|Category: Beginner||Posted on: October 07, 2011 by: pseacademy_administrator||Comments: 0||Attachments: 0|
The Securities Clearing Corporation of the Philippines (“SCCP” or “Clearinghouse”) is a wholly-owned subsidiary of The Philippine Stock Exchange, Inc. (“PSE”) and is under the regulatory supervision of the Philippine Securities and Exchange Commission (“SEC”). SCCP serves as a clearing and settlement agency for all Trades executed in the Exchange.
SCCP is located at the 2/F Philippine Stock Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City, 1226 Philippines.
To deliver high quality systems for the settlement of eligible trades on a Delivery versus Payment (DVP) basis, ensuring the finality and irrevocability of these trades; and for the administration of appropriate risk management functions to forestall any untoward event that may affect the settlement process.
Role of SCCP in the Stock Market
SCCP is responsible for establishing the cash and securities liabilities and entitlements of its Clearing Members, synchronizing the settlement of funds and the transfer of securities based on the Delivery-versus-Payment Model 3 or Multilateral Net Settlement; guaranteeing the settlement of trades in the event of a trading participant’s trade default in order to ensure the finality and irrevocability of all Exchange trades through its Fails Management procedures; implementing appropriate risk management measures in order to mitigate risks inherent in the clearing and settlement of Exchange trades and the maintenance and administration of the Clearing and Trade Guarantee Fund (“CTGF”).
SCCP as the Central Counterparty
Upon uploading of the PSE Trades into SCCP’s Central Clearing and Central Settlement (“CCCS”) system, multilateral netting takes place, and Novation of the original PSE Trade contracts occurs. The Securities settlement instructions are netted multilaterally into a net receipt or delivery position in a given Security for each Clearing Member. All Cash debits and credits from these Securities Settlement instructions are also netted into a single net cash position for each Clearing Member. On Settlement Date, book-entry settlement instructions will be created for each net position to facilitate movements from the net delivering Clearing Members to the net receiving Clearing Members. As a result of Novation, SCCP becomes a Central Counterparty (“CCP”) to all matched trades executed at the Philippine Stock Exchange. As a CCP, SCCP assumes the role of a Seller to all Buying Clearing Members and the Buyer to all Selling Clearing Members. Thus, SCCP as the Central Counterparty takes the buyer’s credit risks and assumes the seller’s delivery risks, thereby addressing settlement concerns for market participants.
The Settlement Process
The settlement process refers to the completion of a PSE trade effected by the delivery of the Security element and the payment of such Security on settlement date. The settlement of trades in listed securities takes place three days after the transaction date or on T+3 on a Delivery-versus-Payment Multilateral Net Settlement basis. As such, cleared funds must be deposited in the Clearing Member’s Cash Settlement Account in the settlement bank and securities must be made available in the Clearing Member’s securities accounts in the central depository’s system not later than 12:00 noon of settlement date. If securities are not delivered by the Selling Clearing Member, the Clearinghouse will not release the corresponding Cash entitlement to him, and vice versa. Late deliveries are imposed a monetary fine/penalty by the Clearinghouse.
Mark-to-Market Collateral Deposit System
Since equities trades executed in the Exchange are settled three (3) business days after Trade Date (T+3), there exists at any given time three (3) days’ worth of unsettled trades. Since the market price of the stocks subject of the Trades can fluctuate, price or market risk exists, where, if any of the counterparties to the Trade fails to make deliveries for Securities sold or pay for purchases made, SCCP as the Central Counterparty is exposed to losses due to fluctuation in market prices that may occur during the period where Trades have not yet been settled.
To address market/price risks, SCCP performs a daily revaluation called “mark-to-market”. SCCP computes for the exposure on each of the three (3) days’ worth of unsettled trades by comparing the Contract Price of each traded Stock against its Market Value (based on the Closing Price), netting out the Buy and Sell trades per Stock. The computed exposure of each of the three days' unsettled trades is then netted out against each other to arrive at a net exposure which shall be the basis for the amount of the collateral to be required from the Clearing Member. We currently impose 100% collateralization. Acceptable collaterals are cash and securities which comprise the PSE index, plus PSE shares. Securities accepted as collateral are however, subjected to 20 percent haircut. Alternatively, the Clearing Member may do an Early Delivery of the securities which caused the negative exposures.
Clearing and Trade Guaranty Fund
SCCP has established a Clearing and Trade Guaranty Fund (“CTGF” or Clearing Fund”) to assist the SCCP in meeting its obligations as a Central Counterparty. The CTGF may only be used if SCCP is unable to meet its obligations as Central Counterparty by reason of defaults by its Clearing Members, and shall be utilized as a last resort. The Clearing Fund is comprised of the contribution of the Philippine Stock Exchange, Inc., contributions of the Clearing Members, Reserve Fund of the Clearinghouse and interest income from the investments of the Clearing Fund.