LCH LIMITED

DEFAULT RULES
 

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SCHEDULE 2

RATES SERVICE DMP ANNEX

1. Scope and Interpretation

1.1 The SwapClear Service and Listed Interest Rates Service share a common default fund. 

Accordingly, the risk profile of participating in either one of such Services may be 

impacted by other Clearing Members participating in the other such Service whether or 

not as a Portfolio Margining Clearing Member.

1.2 The Clearing House has established a Rates Service DMP which will apply to Rates 

Service Contracts following the Default of a Rates Service Clearing Member and in 

respect of which, for the avoidance of doubt, the Clearing House will have no recourse 

to the process of invoicing-back in respect of SwapClear Contracts. The fundamental 

principles of the Rates Service DMP are elaborated to the fullest extent possible in this 

Annex. Where exhaustive detail cannot be laid out in the provisions of this Annex, the 

Rates Service DMP will be undertaken on the basis of the principles contained herein.

1.3 Whilst this Annex sets out the default management process in respect of all Rates 

Service Contracts, it provides for the various types of such Contracts to be treated 

differently (depending on whether such Contracts are SwapClear Contracts, Portfolio 

Margined Contracts or Listed Interest Rates Contracts that are not Portfolio Margined 

Contracts). Given the scope of the Contracts it covers, the Annex sets out a default 

management process that applies to defaulting Clearing Members and non-defaulting 

Clearing Members who are SCMs (whether or not such SCMs are also Listed Interest 

Rates Clearing Members or Portfolio Margining Clearing Members) and to Listed 

Interest Rates Clearing Members (whether or not they are also SCMs or Portfolio 

Margining Clearing Members) and, for the purposes of this Annex, unless the context 

specifically requires otherwise, the terms "SCM" "Defaulting SCM" and "NonDefaulting SCM" should all be construed to include SCMs who are Joint Rates Service 

Clearing Members.

1.4 The Clearing House has an obligation to ensure the on-going integrity of the SwapClear 

Service, the Listed Interest Rates Service, the SwapClear Contracts and the Listed 

Interest Rates Contracts in the interests of the Non-Defaulting Rates Service Clearing

Members. When an SCM defaults, SCMs are required to supply impartial expertise 

through the Rates Service DMG and to bid for the Auction Portfolios of the Defaulting 

SCM, as laid out in this Annex. In addition, Rates Service Clearing Members and/or

their parent companies and/or subsidiaries and/or fellow subsidiaries, have direct 

interests in the ongoing integrity of the SwapClear Service and Listed Interest Rates 

Service, notably as contributors to the various default funds of the Clearing House. 

Each Rates Service Clearing Member shall take all steps and execute all documents 

necessary or required by the Clearing House to comply with its obligations as a Rates 

Service Clearing Member arising out of this Annex.

1.5 The initial margining process in respect of SwapClear Contracts will be such so as to 

ensure that the acceptance of bids for the Auction Portfolios of a Defaulting SCM will 

recognise risk premiums and that equivalent premiums will be paid by the Clearing 

House in closing-out other Contracts under the Exchange Rules of the relevant 

Exchange.
 

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1.6 In this Annex:

"Accepted" means, in respect of a bid in an Auction, that the Clearing House has 

accepted such bid as one that it may select as the winning bid for such Auction and 

"Accept" and "Accepts" shall have a corresponding meaning;

"AIP" has the meaning given in Rule 2.6 of this Annex;

"AIP Amount" means:

(a) in respect of a Non-Defaulting SCM and the OTC Auction Portfolio(s) in a 

specific Auction Portfolio Currency and Auction Portfolio Category, the 

product of

(i) such Non-Defaulting SCM's AIP Ratio applicable to the Auction 

Portfolio Currency and Auction Portfolio Category of such OTC 

Auction Portfolio(s), and

(ii) the total of its (A) remaining SwapClear Funded Contribution, and (B) 

remaining SwapClear Unfunded Contribution;

(b) in respect of a Non-Defaulting Joint Rates Service Clearing Member and a Basis 

