SGX Group proposes to refine cap on clearing members’ liability for multiple defaults

29 April 2024

On 22 March 2024, Singapore Exchange (“SGX Group”) published a consultation paper on proposals to refine the existing caps on a clearing member’s liability to meet default losses arising from multiple events of default. This cap is imposed on clearing members of SGX Group’s central counterparties (“CCPs”), namely The Central Depository (Pte) Limited (“CDP”) and Singapore Exchange Derivatives Clearing Limited (“SGX-DC”). The consultation closed on 24 April 2024. 

SGX Group proposes to limit a non-defaulting clearing member’s liability to meet multiple default losses arising within a 30-day period to three times the aggregate of its funded and unfunded clearing fund contributions (“Prescribed Contribution”) as determined at the start of the 30-day period. 

Under the current CDP Clearing Rules and the SGX-DC Clearing Rules, a non-defaulting clearing member is obliged to meet losses arising from an event of default so long it remains a clearing member of CDP or SGX-DC. In a single default event, the non-defaulting clearing member’s losses are limited to its Prescribed Contribution. If multiple events of default occur in quick succession, a non-defaulting clearing member may be at risk of exposure to significant default losses. This may create an impetus for a non-defaulting member to resign in order to limit its exposure to such losses. 

The proposed cap, which is not contingent on the resignation of a clearing member, would provide clearing members with certainty on their potential exposures when multiple defaults occur, and at the same time uphold systemic stability by maintaining SGX Group’s CCPs’ membership in periods of extreme market stress. 

Reference materials 

The following materials available on the SGX website www.sgx.com: