Thailand: Pending settlement update
Clearstream Banking1 informs customers that further to Announcement A17153, dated 8 November 2017, the Thailand Clearing House (TCH) announced that it will revise the settlement confirmation timeline related to pending settlement effective
5 February 2018
The complete timeline is shown below and the revisions made by TCH have been highlighted.
Background
The TCH implemented pending settlement, on 6 November 2017, to better manage fails in listed securities for delivery, to be in line with international standards, namely the Principles of Financial Market Infrastructures (PFMI), and prepare for the shortening of the settlement cycle from T+3 to T+2 in the first quarter of 2018.
If pending settlement is imposed when a securities company has insufficient securities for delivery to the TCH and the short position cannot be covered by TCH’s mandatory securities borrowing and lending (SBL) buy-in on T+4 (SD+1), the following will happen:
Settlement transaction and confirmation
- Market participants, or clients of market participants, who are identified by TCH or the Thailand Securities Depository (TSD) to be the pending receiver, will receive the holding position but under pending settlement status. The pending receiver will pay the full amount for the securities.
- The pending receiver has the right to use the holding position, held under pending settlement status, in lieu of delivery obligation within net-clearing as normal.
- A settlement confirmation will be sent with the actual settled quantity.
Cash settlement
- The TCH will trigger cash settlement on SD+4 (counting from SD of the originating defaulted selling broker) to terminate outstanding pending settlement if the originating defaulted selling broker still cannot deliver the shares to TCH.
- If cash settlement is triggered, the pending receiver will receive cash settlement instead of securities. The price used for cash settlement is either the buy-in price or 130% of mark-to-market price of the previous business day, whichever price is higher.
- Cash settlement will be settled in the second batch of net-settlement at 16:00 Thai time and further credited into the market participant’s cash account, or client of market participant’s cash account, after 16:00 Thai time.
Corporate action/income entitlement
- Market participants, or clients of market participants, who have a holding position under pending settlement status on record date will not be entitled to gain benefit of corporate action or income entitlements from the issuers for the holding position. Instead, such market participants, or clients of market participants, will receive compensation from the originating defaulted selling broker at the rate of 115%, as financial benefits for corporate actions or income entitlements.
- The TCH will facilitate calling the penalty at 115% from the originating defaulted selling broker to pay to the pending receiver as compensation for financial benefits. The compensation shall be paid within 15 calendar days.
- The compensation for financial benefits, that the TCH will facilitate, will cover the following corporate events: dividend payments, interest payments, all privileges (for example, when the company announces more than one corporate action), principal payments (redemptions), rights issue, capital return, warrant exercise (last exercise) and other benefits in share subscription for existing shareholders (for example, public offering, preferred shares subscription, right to subscribe shares of subsidiary company).
- The TCH, however, will not cover the following corporate events: meetings, transferable subscription rights (TSR), bonus issues (the right to receive free warrant). Compensation for these event types must be directly negotiated between originating defaulted selling brokers and the pending receive party.
Daily ending balance in NRBS account
- For pending receiver as non-resident, the cash settlement and compensation received from financial benefits for corporate action or income entitlements may cause the excess of daily ending balance in NRBS account to go over the allowed limit.
As a result, the Bank of Thailand allows such non-residents to keep the excess balance for one business day. The proceeds received from cash settlement and compensation from financial benefits for corporate action or income entitlements can be used as underlying transactions for booking FX, either on the date money was received for value tomorrow (next business day), or to book FX on the next business day for value same day.
Impact on customers
In the event that Clearstream Banking’s depository is identified by TCH or TSD as a pending receiver, to minimise the impact of pending settlement or risk of default on customers, the following will happen:
Settlement transaction and confirmation
- Customers with non-impacted ISINs will receive settlement confirmations after 15:00 Thai time / 09:00 CET.
- After 15:00 Thai time / 09:00 CET, customers with impacted ISINs will have the original instruction cancelled, confirmed settled quantity credited and full amount for payment of securities debited. For the positions that are still in pending settlement status, the originating defaulted selling broker has up to SD+4 to deliver the remaining securities.
When the pending settlement position has resolved (that is, the originating defaulted selling broker has delivered the remaining securities), customers will be credited with the remaining quantity. If the pending settlement position does not resolve at SD+4 (that is, originating defaulted selling broker cannot deliver the remaining shares) then a cash settlement will be triggered.
Note: If Clearstream Banking’s depository is identified by TCH or TSD as having no holding positions under pending settlement status (that is, not being a pending receiver) then customers will receive settlement confirmations after 14:15 Thai time / 08:15 CET.
Due to the implementation of this market change in Thailand, same day turnaround transactions/back-to-back processing will have higher risks and may impact and delay onward deliveries. Clearstream Banking, therefore, will not be responsible for any loss, claim, liability or expense in relation to such turnaround transactions/back-to-back processing.
Customers who proceed with turnaround transactions/back-to-back processing are deemed to be aware of the higher risks or impacts/delays on onward deliveries and undertake to hold Clearstream Banking harmless and indemnify Clearstream Banking from any such loss, claim, liability or expense in relation to the turnaround transactions/back-to-back processing.
For turnaround transactions/back-to-back processing, customers are reminded to link their instructions, so that both instructions are released to the depository on time.
Cash settlement
- The TCH will trigger cash settlement on SD+4 to terminate outstanding pending settlement if the originating defaulted selling broker still cannot deliver the shares to TCH.
- If cash settlement is triggered, the customer identified as the pending receiver will receive cash settlement instead of securities.
Corporate action/income entitlement
- Customers who have a holding position under pending settlement status on record date will not be entitled to gain benefit of corporate action or income entitlements from the issuers. These customers will receive compensation from the originating defaulted selling broker at the rate of 115% as financial benefits for corporate action or income entitlements.
- The TCH will facilitate calling the penalty at 115% from the defaulted selling broker to pay to the pending receiver as a compensation for financial benefits. The compensation shall be paid within 15 calendar days.
- The compensation for financial benefits, that the TCH will facilitate, will cover the following corporate events: dividend payments, interest payments, all privileges (for example, when the company announces more than one corporate action), principal payments (redemptions), rights issue, capital return, warrant exercise (last exercise) and other benefits in share subscription for existing shareholders (for example, public offering, preferred shares subscription, right to subscribe shares of subsidiary company).
- The TCH, however, will not cover the following corporate events: meetings, transferable subscription rights (TSR), bonus issues (the right to receive free warrant). The compensation for these event types must be directly negotiated between originating defaulted selling brokers and the customer.
Further information
For further information, customers may contact Clearstream Banking Client Services or their Relationship Officer.
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1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG customers using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.