Portfolio, the product of

(i) such Non-Defaulting Joint Rates Service Clearing Member's AIP Ratio 

applicable to the Basis Portfolio, and

(ii) the total of its (A) remaining SwapClear Funded Contribution, and (B) 

remaining SwapClear Unfunded Contribution;

"AIP Ratio" means:

(a) in respect of a Non-Defaulting SCM and the OTC Auction Portfolio(s) in a 

specific Auction Portfolio Currency and Auction Portfolio Category, the ratio 

that

(i) the Undiversified Expected Shortfall for the SwapClear Contracts of 

such Non-Defaulting SCM that are registered in its name at the time of 

the relevant Default and are in such Auction Portfolio Currency and 

Auction Portfolio Category bears to,

(ii) the aggregate Undiversified Expected Shortfall for all the SwapClear 

Contracts that are registered in the name of such Non-Defaulting SCM 

at the time of the relevant Default;

(b) in respect of a Non-Defaulting Joint Rates Service Clearing Member and a Basis 

Portfolio in an Auction Portfolio Currency, the ratio calculated in paragraph (a) 

above applicable to such Non-Defaulting Joint Rates Service Clearing Member, 

in respect of the OTC Auction Portfolio(s) which are denominated in such 

Auction Portfolio Currency and belong to the IRS SwapClear Contract Category;
 

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"Auction" means the process of bidding by Non-Defaulting SCMs for an OTC Auction 

Portfolio or by Non-Defaulting Joint Rates Service Clearing Members for a Basis 

Portfolio as prescribed by the Clearing House following consultation with the Rates 

Service DMG from time to time in accordance with Rule 2.4 of this Annex;

"Auction Losses" means, in respect of an OTC Auction Portfolio or a Basis Portfolio, 

all losses arising from:

(a) the auction and sale of such OTC Auction Portfolio or Basis Portfolio (as 

applicable); and

(b) a change in the net present value of the Rates Service Contracts within such

OTC Auction Portfolio or Basis Portfolio (as applicable) during the Auction 

Losses Calculation Period applicable to such portfolio;

"Auction Losses Calculation Period" means, in respect of an OTC Auction Portfolio 

or a Basis Portfolio (as applicable) and the business day on which the Clearing House 

auctions and sells such portfolio, the period:

(a) commencing immediately after the Daily Calculation Period end of day margin 

and settlement call of the Clearing House for the previous business day; and

(b) ending at the point at which the Clearing House sells such portfolio;

"Auction Portfolio Category" means, in relation to an OTC Auction Portfolio, the 

SwapClear Contract Category to which the SwapClear Contracts in the OTC Auction 

Portfolio belong, provided that in the case of an OTC Auction Portfolio containing both 

IRS SwapClear Contracts and Inflation SwapClear Contracts, the relevant Auction 

Portfolio Category shall be deemed to be the Inflation SwapClear Contract Category;

"Auction Portfolio Currency" means, in relation to an OTC Auction Portfolio, the 

currency in which the Contracts in the OTC Auction Portfolio are denominated and in 

relation to a Basis Portfolio, the currency in which the Contracts in the Basis Portfolio 

are denominated;

"Bankruptcy Code" means the U.S. Bankruptcy Code, as amended;

"Basis Portfolio" means a Portfolio containing SwapClear Contracts, Portfolio 

Margined Contracts and/or Listed Interest Rates Contracts as more fully defined in Rule 

2.3 of this Annex and which is not, for the avoidance of doubt, an OTC Auction 

Portfolio;

"CEA" means the U.S. Commodity Exchange Act, as amended;

"CFTC" means the U.S. Commodity Futures Trading Commission;

"Daily Calculation Period" means, in respect of a business day, the period, in respect 

of which the Clearing House determines the end of day margin and settlement payments 

for Rates Service Contracts and such business day.

