Nasdaqomx

Go

Segregation & Portability

Collateral Management ServiceSegregation & PortabilityDefault FundSeparation of Trading & Clearing OperationsOnboarding

NASDAQ OMX Clearing offers a wide range of segregation and portability alternatives in the clearing model, including both agent and principal clearing. In the agent clearing model, the client of a clearing member has limited counterparty risk towards the member due to the direct relationship between the client and the clearinghouse.

Clients using the principal clearing model do not have a direct relationship with the clearinghouse. This implies that there is counterparty risk between the client and the member. NASDAQ OMX Clearing always assumes counterparty risk between the buyer and the seller. But where principal clearing is used, the clearinghouse assumes the counterparty risk towards the member and not the client.

The NASDAQ OMX Clearing model is designed in accordance with, and is in line with, the requirements that the regulators impose on central counterparties (EMIR), while also offering structures that are efficient from the perspectives of segregation, portability, operations and capital requirements. However to fully comply with EMIR, there are certain mandatory changes for members that will be introduced in 2013.

To further improve the clearing model, a new account type (Individual clearing account) will be offered from March 2013.

This document describes NASDAQ OMX Clearing model with mandatory changes implemented.
 

Name Standards

In order to create a harmonized clearing model and account structure there will be a number of changes in the name standards of the account structure. In addition, a new account type, Individual client segregated account (ICA) will be introduced, in March 2013.

The harmonization process is a step by step process and will be fully available to financial members by the end of March.For commodity members the new harmonized structure will be available from June but offered in paralell with current structure.

 The figure below shows the structure of the financial and commodities account models; the financial structure to the left and and the commodity structure to the right and the harmonized 2013 EMIR compliant structure in the center. The new Individual client segregated account (number 5 in figure) will be available to both fianancial and commodities members.

 It is important to stress that there are additional technical setup alternatives. For technical descriptions please see http://www.nasdaqomx.com/europeanclearing


 

 

NASDAQ OMX EMIR Compliant Clearing Model

NASDAQ OMX EMIR Compliant Clearing Model

This overview describes the NASDAQ OMX EMIR compliant clearing model both for financial and commodities members with mandatory changes implemented an improved collateral management structure, client/house segregation and an updated default funds structure. For more detailed information regarding each clearing account type see the separate sections in this document. A new clearing account type “individual clearing account” will be implemented in March 2013. 

 

 

 

Multi-Asset Clearing

In order to offer an efficient and robust clearing solution, NASDAQ OMX Clearing has the ambition to offer a single harmonized clearing model regardless of what products are cleared.

Using a single membership, members can clear both exchange-traded and OTC derivatives in equities, fixed income and commodities. This means increased capital efficiencies for members and clients, through risk offsets between all asset classes and streamlined settlement flows. This is key in the ambition to create legal and operational efficiency for clients, clearing members and the CCP.
 

Structure of NASDAQ OMX Clearing

NASDAQ OMX Clearing has two separate structures within the clearinghouse, one to clear financial products and one to clear commodity products.

Both rule books and memberships are separated but with a high degree of similarity from a clearing model perspective. It is also important to point out that while members of the financial market have access to clear commodities products, commodity members do not have access to the financial market.

Memberships of NASDAQ OMX Stockholm and NASDAQ OMX Oslo

Exchange and clearing participant are associated with NASDAQ OMX Stockholm AB for clearing of derivatives by entering into a member agreement. Upon approval of the membership application, the legal entity is admitted as a member and is thereby permitted to open trading and/or clearing accounts. NASDAQ OMX Stockholm and NASDAQ OMX Oslo offers three different types of memberships, all of which include access to trading.

  • General Clearing Member (GCM)

Clears on its own behalf and/or on behalf of NCMs or other clients

 

  • Direct Clearing Member (DCM)

Clears on its own behalf and/or on behalf of clients (not NCMs)

 

  • Clearing Member (CM) and Client Representatives Commodoties

Clears on its own behalf and/or clients including Clearing Clients

  • Non Clearing Member (NCM)

Has a GCM as member.

