MERJ Clearing and Settlement Rules

I. GENERAL PROVISIONS

1. Legal status of the Clearing Agency Limited

The Clearing Agency is a company with limited liability, registered and incorporated in terms of the Companies Act of the Republic of the Seychelles.

2. Address

The Registered Office and Physical Address of the Clearing Agency is:

Office F28 1st Floor Eden Plaza Eden Island Seychelles

3. Status of the Rules and the Directives

These Rules and Directives hereto govern the operations of the Clearing Agency as prescribed by Section 26 of the Act.
In the event of any conflict:
between the Act and these Rules, the Act shall prevail;
between these Rules and any Directive, these Rules shall prevail; or
between these Rules and any other rules of a designated market, these Rules shall prevail.
These Rules shall be binding on:
1. the Clearing Agency;
  1. the officers and employees of the Clearing Agency; and
Participants, with the exception of trader participants unless expressly stated, and, where applicable, all their officers, employees and clients.
These Rules are binding between:
1. the Clearing Agency and Participants;
2. Participants and, where applicable, their clients.

1.4 Amendments to these Rules

A Participant, hereinafter referred to as the ‘’applicant’’ may lodge a written proposal to the Executive Committee of the Clearing Agency in respect of amendments to these Rules or any Directives.
Upon receipt of a proposal from an applicant, the Executive Committee shall acknowledge receipt of the proposal in writing to the applicant within 20 (twenty) business days of receipt of the proposal for the amendment.
Thereafter the Executive Committee shall consider the proposed amendment within a further period of 20 (twenty) business days and may:
request further information in writing from the applicant and upon receipt thereof consider the proposed amendment fully within a further period of 30 (thirty) business days and thereafter deal with the proposed amendment in terms of Rule 1.5 (c) (ii) or 1.5 (c) (iii) as the case may be; or
reject the proposal and provide reasons for the rejection in writing to the applicant; or;
in the event that the Executive Committee considers the proposed amendment to be one which will enhance and/or improve the business efficiency and/or operations of the Clearing Agency it may submit the proposed amendment together with a recommendation by the Executive Committee to the Controlling Body for consideration in which case the Controlling Body may –
1. if the proposed amendment to these Rules is accepted and approved by the Controlling Body submit the proposed amendment to the Securities Authority in terms of the Act for approval, accompanied by an explanation of the reasons for the proposed amendment; or
2. reject the proposal and provide reasons for the rejection in writing;
the Clearing Agency shall issue a notice detailing any changes to these Rules.
If the Executive Committee and/or the Controlling Body rejects a proposed amendment, then this decision will be final.
Any proposed amendments to these Rules require the final approval of the Securities Authority.
For the avoidance of doubt, the Clearing Agency may amend these Rules, in its sole and absolute discretion, in accordance with the Act.

1.5 Directives

For the purposes of giving effect to these Rules, to achieve all things that are necessary for, incidental or conducive to the proper operation of its business and fulfilling its functions, responsibilities and duties as a Clearing Agency, the Clearing Agency may issue Directives in terms of the Act and these Rules provided such Directives are not inconsistent with the Act and these Rules. Any Directive specifically referred to in these Rules, includes any subsequent amendment or replacement thereof from time to time.

1.6 Notices to Participants

Every Participant must notify the Clearing Agency of its mailing address, business address and electronic mail address where a notice issued by the Clearing Agency may be delivered.
A notice issued by the Clearing Agency must be in writing and may be transmitted in electronic form.
A notice sent in electronic form is deemed to have been received on the date of transmission unless proved to the contrary by the Participant.

2. PARTICIPANTS

2.1 General

The Clearing Agency may provide clearing and settlement services to Participants in accordance with these Rules.
For the purposes of section 2.2, a Trader Participant shall only qualify to be a PCAP.

2.2 Categories of Participants

Pre-validated Trade Clearing Agency Participant (“PCAP”) – is a participant that is authorised to provide clearing and settlement services exclusively for eligible assets designated for trading only on a pre-validated trade basis by a designated market.
Derivatives Clearing Agency Participant (“DCAP”) – is a participant that is authorised to provide clearing and settlement services for derivatives securities only.
General Clearing Agency Participant (“GCAP”) – is a participant that is authorised to provide clearing and settlement services for all approved eligible assets.

2.3 Participant criteria except in the case of a trader participant

Any persons wishing to provide clearing and settlement services as a participant of the Clearing Agency must meet the following criteria:
be a corporation with the requisite financial and business standing and repute that is, or will, upon admission be carrying on the business of a participant whether in Seychelles or elsewhere;
have directors who are all at least 21 (twenty-one) years of age having full legal capacity;
have directors and officers of good character and high business integrity, and the applicant shall never have been:
convicted of an offence resulting from dishonesty, fraud or embezzlement;
disqualified for reasons relating to their profession or occupation; or
convicted in any jurisdiction of a serious offence relating to dishonesty under any legislation in the past ten (10) years;
demonstrate adequate compliance with these Rules;
have adequate procedures and supervisory duties imposed by any other relevant legislation;
maintain appropriate guarantees, professional indemnity cover or Fidelity Insurance Cover for its clients’ benefit in respect of negligence, fraud and misappropriation by directors, officers or employees involved in performance of clearing and settlement services;
have officers that are registered with the Clearing Agency and meet competency requirements for these officers stipulated in the Directives;
have a person in charge of its clearing operations and activities who meets the competency criteria stipulated in Directive 1 to these Rules;
have managerial or executive staff of high standard, integrity and a level of knowledge (as may be deemed acceptable by the Clearing Agency) on the nature, risks and obligations in respect of the market or trades that it wishes to clear;
maintain staff, facilities and adequate internal control and risk management policies, procedures and systems for its clearing operations and activities;
maintain segregated and adequate back office functions;
have in place sufficient resources and establish and maintain adequate systems for preserving a sound liquidity and financial position at all times including the maintaining of adequate staff and facilities for monitoring its cash-flow and funding requirements and maintaining sufficient liquidity for its day to day operations;
have appropriate internal control and risk management processes and procedures that are documented and at a minimum covers the identification, management, measurement and oversight of various business risks. The identified risks should include but are not limited to areas such as proprietary trading, business interruption, technology, key person, credit, liquidity, market fraud, settlement, physical security and new products. Senior management must play a significant role in the adoption and maintenance of a comprehensive system of internal controls and risk management practices. This role should include the recognition of risk management as an essential part of the business process, management's willingness to fund the necessary elements of a risk management system, including personnel and information technology costs, and recognition that risk management is a dynamic function that must be modified and improved as the participant’s business changes and improved processes and procedures become available;
comply with the any additional requirements for participants as stipulated in these Rules and any Directives.
A DCAP must additionally –
have paid up capital of not less than US$ 5,000,000 (five million US Dollars); or
be a subsidiary of a holding company with group paid up capital of at least US$100,000,000 (one hundred million US Dollars); or
have such other paid up capital amount as may be prescribed by the Clearing Agency hereafter, from time to time; and
have, and upon admission maintain, minimum capital and financial requirements pursuant to this Rule 2.2 c) and any Directive.
A GCAP must additionally meet the following requirements -
A GCAP must have base capital as follows:
the base requirements which is an amount required to meet the participant’s operating expenditure requirements for a period of 6 (six) months;
in order to comply with this requirement, the participant must provide the Clearing Agency with a bank guarantee: -
for an amount equal to no less than the Base Requirement;
issued by a bank acceptable to the Clearing Agency;
issued in accordance with wording approved by the Clearing Agency;
have a minimum duration of 12 (twelve) months (renewable); and
be subject to a minimum cancellation period of 3 (three) months.
The holding of eligible assets in custody introduces risk for which a participant is required to hold capital. The amount of capital required is based on the market value of assets held under custody (“AUC”) by that participant.
A GCAP’s total Custody Risk Requirement (CRR) shall be not less than the sum of the following:
A minimum of US$50,000 (fifty thousand US Dollars);
0,1% of the market value of assets under custody where this value exceeds US$30,000,000 (thirty million US Dollars) but is less than US$250,000,000 (two hundred fifty million US Dollars); and
0,01% of the market value of assets under custody in excess of US$250,000,000; and
for the purpose of this Rule, assets under custody shall include all equities, bonds and/or money market securities held by the participant.

