2 minute read
4.4 Fails in the securities clearing and settlement system
While no fails occurred on the derivatives market in 2013, similarly to the previous year, the rise in the value of fails on the cash market compared to previous years led to
an increase in clearing and settlement risk. Fails in the securities clearing and settlement system suggest clearing and settlement risk within the system. The value of fails on the cash market continued to rise in 2013, but their quantity (i.e. occurrence) decreased significantly (Chart 21). In 2012, in order to reduce the number of fails, KELER CCP extended the settlement deadline on the spot market from 11:30 am to 2:00 pm. This measure was partially successful, as the number of fails decreased. Their value, however, rose markedly by 30 per cent. One large fail was one of the factors contributing to the increase, coupled with the more than doubling of the average value of other fails. Fails occurred due to securitiesside liquidity shortages in every case, caused by fails along the counterparty chain, presumably due to sudden spikes in market turnover. In 2013, similarly to the previous year, fails mainly occurred among government bond transactions, with only a minor portion linked to shares. The concentration of settlement fails is high on the cash market, with two of the 31 KELER CCP clearing members responsible for them in 2013. Clearing members explained that the fails resulted from the clearing member or non-clearing member expecting the delivery of securities from a client in a short position, and the client failing to meet its obligation on time. This corroborates our assumption that clearing members and non-clearing
Chart 21 Value of settlement fails and the settlement ratio on CCP cleared capital markets
100.0 Per cent HUF Million 4,500 99.5 4,000 99.0 3,500 98.5 3,000 98.0 2,500 97.5 2,000 97.0 1,500 96.5 1,000 96.0 500 95.5 Jan. 2012 Febr. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Jan. 2013 Febr. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. 0 Settlement fails in the cash market due to lack of securitise (right-hand scale) Settlement fails in the derivatives market (right-hand scale) Settlement ratio on the cash market Settlement ratio on the derivatives market
Note: No fails occurred on the derivatives market during the period under review.
members were also in a short position, i.e. transferred the securities without actually being in their possession, preventing them from closing their short selling transaction on time due to delays across the counterparty chain.
Box 2 Fails in the securities clearing and settlement systems
On the markets guaranteed by KELER CCP, a settlement failure occurs if the clearing member does not fulfil its financial, collateral or securities obligations relating to the clearing of transactions and positions in the required manner or on time, i.e. fails to provide the funds or securities necessary for settling the transaction on time. The rules of procedure for handling fails differs for each market. Management of the risk of default concentrated within the central counterparty is ensured by a guarantee system, emergency measures and complex default management rules of procedure. The latter has been sufficient in the past for addressing default prior to the utilisation of the guarantee system.