 

Clearing Accounts Overview

NASDAQ OMX Clearing offers a full range of clearing solutions, for members and clients in terms of segregation of positions, settlement and collateral. The model is unique in the sense that members and clients have the possibility to choose between basic segregation between members and clients (minimum level according to EMIR) and an advanced model where both positions and collateral are segregated client-by-client. In this advanced model the clients’ counterparty risk is assumed by NASDAQ OMX Clearing and not by the member.

The model offers seven different clearing account types, one for members’ own positions, three where the segregation is between house and clients and three where the segregation is at a client-by-client level. The new individual client segregated account (ICA) will be launched in March 2013 for Financial members and for Commodities members in June.There are a number of technical and operational alternatives in each category and detailed specifications are presented in each section. 

1. House: House accounts for members’ own positions.

2. Omnibus: Several clients per clearing account, netting of client positions is possible.There is no legal relationship between clients and NASDAQ OMX Clearing

3. Single-client: One client per clearing account,no netting of positions with other clearing accounts, for example used by NCMs. There is no legal relationship between the client and NASDAQ OMX Clearing.

4. Indirect Pledge (IDP): One client per clearing account, no netting of positions with other clearing accounts. The client has a direct legal relationship with NASDAQ OMX Clearing but the clearing member posts collateral to NASDAQ OMX Clearing.

5. ICA: One client per clearing account, no netting of positions with other clearing accounts. There is no legal relationship between the client and NASDAQ OMX Clearing and the member posts collateral on a segregated client custody account. This is a new clearing account type and will be launched in March 2013.

6. CC: One clearing client per clearing account, no netting of positions with other clearing accounts. The clearing client has a direct legal relationship with NASDAQ OMX Clearing and the client posts collateral directly towards the NASDAQ OMX Clearing. Used in the commodities clearing model.

7. DP: One client per clearing account, no netting of positions with other clearing accounts. The client has a direct legal relationship with NASDAQ OMX and posts collateral directly or through a clearing administrator towards NASDAQ OMX Clearing, without passing through the member’s books. 
 

A New Iindividual Client Clearing Account will be Introduced in March 2013.

The new individual client account (ICA) offers best-in-class segregation for clients that want no or very limited risk towards members and swift portability between members in case of a member default. The ICA model has been designed to provide robust legal protection for client positions and collateral.
A prerequisite for the ICA structure is that ICA clearing account’s member has migrated to the new collateral management service available in March 2013 For further details see the section on client clearing accounts.

Process to open an ICA clearing account:

  • ICA client needs to sign an agreement with a NASDAQ OMX Clearing member
  • ICA client needs to sign an agreement with a back-up member to achieve portability arrangements
  • Member must sign a custody account agreement.
  • NASDAQ OMX Clearing will open a custody account in accordance with custody account agreements
  • NASDAQ OMX Clearing will open an ICA in the clearing system.
  • Reports will be modified to reflect the segregated setup


 

Segregation

NASDAQ OMX Clearing offer segregation of positions, collateral and settlement. The new regulation EMIR requires clearinghouses (CCP) and members to, at a minimum, separate positions and collateral between house and clients and in addition to offer the option of client-by-client segregation.

The level of segregation is critical in deciding the likelihood for a CCP to successfully port client positions and collateral to a back-up member in a clearing member’s default.

Article 39 in EMIR requires the following:

  • A CCP shall segregate client and house assets

- Position

- Collateral

 

  • A CCP shall offer individual segregation

NASDAQ OMX Clearing has taken the decision that cash settlement must be separated between house and clients.

The figure below show NASDAQ OMXs EMIR compliant clearing model. 
 

Mandated EMIR Compliant Collateral and Settlement Segregation - Financial

NASDAQ OMX Clearing offers a wide range of alternatives with regard to segregation of positions and collateral. The new applicable regulations require clearinghouses and clearing members to, at a minimum, hold client positions and collateral in segregated, accounts, separate from the accounts where the clearing member holds its own positions and collateral. In addition, the client shall be offered the option of client-by-client segregation.

To comply with the new regulations, NASDAQ OMX Clearing has to make amendments to its current clearing model regarding segregation of collateral and cash settlement. In addition, a new clearing account type will be offered.

