Practice Note 6.5.1B(2) — Priority Considerations when Selecting Buy Trades to Cash Settle
|Issue Date||Cross Reference||Enquiries|
|Added on 10 December 201810 December 2018.||Rule 6.5.1B(2).||
Please contact Clearing Ops:
E-Mail Address: firstname.lastname@example.org
1. Rule 6.5.1B(2) states that on any Settlement Day, if and to the extent that the securities available to CDP are insufficient for CDP to settle its delivery obligations in respect of Novated Contracts that are due for settlement on that Settlement Day, CDP may cash settle any of those delivery obligations in whole or in part.
2. This Practice Note sets out the general principles CDP may consider when deciding which buy trade(s) to cash settle when there are insufficient securities available to CDP to settle its delivery obligations.
3. The general principle that CDP considers in selecting which buy trade(s) to cash settle is to minimise knock-on impact and reduce risk to CDP's clearing facility. In particular, the factors that CDP considers, in decreasing order of priority, include the following:
(a) Whether CDP has been informed of any onward sell trade in respect of the buy trade, in which case that buy trade will not be selected for cash settlement.
(b) Age of the buy trade, generally giving priority to the oldest buy trade.
(c) Quantity of securities in the buy trade, generally giving priority to the buy trade with the largest quantity of securities.
4. With respect to paragraph 3(a) above, Clearing Members should immediately inform CDP of any onward sell trade when so informed by a Customer.