12. DEFAULT FUND
12.1 A Default Fund is maintained by FXCH for the purposes of ensuring against the insolvency of a Member, above and beyond proceeds recovered via the Default management process herein, in regards to its positions cleared with FXCH.
The Default Fund is constituted through contributions from Members and maintained via ongoing contributions from FXCH clearing fees.
(i) Initial Contributions: In order to enhance the financial security of the FXCH service, Members must contribute to the Default Fund. As described above the fees payable by a member will be dependent upon that member’s contribution to the Guaranty Fund. The collateral deposit remains the property of the contributing Member. The FXCH will hold a fixed charge security interest over the members contributions until the occurrence of either of the following;
(a) the sum is consumed by Default Events
(b) the contribution is withdrawn by the contributing Member.
(ii) Ongoing Contributions: For every market trade posted to FXCH, whether by General members or by Individual members, FXCH will allocate 12% of the Clearing Fees to the Default Fund. Such contributions by way of allocations to the Default Fund from Clearing Fees are and shall remain the Property of FXCH.
(iii) Default Event & Default Fund Mechanism:
(a) Declaration of Default Event: In the event that a member’s account falls below the “Closeout Margin Level” required for its open positions, a Default Event will be declared by FXCH, as a result of the defaulting Member’s account and the Liquidation Auction procedure is triggered as described above. In the event the remaining Account Margin available is insufficient to cover the loss resulting from the Liquidation Auction, the Default Fund will be debited by an amount equal to the shortfall of the defaulting Member's net equity value, to the benefit of FXCH who has novated the trades.
(b) Default Waterfall: The Default Fund will be debited in the following order:
(1)The defaulting member’s contribution to the Default fund
(2) FXCH’s contributions to the Default Fund via the Clearing fees
(3)The remnant of the Default Fund pro-rata of each Member’s contribution until exhaustion
(c) Default Shortfall: The defaulting Member remains liable for the full amount of the default shortfall. The above procedure is an emergency measure used while waiting for insolvency resolution that may recover the sums above that will be restituted in the inverse order.
(iv) Default Fund Administration & Accountability: Contributions to the Default Fund shall be held in trust and administered by FXCH in a manner which ensures the integrity and security of the sums within the Fund.Allocations to the Default Fund allotted from Clearing Fees shall remain the property of FXCH, unless consumed by a Default Event.FXCH shall not withdraw allocations to the Default Fund allotted from Clearing Fees unless such allocations are at least equal to the aggregate amount of Contributions to the Default Fund by Members.FXCH shall report to its members on a monthly basis any events in relation to the Default Fund. Blockchain Ledger entries shall be maintained by FXCH to reflect each contribution to the Default Fund.Blockchain Ledger entries shall be maintained for recording any payments from the Default Fund as a result of Default Events.
(v) Property of sums accounted for in the Default Fund: Contributions to the Default Fund by Members remain the property of the contributing Member so long as such sums are not consumed by Default Events.In case of a Default Event, the sum necessary to cover the Defaulting Member's debt shall be transferred in full property to FXCH, who has novated the trade, and then the property of this same sum shall be immediately transferred from FXCH to the benefit of the ultimate counterparty to the defaulting Member.
(vi) Reimbursement or withdrawal of Contributions:
(a) Termination: In the Event that a General member's membership is terminated, for any reason and regardless of which Party initiated the termination, FXCH shall immediately return such Initial Contributions to the General member, minus any decrease in value as a result of Default Events and minus any outstanding debts to FXCH as a result of being a user of this clearing and settlement service.
(b) Request for Withdrawal: A Member may demand withdrawal of its Contribution to the Default Fund at any time, and FXCH shall promptly return such Contribution, minus any sums consumed by a Default Event, notwithstanding the effect on his membership status.