Collateral

Both securities collateral and cash collateral will be separated between house and clients.
This applies to client clearing account types:

  • Omnibus accounts
  • Single-client account
  • IDP accounts

Clearing accounts with individual client segregation are not affected by this change due to the fact that segregation is already on a client-by-client level.

This applies to client clearing account types:

  • Individual client segregated account
  • DP accounts

Cash Settlement

NASDAQ OMX Clearing will separate cash settlement into one client flow and one house flow per clearing member. This applies to all clearing account types.


Migration

Segregation of collateral and cash settlement will be part of the collateral management service implementation. For full documentation and migration plans see Collateral management service description and http://www.nasdaqomx.com/europeanclearing/newsmandatorychanges

Mandated EMIR Compliant Collateral and Settlement Segregation - Commodities

NASDAQ OMX Clearing offers a wide range of alternatives with regard to segregation of positions and collateral. The new applicable regulations require clearinghouses and members to, at a minimum, hold client positions and collateral in segregated, accounts, separate from the accounts where the member holds its own positions and collateral. In addition, the client shall be offered the option of client-by-client segregation.

There will be no mandatory changes since the commodities structure is in line with the new regulations from a segregation and account structure point of view. However, for efficiency purposes commodity members have the option to change their current set-up and introduce the same segregation structure as for the financial participants.

Collateral

There will be two different alternatives to post collateral for members and clients using omnibus and single-client accounts (account typ 2 and 3 in figure):

  1. To continue with current setup and connect one custody account to each omnibus and single-client account
  2. To post one single collateral amount to meet the margin requirement for all accounts of account type 2 and 3.

Cash Settlement

There will be two different alternatives to handle cash settlement for members and clients using account type 2, 3 and 5.

  1. To conitue with current setup and connect one custody account to each client account and segregate cash settlement per client account
  2. To net all client cash settlement transactions to one netted cash settlement amount per day and currency.  

 

Migration

If a commodity member wants to change its current collateral and cash settlement segregation setup, the changes will be implemented together with the implementation of the new collatel management service. For full documentation and migration plans see Collateral management service description and http://www.nasdaqomx.com/commodities/clearing/
 

House Clearing Account

A house clearing account is an integrated trading and clearing account for the member’s trading and clearing on its own behalf. The member may also use the house clearing account for trading and clearing of transactions in respect of entities within the same group of companies as the member.

 There are numbers of technical and operational options for members’ i.e.

  • One or several clearing accounts for administrative purposes
  • To have cross margining between all or a selection of house clearing accounts
  • There is always automated position netting within one clearing account

Client Clearing Accounts

In this category, NASDAQ OMX Clearing offers three different alternatives for members and clients, omnibus, single-client and indirect client accounts. The purpose is to ease administration, reduce operational risk and offer basic segregation to support porting in the event that a member defaults. Positions, collateral and settlement are segregated between house and client. For further administrative efficiency there is an option to connect several sub-accounts to each clearing account.

Omnibus Account
 

 

The omnibus account is an integrated trading and clearing account for the aggregated positions of several clients. Members can choose to set up several omnibus accounts for administrative purposes.

Legal

  • Since there is no legal relationship between NASDAQ OMX Clearing and clients using an omnibus structure, NASDAQ OMX Clearing does not require any legal documentation from clients
  • The member is required to have a client custody account with NASDAQ OMX. A standardized custody account agreement will be provided by NASDAQ OMX Clearing. 
  • This clearing account type is offered to GCM and DCM

Liability

  • Members are fully liable for all client obligations in an omnibus structure. There is no legal relationship between NASDQ OMX Clearing and clients who trade and clear via members’ omnibus set-up.

Segregation

  • Positions are segregated between house and omnibus but not client-by-client.
  • Collateral is segregated between house and clients but not client-by-client.
  • Cash settlement for Financial members is aggregated to one client flow per currency and member
  • Commodities members have the option to either perform cash settlement per client account or aggregate cash settlement to one netted client amount per day and currency.
  • Securities settlement is not segregated between house and clients but if segregation is required by a member it is possible for that member to request segregation.
  • NASDAQ OMX Clearing holds securities on a client custody account and cash on one NASDAQ OMX client custody account per currency.

Positions

  • No automated position netting is performed for this clearing account. If the member wants netting, the member is responsible for initiating netting.
  • There is no netting with other client and/or member clearing accounts.