2.4 Application for authorisation as a Participants

An application for participant status shall be subject to:
the Act, and these Rules;
the application being made to the Clearing Agency in writing using the Clearing Agency’s prescribed Participation Application form;
the payment by the applicant of a non-refundable fee as determined by the Clearing Agency in Directive 5;
the applicant agreeing in writing to be bound by the provisions of the Act, these Rules and Directives on making the application; and
any other information as required by the Clearing Agency.
the Clearing Agency may request further information which it deems necessary, to verify information submitted by the applicant to support an application.
Upon receipt of a complete and compliant application the Head of Compliance of the Clearing Agency will submit the application to the Executive Committee for its consideration.
The Clearing Agency shall notify the applicant if its application for authorisation and registration as a participant has been approved by the Executive Committee.
The Clearing Agency shall be entitled to refuse an application and notice in writing will be given to the applicant, with reasons for the rejection.
No exemptions shall be allowed for participants unless stipulated in the Act, these Rules or Directives.

Trader Participants will be exempted from the requirement to submit applications for authorisation to act as participants provided that the Clearing Agency is satisfied that the agreement entered into between the Trader Participant and the designated market does not contain provision(s) that conflict with, or could potentially conflict with, these Rules.

For the avoidance of doubt, the exemption allowed for under (g) does not preclude the Trader Participant from abiding to the remainder of these Rules as may be applicable.
An applicant that has been refused participation has the right to appeal under the DAB in terms of Section 8 of these Rules.
For the avoidance of doubt, a trader participant cannot appeal under the DAB as allowed for in h) above as the trader participant is exempted from the requirement to submit application for authorization to act as a participant.

2.5 Termination of participant status

A participant may terminate its status with the Clearing Agency by advising the Clearing Agency of the reasons thereof in writing within twenty (20) business days of the intended date of such termination.

The Clearing Agency may accept the termination unconditionally or upon such conditions as it may deem fit, depending on whether the Clearing Agency is satisfied that the participant’s outstanding obligations in terms of these Rules and Directives have been resolved.

Once the Clearing Agency is satisfied that all outstanding obligations in terms of these Rules and Directives including any conditions, if any, from the Clearing Agency or Securities Authority have been complied with, the termination of that participant shall be affected. The Clearing Agency may terminate a participant’s status on written notification to the participant if the participant is:

placed under curatorship;
declared bankrupt or is subject to a company reorganisation in terms of the Insolvency Act or suffers a similar legal disability in relevant laws of the jurisdiction of incorporation of the participant;
liquidated;
granted any judgement against it that is not set aside by a Court having jurisdiction within fourteen (14) days of the judgement; or
found to have submitted misleading or untrue material in support of its application for admission; or
found to no longer meet the criteria as laid out under section 2.3 above.
The Securities Authority will be notified in writing of the termination of any participant and the reasons thereof within one (1) business day of receipt of termination by a participant or termination of a participant at the discretion of the Clearing Agency.
Where a participant, not being a Trader Participant, has been terminated by the Clearing Agency, either voluntarily or not, the Clearing Agency will notify all other participants in writing within five (5) business days of the termination.

2.7 Registration and duties of Officers

Every Participant, except in the case of a trader participant, shall have a Compliance Officer who shall:
meet the qualifications and experience levels as prescribed by the Clearing Agency by Directive;;
be responsible for the communication between the Clearing Agency and the participant;
comply with these Rules and Directives;
at all times, be registered with the Clearing Agency;
be responsible for any communications with the Clearing Agency, which must be confirmed in writing with the Clearing Agency;
receive all notices from the Clearing Agency;
ensure compliance of these Rules and Directives by the participant at all times;
ensure the compliance of the participant with all legislations relevant and binding to the participant; and
report in writing to the Clearing Agency any breaches by the participant and its clients of the provisions of the Act and these Rules and Directives.
A DCAP and GCAP shall have a Settlement Officer who shall:
be registered with the Clearing Agency and meet the competency requirements prescribed by the Clearing Agency in Directive 1 to these Rules;
ensure settlement takes place as prescribed by these Rules and Directive 2 and Directive 3;
immediately report any clearing and settlement transgressions in terms of the Act, these Rules, Directive 2 and Directive 3 to the Compliance Officer; and
at all times comply with these Rules.

3. CLEARING AGENCY FUNCTIONS AND DUTIES

3.1 General

The Clearing Agency shall facilitate the prompt adjustment of market contract obligations arising out of transactions on an approved designated market insofar as the same are duly accepted by the Clearing Agency or with respect to which the Clearing Agency is otherwise obligated to accept and to protect the integrity of such market contracts in accordance with these Rules.
Wherever these Rules and/or the rules of the relevant designated market create a right in favour of the Clearing Agency or impose a liability on the Clearing Agency, such right or liability shall, prior to the settlement date, be construed as the right or liability of the designated market, and shall be enforced by or against the designated market and on or after the settlement date, shall be construed as the right or liability of the Clearing Agency, and shall be enforced by or against the Clearing Agency.
The Clearing Agency shall, from time to time, prescribe in these Rules the rights and obligations of participants and all requisite matters in relation to the operation and management of the Clearing Agency (including but not limited to systems of clearing, deposits, margins, delivery, charges, settlement prices, payments and settlement).

3.2 Registration of eligible assets with the Clearing Agency

A designated market may apply in writing to the Head of Compliance and request the Clearing Agency to provide clearing and settlement services for eligible assets.
The Head of Compliance has five (5) business days to respond to this request.
With regard to approved eligible assets listed on a designated market, participants shall comply with requirements as set forth in the rules of the relevant designated market.

3.3 Client Derivative Accounts and Securities Accounts

A client derivatives account may only be maintained by a DCAP or GCAP and must be used exclusively for the clearing and settlement of transactions in derivative securities.
A client securities account may only be maintained by a PCAP or GCAP and must be used exclusively for the clearing and settlement of transactions in securities eligible assets other than derivatives securities.
In respect of either a client derivatives account or a client securities account, the entry must be made in the client’s own name in these accounts held by the participant.
If applicable, the participant may hold these securities eligible assets with a nominee which must be approved in writing by a client and is subject to the criteria stipulated in the Directives.

3.4 Participant Clearing and Settlements Accounts

A participant derivatives account must be maintained by the Clearing Agency for a DCAP or GCAP and used exclusively for the clearing and settlement of transactions in derivative securities;
A participant securities account must be maintained by the Clearing Agency for a PCAP or GCAP and used exclusively for the clearing and settlement of transactions in eligible assets other than derivative securities;
In respect of either a participant derivatives account or a participant securities account, the entry must be made in the participant’s own name in these accounts held by the Clearing Agency; and
If applicable, the Clearing Agency may hold these eligible assets with a nominee which must be approved in writing by a participant and is subject to the criteria stipulated in the Directives.

3.5 Central Clearing and Settlement Accounts

The Clearing Agency shall maintain a Central Derivatives Account for all DCAP’s and GCAP’s; and
the Clearing Agency shall maintain a Central Securities Account at all times with one or more designated securities facilities.

4. DUTIES AND CONDUCT OF PARTICPANTS

4.1 General duties

Each participant, not being a trader participant, must:
1. have a clearing agreement in place to provide clearing and settlement services to its clients;
2. ensure that it employs a Clearing Agency approved Compliance Officer and, except in the case of a PCAP, a Settlement Officer who at all times meet the criteria as stipulated by Directive 1;
have the financial resources to meet its financial obligations under these Rules;
ensure that it is responsible for the fulfilment of obligations by all its clients;
conduct itself in such a manner and implement such actions to further the objects of the Act.
All participants, including trader participants, must:
be authorised and registered with the Clearing Agency all times;
abide to the terms and conditions of the Clearing Agency agreement;
ensure that all the clearing and settlement reporting requirements for the approved eligible assets are met and are submitted timeously in terms of these Rules and Directives 2 and 3;
comply with all the responsibilities and duties as prescribed for participants in these Rules and Directives;
maintain knowledge of, and comply with, all applicable laws, rules and regulations governing its activities.
No participant may engage in any conduct likely to bring the securities services industry or the Clearing Agency into disrepute.
If there is at any time any downgrade in the credit rating of a DCAP, GCAP or any holding company or group company of a DCAP or GCAP approved by the Clearing Agency to clear derivative transactions such that it falls below the minimum prescribed rating, the Clearing Agency may, in its absolute discretion, impose additional conditions as it deems fit for permitting the DCAP or GCAP to continue to clear derivative transactions.
If a DCAP or GCAP falls below the minimum prescribed base capital or group paid up capital requirements, the Clearing Agency may, in its absolute discretion, impose additional conditions as it deems fit for permitting the DCAP or GCAP to continue as a participant.