"Defaulting Joint Rates Service Clearing Member" means a Joint Rates Service 

Clearing Member who is a Defaulter;
 

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"Derivatives Clearing Organization" means an organisation designated and 

registered as such by way of United States Code Title 7, Chapter 1, paragraph 7a-1;

"Difference" means, in respect of an Auction and a Remaining Short Bidder who bid 

in the Auction, the difference between (a) the winning bid for such Auction, and (b) the 

bid of such Remaining Short Bidder in the Auction;

"Equal Bid" means an Accepted bid in an Auction, which is equal to another Accepted 

bid in the same Auction;

"Exchange Closed-out Contracts" means those Listed Interest Rates Contracts of a 

Defaulting Listed Interest Rates Clearing Member that are closed-out under the 

Exchange Rules of the Exchange to which they relate;

"Exchange Losses" means the losses in respect of the Exchange Closed-out Contracts 

of a Defaulting Listed Interest Rates Clearing Member;

"Expected Auction Participant" means, in respect of an OTC Auction Portfolio, any 

Non-Defaulting SCM who, at the time of the relevant Default, has at least one 

Resembling Contract registered in its name and, in respect of a Basis Portfolio, each 

Non-Defaulting Joint Rates Service Clearing Member;

"FCM Rates Service Client Business" means the provision of FCM SwapClear 

Clearing Services and/or FCM Listed Interest Rates Clearing Services by an FCM 

Clearing Member to its FCM Clients;

"FCM Rates Service House Business" means the FCM SwapClear Contracts and/or 

FCM Listed Interest Rates Contracts entered into by an FCM Clearing Member for its 

Proprietary Account;

"FCM SwapClear Client Business" means the provision of FCM SwapClear Clearing 

Services by an FCM Clearing Member to its FCM Clients;

"FCM SwapClear House Business" means the FCM SwapClear Contracts entered 

into by an FCM Clearing Member for its Proprietary Account;

"Guidance" means guidance, in the form of one or more written notices, issued from 

time to time by or on behalf of the Clearing House to SwapClear Clearing Members, 

supplementing the detail or conduct of any aspect of the Rates Service DMP;

"Hedging Give Up Agent" has the meaning given in Rule 2.2(c)(i) of this Annex; 

"Hedging Listed Interest Rates Contract" means a Listed Interest Rates Contract as 

described in Rule 2.2(c)(ii)(A) or Rule 2.2(d) of this Annex; 

"Hedging Rates Service Clearing Member" has the meaning given in Rule 2.2(b)(i) 

of this Annex; 

"Hedging Rates Service Contract" means a Hedging SwapClear Contract or a 

Hedging Listed Interest Rates Contract; 
 

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"Hedging SwapClear Contract" has the meaning given in Rule 2.2(b)(ii)(B) of this 

Annex; 

"Inflation SwapClear Contract Category" means the category of SwapClear 

Contracts which comprises Inflation SwapClear Contracts registered with the Clearing 

House;

"IRS SwapClear Contract Category" means the category of SwapClear Contracts 

which comprises IRS SwapClear Contracts registered with the Clearing House;

"Listed Interest Rates Only Clearing Member" means a Listed Interest Rates 

Clearing Member that is not an SCM;

"Listed Interest Funded Contribution" means the Listed Interest Rates Contribution

of a Listed Interest Rates Clearing Member, excluding any Listed Interest Rates

Unfunded Contribution in respect of the Listed Interest Rates Clearing Member;

"Listed Interest Rates Unfunded Contribution" has the meaning assigned to 

"Unfunded Contribution" in Rule L5(a) of the Rates Service Default Fund Supplement;

"Loss Portion" means, in respect of an Auction of:

