FICC-GOV,FICC-MBS Alert! GSD Rules & MBSD Rules to clarify that a Settling Bank & a Cash Settling Bank, respectively, may not refuse to settle for itself. The Member shall remain obligated to pay such Cash Settlement amount by the payment deadline
Settlement by Settling Banks and Cash Settling Banks
Lastly, FICC is proposing to revise GSD Rule 13, Section 5(b) (Funds-Only Settlement Amount Payment Process) and MBSD Rule 11, Section 9(b) (Cash Settlement) to clarify that a Settling Bank and a Cash Settling Bank, respectively, may not refuse to settle for itself.
GSD Rule 13, Section 5(b) currently provides that Funds-Only Settling Banks must acknowledge to FICC by a certain time their intention to either settle their Net Funds-Only Settlement Figures or their refusal to settle for one or more Netting Members. MBSD Rule 11, Section 9(b) currently provides that Cash Settling Banks must acknowledge to FICC by a certain time their intention to either settle their Total Debit Cash Balance Figures and Total Credit Cash Balance Figures or their refusal to settle for one or more particular Member.
The proposed change to these rules, would clarify that a Settling Bank and a Cash Settling Bank cannot refuse to settle for itself. The proposed change would codify a longstanding practice and understanding among participants of the Clearing Agencies. As Netting Members and Members have an ongoing responsibility to settle their own obligations, a Netting Member or Member who serves as a Settling Bank or Cash Settling Bank, respectively, would carry the same responsibility on its own behalf.
More specifically, GSD Rule 13, Section 5(e) states that if the Funds-Only Settling Bank does not acknowledge, or sends a refusal regarding, the Netting Memberโs Funds-Only Settlement Amount that is a debit or if the FundsOnly Settling Bank acknowledges the amount but then does not settle the payment, the Netting Member shall remain obligated, pursuant to the Rules, to pay such Amount by the payment deadline. MBSD Rule 11, Section 9(e) states that if the Cash Settling Bank does not acknowledge, or sends a refusal regarding, the Memberโs Cash Settlement amount that is a debit or if the Cash Settling Bank acknowledges the amount but then does not settle the payment, the Member shall remain obligated, pursuant to the Rules, to pay such Cash Settlement amount by the payment deadline.
Therefore, if Settling Bank or a Cash Settling Bank is a Netting Member or a Member, respectively, it would be subject, as a Netting Member or Member, to the obligation to settle on its own behalf pursuant to the obligations of Netting Members and Member under the Rules cited above. While a Settling Bank and Cash Settling Bank may refuse to settle for another participant that has engaged it as a settling bank, in which case, the participantโs obligation to settle on its own behalf would be triggered, it cannot refuse to settle for itself.
The proposed change would clarify and increase transparency of these Rules. In addition, the proposed change would conform GSD Rule 13, Section 5(b) and MBSD Rule 11, Section 9(b) with DTC Rule 9D and NSCC Rule 55, which state in clearer terms that settling banks cannot refuse to settle on its own behalf.
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