Clearing
House Services
- Clearing and settlement of cash and securities
- Guarantee for clearing and settlement
- Risk management
Securities Clearing and Settlement
At present, clearing and settlement of securities on the SET, mai, and BEX have the following patterns (Revised on August 3, 2006);
1. Settlement dates are on the third day following the trading date (T+3) for equities and on the second day following the trading date (T+2) for debt instruments.
2. Multilateral netting
3. Delivery versus Payment (DvP)
4. Clearing and Settlement
4.1
Cash – Transferred through the settlement banks and BAHTNET system of Bank of Thailand
4.2
Securities – Transferred through the book entry system
Cash Settlement
The Clearing House acts as an intermediary of cash settlement between buyers and sellers. There are 2 methods of the payment depending on the types of clearing members:
1. General members, brokers will send/receive the payment to/from their settlement banks, which are Siam Commercial Bank Pcl., Bangkok Bank Pcl. and Krung Thai Bank Pcl.
2. Associate members, custodians, will send/receive the payment through the BOT’s BAHTNET system.
Diagram Shown Settlement
Procedures and Methods
Securities Settlement
Similar to the cash settlement, the Clearing House also acts as an intermediary of securities settlement by transferring securities in the book entry system through the TSD’s securities depository system.
Clearing members are responsible for maintaining the securities in their securities depository account at the amount sufficient for securities clearing and settlement as indicated in the netting report by 1.30 p.m. on the third day following the trading date (T+3).
For clearing members who are entitled to receive securities will receive the securities in their securities depository account at 1.30 p.m. on T+3 and will be able to withdraw or transfer such securities after 2.15 p.m. on that day.
Delivery versus Payment (DvP)
Delivery versus Payment (DvP) is an international standard recommended by the Group of 30 (G30) which is an international body composed of representatives from leading financial and academic institutions which aim to the reform and modernization of the clearing and settlement system.
TSD has adopted Delivery versus Payment (DvP) to the securities clearing and settlement since September 8, 2000 in order to reduce the risks to the clearing house which acts as the securities clearing and settlement guarantor, build confidence in the system, increase liquidity in the Thai capital market, and support cross-border transactions as well as shortening of settlement cycle in the future.
Clearing Members
Clearing members are categorized into 2 types as follows:
1. General members or Clearing Fund members i.e. brokers
2. Associate members or non-Clearing Fund members i.e. custodian banks
Company members who are to
use securities settlement and clearing system must be permitted
by TSD. Those who want to use securities clearing and settlement system must get permission from TSD by submitting application forms for membership according to each market i.e. SET, mai, BEX and TFEX.
Membership Qualifications
1. Juristic persons whose shareholders’ equities are not less than 150 million baht
2. Persons permitted to trade in each market or operating business as securities custodians
3. Persons with net liquid capital according to the Securities and Enchange Commision (SEC) rules, only for those who are required by the SEC
4. Depository members of TSD
5. Members of Clearing Fund (except associate members)
Risk Management
TSD has continually developed risk management measurements to prevent risks resulting from securities clearing and settlement defaults.
Risk Management Measurement
- Stipulate membership requirements of the initial application and maintenance of minimum shareholders’ equities at 150 million baht.
- Monitor financial status and liquidity of members who are required to submit monthly reports on net liquid capital, financial status, together with income and expenses.
- Set the settlement cap at no more than 8 times of each member’s net capital level.
- Monitor risks by using Early Warning system which the acceptable loss probability is no more than 5%
Securities Borrowing and Lending (SBL)
To minimize the securities clearing and settlement failures, TSD will act as a lender and borrower on behalf of its clearing members.
The SBL service is to find securities from depository members who has sufficient amount of securities for lending. Collateral must be placed to ensure lenders that their securities are to be returned within the lending period which is not more than 6 business days. TSD will charge both lender and borrower 10% of lending fee. In case there are no securities available for borrowing, TSD will initiate buy-in on the market and default member must be responsible for all expenses occurred.
Borrower and Lender Qualifications
- Borrowers must be general members of the Clearing House
- Lenders must be depositors as stipulated by by TSD’s regulations of securities depository service. They must also computers connected to TSD’s securities depository.
