Financial Markets Act, 2012 (Act No. 19 of 2012)

Regulations

Financial Markets Act Regulations

Chapter VI : Central Counterparties

41. Interoperability arrangements

41.1 Risk management for interoperability arrangements
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(1)A central counterparty that enter into an interoperability arrangement must—
(a)put in place adequate policies, procedures and systems to effectively identify, monitor and manage the risks arising from the arrangement so that the central counterparty can meet its obligations in a timely manner;
(b)agree on its respective rights and obligations, including the applicable law governing their relationships;
(c)identify, monitor and effectively manage credit and liquidity risks so that a default of a clearing member of one central counterparty does not affect an interoperable central counterparty; and
(d)identify, monitor and address potential interdependences and correlations that arise from an interoperability arrangement that may affect credit and liquidity risks relating to clearing member concentrations, and pooled financial resources.

 

(2)For the purposes of subregulation (1)(b), a central counterparty must use the same rules concerning the moment of entry of transfer orders into its respective systems and the moment of irrevocability, where relevant.

 

(3)For the purposes of subregulation (1)(c), the terms of the arrangement must outline the process for managing the consequences of the default where one of the central counterparties with which an interoperability arrangement has been concluded is in default.

 

(4)For the purposes of subregulation (1)(d), a central counterparty must have controls over the re-use of clearing members’ collateral as contemplated under Regulation 38.3 and under the arrangement, if permitted by the Authority or its supervisory authorities, which arrangement must outline how those risks have been addressed taking into account sufficient coverage and need to limit contagion.

 

(5)Where the risk-management models used by the central counterparty to cover its exposure to its clearing members or their reciprocal exposures are different, the central counterparties must—
(a)identify those differences, and assess risks that may arise therefrom and take measures, including securing additional financial resources, that limit the impact of the difference on the interoperability arrangement as well as its potential consequences in terms of contagion risks; and
(b)ensure that these differences do not affect each central counterparty’s ability to manage the consequences of the default of a clearing member.

 

(6)Any associated costs that arise from subregulations (1) and (5) must be borne by the central counterparty requesting interoperability or access, unless otherwise agreed between the parties.