IFMP Clearing and Settlement Operations Certification (CSOC), Pakistan flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Central counterparty (CCP)

An entity that interposes itself between trade counterparties by novation, becoming buyer to every seller and seller to every buyer, thereby assuming counterparty credit risk.

Novation

The legal process by which a matched trade is replaced by two contracts with the central counterparty, so the original counterparties no longer face each other.

Multilateral netting

Offsetting all trades among clearing members to produce one net position per security and one net cash obligation per member at the clearing house.

T+2 settlement

Settlement occurring on the second business day after trade date, the standard rolling cycle for PSX equity trades, adjusted for declared holidays.

Delivery versus payment

A settlement mechanism in which transfer of securities occurs only if the corresponding cash payment occurs, linking the two legs to remove principal risk.

Clearing member

A member admitted to the clearing house that submits trades for clearing, posts margin, and is legally liable to the CCP for its clients' net settlement obligations.

Trading member

A PSX member authorised to execute orders on the trading system; it may clear through its own clearing arrangement or a designated clearing member.

Central securities depository

An institution such as CDC that holds securities in electronic book-entry form, maintains ownership registers, and effects transfers between participant accounts.

Sub-account

An investor-level account maintained under a CDC participant's account that records that investor's beneficial holding of book-entry securities.

Initial margin

Collateral collected to cover potential future loss on open positions over the close-out period, calculated using a VaR-based model subject to a regulatory minimum.

Mark-to-market margin

Daily cash collected or paid for the change in value of open positions, measured from the trade or previous settlement price to the current closing price.

Exposure margin

An additional margin charged on net open positions per security and per member, reflecting concentration, illiquidity and price volatility risk.

Collateral haircut

A percentage reduction applied to the market value of pledged securities so that collateral is valued below market to absorb price moves and liquidation costs.

Settlement guarantee fund

A pooled reserve built from clearing member contributions and clearing house resources, used to complete settlement if a member defaults on its obligations.

Default waterfall

The agreed order in which resources absorb a member default: defaulter's margin, its fund contribution, the CCP's own resources, then surviving members' contributions.

Buy-in

A procedure in which the clearing house purchases securities in the market to cover a seller's delivery failure, charging the cost and penalties to the failing member.

Close-out netting

Terminating and valuing a defaulting member's open contracts at current market prices, then reducing them to a single net amount owed or payable.

Settlement date

The contractual date on which cash and securities legs must be exchanged; for PSX equities it is normally the second business day after trade date.

Trade date

The business day on which an order is executed on the exchange and the trade is reported for clearing and subsequent settlement.

Settlement bank

A designated bank that holds clearing members' settlement accounts and executes the cash leg of the delivery-versus-payment process with the clearing house.

Record date

The date on which the depository's register is examined to determine which holders are entitled to a dividend, bonus or rights entitlement.

Ex-dividend date

The date from which newly bought shares no longer carry the declared dividend entitlement, set relative to the record date to reflect the settlement cycle.

Bonus issue

Additional shares issued to existing holders in proportion to their holdings, credited through the depository without any cash payment by the investor.

Rights issue

An offer allowing existing holders to subscribe for new shares at a set price within a subscription period, with the entitlement based on holdings on the record date.

Withholding tax

Tax deducted at source by the paying agent from cash dividends before crediting entitled holders, at the rate applicable to the holder's status.

Client asset segregation

The requirement to hold customer cash and securities separately from the member's own assets so client property is protected if the member fails.

Reconciliation break

A mismatch between broker records, clearing house statements and depository or bank confirmations that must be investigated and resolved before the next cycle.

Rolling settlement

A continuous cycle in which each day's trades settle a fixed number of business days later, so multiple settlement dates are processed concurrently.

Net capital requirement

The minimum regulatory capital a clearing or trading member must maintain to absorb losses and support its margin and settlement obligations.

Settlement obligation

The net quantity of securities a member must deliver or receive and the net cash it must pay or collect on the settlement date.

Delivery failure

A seller's inability to transfer the full securities quantity on settlement date, triggering buy-in, penalties and possible suspension of the member.

Clearing statement

The clearing house's daily report of a member's trades, net positions, margin requirements and cash obligations, used as the primary reconciliation source.

Suspense account

A temporary depository or broker account holding securities or cash whose rightful owner or allocation is unresolved pending investigation.