Placement of Collateral
In order to ensure the lenders that their securities are to be returned, collateral must be placed on the following conditions;
- Eligible collateral is cash at the percentage of the borrowed securities as follows:
- 130% for SET 50 securities traded on the Main Board
- 145% for non-SET 50 securities traded on the Main Board
- 160% for securities traded on the Foreign Board
- In case that the members receive the payment from clearing process, TSD will deduct such payment for collateral. TSD will return the collateral to the borrowers after all securities are returned to the lender.
Securities Return
- Early return
- TSD will deduct the securities from the borrower’s Clearing Account and return them to the Lending Account of the lender.
- In case the securities in the borrower’s Clearing Account are insufficient, it will be considered as default for the shortage amount and the securities need to be consecutively borrowed. TSD will compensate the lender in cash at the shortage amount which is not less than 130% of the lending amount.
Buy-in in case of defaults
TSD allows defaulting members to obtain and borrow securities. In case there is no securities to borrow on the specified date and time, TSD will follow the Clearing House’s regulations by initiating buy-in on T+4 for equities and on T+3 for bonds. Penalties for default will be applied on the defaulted date until the complele amount of securities is delivered.
Clearing Fund
TSD established the clearing fund in March, 1995 with the purpose of preventing any damages from clearing and settlement defaults. The clearing fund consists of contributions from the SET and the fund members which are general members of the Clearing House.
In case that a fund member defaults on securities clearing and settlement, fail to meet the scheduled time for securities settlement or delivery, the fund manager might use fund money for the Clearing House to cover such defaults.
Contributions to the Fund
Contributions to the fund by members are as followings;
- Initial contributions at 900,000 baht
- Monthly contributions at 0.008, 0.012 or 0.016% of the net clearing and settlement value of a fund member, depending on the potential damage risk of each member, with a required minimum contribution of 1,000 baht per month.
Use of the Clearing Fund
In case of clearing and settlement defaults, the fund manager may let the Clearing House use the fund money for the defaulted transactions, together with damages according to the following order:
1. Contributions by the defaulting fund member
2. Contributions by other fund members
3. Contributions by the SET
Once the fund money is used, the defaulting fund members must be responsible for returning the money to the fund, together with the interest from the date of fund utilization.
Penalties for Defaults on Securities Clearing and Settlement
Defaults on clearing and settlement can be categorized into 2 major cases;
- Penalties for defaults on cash payment
1. Members make a payment later than the stipulated time
2. Members have no money to pay at the stipulated time
- Penalties for defaults on securities delivery
1. Members have no securities to deliver
2. Defaults due to human errors
Penalties for Defaults on Cash Payment
1. For any delay of payments due to human errors without causing damages to securities clearing and settlement and delivery system, the Clearing House will fine a member as followings;
- First default in one calendar year: 5,000 Baht a time
- Second default in one calendar year: 10,000 Baht a time
- Third default or more in one a calendar year: 50,000 Baht a time
2. If members have no money for cash securities settlement at the stipulated time, the Clearing house will consider penalizing the defaulting members at the amount of no more than 2 times of the defaulting value for general members and no more than 4 times of the defaulted value for associate members.
Penalties for Defaults on Securities Settlement
Defaults due to members have no securities to deliver
1. For general members,
- Late delivery no more than 1 business day: 0.50% of the value of defaulted securities
- Late delivery from 1 to 2 business days: 0.75% of the value of defaulted securities
- Late delivery from 2 to 3 business days: 1.00% of the value of defaulted securities
- Late delivery from 3 to 5 business days: 1.75% of the value of defaulted securities
- Late delivery from 5 to 7 business days: 2.50% of the value of defaulted securities
- Late delivery from 7 to 14 business days: 3.75% of the value of missed appointment securities
- Such penalties must not be less than 300 baht per securities at a time
2. For associate members,
The Clearing House will consider penalizing a defaulting member at 5% of the value of defaulted securities. Such penalty must not be less than 300 baht per securities at a time
Default due to Human Errors
In case of defaults due to human errors, the Clearing House will consider penalizing a member as follows;
- First default in one calendar year: penalty is waived
- Second default in one calendar year: 2,000 baht a time
- Third default or more in one calendar year: 5,000 baht a time
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