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SGX proposes amendments to Derivatives Clearing Fund rules

THE Singapore Exchange has proposed two key changes to the rules guiding the SGX-Derivatives Clearing (SGX-DC) Clearing Fund.

On Tuesday, the local bourse said that it is proposing to combine the contract classes for exchange-traded derivatives and over-the-counter commodities into a single contract class.

It stated that the merger of the two classes will enable a "more appropriate and equitable allocation of losses" as the risks posed by both are the same.

The second change is to refine the methodology for determining clearing members' clearing fund contributions.

For instance, the bourse is suggesting a replacement of the security deposit requirement and the pre-funded further assessment requirement with a single clearing fund deposit requirement.

"SGX will retain the right to call for further assessment if, in the event of a clearing member default, additional resources are necessary. However, this will be a purely contingent liability," SGX said in its consultation paper.

The suggested changes are targeted at refining the fund's structure and contribution requirements on clearing members.

"With these changes, SGX-DC members will have better capital efficiency and greater clarity of their contribution requirements," SGX said.

The SGX is calling for public feedback that will end on April 3.

Agnes Koh, SGX chief risk officer, said that the proposed amendments "simplify" the SGX-DC Clearing Fund for members and "allow the fund to be more nimble" when responding to changes in stress test losses.

"The recalibration of the clearing fund requirement is a result of our constant review of our management of risk, and is in line with global practices," she added.