ADVOKS GLOBAL · KENYA
The Capital Markets (Derivatives Markets) Regulations
44. Clearing and settlement rules of a derivatives exchange
Edition: 2025-02-14 · In force
44. Clearing and settlement rules of a derivatives exchange
(1)A derivatives exchange shall make rules for its clearing house.(2)Where a clearing house is a distinct entity from a derivatives exchange, the clearing house shall make its own rules.(3)The rules made under subregulations (1) or (2) shall be subject to the approval of the Authority and shall provide for—(a)registration of derivatives contracts;(b)settlement of transactions involving derivatives contracts;(c)guarantee to its derivatives brokers the settlement of derivatives contracts;(d)types of margins to be applied on all open positions;(e)periodic marking to market of all open positions;(f)determining the daily settlement price and the final settlement price;(g)setting up a settlement guarantee fund;(h)setting up an investor protection fund; and(i)the procedure of expulsion, suspension or disciplining of a derivatives broker who contravenes the clearing and settlement rules of the derivatives exchange.(4)In addition to the requirements of subregulations (1) and (2), the rules of a derivatives exchange and its clearing house shall also include default provisions, which shall provide for the procedure which a derivatives exchange may undertake in instituting default proceedings or taking any other action against a derivatives broker who has failed, appears to be unable, or is likely to become unable to meet its obligations for all unsettled or open market contracts to which the derivatives broker is a party.(5)The default provisions shall in particular—(a)enable the settlement of all derivatives contracts;(b)provide, for the purposes of paragraph (a), for payment by or to a derivatives broker, a sum of money in relation to each contract if that is required after taking into account all the rights and liabilities of the derivatives broker under or in respect of the derivatives contract concerned;(c)enable all sums of money payable by or to the derivatives broker as determined in accordance with paragraph (b), to be aggregated or set-off so as to produce a net sum, if any, payable by or to the derivatives broker;(d)provide that, if any net sum referred to in paragraph (c) is payable by the derivatives broker the net sum to be set-off against all property of the derivatives broker which is either subject to a market charge or which has been provided as a market collateral or set-off against the proceeds of the realization of such property so as to produce a further net sum, if any, payable by or to the derivatives broker;(e)provide that, if any net sum referred to in paragraph (c) is payable to the derivatives broker, all property of the derivatives broker which is either subject to a market charge or which has been provided as a market collateral shall cease to be subject to the market charge but without prejudice to any other form of charge to which it may be subject or to be market collateral but without prejudice to its provision as any other form of collateral, as the case may be; and(f)provide for the certification by the clearing house of any net sum referred to in r paragraph (c) payable to the derivatives broker, or of any further net sum referred to in paragraph (d) payable by or to the derivatives broker, as the case may be, or if there is no such sum, the certification by the clearing house of that fact.(6)Where a clearing house takes default proceedings against a defaulter, all subsequent action taken under the rules of the clearing house for settlement of market contracts to which the defaulter is a party, shall be treated as taken under the default proceedings.(7)The rules of a clearing house of a derivatives exchange shall apply to the employees of its derivatives brokers.(8)The derivatives brokers of a clearing house shall ensure that its employees comply with the rules of the clearing house.