Default Management Process
11. DEFAULT MANAGEMENT PROCESS
11.1 The purpose of the Default management Process is to limit systemic and counterparty risks in the event of Default by a member.The Default Management Process encompasses the following;
(i) Open Positions: All open positions will remain in force and will be binding on the Defaulting Member until liquidated by FXCH.
(ii) Auction: The following terms will apply to all auctions conducted by FXCH;
(a) Declaration of Default & Request for Quote (RFQ): A Declaration of Default and an accompanying RFQ will be sent to all Non-defaulting GCM’s via a FIX message. The members will be informed about the Default Event and advised that an auction of the defaulting member’s portfolio will take place. All members will be treated equally as regards the provision of information relating to an auction. The information contained in the FIX message is confidential and the member must hold all such information in the strictest confidence and in accordance with the Rules herein, unless required to disclose it in accordance with a request and/or order from a judicial, administrative, legislative or regulatory body.
(b) Auction Participation: Participation in the auction is mandatory for all Non-Defaulting GCMs. The requirement to participate also extends to Non-Defaulting GCMs who have advised FXCH of their intention to terminate their membership, in the event that the notice period has not yet expired. The Defaulting Member is prohibited from participating in the auction process.
(c) Submission of Quotes: All quotes submitted by the members must be unconditionally tradeable and reasonably close to the prevailing market rates at the time of auction. FXCH reserves the right to execute quotes that are cross-tradeable against other quotes, once the defaulting portfolio liquidation is executed. The GCM who submits the most competitive quote will receive the portfolio in full.
(d) Breach of Auction procedures: In the event that a GCM breaches any of the terms & conditions of the auction process, including a situation where a valid mandatory quote is not received by FXCH, the member will be subject to a penalty as set out in the schedule annexed hereto and as amended from time to time in accordance with the terms and conditions herein.
(iii) Independent liquidation: FXCH reserves the right to liquidate the Defaulting Member’s Portfolio independently if a higher unconditionally tradable offer is received from an external source than from the non-defaulting members.
(iv) Consequences of Default for a Defaulting Member:
In the event of default, FXCH may in its sole discretion, impose such conditions, restrictions and limitations on the Defaulting Member as it deems necessary or appropriate in the circumstances. These conditions, restrictions and limitations may include some or all of the following;
(a)Suspension: the trading permissions of a defaulting member are immediately suspended until a full review has been conducted FXCH. Such review will take place in a timely manner following the member’s default & the subsequent suspension of trading permissions.
(b) Penalty: FXCH will charge the defaulting member a penalty as outlined in the annexed Schedule. Where the defaulting member’s portfolio is liquidated internally, the sum of this penalty will enure to the benefit of the recipient of the portfolio. In the event that the FXCH liquidates the portfolio independently as described above, the sum of the Penalty will enure to the benefit of FXCH.
(c) Review: a review of the Defaulting member’s trading activity will subsequently be carried out and FXCH will determine whether the trading permissions of the Defaulting Member should be permanently removed. Where FXCH concludes that the financial position of the member is such that to allow it to continue as a member would introduce an unacceptable level of risk to FXCH and/or to the FXCH’s members, the defaulting members trading rights will be terminated. In making such determinations, FXCH will act fairly, honestly and in good faith.
(d) Increase of Margin Requirements: In the event that a Defaulting Member is subsequently permitted to trade with FXCH, margin requirements will be increased to a level that FXCH deems appropriate, in its sole discretion.
(e) Termination: Where FXCH, in its sole discretion determines that a defaulting member’s trading permissions should be removed, the defaulting member’s membership will be terminated with immediate effect.