4.2 Disclosure to clients

When a Participant, not being a trader participant, renders clearing and settlement services, representations made, and information provided to a client by the participant:
must be factually correct;
must be provided in plain language to avoid uncertainty or confusion and not be misleading;
must be adequate and appropriate in the circumstances of the relevant clearing and settlement services, taking into account the factually established or reasonably assumed level of knowledge of the client;
must be provided timeously so as to afford the client reasonably sufficient time to make an informed decision about the proposed transaction;
may be provided orally and must, if the client so requests, be confirmed in writing within a reasonable time after such request;
must, if provided in writing or by means of standard forms, be in a clear and readable print size, spacing and format;
must, as regards all amounts, sums, values, charges, fees, remuneration or monetary obligations mentioned or referred to therein, be reflected in specific monetary terms; provided that where any such amount, sum, value, charge, fee, remuneration or monetary obligation is not reasonably pre-determinable, its basis of calculation must be adequately described; and
need not be duplicated or repeated to the same client unless material or significant changes affecting that client occur, or the relevant securities service renders it necessary, in which case a disclosure of the changes to the client must be made without delay.
When a Participant, not being a trader participant, provides clearing and settlement services to a client, the Participant must:
disclose full and accurate information about the fees and any other charges that may be levied on clients;
not disclose any confidential information acquired or obtained from a client about such client, unless the written consent of the client has been obtained beforehand or disclosure of the information is required to further the objects of the Act or is required under any law;
act promptly on and in accordance with the instructions of a client, and exercise any discretion in a responsible manner;
advise a client in advance of any restrictions or limitations that may affect the access of that client to his or her funds or securities;
provide a general explanation of the nature and material terms and risks of a relevant transaction to a client, so as to enable the client to make an informed decision; and
disclose to the client the existence of any personal interest in the relevant service, or of any circumstance which gives rise to an actual or potential conflict of interest in relation to such service and take all reasonable steps to ensure fair treatment of the client.

4.3 Record-Keeping

Participants must maintain proper, complete, accurate and secure records.
Participants, excluding trader participants, must have appropriate procedures and systems in place to store and retrieve, in a manner approved by the Clearing Agency, a record of all:
authenticated instructions and authorizing instructions relating to clearing and settlement services rendered to a client, including verbal instructions given by the client to the participant; and
documentation relating to the contractual arrangement between the participant and the client.
Records may be kept in electronic or voice recorded format. Participants need not keep the records themselves but must be capable of making such records available for inspection within seven (7) days.
A record referred to in 4.3 (b) (i) must be kept for a period of at least six (6) months after the instruction has been given.
A record referred to in 4.3 (b) (ii) must be kept for a period of at least seven (7) years after the contractual relationship has been terminated.

4.4 Inducements made to participants, excluding trader participants

A participant must take reasonable steps to ensure that it and any person acting on its behalf does not offer, give, solicit or accept any incentive, remuneration, consideration, commission, fee or brokerage (“valuable consideration”) as an inducement if it is likely to conflict with any duty that the participant owes to its clients in respect of clearing and settlement services provided to those clients or any duty that the recipient of the inducement owes to its clients.
Any valuable consideration offered, given, solicited or accepted as an inducement by a participant or any person acting on its behalf, in terms of an agreement with a third party or a client which relates to the provision of clearing and settlement services by the participant to one or more clients, and which does not directly relate to, and assist in the provision of, such services to such clients or does not otherwise directly benefit the clients of the recipient of such valuable consideration, shall constitute an inducement prohibited in terms of these Rules.
A participant who, in terms of an agreement with a third party, directly or indirectly accepts any valuable consideration as an inducement in respect of clearing and settlement services rendered to a client, or for which the participant may become eligible, must disclose to the client in writing before the rendering of such service, the existence of the agreement, the nature, extent, value and frequency of receipt of such valuable consideration to the extent that such information is known prior to the rendering of the service, and the identity of the other person providing or offering the valuable consideration.

4.5 Advertisements

Advertising material of a participant, not being a trader participant:

must provide accurate, complete and unambiguous information about any eligible assets or clearing and settlement services;
must discern fact from opinion; and
may not be comparative in relation to another participant.

4.6 Bookkeeping and separation of funds and assets of Participants, not being trader participants

A participant must provide for:
the necessary resources and functionality to ensure that clients are able to contact the participant easily and timeously;
the separation and identification of the assets of a client and the assets of the participant; and
the proper accounting for the assets of each client.
A participant may not utilize the assets of clients to finance its business activities.

4.7 Client Statements for Participants, not being trader participants,

A participant must provide a statement in writing to each client.
A client statement must contain such information as is reasonably necessary to enable the client to:
produce a set of financial statements;
determine the composition of the securities and funds comprising the portfolio held by the participant or for which the participant is accountable to the client and the changes thereto over the reporting period, if applicable; and
determine the market value of the securities comprising the portfolio held by the participant or for which the participant is accountable to the client and the changes therein over the reporting period, if applicable.
To provide the client with the information necessary for them to review the operation of their account and make appropriate investment decisions, a client statement must contain at least the following information:
the quantity, description and market value of each investment comprising the portfolio held by the participant or for which the participant is accountable to the client, at the reporting date;
the amount of funds held by the participant for which the participant is accountable to the client at the reporting date;
the relevant currency exchange rate at the reporting date must be reflected;
securities purchased or sold during the reporting period;
receipts and payments of funds during the reporting period;
details of income earned, and expenditure incurred during the reporting period;
non-cash transactions during the reporting period, including non-cash components of corporate actions and option expiries;
securities transferred into and out of the portfolio during the reporting period;
identification of those securities which at the reporting date were loaned to any third party but for which the participant is still accountable to the client;
the quantity, description and market value of any securities, or the amount of funds, held as collateral by the participant on behalf of the client in respect of any loans made by the client;
identification of those securities or funds which at the reporting date were utilized to secure loans to the client or borrowings made on behalf of the client;
identification of those securities or funds which at the reporting date were utilized as margin in respect of open positions in any financial product;
in respect of investments in listed derivative instruments, a description of the underlying financial product, index, or commodity, any other instrument, the expiry month and in the case of options, the exercise or strike price; and
if the statement reflects any securities or funds which are not held by the participant and for which the participant is not accountable to the client, it should clearly indicate that fact in relation to such securities or funds.
The information referred to in Rule 4.7 (a) may be provided to the client in separate statements either during the reporting period or as at the reporting date.
A client statement shall be provided either to the client or to an agent or third party nominated by the client in writing.

4.8 Internal Control and Risk Management for Participants, not being trader participants

A participant, not being a Trader Participant shall employ the resources, procedures and technological systems necessary for the effective conduct of its business.
The system of internal control employed by the participant shall be designed to ensure that:
the relevant business can be carried on in an orderly and efficient manner;
financial and other information used or provided by the participant is complete and accurate;
all transactions and financial commitments entered into by the participant are recorded, reliable and are within the scope of authority of the participant or the officer or employee acting on behalf of the participant;
there are procedures to safeguard the assets of the participant and the assets belonging to any other person for which the participant is accountable;
there are procedures to control liabilities; and there are measures, so far as is reasonably practicable to minimize the risk of loss to the participant or the clients of the participant from any irregularity, fraud or error and to detect any irregularity, fraud or error should they occur so that prompt remedial action may be taken by the participant.
A participant shall as far as is reasonable adopt sound risk management principles and procedures.
The principles and procedures of risk management shall be designed to ensure that the records of the participant are maintained in such a manner as to promptly disclose financial and business information that will enable the participant to:
identify, quantify, control and manage the risk exposures of the participant;
make timely and informed business decisions;
monitor the performance and all aspects of the business of the participant; and
monitor the capital of the participant to ensure compliance with the capital requirements imposed in terms of these Rules.
A participant must be able to describe and demonstrate the objectives and operation of such systems, principles and procedures referred to in these Rules.

4.9 Waiver of Rights

A participant, not being a trader participant, may not request or induce a client in any manner to waive any right or benefit conferred on the client by or in terms of these Rules, or recognize, accept or act on any such waiver by the client, and any such waiver is void.

4.10 Inspections of participants, not being trader participants

The Clearing Agency may inspect the affairs of a participant, its officers where applicable, or any person involved in the provision of clearing and settlement services in eligible assets at any time and any documentation held on their behalf by third parties.

4.11 Fees and Levies

Participants, not being a trader participant, may charge a different fee for different categories of clearing and settlement services.
Participants, not being a trader participant, may negotiate directly with the Clearing Agency, securities facilities, other participants and any other services facilitators the fees that may be charged for clearing and settlement services.

