Content Options:

Add to favourites

View Options:

More Resources:

External link Handbook Publications

CHAPTER IV INVESTMENT FIRMS ACTING AS GENERAL CLEARING MEMBERS

Article 24 Systems and controls of investment firms acting as general clearing members(Article 17(6) of Directive 2014/65/EU)

Any systems used by an investment firm acting as a general clearing member ("clearing firm") to support the provision of its clearing services to its clients shall be subject to appropriate due diligence assessments, controls and monitoring.

Article 25 Due diligence assessments of prospective clearing clients(Article 17(6) of Directive 2014/65/EU)

  1. (1)

    A clearing firm shall make an initial assessment of a prospective clearing client, taking into account the nature, scale and complexity of the prospective clearing client's business. Each prospective clearing client shall be assessed against the following criteria:

    1. (a)

      credit strength, including any guarantees given;

    2. (b)

      internal risk control systems;

    3. (c)

      intended trading strategy;

    4. (d)

      payment systems and arrangements that enable the prospective clearing client to ensure a timely transfer of assets or cash as margin, as required by the clearing firm in relation to the clearing services it provides;

    5. (e)

      systems settings and access to information that helps the prospective clearing client to respect any maximum trading limit agreed with the clearing firm;

    6. (f)

      any collateral provided to the clearing firm by the prospective clearing client;

    7. (g)

      operational resources, including technological interfaces and connectivity;

    8. (h)

      any involvement of the prospective clearing client in a breach of the rules ensuring the integrity of the financial markets, including involvement in market abuse, financial crime or money laundering activities.

  2. (2)

    A clearing firm shall annually review the on-going performance of its clearing clients against the criteria listed in paragraph 1. The binding written agreement referred to in Article 17(6) of Directive 2014/65/EU shall contain those criteria and set out the frequency at which the clearing firm shall review its clearing clients' performance against those criteria, where this review is to be conducted more than once a year. The binding written agreement shall set out the consequences for clearing clients that do not comply with those criteria.

Article 26 Position limits(Article 17(6) of Directive 2014/65/EU)

  1. (1)

    A clearing firm shall set out and communicate to its clearing clients appropriate trading and position limits to mitigate and manage its own counterparty, liquidity, operational and other risks.

  2. (2)

    A clearing firm shall monitor its clearing clients' positions against the limits referred to in paragraph 1 as close to real-time as possible and have appropriate pre-trade and post-trade procedures for managing the risk of breaches of the position limits, by way of appropriate margining practice and other appropriate means.

  3. (3)

    A clearing firm shall document in writing the procedures referred to in paragraph 2 and record whether the clearing clients comply with those procedures.

Article 27 Disclosure of information about the services provided(Article 17(6) of Directive 2014/65/EU)

  1. (1)

    A clearing firm shall publish the conditions under which it offers its clearing services. It shall offer those services on reasonable commercial terms.

  2. (2)

    A clearing firm shall inform its prospective and existing clearing clients of the levels of protection and of the costs associated with the different levels of segregation it provides. Information on the different levels of segregation shall include a description of the main legal effects of the respective levels of segregation offered, including information on the insolvency law applicable in the relevant jurisdiction.