WEDNESDAY, FEBRUARY 19, 1992
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THE INTRODUCTION OF SUCH A SYSTEM WAS ONE OF THE CORE RECOMMENDATIONS IN THE SECURITIES REVIEW COMMITTEE REPORT OF MAY 1988 AND THE ONLY MAJOR ONE THAT HAS YET TO BE IMPLEMENTED IN WHOLE OR PART, HE ADDED.
THE SECRETARY SAID THE PURPOSE OF THE BILL WAS TO PROTECT THE NETTING AND SETTLEMENT OPERATION OF CCASS FROM THE EFFECT OF THE STATUTORY INSOLVENCY RULES WHICH WOULD OTHERWISE APPLY TO THE AFFAIRS OF A PARTICIPANT WHICH BECAME BANKRUPT OR WENT INTO LIQUIDATION.
HE POINTED OUT THAT AS THE CLEARING COMPANY, THROUGH THE PROCESS OF NOVATION, WOULD BECOME A PRINCIPAL COUNTERPARTY IN EACH TRADE TO BOTH BUYING AND SELLING BROKERS, ANY INTERFERENCE WITH THE SETTLEMENT PROCESS BY A THIRD PARTY WOULD CAUSE SERIOUS DISRUPTION ΤΟ THE SYSTEM AND BRING THE NETTING PROCESS TO A HALT.
SUCH CLAIMS COULD ARISE WHEN A DEFAULTING BROKER WAS INVOLVED IN LIQUIDATION PROCEEDING, AS THE LIQUIDATOR WOULD BE ABLE TO DEMAND THAT SHARES WHICH HAD BEEN PUT INTO CCASS FOR SETTLEMENT BE WITHDRAWN.
MR NENDICK SAID THIS WOULD NOT ONLY VOID THE NETTING OF TRADES AND RENDER THE WHOLE SYSTEM UNWORKABLE, BUT ALSO CAUSE A CHAIN REACTION OF FINANCIAL DEFAULTS OR EVEN SEVERE MARKET DISRUPTION.
"IT IS
THEREFORE
IN THE
OPERATION OF CCASS BE ASSURED SECRETARY SAID.
PUBLIC INTEREST THAT THE SMOOTH BY APPROPRIATE LEGISLATION, THE
IN ADDITION, THE BILL ALSO EMPOWERS THE SECURITIES AND FUTURES COMMISSION TO DECLARE CLEARING HOUSES AS RECOGNISED AND TO APPROVE THE RULES OF RECOGNISED CLEARING HOUSES.
A RECOGNISED CLEARING HOUSE, MR NENDICK SAID, WAS REQUIRED
TO HAVE "DEFAULT RULES" FOR THE TAKING OF ACTION IN THE EVENT OF A PARTICIPANT BEING UNABLE TO MEET HIS OBLIGATIONS ENTERED INTO WITH THE CLEARING HOUSE.
HENCE, THE SCOPE OF THE DEFAULT RULES AND THE BROKER'S ASSETS WHICH MAY BE SUBJECT TO A MARKET CHARGE ARE PRESCRIBED BY THE BILL.
MR NENDICK ADDED THAT UNDER CCASS, SECURITIES CERTIFICATES WOULD NO LONGER HAVE TO BE PHYSICIALLY TRANSFERRED EACH TIME THEY WERE TRADED, BUT WOULD BE PLACED IN CUSTODY WITH THE CLEARING HOUSE DEPOSITORY FOR USE IN THE SETTLEMENT OF TRANSACTION BETWEEN BROKERS.
"ALTHOUGH THESE SECURITIES REGISTERED IN THE NAME OF COMMON NOMINEE ARE HELD IN FUNGIBLE FORM, THE BILL HAS EXPRESSLY PRESERVED SHAREHOLDERS' VOTING RIGHTS AS WELL AS ANY PERSON'S RIGHT ΤΟ RECTIFY A REGISTER OF MEMBERS UNDER THE COMPANIES ORDINANCE, HE SAID.
DEBATE ON THE BILL WAS ADJOURNED.
H
0
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