Etd Clearing Agreement

19. September 2021    

There are strong arguments in favour of restoring the normal contractual position of a customer, who has the right to assert his losses on the sector`s compensation documents. The restoration of these rights would not mean that members who suffer damage are released. In addition, the reinstatement of these rights would improve the functioning of the financial system during trial periods of a clearing member`s default. In this regard, fia and ISDA should instruct market participants to review the clearing documents, which would best restore the normal contractual right to rights at a loss. In the meantime, users of the offsetting documents should endeavour to integrate the customer`s contractual law into the claim for loss on a bilateral basis. Several reasons were put forward to justify the valuation approach used in the compensation documents. Considering them in an article may seem like an attack on straw men, but it is better to address them here rather than leave unanswered arguments often put forward. In response to the requirements of the European Market Infrastructure Regulation1 („EMIR“) for derivatives trading and clearing, Clearing Members established in Europe and their derivative clients are re-establishing their relationships. To do this, they were supported by two Industry Standard-compliant English legal documents published in 2013, the foA Clearing Module2 (the „Module“), published by the FIA (published under the previous name of the FIA`s European arm, the Futures and Options Association), which deals with the clearing of exchange-traded derivatives („ETDs“) and OTC derivatives; and the ISDA/FOA Client Cleared OTC Derivative Addendum3 (the Addendum), published jointly by the International Swaps and Derivatives Association and the FIA, which covers the clearing of OTC derivatives, but not ETDs. The clearing documents were published after a lengthy design process involving market participants. Some traders have expressed concern that liability for a customer`s losses constitutes an undue incentive to act as a clearing member. This concern is not justified, given that a service provider should not be bound by a service provision clause that, in the event of insolvency, effectively provides for a transfer of assets from its derivative clients to its insolvency estate (the payment of $25 in the example below), which will then be transferred from the insolvency estate to the service provider`s other creditors – and vice versa, to provide a service if its insolvency estate remains liable for the consequences of the service provider`s material infringement.

The use of a clearing member`s assessment in the event of a CCP default deducts the value of the relationship between a clearing member and its clients, as it creates risks for clients that are not recoverable, without appropriate benefits for the clearing member. Central clearing of standardised derivatives was an obligation contained in the G20 Heads of State and Government`s statement at the Pittsburgh Summit in 2009, with the aim of reducing systemic risk in derivatives markets. Central clearing of derivatives offers a number of advantages, including the possibility for its clients, in the event of a clearing member`s default, to transfer cleared derivatives and associated collateral held with a CCP to a non-default clearing member (a process called „carry“).

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