counterparty (including its affiliates) that would potentially cause the largest aggregate credit exposure for the CCP in extreme but plausible market conditions.
            5. An effective margining system is a key risk-management tool for an Authorised Market Institution operating as a CCP to manage the credit exposures posed by open positions of its Members or other participants using its facilities. Therefore, it should adopt and implement an effective margin system, which is risk-based and regularly reviewed, in order to cover its credit exposures to its Members and other participants in respect of all Investments and other products.
            6. In calculating margin requirements, a CCP may allow offsets or reductions in required margin across products that it clears or between products that it and another CCP clear, if the risk of one product is significantly and reliably correlated with the risk of the other product. Where two or more CCPs are authorised to offer cross-margining, they must have appropriate safeguards and harmonised overall risk-management systems.
            7. A CCP should analyse and monitor its model performance and overall margin coverage by conducting rigorous back testing regularly, and sensitivity analysis at least monthly and, where appropriate, more frequently. A CCP should regularly conduct an assessment of the theoretical and empirical properties of its margin model for all products it clears. In conducting sensitivity analysis of the model's coverage, a CCP should take into account a wide range of parameters and assumptions that reflect possible market conditions, including the most-volatile periods that have been experienced by the markets it serves and extreme changes in the correlations between prices.
            Derived from RM118/2013 [VER15/07-13]

      • Segregation and Portability

        • AMI 7.3.3 AMI 7.3.3

          (1) A Clearing House acting as a CCP must have systems and procedures to enable segregation and portability of positions of the customers of its Members and other participants on its facilities, and any collateral provided to it with respect to those positions.
          (2) For the purposes of (1), a CCP's systems and controls must, at a minimum, provide for the following:
          (a) the segregation and portability arrangements that effectively protect the positions and related collateral of the customers of the Members or other participants on its facilities from the default or insolvency of the relevant Member or other participants;
          (b) if the CCP offers additional protection of the customer positions and related collateral against the concurrent default of both the relevant Member or other participants or other customers, the adoption of necessary measures to ensure that the additional protection offered is effective; and
          (c) the use of account structures that enable the CCP to readily identify positions of the customers of the relevant Member or other participant, and to segregate their related collateral.
          (3) A CCP must make available to its Members and other participants using its facilities, its rules, policies and procedures relating to the segregation and portability of the positions and related collateral of the customers of its Members and other participants using its facilities.
          Derived from RM118/2013 [VER15/07-13]

          • AMI 7.3.3 Guidance

            1. A CCP should:
            a. maintain the customer positions and any related collateral referred to in Rule 7.3.3 in individual customer accounts or in omnibus customer accounts; and
            b. structure its portability arrangements so that the positions and collateral of a defaulting Member's or other participant's customers can be transferred to one or more other Members or participants.
            2. A CCP should also disclose whether the customers' collateral is protected on an individual or omnibus basis. In addition, it should disclose any constraints, such as legal or operational, that may impair its ability to segregate or transfer a Member's or other participant's customers' positions and related collateral.
            Derived from RM118/2013 [VER15/07-13]

    • AMI 7.4 AMI 7.4 Additional Requirements for a CSD

      • AMI 7.4.1

        (1) Where a Clearing House operates a Central Securities Depository (CSD), it must have rules and procedures, including robust accounting practices and controls to:
        (a) ensure the integrity of securities issues; and
        (b) minimise and manage risks associated with the safekeeping and transfer of securities.
        (2) A CSD must ensure that securities referred to in (1)(a) are recorded in book-entry form prior to the trade date.
        (3) For the purposes of (1)(a), a CSD's systems and controls must ensure that:
        (a) the unauthorised creation or deletion of securities is prevented;
        (b) appropriate intra-day reconciliation is conducted to verify that the number of securities making up a securities issue or part of a securities issue submitted to the CSD is equal to the sum of securities recorded on the securities accounts of the Members and other participants of the CSD;
        (c) where entities other than the CSD are involved in the reconciliation process for a securities issue, such as the issuer, registrars, issuance agents, transfer agents or other CSDs, the CSD has adequate arrangements for cooperation and information exchange between all involved parties so that the integrity of the issue is maintained; and
        (d) there are no securities overdrafts or debit balances in securities accounts .
        Derived from RM118/2013 [VER15/07-13]

      • CSD Links

        • AMI 7.4.2 AMI 7.4.2

          (1) A CSD must not establish any link with another CSD (CSD link) unless:
          (a) it has:
          (i) prior to establishing the CSD link, identified and assessed potential risks, for itself and its Members and other participants using its facilities, arising from establishing such a link;
          (ii) adequate systems and controls to effectively monitor and manage, on an on-going basis, risks identified under (a) above; and
          (iii) complied with the requirement in (2); and
          (b) it is satisfied, on reasonable grounds, that the contractual arrangement establishing the CSD link:
          (i) provides to the CSD and its Members and other participants using its facilities adequate protection relating to possible risks arising from using the other CSDs to which it is linked (linked CSDs);
          (ii) in the case of a provisional transfer of securities between the CSD and linked CSDs, ensure intra-day finality by prohibiting the retransfer of securities before the first transfer of securities becomes final;
          (iii) sets out the respective rights and obligations of the CSD and linked CSDs and their respective Members and other participants using their facilities; and
          (iv) in the case of a linked CSD outside the DIFC, sets out clearly the applicable laws that govern each aspect of the CSD's and the linked CSD's operations.
          (2) The CSD must be able to demonstrate to the DFSA, prior to the establishment of any CSD link, that:
          (a) the link arrangement between the CSD and all linked CSDs, contains adequate mitigants against possible risks taken by the relevant CSDs, including credit, concentration and liquidity risks, as a result of the link arrangement;
          (b) each linked CSD has robust daily reconciliation procedures to ensure that its records are accurate;
          (c) if it or another linked CSD uses an intermediary to operate a link with another CSD, the CSD or the linked CSD has adequate systems and controls to measure, monitor, and manage the additional risks arising from the use of the intermediary;
          (d) to the extent practicable and feasible, linked CSDs provide for Delivery Versus Payment (DVP) settlement of transactions between participants in linked CSDs, and where such settlement is not practicable or feasible, reasons for non-DVP settlement is notified to the DFSA; and
          (e) where interoperable securities settlement systems and CSDs use a common settlement infrastructure, there are:
          (i) identical moments established for the entry of transfer orders into the system;
          (ii) irrevocable transfer orders; and
          (iii) finality of transfers of securities and cash.
          Derived from RM118/2013 [VER15/07-13]

          • AMI 7.4.2 Guidance

            A CSD should include in its notification to the DFSA relating to the establishment of CSD links the results of due diligence undertaken in respect of the matters specified in Rule 7.4.2(2) to demonstrate that those requirements are met. Where a CSD changes any existing CSD arrangements, fresh notification relating to such changes, along with its due diligence relating to the new CSD link, should be provided to the DFSA in advance of the proposed change.

            Derived from RM118/2013 [VER15/07-13]