SECTION 5 DERIVATIVES CLEARING, MARGIN AND SETTLEMENT

Clearing

The Clearing Agency will clear all eligible trades that are matched on an approved designated market.
The Clearing Agency will clear all off-market trades that are reported on an approved designated market.
The Clearing Agency will assume the role of buyer to every seller and seller to every buyer (i.e. novation), for all matched trades, and off-market trades, thereby taking the rights and liabilities of the original transaction.
Upon novation, the Clearing Agency and the participant will have entered into a market contract.
A participant long or short any market contract to the Clearing Agency as a result of novation may liquidate the position by acquiring an appropriate opposite position related to the market contract.
The Clearing Agency may refuse to accept the clearing of a trade at its discretion due to adverse market movement or excessive price movement that may result from:
a catastrophe of any description;
a natural event of nature or force majeure;
a state of war, threatened hostilities acts of terrorism or state of emergency;
a correction in any domestic or global market; or
any other unforeseen event, and any other matter or event that impacts upon the Clearing Agency operations.
Nothing in these Rules shall be regarded, treated or otherwise interpreted as obliging or requiring the Clearing Agency to recognize any right or entitlement of any third party.

Positions

the Clearing Agency will produce a ledger for each participant which will itemize:
the day’s trades in respect of any market contract;
the position changes for the previous business day;
the net settlements to be paid or collected;
margins required at the close of the business day;
the current day's margin balance; and
the combined net debit or credit balance for the business day.
If a participant believes that there is any error in the ledger including an entry or debit balance, the participant must immediately notify the Clearing Agency in writing upon discovering the event but in any case, not later than market open the following business day.

Recording of Trades in Clearing System

Trades are recorded with the Clearing Agency in the name of:

the participant, irrespective of whether the participant is acting on its own account or in its capacity as an agent to a client; and
the client of the participant as the case may be.
All trades recorded as having been traded on the approved designated market shall be deemed confirmed by both parties immediately upon such recording by the Clearing Agency.
Where a trade is recorded by the Clearing Agency as a trade between the client and the participant, the participant shall designate the trade as a ‘House Trade’ or a ‘Client Trade’.

Where a client is not a participant of the Clearing Agency, then confirmation of the trade shall also be deemed to be a confirmation by the participant of the client and shall be deemed to be immediately allocated to the participant of that client.

Daily Valuation

For the calculation of variation margins, the Daily Valuation of a market contract shall be determined in accordance with the relevant formula and process applicable to each market contract, as determined by the Clearing Agency. In arriving at such formula, the Clearing Agency may take into account factors, including but not limited to:

the last traded price;
bid and offer spread at the close of market;
where no bid and offer spread is available, then the price determined by the relevant designated market apply; and
price data derived from pricing models, as selected or established by the Clearing Agency from time to time.

Mark to market daily Settlement of Variation margin

When a participant is long or short any amount of any market contract at the end of the business day, as indicated by the Clearing Agency position ledger, settlement of variation margin shall be made with the Clearing Agency to the valuation for that business day, based on the daily settlement price, and such participant shall be liable to pay to, or entitled to receive from, the Clearing Agency any loss or profit, as the case may be, represented by the difference between the price at which the trade was executed and the valuation of the market contract at the end of the business day.
Settlement must be paid in cash in the respective currencies of the positions.
The Clearing Agency shall not be required to pay any profit to a participant in the event that such participant fails to meet any required settlement or margin call for that business day with the Clearing Agency.
Mark to market gains of an account may be utilised by the participant or the Clearing Agency, as the case may be, to meet margin requirements for the same account.

Initial Margin

The initial margin requirement is the amount of market collateral required to be posted by a participant, as the holder of a market contract, with the Clearing Agency in order to open and maintain a position and cover some or all of the credit risk of their counterparty.
Initial margin shall be paid by a participant whenever the risk of market movement and counterparty credit risk, as determined by the Clearing Agency, changes with respect to the open positions of such participant.
The Clearing Agency shall hold a market charge over market collateral required to be posted by a participant with the Clearing Agency.
A participant is entitled to require a client to place an amount of additional margin as agreed upon between the parties in terms of the clearing agreement.
All margins deposited with the Clearing Agency by a participant shall be retained by the Clearing Agency in whole or in part, as the Clearing Agency may deem necessary, but subject to these Rules, and may be returned to the participant when the obligations under the market contracts for which such margins have been deposited have been met.

Acceptable market collateral for Initial Margin

Initial margins must be met in the form of market collateral as prescribed by the Clearing Agency from time to time.
Valuation of such market collateral must be in accordance with the haircut rates in Directive 3.1 as specified by the Clearing Agency, which is a measure that reduces the value of any market collateral to ensure that when the effects of volatility and adverse price are taken into consideration, the market collateral will still have enough value so that the Clearing Agency does not realize any loss.
A participant may on approval and as prescribed by the Clearing Agency deposit such collateral, subject to such terms and conditions as shall have been approved by the Clearing Agency and in such denominations as may be prescribed by the Clearing Agency from time to time, towards the satisfaction of margin requirements prescribed by the Clearing Agency.
The Clearing Agency shall value such collateral for margin purposes as it deems appropriate and the Clearing Agency shall, at its sole discretion, determine when any collateral will cease to be acceptable as margin.
If any collateral lodged by any participant is found in any way to be unacceptable by the Clearing Agency, such collateral will immediately be given zero value for the purposes of satisfying the participant's margin requirements under these Rules and replacement margin may be immediately required from the participant in such an event.
The Clearing Agency's decision in relation to any matter under this Rule shall be final and binding.
The aggregate amount of market collateral deposited with the Clearing Agency in respect of the total margin requirements in relation to participant derivatives accounts and participant securities accounts must be in cash or other market collateral as agreed in writing between the Clearing Agency and the participant.

Market collateral, use and set-off

The Clearing Agency shall be entitled to use and deal with any market collateral acceptable to the Clearing Agency, which has been received by the Clearing Agency from a participant, in such manner as the Clearing Agency, in its absolute discretion, deems fit in terms of these Rules.

Charges

The following charges are administered by the Clearing Agency for a CFD contract listed on an approved designated market:

Contract Interest shall be as determined in accordance with the contract specifications.

Safekeeping Indemnity

Any market collateral accepted by the Clearing Agency as margin shall be, where necessary, deposited with the appropriate custodian(s) or securities facility designated by the Clearing Agency for safekeeping in the Clearing Agency account and the Clearing Agency shall retain control over such collateral as a part of the margin of such participant.
The Clearing Agency shall not have any obligation or responsibility to preserve, protect, collect or realise, and under no circumstances shall the Clearing Agency be liable for any loss or diminution in value or depreciation in or in connection with, the collateral maintained pursuant to this Rule.
A participant who maintains collateral with the Clearing Agency shall indemnify and hold the Clearing Agency harmless from any loss, damage, costs, charges and/or expenses of any nature whatsoever and howsoever arising (hereinafter a "Loss"), suffered or incurred by the Clearing Agency to any designated custodian, which may result from or arise with respect to:
any act, delay or omission in connection with collateral (whether by such participant or the Clearing Agency) deposited with such designated custodian; or
any contract or agreement between the Clearing Agency and any designated custodian, or any representation, warranty or undertaking given by the Clearing Agency to any designated custodian, in relation to or otherwise in connection with collateral deposited with such designated custodian,

PROVIDED THAT this indemnity shall not cover any Loss and/or liability of the Clearing Agency attributable or referable to the gross negligence or willful misconduct of the Clearing Agency or any of the Clearing Agency's officers, agents and/or employees.

Each participant shall pay the Clearing Agency for all fees, expenses, charges and costs incurred by the Clearing Agency in relation to its acceptance of collateral as the Clearing Agency may determine from time to time, and shall make such deposits of margins (in such form as may be acceptable to the Clearing Agency) as may be required by the Clearing Agency by reason of any depreciation in the market value of such collateral.
If a participant defaults in fulfilling its obligations to the Clearing Agency in accordance with the provisions of Section 6 of these Rules, the market collateral maintained in the Clearing Agency's account may be disposed of, without notice, in any manner deemed appropriate by the Clearing Agency and the proceeds from the sale of the collateral shall be applied in accordance with Rule 5.9.

Margin Returns

The Clearing Agency shall credit all participant margins required pursuant to Rules 5.5, 5.6 and 5.7 which a participant has on deposit with the Clearing Agency pursuant to these Rules with interest and any other entitlements on the full amount in accordance with a Directive to be prescribed by the Clearing Agency from time to time except for money continued to be held pursuant to Section 6 consequent/subsequent to a participant's default.

Regulatory Information

Participants shall provide the Clearing Agency with any information necessary for regulatory purposes.

SECTION 6 DEFAULTS

Default Protocol

In the event of a default, the provisions of these default procedures prevail over any other provisions of these Rules and Directives 3 and 4 for clearing and settlement.
If a participant suspects a default in the settlement of an obligation according to these Rules and the default is not reported immediately, that participant shall be in breach of these Rules.

