TAIFEX may use the following resources in the order below when a clearing member fails to fulfill its clearing and settlement obligation:
(1)The defaulting clearing member's clearing margin.
(2)The defaulting clearing member's OTC derivatives default fund.
(3)TAIFEX's OTC Derivatives Compensation Reserve Fund.
(4)Other clearing members' contributions to the OTC derivatives default fund.
(5)The pro-rata ratio and pro-rata amount cap of additional contribution on other clearing members shall be prescribed by TAIFEX.
The deposit amount of other clearing members described above shall be handled according to the following regulation:
(1)When a single clearing member defaults during the cooling-off period, the cap shall be 150% of the non-defaulting clearing member's respective required contributions to the required OTC derivatives default fund contribution amount on the business day immediately preceding the first day of the cooling-off period.
(2)When multiple clearing members default during the cooling-off period, the cap shall be 300% of the non-defaulting clearing members' respective required contributions to the required OTC derivatives default fund contribution amount on the business day immediately preceding the first day of the cooling-off period.
"Cooling-off period" in the preceding paragraph means the period of 20 trading days beginning from the date on which a default by a single clearing member occurs. If any other clearing member defaults before the end of that cooling-off period, the termination date of the cooling-off period shall be 20 trading days after the date of the last-occurring default by a clearing member.
(1)Utilization order and attributed method of non-defaulting clearing members OTC derivatives default fund
Where losses on the defaulting clearing member's positions and relevant hedging positions are covered by the OTC clearing fund for non-defaulting clearing members, the order and attributed method are as follows:
- A.The attributable amounts are firstly calculated by the risk ratio of each product:
In respect of a non-defaulting clearing member and a product category identical to the defaulting member's position, the attributed amounts to cover the losses relating to each product position based on the ratio of the end-of-day required clearing margin at the business day preceding to the relevant default date for such product category positions held by such a non-defaulting clearing member to the aggregate end-of-day required clearing margin at the business day preceding to the relevant default for each product positions held by such a non-defaulting clearing member (i.e. risk ratio by-product). - B.The attributable amounts are then calculated by the risk ratio among each auction portfolio belonging to the same product category:
In respect of a non-defaulting clearing member and auction portfolios belonging to the same product category, the attributed amount to cover the losses relating to each auction portfolio based on the ratio of the end-of-day required clearing margin at the business day preceding to the auction date for such an auction portfolio to the aggregate end-of-day required clearing margin at the business day preceding to the auction date for each auction portfolio belongs to the same product category. (i.e. risk ratio by auction portfolio) - C.Losses from each auction portfolio will be covered in the following order based on the result of auction participation:
- (A).Compulsory auction participants who do not make a bid or whose bid was lower than the reserve price.
- (B).Compulsory auction participants who made a bid higher than or equal to the reserve price but lower than the winning bid.
- (C).Compulsory auction participants who made the winning bid or a bid higher than or equal to the winning bid.
- D.Non-defaulting clearing members' attributable amount of the same order in the same auction portfolio in the preceding item are applied by the ratio of the attributable amount of such a non-defaulting clearing member to the total attributable amount for all clearing members of the same order.
- E.In cases where it is not possible to fully compensate the loss pursuant to the previous paragraphs, remaining OTC derivative default funds from other auction portfolios belonging to the same product category will be applied.
- F.In cases where it is not possible to fully compensate the loss pursuant to the previous paragraph, remaining OTC derivatives default funds from non-defaulting clearing members will be applied based on the ratio of such non-defaulting clearing member's remaining OTC derivatives default fund to the total of each non-defaulting clearing member's remaining OTC derivatives default fund.
In cases where clearing members' OTC derivatives default fund is insufficient to cover the default losses, the difference shall be covered by clearing members' additional contributions. The utilization order and attributed method are the same as those of the above-mentioned OTC derivatives default fund.
If the OTC financial safeguard resources are still insufficient to cover losses due to defaults, the net payable amounts of non-defaulting clearing members, voluntary deposits of clearing members, and the funds of TAIFEX may be used to cover the shortfall.
- (1)Non-Default CM’s Net Cash Receivables
Where the Member Assessment from non-defaulting clearing members is insufficient to cover the default loss incurred by TAIFEX, the amount of the remaining default loss shall be allotted to each account of non-defaulting clearing members according to the ratio of the net receivables of clearing amounts by each account during the period from the cooling-off period to the date on which all auctions portfolios have either been successfully auctioned or been terminated. The total amount of each account of non-defaulting clearing member shall not exceed the net receivables of clearing amounts during the cooling-off period. - (2)Voluntary Contribution
When a non-default clearing member’s net receivables of clearing amounts by each account is insufficient to cover clearing member’s default losses, TAIFEX may notify clearing member to provide additional funds to cover the losses (hereinafter referred to as “Voluntary Contributions”).
After clearing members receive the notification, clearing members may voluntarily deposit the amount specified in the notice. If a clearing member decides to deposit the amount, the deposit must be completed within the period specified by TAIFEX and the clearing member may not request reimbursement.
The Voluntary Contributions made by the non-defaulting clearing member shall be treated as its contribution to the OTC derivatives default fund.
- (3)Default losses covered by TAIFEX
TAIFEX must make up the shortfall after utilizing funds from Voluntary Contributions.
TAIFEX will seek compensation from defaulting clearing members for funds, interest, and necessary overheads used to cover losses in accordance with these Rules.
