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How
and when a member defaults
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MEMBERS DEFAULT AND PROCEDURE FOR RECOVERY OF LOSSES
REGULATIONS-1996
Preamble
WHEREAS the question of review of the
Rules and Regulations governing the members default
and procedure for recovery of losses at the
Islamabad Stock Exchange has been under
consideration for a long time. And whereas in the
process of review of various aspects of default
under the existing Rules and Regulations, it is
deemed necessary that a separate regulation
governing members default and procedure for recovery
of losses is desirable in order to protect the
interest of the institution and of all concerned.
Now, the Board of Directors of Islamabad Stock
Exchange (Guarantee) Limited, with prior approval of
the Corporate Law Authority, hereby make these
regulations which shall deemed to be effective at
once.
(1.) Short Title
These Regulations may be called
“Members Default and Procedure for Recovery of
Losses Regulations-1996”.
(2.) Default
(i) In case a Member
fails to pay any amount payable by him or fails to
deliver shares as per Rules and Regulations of the
Exchange over and above the prescribed amount, he
shall be issued a notice by the Exchange requiring
him to deposit the amount and deliver the shares. On
failure to comply with the notice by the Member
within the time allowed, he shall be suspended by
the Board.
(ii) Upon suspension of
a Member;
a) All his dues, and amounts
payable to the Exchange and the clearing house shall
be grossed up.
b) All his transactions relating
to clearing house payments or delivery of shares
shall be opened to determine the counter parties
(party to party) against the trade of the defaulting
member.
c) In consequence of the above
analysis and the ascertainment of other parties, the
remaining transactions, not pertaining to defaulting
member shall be consolidated separately in the
manner of a clearing house processing. The Floor
Committee shall square up the transactions by
application of hammer prices if such need arises.
The receivable and payable arrived at as above shall
be settled forthwith.
d) All the transactions
pertaining to the defaulting member and the counter
parties to such transactions so ascertained shall be
squared up in the open market or at hammer price and
a final loss shall be determined.
e) Any other liability of the
member as explained in clause (a) above shall be
added to the loss so determined.
f) A final notice of liability
shall be served, calling upon the member, who has
failed to make the payment or delivery of shares, to
pay liability so determined, within the time
stipulated therein. If he fails to comply with such
notice, he shall be declared defaulter by the Board.
(iii) Upon declaration
of Defaulter, a statement shall be prepared by the
Exchange to ascertain such Defaulter’s scrip-wise
loss with a statement of transactions inclusive of
carry over transactions made with other members in
those scrips through the computerized trading
system. The losses arising out of the squaring up of
the transactions by the Exchange in a particular
clearing shall be debited to the account of all
those members involved in the trading/financing of
that particular scrip in which the defaulter
suffered the losses on pro-rata basis and such
member will have to pay the uncovered losses to the
Clearing House of the Exchange under these
Regulations.
Provided that carry-over trade (COT)
transactions through contract tickets/slips shall
not qualify for proportionate distribution of losses
and full loss arising out of such transactions will
be debited to the members who enter into COT
transaction with defaulter through contract tickets.
This will also apply in case of carry-over of
deliveries transactions with defaulter.
Further Provided that claims arising
out of COT transactions through the contract
tickets/slips will have second priority under the
Clearing House claims.
(iv) Such payments by the
members will, however, be treated as “claims” by
them against the defaulter and shall be settled
alongwith other claims out of the assets of the
defaulter that may be realized/recovered by the
Exchange on a proportionate basis.
(3.) Recovery and
Distribution of Loss of a Defaulter
Losses shall be recovered in the
following sequence.
(i) Deposit of the
member with the Exchange.
(ii) Sale of member’s
assets in the control of the Exchange.
(iii) Contribution from
clearing house protection fund as may be prescribed
by the Board.
(iv) Any other sources of
recovery as may be determine by the Board.
(4.) Payment of Claims
Payment of claims will be made in
accordance with the general Rules and Regulations of
the Exchange.
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