Margins

  • Cross margin and offsets are calculated within each account.

Cash settlement

  • For Financial members cash settlement is performed on a daily basis. Client and house flows are separated but all client cash settlements are aggregated to one net amount per member, currency and settlement day.
  • Commodities members have the option to either perform cash settlement per client account or aggregate cash settlement to one netted client amount per day and currency.

 

Securities settlement

  • Securities settlement is not segregated between house and clients but if segregation is required by a member it is possible for that member to request segregation.

Collateral

Collateral is posted by members on a specific client custody clearing account but not segregated on a client by client basis.

  • For cash applies title transfer.
  • For securities applies pledge.

Default fund contributions

  • The member contributes to the default fund in accordance with NASDAQ OMX default fund requirement.

Operational

  • NASDAQ OMX Clearing offers the possibility of connecting several sub-accounts to an omnibus account

Portability

  • See separate section

Single Client Account

 

The single client account is an integrated trading and clearing account for one individual client, e.g. a non-clearing member.

Legal documentation structure

  • This clearing account type is offered to, GCM, DCM and NCM
  • There is no legal documentation between clients with a single client account and NASDAQ OMX Clearing.
  • The member is required to have a client custody account with NASDAQ OMX. A standardized custody account agreement will be provided by NASDAQ OMX Clearing.

Liability

  • Members are fully liable for all client obligations in a single client account.
  • There is no legal relationship between NASDQ OMX Clearing and clients who trade and clear via a single client account set-up.

Segregation

  • Positions are segregated client-by-client.
  • Collateral are segregated between house and clients but not client-by-client.
  • Cash settlement is aggregated to one client flow per currency and member.
  • Securities settlement is not segregated between house and clients but if segregation is required by a member it is possible for a member to ask for segregation.
  • NASDAQ OMX Clearing holds securities on a client custody account and cash on one NASDAQ OMX client custody account per currency.

Positions

  • Positions are always netted within a single client account. There is no netting with other client and/or member clearing accounts.

Margins

  • Cross margin and offsets are calculated within a single client account. There is no cross margining and offsets with other client and/or house clearing accounts

Cash settlement

  • Cash settlement is performed on a daily basis. Client and house flows are separated, but all client cash settlements are aggregated to a single net amount per member, currency and settlement day.

Securities settlement

  • Settled on a daily basis, aggregated at the member level

Collateral

  • Collateral is posted by members on a specific client custody account but not segregated on a client by client basis.
  • For cash applies title transfer.
  • For securities applies pledge.

Default fund contributions

  • The member contributes to the default fund in accordance with NASDAQ OMX default fund requirement.
  • Operational
  • NASDAQ OMX Clearing offers the possibility to connect several sub-accounts to a Single client account

Portability

  • See separate section

Indirect Client Account (IDP) – Financial 
 

 

This is an integrated trading and clearing account with common functions for trading and clearing that cannot be connected to other clearing accounts. There is a legal relationship between NASDAQ OMX Clearing and the client in this set-up and an option to connect several sub-accounts to each indirect client account.

Legal

  • This clearing account type is offered to GCM and DCM
  • The member is required to have a client custody account with NASDAQ OMX. A standardized custody account agreement will be provided by NASDAQ OMX Clearing.
  • There is a legal tri-party agreement between the IDP client, a clearing member and NASDAQ OMX, (http://www.nasdaqomx.com/digitalAssets/79/79549_app_2_a_customer_agreement_2008filloutform.pdf) updated in connection with the CMS project.

Liability

  • The clearing member and client are jointly liable for all obligations towards NASDAQ OMX Clearing

Segregation

  • Positions are segregated client-by-client.
  • Collateral is segregated between house and clients but not client-by-client.
  • Cash settlement is aggregated to one client flow per currency and member.
  • Securities settlement is not segregated between house and clients but if segregation is required by a member it is possible for that member to request segregation.
  • NASDAQ OMX Clearing holds securities on a client custody account and cash on one NASDAQ OMX client custody account per currency.

Positions

  • Positions are always netted within an IDP clearing account but not between different IDP clearing accounts or other client clearing accounts

Margins

  • Cross margin and offsets are calculated within an IDP clearing account but not between different clearing accounts.