Events of Default

A default shall occur where:

a participant, not being a Trader Participant, has committed to a market contract on a client’s behalf and fails to fulfil any of its settlement obligations in respect of a transaction, and the participant cannot fulfil the client’s settlement obligations in terms of these Rules;
a participant is unable to fulfil any of its obligations in respect of a transaction;
a participant is declared insolvent, bankrupt or suffers a similar legal disability under any applicable law or an application is made to liquidate or sequestrate a participant in a court of law;
a participant fails to provide adequate assurance to the Clearing Agency under these Rules that the participant can fulfil its obligations in respect of any transaction;
a participant is unable or appears to be unable to fulfil any obligations in terms of these Rules and applicable settlement procedures at the sole discretion of the Clearing Agency;
a participant registration is terminated by the approved designated market and the participant is a PCAP of the Clearing Agency; or
a participant’s registration as a participant is terminated by the Clearing Agency.

Declaration of Default

Any participant that becomes aware of a default or suspects that a default or pending default on a Clearing Agency approved eligible assets may occur must immediately notify the Clearing Agency in writing to the Head of Compliance of the default or pending default.
The Clearing Agency shall confirm in writing to the Compliance Officer and the Settlement Officer of the participant, if applicable, the notice of the default or suspected default.
The Head of Compliance may declare a default at any time.
The participant may not appeal against the declaration of default.

Appointment of Default Official

Upon declaration of default by the Clearing Agency, it shall appoint a Default Official who shall have the power to represent the Clearing Agency in relation to the participant and complete the default proceedings.
The powers and duties of the Default Official shall include but not be limited to:
obtaining access to all necessary documents of the participant to perform their duties and responsibilities in terms of these Rules;
attending all meetings including meetings of creditors;
summoning any participant and client of a participant to attend these meetings; and
requiring any participant, its officers, employees and clients as may be applicable, to assist with any investigation.

Suspension of a Participant for failure to Settle

A participant may be suspended at any time if it cannot affect settlement.
A participant’s registration may be suspended at any time after the Clearing Agency has declared the participant a Defaulter.
The participant has ten (10) business days from date of suspension to appeal under Section 9 of these Rules against the decision by the Clearing Agency regarding its suspension.
Where the Defaulter does not object to the decision within the specified time or an objection to the suspension is dismissed the decision of the Clearing Agency is regarded as final.
Any objections lodged with the Clearing Agency will be dealt with per Rules 8.4 to 8.7 of these Rules.

Participant default procedure

Where a participant is declared in default, the Clearing Agency, together with the Default Official, may assist in fulfilling any obligations on behalf of the defaulter.
In addition to assisting and fulfilling the obligations of a Defaulter, the Clearing Agency and the Default Official will:
determine the extent of the Defaulter’s obligations;
determine the default amounts and net settlement obligations; and
on a best endeavours basis utilise any securities, funds, lending agreements, guarantees, margin, or any assets held at the Clearing Agency or any other Clearing Agency or designated market on behalf of the Defaulter to fulfil the obligations of the Defaulter or appoint an independent party to fulfil these obligations.
A participant shall not compromise or accept payment on account from, or with, any other participant or its client in connection with any trade from the time the participant is declared a Defaulter.
The Default Official together with the Clearing Agency shall determine the defaulting net settlement amounts of the Defaulter or participants.
The Clearing Agency shall notify the Securities Authority and may notify any other regulatory authority, Designated Market, members and their clients, and the public the name of the Defaulter as the Clearing Agency deems fit.

Client default procedure

Defaulting Clients are clients which have defaulted in terms of their settlement obligations under these Rules and are subject to the following:

the name of the Defaulting Client will be included in a register of defaults;
the name of the Defaulting Client will be circulated by way of a notice to all participants; and
no other participant shall do business with a Defaulting Client of a participant.

SECTION 7 COMPLIANCE AND REGULATORY FRAMEWORK

Objects of the Regulatory Framework

The chief objectives of the Compliance Division are to:

ensure that the clearing and settlement of transactions executed on a designated market are conducted in an orderly, fair, efficient and transparent manner in line with the Act, these Rules and Directives.
give effect to the surveillance of any matter relevant for the purpose of the Act, these Rules and the Directives;
supervise that the Clearing Agency and its participants comply with the obligations of AMLA; and
supervise that all participants and their clients comply with any other relevant legislation referred to in the Act.

Supervision, Compliance and Surveillance

The Compliance Division will implement generally accepted systems and/ or procedures (which may include the use of external audit services):

to monitor compliance and perform supervision and surveillance in terms of the Act, these Rules and Directives and with the AMLA; and
to perform surveillance for the detection of disorderly clearing and settlement patterns and any conduct that may involve market abuse in terms of the Act and these Rules and the Directives.

Powers, duties and procedures for enforcement

The Head of Compliance or its delegate will have the following powers:

to call for any documentation and / or records which it may require from any person and / or participant (including any directors, officers, traders, employees or agents thereof) that is subject to these Rules and Directives;
to access the premises and / or records of any person and / or participant (including any directors, officers, employees or agents thereof) that is subject to these Rules and Directives; and
to refer any of its findings (including evidence gathered) to the Disciplinary Committee in terms of Section 9 of these Rules.

Co-operation with the Securities Authority and other applicable Regulatory Organisations

The Head of Compliance or his delegate shall:

be responsible for communications with the Securities Authority and each designated market;
immediately report to the Securities Authority, and the relevant designated market any breaches of the Act or these Rules;
assist the Securities Authority and any other competent authority with any investigation of such a breach of the Act and these Rules or any other regulatory requirements required by the Clearing Agency; and
meet on a regular basis with the Securities Authority to assist the Securities Authority in detecting irregularities in the clearing and settlement of approved eligible assets.

Confidentiality

The Clearing Agency shall treat as confidential any information received from participants when a transaction in eligible assets is under investigation or the participant or their client, as may be applicable, is under investigation, except where:

the information is publicly available;
disclosure is required by law and by any other regulatory authority or applicable legislation;
disclosure is expressly permitted by law and the Act;
disclosure is required by these Rules and Directives; or
authority has been granted in writing by the participant and where appropriate the participant’s client.

SECTION 8 COMPLAINTS AND DISPUTE RESOLUTION

Definitions

For the purposes of this section, the following terms shall have the following meanings:

“complainant” means the person that lodges the complaint;
“complaint” means a complaint by a person that is subject to these Rules relating to any agreement with, or a service or product of, a defendant in which it is alleged that the complainant has suffered or is likely to suffer financial prejudice or damage as a result of the defendants actions or inaction:
having contravened or failed to comply with a provision of any agreement, law or code of conduct subscribed to by the defendant;
having willfully or negligently supplied, or failed to supply, a securities service or a product to the complainant;
having treated the party unreasonably or inequitably; or
having mis-administered the implementation of an agreement for the supply of services in terms of these Rules provided that such service supplied by the defendant is subject to the terms of these Rules or is otherwise supplied in the performance of the rights and obligations of the defendant in terms of these Rules.
“defendant” means the participant, not being aTrader Participant. that is the subject of the complaint;

Internal Complaints Resolution Process

Participants, not being Trader Participants, shall implement and maintain internal procedures approved by the Clearing Agency, hereinafter referred to as the “internal complaint resolution process” for dealing with any complaints.
Where the internal complaint resolution process fails to resolve the complaint to the satisfaction of the complainant, the complainant may institute the dispute reporting protocol subject to the requirements of Rule 8.4 being met.

Internal complaint resolution procedures

The internal procedures to address complaints shall at a minimum consist of the following:

having the systems in place to record and investigate all client complaints;
written or oral complaints must be dealt with timeously;
the employee responsible for the resolution of complaints must have the necessary authority to resolve complaints;
a notification procedure must be in place for the client; and
any recurring or systematic problems must be remedied.

Disputes

Disputes are categorized and defined as:

unresolved complaints where the financial loss is greater than $1,500 (one thousand five hundred US Dollars) or equivalent in a different currency between the complainant and the defendant; or
a decision or action of the Clearing Agency which excludes any decision or action relating to a dispute brought under Rule 8.4(a).

