- Default Risk
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Member’s default risk refers to the risk of not fulfilling settlement by the settlement deadline resulted by the member’s disability of settlement due to deteriorated financial status or bankruptcy. The KRX deems, as default, those situations where a clearing member does not fulfill its settlement obligation or fails to deposit its margin or where the KRX deems such a situation possible.
"Case where a clearing member is deemed to have a risk of not fulfilling of settlement obligations" refer to the below.- OTC Derivatives Clearing Business Regulation §101②
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§101. Measures in Case of a Clearig Member Settlement Default
②The "concern that the clearing member may fail to fulfill the settlement obligation or to deposit member margin" noted in paragraph ① shall refer to any of the following subparagraphs:- Where there is a request for payment suspension or commencement of rehabilitation procedures by the clearing member;
- Where the check or bill issued has defaulted or the transaction with banks has been suspended;
- Where the Financial Services Commission has taken the action to suspend the business operation;
- Where a foreign investmemt company corresponds to the cause equivalent or similar to subparagraph 1 through 3 in case of a branch office, etc. of a foreign financial investment company;
- Where a financial fraud or non-performing loan involving a large sum has occurred;
- Where there is a sharp deterioration in liquidity; and
- In addition, as a case equivalent to subparagraphs 1 through 6, the case where there is a concern that the settlement obligation may not be fulfilled.
- Default Management Committee
- The KRX operates the Default Management Committee (DMC) to efficiently manage the risk resulted from a clearing member’s default. The committee is in charge of efficient disposal of unsettled positions, and prompt and accurate understanding of market situation, classification of unsettled positions, hedging transactions to avoid loss, auctions, etc. in case of a clearing member’s default.