Cash settlement

  • Cash settlement is performed on daily basis. Client and House flows are separated but all client cash settlements are aggregated to a single net amount per member, currency and settlement day.

Securities settlement

  • Settled on a daily basis, aggregated at the member level

Collateral

  • Collateral is posted by members on a specific client custody account but not segregated on a client-by-client basis.

- For cash, title transfer applies.

- For securities, pledges apply.

 

Default fund contributions

  • The member contributes to the default fund in accordance with NASDAQ OMX default fund requirement. 

Operational

  • NASDAQ OMX Clearing offers the possibility of connecting several sub-accounts to an IDP clearing account

Portability

  • Please see separate section
     

Individual Client Segregation

In this category, NASDAQ OMX Clearing offers three different alternatives for members and clients, individual clearing accounts, clearing clients and direct pledge accounts. The purpose is to offer best-in-class segregation and porting functionality in the event of the member defaulting and in addition ease administration and reduce operational risk. Positions and collateral are fully segregated, on a client-by-client basis. For further administrative efficiency, there is an option to connect several sub-accounts to each clearing account, this means that NASDAQ OMX Clearing in a unique way is able to support members with position, margin and settlement calculations on the clients’ client level, i.e. indirect clearing. 

Individual Client Segregated Account

 

 

The individual client segregated account is an integrated trading and clearing account for one individual client where positions and collateral are fully segregated in order to offer portability arrangements. Typically, NCMs and larger institutions will use this clearing account structure.

This clearing account type will be available in March 2013 for Financial members and in June for Commodities members. Members need to migrate to NASDAQ OMX new collateral management service before NASDQ OMX is able to open up ICA clearing accounts.

Legal

The ICA model has been designed to provide robust legal protection for client positions and collateral. The legal structure of the ICA model is designed to fit in to a principal to principal clearing model and has been initially verified in relation to Swedish insolvency law as well as the default regime in the UK.

In order to facilitate client on-boarding, NASDAQ OMX Clearing has built upon a rules-based, documentation-light approach to create the legal structure required to support segregation and portability in connection with the ICA model. The portability mechanics is established when the member and NASDAQ OMX Clearing have entered into the member agreement (which activates the rules and regulations) and the member and its client have executed certain additional terms relating to the termination conditions of the relevant transactions. In order to increase the likelihood of successful porting, the client is also required to have appointed a back-up member (that shall be a member of NASDAQ OMX Clearing).

 More specifically, the rules and regulations set out the steps to be taken by NASDAQ OMX Clearing in order to port collateral and positions from a defaulting member to the back-up member as well as the method for valuation of positions and collateral.

As between the member and its client, the portability mechanism presupposes that the member ensures that the relevant transactions between the member and the client terminate at the same time and on the same terms as transaction between the member and NASDAQ OMX Clearing. NASDAQ OMX Clearing does not prescribe the use of a proprietary form of member/client documentation. Rather, in order to facilitate for members, NASDAQ OMX has calibrated the rules and regulations to work with the European Client Clearing Addendum aimed at providing a standardized solution that may be appended to the member’s existing client documentation. However, if preferred by the member, different documentation can be used as long as the portability mechanics are accomplished.

The member is required to open a specific custody account with NASDAQ OMX Clearing on behalf of every ICA client. A standardized custody account agreement will be provided by NASDAQ OMX Clearing.

 To secure portability arrangements offered by NASDAQ OMX Clearing it is recommended to have arrangements with a back-up member, back-up member agreement.

Finally, NASDAQ OMX will require confirmation from the member and the client that they agree to be bound by the core provisions required for the portability mechanism.

Liability

  • Members are fully liable for all obligations towards NASDAQ OMX Clearing

Segregation

  • Positions are segregated client-by-client.
  • Collateral is segregated client-by- client
  • Cash settlement is aggregated to one client flow per currency and member.
  • Securities settlement is not segregated between house and clients but if segregation is required by a member it is possible for that member to request segregation.
  • NASDAQ OMX Clearing holds securities on an individual custody account and cash on one individual NASDAQ OMX custody account per currency.