Composition of the Dispute Resolution Body

The dispute resolution body established by the Clearing Agency for the purposes of Rule 8 “the Dispute Resolution Body” shall comprise not less than 3 (three) persons.
The following persons shall not be eligible for appointment to the Dispute Resolution Body:
an employee of the Clearing Agency unless required in terms of any statute and these Rules or to perform administrative duties;
Controlling Body members, and such Controlling Body members may also not be present at a hearing unless such member is party to the hearing.
Members of the Dispute Resolution Body shall not have any conflict or potential conflict of interest in respect of any matter before the Dispute Resolution Body. A conflicted member shall not participate in the proceedings of the Dispute Resolution Body in respect of which he holds a conflict or potential conflict of interest.
The Clearing Agency may co-opt a person or appoint a person to replace a member who is not able to participate in any dispute resolution body procedures due to illness, conflict of interest or absent for any other reason.

Dispute Resolution Body Procedures

All procedures for disputes will be handled in terms of Rules 8.4 to 8.6;
All disputes must be presented in writing to the Head of Compliance;
A matter that is the subject of existing litigation cannot be submitted for dispute resolution in terms of this Rule 8.
The Head of Compliance will confirm receipt of the complaint in writing.
The complainant shall deliver a written memorandum to the Head of Compliance with a clear and concise summary of the complaint as well as the redress sought, and the Head of Compliance shall also circulate this to the other party within seven (7) business days.
The defendant shall then have seven (7) business days to file a written statement containing its summary of the matter in dispute, which shall again be forwarded to the Head of Compliance and the complainant within seven (7) business days.
The Dispute Resolution Body may request all parties involved in the complaint to provide copies of additional relevant documentation and correspondence required to review the complaint as it deems necessary.
The Dispute Resolution Body will investigate the complaint and attempt to facilitate a resolution within fifteen (15) business days and issue a recommendation notice to the parties.
Where a complainant or defendant is dissatisfied with the recommendation, it must inform the Head of Compliance in writing within five (5) business days of the receipt of the recommendation notice and upon receipt thereof, the unresolved dispute shall be dealt with by the Dispute Appeals Body.
The Executive Committee reserves the right to refer the matter to the Disciplinary Committee at any time after the complaint has been received in writing from the complainant.
Nothing contained in these Rules shall be interpreted as subjugating any obligations between a participant and the Clearing Agency or its appointed securities facility and all parties to the dispute shall comply promptly and fully with all such obligations notwithstanding the fact that a dispute is submitted under these Rules.
The outcome of all complaints, including those of the Dispute Appeals Body will be forwarded to the Securities Authority.
All costs associated with the hearing of the dispute before the Dispute Resolution Body relating to venue, recording, refreshments, transcribing and any independent arbitrator shall be borne in equal proportions by the parties respectively
For the purposes of achieving fairness between the parties, the Dispute Resolution Body shall in its sole discretion be entitled to make an award against the losing party to pay the legal costs that the successful party has incurred in addition to the proportionate costs due by the successful party in terms of Requirement 8.6 (m) above.

Dispute Appeal Body (DAB)

If a recommendation notice issued by the dispute resolution body is not accepted by a party to the dispute, such party may submit all relevant documentation to the Chairperson of the Dispute Resolution Body within 5 (five) business days of receipt of the notice in terms of Rule 8.6(i).
The Chairperson of the Dispute Resolution Body shall notify both parties to the dispute of the referral to the DAB and request each party to inform the DAB as to their respective legal representatives, within ten (10) business days.
The DAB shall be chaired by the Head of Compliance or his nominee and two (2) other persons to be appointed by the Executive Committee.
If either or both of the parties to the dispute fail to reply in terms of Rule 8.6(c) above, such party or both as the case may be, will be deemed not to have a legal representative and be deemed to act on their own behalf.
The DAB shall have the following powers:
to notify the parties or their legal representatives of the time and location of the meeting;
to resolve a dispute through mediation, conciliation, recommendation or determination;
to act independently in resolving a dispute or in making a determination;
to follow informal, fair and cost-effective procedures;
to, where appropriate, apply principles of equity in resolving a complaint;
to report to the Securities Authority and to a body representative of the relevant category of financial institutions on matters that may be of interest to them;
in making any determination, to provide for the effective enforcement of the determination in his discretion;
allocate settlement costs as appropriate including costs arising out of this dispute;
in exercising the above powers, the DAB must ensure that the questions, concerns and disputes of the parties are treated equitably and consistently in a timely, efficient and courteous manner; and
any decision arrived at by the DAB shall be final and binding on the parties.

SECTION 9 DISCIPLINARY ACTIONS AND SANCTIONS

General Powers of the Disciplinary Committee

The Disciplinary Committee derives its powers from its appointment by the Executive Committee inter alia, to oversee and direct all disciplinary matters relating to these Rules.
Disciplinary actions and sanctions shall be administered by the Disciplinary Committee of the Clearing Agency or any person to whom it has delegated its powers. The purpose of any disciplinary actions or sanctions imposed under this section are to facilitate and promote a well-regulated and orderly market as well as deter any actions that may increase systemic risk in the market. The powers and functions of the Disciplinary Committee as it relates to these Rules include the following:
The Disciplinary Committee may investigate and take disciplinary action at any time against a participant (which in this section for the purposes of disciplinary proceedings shall include a participant or a participant’s directors, officers or employees) who contravene or fail to comply with these Rules or any Directive.
The Disciplinary Committee may suspend or restrict the participant’s activities as they relate to the services being provided through the Clearing Agency on an interim basis when a matter is under investigation.
The Disciplinary Committee has the power to receive, consider and deal with any referrals to it.
Any disciplinary action brought against a participant by the Disciplinary Committee will be brought to the attention of the Executive Committee and Securities Authority and a report on the disciplinary proceedings shall be furnished to the Securities Authority in writing within thirty (30) days after the completion of the disciplinary proceedings.

Co-operation of Participants

Participants must co-operate with the Disciplinary Committee in regard to any investigation pertaining to the contravention or non-compliance with these Rules.
The Disciplinary Committee may require a participant to disclose information or produce documents and evidence relevant to the suspected breach of these Rules, whether in the participant’s possession or in the custody of any other party.
In giving effect to its powers in terms of this section the Disciplinary Committee may formulate or develop any additional measures required for the purpose of investigating any contravention or non-compliance compliance with the Act, these Rules and the Directives.

Investigation protocol

The Disciplinary Committee may appoint an official, who may be an employee of the Clearing Agency, to inspect the affairs of a participant, or any director, officer or employee of a participant, to ascertain whether the affairs of the participant have contravened or not complied with the Act, these Rules or the Directives.
The Clearing Agency shall have the right to:
gain access to the premises of any participant;
have access to any records, recordings, documents, or any information required to complete the investigation or to make copies of or take extracts of documents and information, including electronic documents and recordings;
question any director, officer, or employee or agent of the participant; and
request information from any third parties providing services to the Clearing Agency or its participants.
On completion of an investigation, a report shall be submitted to the Disciplinary Committee by the official.

Burden of proof

The burden of proof in respect of the allegations against a participant rests solely with the Clearing Agency. The Disciplinary Committee shall not find an allegation proven unless it is satisfied on a balance of probabilities on consideration of the evidence that the participant has contravened or not complied with these Rules.

Composition of the Disciplinary Committee

The Disciplinary Committee shall comprise of not less than three (3) persons and shall be appointed by the Executive Committee.
Members of the Disciplinary Committee shall not have any conflict or potential conflict of interest in respect of any matter before it. A conflicted member shall not participate in the proceedings of the Disciplinary Committee in respect of which he holds a conflict or potential conflict.
The Clearing Agency may co-opt a person or appoint a person to replace a member of the Disciplinary Committee who is not able to participate in any Disciplinary Committee procedures due to illness, conflict of interest or absence for any other reason.

Disciplinary Committee protocol

The Disciplinary Committee may vary any of its procedures to adapt to the circumstance of any particular alleged contravention or non-compliance of these Rules.
The Disciplinary Committee shall:
consider any contraventions by a participant in respect of a breach of these Rules;
consider the contravention tabled in respect of the breach;
consider the charge tabled against a participant in respect of the breach; and
consider its responsibilities in respect of any allegation that the integrity and reputation of the Clearing Agency has been or may be impaired as a result of the conduct of the participant involved.

The hearing

The hearing of the Disciplinary Committee shall commence within twenty (20) business days after the completion of the initial disciplinary report.
Parties involved in the disciplinary investigation will be given notice of the time and place of a hearing.
A representative of the participant concerned must be present at the hearing.
Disciplinary hearings will be conducted in private.
The Defendant is entitled to legal representation at its own cost.
Evidence admitted from the defendant may be oral or written.
Any party to the disciplinary hearing may submit evidence to the Disciplinary Committee at any time up until ten (10) business days before the hearing.
The Disciplinary Committee may in the interest of fairness and transparency require any director, officer or employee of the Defendant and/or other parties involved in the investigation to appear before the Disciplinary Committee.
The Defendant may appear in person or be legally represented at any pre- hearing review or hearing and shall be entitled to:
be heard in argument;
give evidence in their own defence; and
give evidence in mitigation.
At a hearing, the Clearing Agency may take into account information obtained by the Securities Authority.
The Disciplinary Committee may grant consent order in respect of any settlement negotiated between the Clearing Agency and the defendant either prior to the start or before the conclusion of the hearing in relation to any disciplinary outcome on the Clearing Agency.

