Settlement Guarantee For Unlisted Securities Trading System Transactions

Unlisted securities are securities that are not listed on the Boursa or that have been delisted, whether due to delisting or voluntary withdrawal from the Boursa. It is prohibited to deal or trade in these securities or transfer their ownership without following the rules for trading unlisted securities, including sukuk, bonds and other securities.

The unlisted securities trading rules include a settlement guarantee system for trades and transactions in unlisted securities by which the broker licensed by the Capital Markets Authority and registered through the Boursa to deal in the trading of unlisted securities ensures that its clients fulfill their obligations resulting from trading operations of buying and selling, which are as follows next one:

Financial guarantee

  1. The restricted broker guarantees the obligations of his clients resulting from the transactions he conducts for their account, whether those obligations relate to the delivery of the sold securities, or the payment of the amounts resulting from the purchase transactions.
  2. The clearing agency shall notify the listed broker, the stock exchange and the Authority of the required traders at the end of the settlement period.
  3. The fines for delaying the required traders and the restricted broker are calculated in accordance with the provisions of the financial guarantee approved by the Authority.

Additional Settlement Guarantee

  1. The clearing agency calculates the value of the settlement guarantee for the unlisted securities trading system, and notifies the restricted broker of the value of the guarantee, and the registered broker must deposit the additional settlement guarantee amount in the financial guarantee account.
  2. The collateral amounts are calculated based on two main elements of risk criteria, which are market risk and counterparty risk to the restricted broker, and the latter includes operational risk. The clearing agency can request registered brokers to increase their deposits based on trading activity and to re-deposit any amounts used from the account, with a minimum of 150,000 dinars.
  3. The clearing agency shall periodically review the calculation of the guarantee amount for each registered broker.
  4. The registered broker must abide by the provisions of the financial guarantee system issued by the clearing agency and approved by the Authority. The registered broker must also abide by the provisions of the additional settlement guarantee of the unlisted securities trading system.

Failures

1- In the event of a trader’s failure with an amount less than or equal to the value of the financial guarantee deposited by the registered broker, the following shall be done:

  • The clearing agency deducts the failure amount from the restricted broker’s financial escrow account.
  • The clearing agency will block the trading account of the failed trader in the system.
  • The clearing agency shall temporarily suspend the relevant restricted broker until the required amount is covered in its escrow account.
  • When the trader pays the value of the failure, the concerned restricted broker notifies the clearing agency, and the clearing agency issues a check for the rest of the discounted amount with the suspension of the concerned restricted broker and the trader being lifted after calculating the fines resulting from the failure.
  1. In the event that the trader fails an amount exceeding the value of the financial guarantee deposited by the concerned registered broker, the following steps shall be followed:
  • The clearing agency cancels the transaction after the end of the settlement period (0+T) and reverses all effects of the transaction.
  • The clearing agency will block the trading account of the failed trader.
  • The clearing agency shall suspend the relevant restricted broker temporarily for a maximum period of 30 working days, with notifying the Authority and the Stock Exchange of that.
  • Each failed trader with the respective Restricted Broker will be fined.
  • In the event of repeated failure by the restricted broker, the clearing agency will suspend the relevant restricted broker for any period the clearing agency deems appropriate or cancel the restricted broker’s registration.

3- In the event of stock failures, the clearing agency shall apply the procedures followed in the event of a trader’s failure in an amount exceeding the value of the financial guarantee deposited by the concerned restricted broker.

If you are looking for a Kuwaiti law firm that specializes in providing legal services to the securities, capital and stock market activities, you can count on us at Taqneen, Law Firm and Legal Consultations.

To book an appointment or request legal advice about the duties of securities companies in the optimal implementation of clients’ orders, we are pleased to receive your inquiries at (info@Taqneen.com).

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