In the event of a default
When a clearing participant fails to deposit funds required by JCCH by the appointed deadline, said participant is in default. JCCH considers such a clearing participant insolvent, and will no longer accept debts resulting from clearing transactions undertaken by that clearing participant. Furthermore, all open positions held for customers by the now insolvent clearing participant will be consolidated among other clearing participants in good standing.
In addition, in the event a clearing participant default, JCCH entered into an agreement concerning “Line of credit” with its designated clearing banks in order to satisfy its operations efficiently. *1
When JCCH suffers a loss by default, JCCH is compensated in each market in the following order:
- The clearing margin deposits made by clearing participant in the house account for the designated commodity market; the clearing funds which the clearing participant had made into the commodity market; and any other funds on deposit by defaulting clearing participant; any clearing margin for customer account to which defaulting clearing participant has a claim of refund. *2
- Any trust money which the defaulting clearing participant has on deposit with any of the designated commodity markets.
- The “default compensation reserve ” established by JCCH from surplus, which has been accumulated.
- Money received by the exchange as compensation for an indemnified loss through a third party insurer or reserve funds. *3
- The clearing funds of other clearing participants involved in the commodity market where the default took place which are held by JCCH.
- When all the above is deplenished, the funds of all clearing participants involved in the commodity market where the default occurred.
*1 The amount designated as “Line of credit” is configured to consideration of the past clearing results.
*2 The financial resources specified above (a) in a certain designated commodity market exceeds the loss in the said market, as concerns the said exceeded part, is allotted to compensation for the loss of other insufficient market according to regulations that JCCH stipulated.
*3 This is the security reserve fund against default which the establisher of the designated market bears, the special deposit for default, and the liability insurance which insured the establisher of the designated commodity market.
Claim for refund
In reference to all margin deposits made by the customer to his clearing participant (direct deposit), the customer has a claim of refund for those deposits when no longer holding a trading position warranting such deposits.
When a customer deposits margin to his clearing participant, and the clearing participant deposits to JCCH amounts larger than the margins deposited by its customer (replacement deposit), the customer has the right to claim a refund directly to the clearing participant, except in the case of a default when the customer has a claim of refund directly to JCCH.