Default management

NOS’ default rules, which form part of its Rulebook, define what constitutes an act of default by a clearing member and what actions NOS may undertake after declaring a member to be a defaulter.

Default rules and default procedures

Clearing members are considered to be in default if they breach the rules, or where, in the judgment of NOS, there is a substantial risk that the clearing member will breach these rules regarding the clearing operations. According to the rules, the occurrence of the following events may give NOS reason to declare a member a defaulter (the list is not exhaustive):

• any failure to post, or overdue posting of, collateral
• any failure to settle a contract
• insolvency of a member
• breach of (other) clearing membership requirements
• breach of reporting requirements

If a clearing member is a defaulter, NOS has the right to elect, at the cost and expense of the defaulting member, to take one or more of the measures stated below:

• suspend the clearing member from clearing
• terminate the clearing membership
• effect close out contracts for the account and risk of the defaulter or undertake any other trading to hedge or neutralize the market risk of the defaulter’s open positions
• seize and realize collateral provided
• withhold settlement and/or set off all settlements due to the defaulting member against settlements due to NOS

NOS has established internal procedures which provide rules and guidelines to be followed by the staff in handling the different aspects of default situations. The staff is trained in handling simulated default situations on a regular basis.