Sanctions

Where the defendant has been found guilty of a contravention or non- compliance in terms of these Rules the Disciplinary Committee may:
issue a warning or reprimand notice in writing to a participant;
in levy a fine not exceeding $500,000 (five hundred thousand US Dollars);
temporarily suspend the participant for a period not exceeding six (6) months;
issue a cease and desist order;
terminate the registration of the participant;
direct the participant to terminate the director and/or the employment of an officer or employee found to be party to the contravention or non- compliance;
require a participant to cancel the registration of the employee found to be party to the contravention or non-compliance;
issue an order directing restitution to any injured person;
require a participant that is the subject of an investigation or a hearing as a result of a contravention or failure to comply with these Rules, to pay the costs incurred of such investigation or hearing;
require the participant to take steps and give in writing an undertaking or any other remedy to prevent the recurrence of the contravention or non-compliance that has given rise to the disciplinary proceeding;
in urgent cases, such as criminal activity, refer the matter immediately to the Executive Committee of the Clearing Agency, who may suspend the participant for such period as the Executive Committee deems necessary; or
at any stage refer the matter to the Executive Committee of the Clearing Agency, which may in its sole discretion publish by way of a notice or announcement to other participants the outcome of any disciplinary hearing.
Where a participant is aggrieved with the outcome of the disciplinary hearing and/or the sanction imposed, the participant may appeal against the outcome and/or sanction imposed to the Disciplinary Appeal Committee within fourteen (14) business days by filing with the Chairperson of the Disciplinary Committee a notice of the intention to appeal, setting out the grounds upon which the appeal is founded.
The Disciplinary Appeal Committee shall convene the appeal hearing within thirty (30) business days of the notice of appeal being filed and notify the parties to the hearing of the date and time of the appeal hearing.
In the appeal hearing the appeal shall be limited to the evidence that was adduced in the disciplinary hearing and no new evidence shall be permitted.
The parties to the appeal hearing shall be entitled to be legally represented and may make submissions orally or in writing, which shall be limited to the evidence that was adduced in the disciplinary hearing.
The Disciplinary Appeal Committee shall be constituted by three (3) persons nominated by the Chairperson of the Disciplinary Committee who were not members of the Disciplinary Committee that is subject to the appeal.
The decision made by the Disciplinary Appeal Committee is final and binding on all parties and may not form the subject matter of any appeal process or litigation process in Seychelles or any international jurisdiction.
The level of co-operation afforded by the participant will be taken into account upon the sanctioning of the participant.
The Clearing Agency may, upon the imposition of any sanctions contemplated in this section, disclose these particulars in the national newspapers in the Seychelles or through other means at the sole discretion of the Clearing Agency.

SECTION 10 FEES AND LEVIES

In terms of these Rules and Directives, the Clearing Agency may charge fees and levies:

for any agreed activity, which are to be paid by participants and may be varied from time to time at the discretion of the Executive Committee;
by way of announcement of fees and levies that shall be forwarded to the participant at least twenty (20) business days prior to implementation thereof;
that shall be paid within thirty (30) business days of notification thereof;
that shall be notified in writing within five (5) business days of any such arrears and increases; and
If a participant fails to make payment of any fees and levies, the Clearing Agency shall issue the participant with 5 (five) days’ notice to make such payment, failing which the Clearing Agency may commence the default procedures set out in these Rules.
Any amount not paid on the due date thereof shall accrue interest at one percent (1%) per month to be accrued on the last day of each calendar month until the amount is paid in full subject to applicable laws.

SECTION 11 LIMITATION OF LIABILITY

Limitation of liability

Notwithstanding any other provisions in these Rules, except as otherwise expressly provided by written agreement between the Clearing Agency and such other person,
the Clearing Agency shall not be liable for any action(s) taken, or any delay or failure to take any action or otherwise to fulfil the Clearing Agency’s obligations to its participants, other than for losses caused directly by the Clearing Agency’s gross negligence or willful misconduct;
Under no circumstances will the Clearing Agency be liable for the acts, delays, omissions, bankruptcy, or insolvency of any third party, including, without limitation, any Participant or securities facility unless the Clearing Agency was grossly negligent or engaged in willful misconduct.
Under no circumstances will the Clearing Agency be liable for any indirect, consequential, incidental or punitive loss or damage (including, but not limited to, loss of business, loss of profits, trading losses and loss of use) however suffered or incurred, regardless of whether the Clearing Agency has been advised of the possibility of such damages.
With respect to any authenticated instructions, the Clearing Agency shall have no responsibility or liability for any errors which may occur in the course of transmissions of such authenticated instructions to the Clearing Agency.
Without prejudice to any other limitation or exclusion of liability (including liability with respect to market contracts liable to delivery as opposed to cash settlement) the liability of the Clearing Agency shall be limited to net losses to participants resulting from the novation of the Clearing Agency described in Rule 5.1.
Without prejudice to the generality of the foregoing, the Clearing Agency shall not be liable for obligations of a participant to any third party, obligations of a participant to another participant that is acting for it as participant or obligations to a client by a participant, nor shall the Clearing Agency become liable to make deliveries whether from any third party or any participant.

DEFINITIONS

In these Rules, unless otherwise stated or the context requires otherwise, any expression which denotes any gender includes the other genders, and the singular includes the plural and vice versa.

TERM

MEANING

“additional margin”

means the margin held by a participant on behalf of a client;

“announcement”

means any information of a general nature published by the Clearing Agency in printed or electronic form;

“AMLA”

means the Seychelles Anti-Money Laundering Act, 2006 (as amended);

“applicant”

means a person who applies for acceptance as a participant in terms of Section 2 of these Rules;

“approved eligible assets”

means eligible assets which the Clearing Agency permits to be held in a securities account;

“Automated Trading System or ATS”

means the trading system which comprises the software, hardware, communications and network systems, which are used to carry out transactions or other operations related to transactions on a designated market;

“authenticated instruction”

means any instruction sent or received through the RTECS system or other system being used by the Clearing Agency;

“authorizing instruction”

means a separate written instruction given by a client to a Participant in respect of every entry to be affected by the Participant on behalf of the client in the respective client securities account;

“bank”

means as defined in the Act;

“business day”

means any day except for Saturday and Sunday, public holidays within the meaning of the Public Holidays Act 1976, or any other day on which the Clearing Agency is closed;

“central derivatives account”

means an account maintained by the Clearing Agency for derivative market contracts, funds, margins and market collateral for which the Clearing Agency is the counterparty;

“central securities account”

means an account maintained for eligible assets other than derivatives securities by the Clearing Agency with a securities facility used exclusively for reporting of the clearing of these eligible assets to the securities facility to record the corresponding changes in ownership;

“clear” or “cleared” or “clearing”

in relation to a transaction or group of transactions in approved eligible assets, means:

the process in terms of which the Clearing Agency becomes the buyer from the seller and the seller to the buyer in every trade whereupon the participant guarantees to the Clearing Agency all obligations arising out of any position resulting from such trade; and

to calculate and determine before each settlement process:

the exact number or nominal value of securities of each kind to be transferred by or on behalf of a seller;

the amount of funds to be paid by or on behalf of a buyer, to enable settlement of a transaction or group of transactions; or

where applicable, the process by means of which:

the functions referred to in paragraph a) are performed; and

the due performance of the transaction is underwritten from the time of trade to the time of settlement;

“Clearing Agency"

means MERJ Clearing and Settlement Limited, a duly licensed clearing agency pursuant to the Securities Act 2007 of the Republic of Seychelles;

“clearing agreement”

means a written agreement entered into between a participant and a client in terms of which the client guarantees to the participant the performance of the obligations arising out of the client’s principal and agency positions;

“clearing and settlement services”

means the provision of services to third parties relating to the clearing and settlement of transactions;

“Clearing Agency agreement”

means a written agreement entered into between a participant and the Clearing Agency in terms of which the participant guarantees to the Clearing Agency all of the obligations arising out of their proprietary positions and the positions of their clients, if applicable;

“client”

means a natural or juristic person who uses the services of a participant of the Clearing Agency as the context requires;

“client derivatives account”

means an account maintained for a client that includes funds and derivative securities which is used exclusively for the settlement of transactions in derivative securities;

