DvP Model
As per Principle 4 "Credit Risk" of IOSCO recommendations, item 3.4.9 the CDS follows a DvP Model 2 to settle securities on a gross basis and funds on a net basis. Settlement is final and irrevocable once cash and securities have transferred on T+2 according Delivery Versus Payment (DVP).
Clearing of Trades
- The CDS electronically calculates the trading values per each broker intraday on T+0 since the trading system and the CDS system both have a tightly coupled connection (pre verification of inventory).
- Net positions of brokers' financial obligations per each fund are automatically calculated at the CDS system, and showed available on clearing reports at CDS.
- Brokers and settlements banks who are appointed by brokers to settle their obligations have an online access on the CDS to track the net position to be settled at the Real Time Gross Settlement System (RTGS) on T+2. The RTGS is managed by the Palestine Monetary Authority (PMA) and named as BURAQ.
- Based on the clearing reports, a settlement file (called Concurrent Batch) is uploaded on the BURAQ by the CDS, net positions in this file are exactly matching net positions in the clearing reports held at the CDS, as the CDS already is an indirect member in BURAQ at PMA as per the agreement that was signed with PMA for the purpose of processing the cash settlement through the PMA.
Yearbook 2018
49
Sanctions for Regulation Violation
The sanctions list of PEX is applied on both the Brokerage firms and the listed companies in case of violation of any of the following Regulations:
• Listing regulations
• Disclosure regulations
• Trading regulations
• Membership regulations
The sanctions' list treats the violation gradually through five levels according to the severity of the sanction, and it varies between warnings, imposing fines (it could be a percentage with a specified Min./Max. limits, or a predefined fixed amount), suspending companies or individuals related to it from implementing certain activities related to PEX, or it could reach the level of canceling licenses for brokerage firms or delisting for listed companies.
Sanctions' list is approved by both the board of directors of PEX and the Palestinian Capital Market Authority since 2006, also it was amended and approved in 2014.
Settlement of Trades
- The cash settlement is processed through the BURAQ at PMA since 01/03/2013, the procedure requires that each Broker (Participant) has to nominate a Settlement Bank and maintain a cash accounts with this bank, he should fund his account at his S. B. before 9.30am on T+2 (Settlement Day), and the S. B. processes cash settlement on behalf of his broker through BURAQ at PMA at no later than 09:30am on T+2, All eight brokers already nominated six S. Bs., who in their turn will settle the obligations of those brokers on T+2 through the PMA in accordance with the settlement file uploaded by the CDS at BURAQ on T+0.
- However in BURAQ, there is an intermediate cash settlement account whose balance should be zero before and after processing the cash settlement, the settlement banks’ cash accounts are to be debited against the intermediate settlement account and credited by this account in accordance with the settlement file uploaded by the CDS.
- On T+2 at 9.30am at the latest, cash settlement occurs between the settlement account and the appointed settlement banks' accounts with the PMA.
- The CDS gets an automatic notification and a detailed report from BURAQ once the settlement is processed on T+2. Taking into consideration that the CDS follows detailed written procedures that manage all settlement related issues between the CDS and PMA, brokers and S. Bs.
- The (CDS) implements a near-simultaneous DVP settlement as the CDS settles securities immediately after receipt of cash settlement confirmation from BURAQ system at 9.30am SD at the latest.
Once cash settlement confirmation is received, a CSD staff clicks a button to trigger the settlement of securities, which automatically update the ownership immediately.