TNAG-1764-FCO40-2518-Hong-Kong-stock-market-and-exchange-rate-1988 — Page 51

THE FUTURES EXCHANGE RISK MANAGEMENT STRUCTURE (Chapter Seven of the Report)

The SRC recommends that -

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the clearing house should be incorporated as a wholly-owned subsidiary of the Exchange. Its Board should include the Exchange Chairman and Chief Executive, the clearing house manager and representatives of those backing the risks of the clearing house. There should be a strong independent element. (para. 7.38)

from the outset the senior full-time management of the clearing house should be employees of the Exchange (or the Clearing Corporation, if appropriate). (para. 7.40)

the clearing house manager should have high rank within the Exchange organisation. (para. 7.40)

the clearing house should be a counterparty to every trade. (para. 7.41)

the clearing house should cover or lay off its risk so that it is not significantly exposed itself and should only accept risks to the extent that it has resources available to cover them. (para. 7.45)

to ensure that the risk creators take collective responsibility for the integrity of their market, part of the clearing house's risk should be backed by a fund made up of deposits from clearing members. (para. 7.48)

the clearing house should endeavour to lay off some risk externally either via a guarantee from a banking synidcate or insurance or both. (para. 7.49)

the clearing house should adopt a rule whereby it can call for extra deposits from clearing members. in the event of the fund and any external guarantee being exhausted. (para. 7.50)

representatives of the clearing members and any providers of a guarantee should sit on the board of the clearing house. (para. 7.52)

early steps should be taken to introduce new guarantee arrangements so that the risks entailed in the Government assuming the credit risks in the HSI futures market are removed. (para. 7.53)

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