“client securities account”

means a securities account maintained for a client by a participant;

“Companies Act”

means the Companies Ordinance, 1972 of the Seychelles or any subsequent revision thereof;

“Compliance Officer”

means the officer registered with the Clearing Agency by a participant to ensure compliance with the Act and these Rules by a participant;

“contract for difference” or “CFD”

means as defined in Schedule 1 of the Act;

“contract interest”

means the interest cost that is paid or received, on a daily basis, by holders of net long positions and holders of net short positions, respectively;

“Controlling Body”

means the board of directors of the Clearing Agency;

“counterparty”

means the other party to a transaction;

“custody”

means the safekeeping of eligible assets with an appointed securities facility, a securities facility participant, transfer secretary or company secretary or any other nominee appointed in respect of approved eligible assets in terms of the Act and these Rules;

“daily settlement price”

means the daily settlement price of a derivative security as determined by a securities exchange;

“default proceedings”

means any proceedings or other action taken by the Clearing Agency under the default rules;

“default rules”

means the rules of the Clearing Agency as prescribed in the Act;

“Defaulter”

means a participant who is the subject of any default proceedings under these Rules;

“derivative securities”

means securities that have the same meaning as:

“Options” per Schedule 1 paragraph 5 of the Act;

“Futures” per Schedule 1 paragraph 6 of the Act;

“Contracts for Difference” per Schedule1 paragraph 8 of the Act;

“designated market”

means a market operated by a Seychelles Securities Exchange or Recognized Overseas Securities Exchange for which the Clearing Agency provides clearing and settlement services;

“director”

means a director or alternate director as defined in the Companies Act or any equivalent legislation in the country of incorporation;

“Directive”

means an instruction issued by the Clearing Agency in accordance with these Rules;

“Disciplinary Committee”

means the committee appointed by the Clearing Agency to enforce disciplinary procedures according to these Rules;

“electronic form”

means any information, document or correspondence generated, sent, received or stored in any computer storage media such as magnetic, optical, computer memory or other similar devices or one or more electronic networks or databases (including one or more distributed electronic networks or databases), provided that the records of such information or correspondence so kept can be converted into clearly legible paper form within a reasonable time;

‘’electronic money’’

means as defined in the Financial Institutions Act,2004 of the Republic of Seychelles;

“eligible assets”

means securities and funds that meet the following criteria and any additional criteria that may be laid down by a Directive:

capable of being delivered by electronic means and in respect of which all requisite approvals being provided where necessary;

capable of being held on a fungible basis;

are not subject to being distinguished by a number;

are not subject to any restrictions on foreign ownership, unless otherwise agreed to by an approved securities facility; and are not subject to any restrictions on transferability, unless otherwise agreed to by the securities facility;

"entity"

means any incorporated or unincorporated entity either domiciled in the Republic of Seychelles or domiciled in a foreign country;

“entry”

includes an electronic recording of any deposit, withdrawal, transfer, attachment, pledge, cession to secure a debt or other transaction in respect of eligible assets;

“Executive Committee”

means the committee appointed to manage the day-to-day affairs of the Clearing Agency and, in the absence of an appointed committee, the Controlling Body of the Clearing Agency;

“fees” and “levies”

means the fees or levies published by the Clearing Agency;

“funds”

means banknotes and coins, scriptural money, electronic money and includes virtual financial assets;

“Head of Compliance”

means the person who manages and directs the Compliance Division of the Clearing Agency and who monitors the clearing and settlement functions of participants in terms of these Rules;

“in writing”

means, in relation to anything which, in terms of the Act and these Rules must be done in writing and includes any such correspondence done in electronic form;

“initial margin requirement”

means the amount of market collateral deposited or provided by a participant to the Clearing Agency which is calculated so as to cover the worst probable loss on a relevant position over one day;

“index”

means an indicator that reflects changes in the value of a group of eligible assets on one or more financial markets or securities exchanges;

“Insolvency Act”

means the Seychelles Insolvency Act, 2013 as may be amended;

“internal controls”

means controls established in order to provide reasonable assurance of:

the safeguarding of assets against unauthorized use or disposition; and

the maintenance of proper accounting records and the reliability of financial information used within the business or for publication;

“market charge”

Means “market charge” as defined in the Act;

“market collateral”

means “market collateral” as defined in the Act;

“market contract”

means “market contract” as defined in the Act;

“match" or “matched”

means any trade that has been matched on the according to the rules of a designated market which then becomes a matched transaction and is legally binding;

“net” or “netting”

means an agreed offsetting of positions or obligations of participants either on a bilateral or multilateral basis that reduces a large number of individual positions or obligations to a smaller number of positions;

“nominee” or “nominee company”

means a person who acts as the registered holder of securities or has an interest in securities on behalf of other persons in terms of Section 62 of the Act and these Rules;

“notice”

means a written notification given by the Clearing Agency to a Participant for the purposes of the Participation Application or as may be required by these Rules;

“novation” or “novate”

means the process whereby the rights and obligations of the buyer and seller resulting from a matched transaction are substituted by a market contract between the buyer and seller or their appointed participant (if the buyer or seller is not a direct trader participant) and the Clearing Agency (where the buyer and taken up by the participant and the Clearing Agency;

“off-market trade”

means a transaction in an eligible asset that is not matched on the approved designated market ATS, which is subsequently reported and accepted on the ATS of the approved designated market;

“Participant”

means a person whose Participation Application to use the services provided by the Clearing Agency under these Rules has been accepted by the Clearing Agency and who is continued, reinstated or remains as a Participant;

“Participation Application”

means the form adopted by the Clearing Agency with respect to the use of any of the Services;

“participant derivatives account”

means an account that includes funds and derivative securities, which is held at the Clearing Agency, for the participant and used exclusively for the settlement of transactions in derivative securities;

“participant securities account”

means a securities account which is held at the Clearing Agency for a participant;

“person”

means an individual, corporation, partnership, association, trust or other entity as the context admits or permits;

“pre-validated trade”

means a trade that is validated by a designated market prior to execution in order for the Clearing Agency to provide real time clearing and settlement services;

“RTECS”

means the Real Time Electronic Clearing and Settlement system that facilitates the presenting and exchanging of transfer instructions regarding funds, securities or other financial instruments and the settlement of those transfer instructions between participants of the system;

“recognised jurisdiction”

means a country or territory as listed in Schedule 2 of the Act;

“Recognized Overseas Securities Exchange”

means a “recognized overseas securities exchange” as defined in the Act;

“records”

means the records of the Clearing Agency and its participants, which relate to the business of the Clearing Agency or participants;

“scriptural money”

means money held by a bank in electronic or other non-cash forms, as opposed to money stored as numbers on paper on a digital system and actual banknotes and coins;

“securities”

means securities and other financial instruments as defined in Schedule 1 of the Act;

“securities account”

means an account that includes funds and eligible assets other than derivative securities, which is used exclusively for the settlement of transactions in securities other than derivative securities;

“Securities Authority”

means the Financial Service Authority (FSA) of the Republic of Seychelles;

“securities exchange”

means as defined in the Act;

“securities facility”

means as defined in Section 41 of the Act;

“settlement” or “settle”

means to discharge the obligations arising from a transaction;

“Settlement Date” or “s”

means the day or days on which a transaction effected through a designated market is due to be settled;

“Settlement Officer”

means an officer of a participant who is registered with the Clearing Agency to manage the settlement of trades of securities other than those designated for pre-validated trading;

“Seychelles Securities Exchange”

means “Seychelles Securities Exchange” as defined in the Act;

“the Act”

means the Seychelles Securities Act, 2007 as may be amended and includes any regulations prescribed by the Minister or the Securities Authority;

“the Rules" or "these Rules”

means the Rules of the Clearing Agency as approved by the Securities Authority and includes the Directives;

“trade” or “transaction”

means a matched trade or an off-market trade in respect of an approved eligible asset and “trading” shall be construed accordingly;

“trader participant”

means a a direct participant of a designated market that buys and sells securities on a designated market exclusively on a proprietary basis for his or her or their own account as contemplated under section 7(8) of the Act;

“variation margin”

means a variable margin payment made between a participant and the Clearing Agency based upon price movements of derivative securities held by the participant. Payments are made between participants and the Clearing Agency on a daily basis in order to reduce the exposure created by positions;

“virtual financial asset”

means any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not –

electronic money;

an eligible asset; or

a virtual token;

“virtual token”

means a form of digital medium recordation that has no utility, value or application outside of the distributed ledger technology platform on which it was issued and may only be redeemed for funds on such platform directly by the issuer of such asset, provided that electronic money shall be excluded from this definition.

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Last updated 10 months ago