Positions

  • Positions are always netted within an individual clearing account but not with other clearing accounts

Margins

  • Cross margin and offsets are calculated within an individual clearing account but not with other clearing accounts

Cash settlement

  • Cash settlement is performed on daily basis. Client and house flows are separated but all client cash settlements are aggregated to a single net amount per member, currency and settlement day.

Securities settlement

  • Settled on daily basis, aggregated at member level

Collateral

  • Collateral is posted by members on a specific client ICA custody account with client- by- client segregation
  • For cash applies title transfer.
  • For securities applies pledge.

Default fund contributions

  • The member contributes to the default fund in accordance with NASDAQ OMX default fund requirement.

Operational

  • NASDAQ OMX Clearing offers the possibility of connecting several sub-accounts to an individual clearing account

Portability

  • Please see separate section

 

Clearing Clients - Commodities

  

Legal documentation structure:

  • There is a legal tri-party agreement between the clearing client, a client representative and NASDAQ OMX.
  • The clearing client is required to open a custody account with NASDAQ OMX Clearing. A standardized custody account agreement will be provided by NASDAQ OMX Clearing.
  • To secure portability arrangements offered by NASDAQ OMX Clearing it is preferable to have a separate agreement with a back-up member.

Liability

  • Clearing clients and client representatives are jointly liable towards NASDAQ OMX Clearing

Segregation

  • Positions are segregated at a client-by-client level.
  • Collateral is segregated at a client-by-client level.
  • Cash settlement is settled client-by-client.
  • Collateral is posted by clearing clients on a specific custody account pledged to NASDAQ OMX.

Positions

  • Positions are always netted within a clearing client account but not between different clearing client accounts.

Margins

  • Cross margin and offsets are calculated within a clearing client account but not between different accounts, the only exception is if one clearing client has more than one clearing account.

Cash settlement

  • Cash settlement is performed on daily basis at a client-by-client level directly towards NASDAQ OMX via an approved settlement bank.

Securities settlement

  • Settled on a daily basis, on clearing client level.

Collateral

  • Collateral is posted by clearing clients on a specific custody account.
  • For cash this will be done with title transfer.
  • For securities this will be done with pledge.
  • Bank guarantees will still be accepted for non financial participants.

Default fund contributions

  • The clearing client will be responsible for contributing to the default fund, directly or indirectly via a third party.

Operational

  • NASDAQ OMX Clearing offers the possibility of connecting several sub-accounts to a clearing client account.

Portability

  • Please see separate section.

 

Direct Pledge - Financial

 

Separated trading and clearing accounts may be opened for a DP client which trades through a number of different executing brokers, but wishes to benefit from netting by consolidating positions into a single clearing account with the member. Typically, large institutions trading with several banks or brokerage firms use this clearing account structure.

Legal

As between the member and its client, the portability mechanism presupposes that the member ensures that the relevant transactions between the member and the client terminate at the same time and on the same terms as transaction between the member and NASDAQ OMX Clearing. NASDAQ OMX Clearing does not prescribe the use of a proprietary form of member/client documentation. Rather, in order to facilitate for members, NASDAQ OMX has calibrated the rules and regulations to work with the European Client Clearing Addendum aimed at providing a standardized solution that may be appended to the members’ existing client documentation. However, if preferred by the member, different documentation can be used as long as the portability mechanics is accomplished.

 

  • This clearing account type is offered to, GCM and DCM
  • There is a legal tri-party agreement between direct pledge clients, clearing members and NASDAQ OMX (http://www.nasdaqomx.com/listing/europe/rulesregulations/)
  • To secure portability arrangements offered by NASDAQ OMX Clearing, it is recommended to have arrangements with a back-up member – back-up member agreement.

Liability

  • The direct pledge client is fully liable towards NASDAQ OMX Clearing and jointly liable with the executing member (holds a trading account) for the overnight risk.
  • A member that holds a trading account for a direct pledge client is responsible for the overnight risk connected to the executed contracts. This overnight risk liability exists until the direct pledge account holder has pledged the required collateral to NASDAQ OMX

Segregation

  • Positions are segregated client-by-client
  •  Collateral is segregated client-by-client.
  • Cash settlement is aggregated to one client flow per currency and member.
  • Securities settlement is not segregated between house and clients but if segregation is required by a member it is possible for that member to request segregation.
  • NASDAQ OMX Clearing holds securities on an individual client custody account and cash on one individual NASDAQ OMX client custody account per currency.

Positions

  • Positions are always netted within a direct pledge account but not between different client clearing accounts

Margins

  • Cross margin and offsets are calculated within a direct pledge account but not between different clearing accounts. The only exception is if one client has more than one direct pledge account.

Cash settlement

  • Cash settlement is performed on daily basis. Client and house flows are separated. Client cash settlements are aggregated to a single net amount per member, currency and settlement day.

Securities settlement

  • Settled on a daily basis, aggregated at member level

Collateral

  • Collateral is posted by members on behalf of direct pledge clients or directly by the direct pledge client on a specific direct pledge client’s custody account

- For cash, title transfer applies.

- For securities, pledges apply.

 

Default fund contributions

  • The direct pledge client will be responsible to contribute to the default fund, direct or indirect via a third party.

Portability

  • Please see separate section

 

Portability – Assumptions and Process

In order to successfully and quickly port positions and collateral from a defaulting member to a back-up member, it is crucial that the clearinghouse is able to, in a very short timeframe, determine client obligations, market value and value of posted collateral.

NASDAQ OMX offers a number of clearing model alternatives with different levels of segregation and pre-defined portability arrangements. In other words, different levels of client protection are available in the event of a member defaulting.

 The intention in this section is to present the portability process for a number of clearing accounts but not all (clearing client, direct pledge, Individual clearing account and omnibus account).
There are a number of key factors to take into account when deciding on the model for a client, for example:

Chosen clearing account/clearing model

To choose a clearing account with individual client segregation will increase the likelihood of successful porting compared to a clearing account with client/house segregation.
In NASDAQ OMX’s unique DP model there are no margin obligations to consider for a back-up member, only administration obligations. This gives this model a great advantage compared to other models where client obligations are part of the porting process.

Back-up member

To have an agreement with a back-up member prior to the default is an important factor in reducing the risk of failing to port positions and collateral since there will be limited time to negotiate an agreement with a back-up member in a default situation.

Be aware that the porting processes presented shall be regarded as guidelines and not fixed processes since NASDAQ OMX Clearing, members and clients might be forced to act differently due to specific market conditions.
 

Porting Process DP Account    

The assumption is:

  • The defaulting member’s administrator will put all transactions (both house and client) on hold once the member is in default.
  • All positions for a particular client are ported to a back-up member. Partial porting is not possible
  • There is no need to port collateral since collateral is held in a specific DP client depot.
     

6 step process

 

1.  It is NASDAQ OMX’s decision to declare a member in default. It will then publish a statement to that effect on the NASDAQ OMX Web. The information will also be made available via the NASDAQ OMX subscription service

2.  The DP client is responsible for contacting the back-up member with a porting request to accept positions according to the agreement between the client and the back-up member

3.  The back-up member is responsible for contacting NASDAQ OMX with a porting request from the back-up member to port client positions.

4.  Porting - NASDAQ OMX will port positions to the back-up member. No close-out and re-open mechanism is needed

5.  NASDAQ OMX issues confirmation to the client, the back-up member and the defaulting member

6.  Default fund - There is no need to call for additional contributions since there is no change in the relationship between NASDAQ OMX Clearing and the DP client.

 

Porting Process ICA Clearing Account

 

The assumption is

  • The defaulting member’s administrator will put all transactions (both house and client) on hold once the member is in default.
  • All obligations for a particular client are ported to a back-up member. Partial porting is not possible.
  • In this respect, porting means that the back-up member takes on all client obligations (IM and overnight risk).
  • All collateral held in securities is realized and converted into cash.
  • All collateral posted in ICA segregated clearing accounts will be treated as client collateral and available for porting to the back-up member.

10-step process:

1. It is NASDAQ OMX’s decision to declare a member in default and then publish a statement to that effect on the NASDAQ OMX Web. This information will also be made available via the NASDAQ OMX subscription service.

2. The ICA client is responsible for contacting the back-up member with a porting request according to a back-up agreement between the client and the back-up member.

3. The back-up member is responsible for contacting NASDAQ OMX with a porting request from the back-up member to port client positions and collateral.

4. NASDAQ OMX will determine the value of ICA clients posted collateral

  • Cash
  • Convert posted client securities into cash to be able to determine the value of securities. Actual market   price when NOMX realizes securities.
  • Determine total value of posted collateral that will be available to port.
  • Note, NOMX takes on the settlement risk for realized client securities.

5. NASDAQ OMX will determine the client’s total obligation:
a. the market value of all of the client’s positions (intraday positions included)
b. whether there is any unsettled variation margin
c. whether there are any unsettled premiums
d. whether there are any unsettled securities settlements
e. whether there are any unsettled fees
f. whether there are any unsettled final cash settlements

The total client obligation is the sum of a – f.

6. NASDAQ OMX is to determine if there is sufficient collateral or not to cover all client obligations based on information in steps 4 and 5

7. NASDAQ OMX contacts the back-up member with a porting request. The back-up member must take on all client obligations determined in step 5, there is no option for back-up members to only take on partial client positions
The back-up member will have the opportunity to:

  • Accept the porting request
  • Contact client and call for additional collateral from the client and then accept the porting request
  • Reject the porting request, client positions and collateral will remain at the defaulting member

8. Porting

  • NASDAQ OMX will port positions to the back-up member. No close-out and re-open mechanism is needed
  • NASDAQ OMX transfers client collateral to the back-up member

If the process to convert securities to cash is not finalized the client (the back-up member) will be credited with corresponding collateral value determined in step 4

9. NASDAQ OMX provides confirmation to the client, the back-up member and defaulting member

10. Default fund

  • NASDAQ OMX calls for additional contributions from the back-up member 

Porting Process Omnibus Accounts

The assumption is

  • The defaulting member’s administrator will put all transactions (both house and client) on hold once the member is in default.
  • All obligations for all clients within an omnibus account are ported to a back-up member. Partial porting is not possible.
  • In this respect, porting means that the back-up member takes on all client obligations (initial margin and overnight risk).
  • Collateral posted for omnibus account obligations is segregated at the house/client level but not at a client-by-client level.

9-step process

1. It is NASDAQ OMX’s decision to declare a member in default and then publish a statement to that effect on the NASDAQ OMX Web. This information will also be available via the NASDAQ OMX subscription service.

2. The defaulting members’ liquidator is responsible for contacting the back-up member with a porting request to accept positions and collateral.

3. The back-up member is responsible for contacting NASDAQ OMX with a porting request from the back-up member to port client positions and collateral.

4. The defaulting member is to present the collateral that will be ported to the back-up member.

5. NASDAQ OMX will determine and present to the back-up member the total obligation of the omnibus clearing account:
a. the market value of all of the client’s positions (intraday positions included)
b. whether there is any unsettled variation margin
c. whether there are any unsettled premiums
d. whether there are any unsettled securities settlements
e. whether there are any unsettled fees
f. whether there are any unsettled final cash settlements

The total client obligation is the sum of a – f.

6. The back-up member is to accept or reject the porting request from the defaulting members’ liquidator.

7. Porting

  • NASDAQ OMX will port positions to the back-up member. No close-out and re-open mechanism is needed
  • NASDAQ OMX transfers collateral to the back-up member

8. NASDAQ OMX provides confirmation to the client, the back-up member and the defaulting member

9. Default fund

  • NASDAQ OMX calls for additional contributions from the back-up member.

Liability Towards NASDAQ OMX

This section compares liability towards NASDAQ OMX in the different models offered by NASDAQ OMX.
Note, “Client & member” in the matrix means that the client and member are jointly liable towards NASDAQ OMX

Legal Documentation

This section gives an overview of the legal documentation required by NASDAQ OMX Clearing. The legal structure for the Clearing model is based on both NASDAQ OMX’s Rules and Regulations and bilateral agreements between NASDAQ OMX, clients and members.
For full documentation, please follow the link http://www.nasdaqomx.com/listing/europe/rulesregulations/ for financial and http://www.nasdaqomxcommodities.com/membership/legalframework/ for commodities 
 
 

Market Professionals

Divider

Companies

Divider

Media

Divider

Researchers

Divider

Investors