(a) an OTC Auction Portfolio, a Remaining Short Bidder who bid in such Auction, 

and

(i) Rule 2.7(b)(ii) of this Annex, the amount equal to the product of

(A) the outstanding Auction Losses to be attributed to Remaining 

Short Bidders under Rule 2.7(b)(ii) of this Annex, and

(B) the proportion that the Difference in respect of such Remaining 

Short Bidder and Auction bears to the total Differences in respect 

of all Remaining Short Bidders who bid in such Auction, and

(ii) Rule 2.7(f)(ii) of this Annex, the amount equal to the product of

(A) the outstanding Auction Losses to be attributed to Remaining

Short Bidders under Rule 2.7(f)(ii) of this Annex, and

(B) the proportion that the Difference in respect of such Remaining

Short Bidder and Auction bears to the total Differences in respect

of all Remaining Short Bidders who bid in such Auction; and

(b) a Basis Portfolio, a Remaining Short Bidder who bid in such Auction, and

(i) Rule 2.8(b)(ii) of this Annex, the amount equal to the product of

(A) the outstanding Auction Losses to be attributed to Remaining 

Short Bidders under Rule 2.8(b)(ii) of this Annex, and
 

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(B) the proportion that the Difference in respect of such Remaining 

Short Bidder and Auction bears to the total Differences in respect 

of all Remaining Short Bidders who bid in such Auction, and

(ii) Rule 2.8(f)(ii) of this Annex, the amount equal to the product of

(A) the outstanding Auction Losses to be attributed to Remaining 

Short Bidders under Rule 2.8(f)(ii) of this Annex, and

(B) the proportion that the Difference in respect of such Remaining 

Short Bidder and Auction bears to the total Differences in respect 

of all Remaining Short Bidders who bid in such Auction;

"Market Losses" mean any losses in respect of the implementation of the Rates Service 

DMP, including losses arising from the execution of hedging transactions and/or 

matches for the purpose of Risk Neutralisation, but excluding:

(a) Auction Losses; and

(b) Exchange Losses;

"Non-Bidder" means, in respect of an Auction, an SCM, which (a) did not bid in such 

Auction, or (b) bid in such Auction, but whose bid was not Accepted;

"Non-Defaulter" means, as the context requires, an SCM, Listed Interest Rates 

Clearing Member and/or a Joint Rates Service Clearing Member, in each

case, that is not a Defaulter;

"Non-Defaulters' Listed Interest Rates Contributions" means the Listed Interest 

Rates Contributions made by Non-Defaulting Listed Interest Rates Clearing Members;

"Non-Defaulters' SwapClear Contributions" means the SwapClear Contributions 

made by Non-Defaulting SCMs;

"OTC Auction Portfolio" means (a) a Portfolio containing only SwapClear Contracts,

or (b) a group of SwapClear Contracts resulting from the splitting of a Portfolio 

pursuant to Rule 2.1 of this Annex, including in both such cases any connected Hedging 

SwapClear Contracts (but not any Hedging Listed Interest Rates Contracts) concluded 

by the Clearing House through Risk Neutralisation;

"Out Bid" means a bid in an Auction, which is Accepted and higher than the winning 

bid in such Auction;

"Out Bidder" means, in respect of an Auction, a Non-Defaulting SCM, which 

submitted an Out Bid in such Auction;

"Portfolio" means, in respect of each SwapClear currency, the SwapClear Contracts in 

such currency registered in the name of a Defaulting SCM in respect of House Clearing 

Business or the SwapClear Contracts in such currency registered in the name of a 

Defaulting SCM in respect of Client Clearing Business (or, in the case of an FCM 
 

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Clearing Member that is a Defaulter, the FCM SwapClear Contracts in such currency 

registered in respect of its FCM SwapClear Client Business) and in both such cases 

includes, where relevant, any (i) Portfolio Margined Contracts, and (ii) Hedging 

SwapClear Contracts and/or Hedging Listed Interest Rates Contracts connected to the 

relevant SwapClear Contracts or Portfolio Margined Contracts (as the case may be)

concluded by the Clearing House through Risk Neutralisation. For the avoidance of 

doubt, a Portfolio containing Contracts relating to the Client Clearing Business or FCM 

SwapClear Client Business of a Defaulting SCM will only contain Contracts relating 

to Client Clearing Business or FCM SwapClear Client Business, as appropriate. The 

Clearing House shall not be entitled to combine client and house positions in a single 

Portfolio;

"Portfolio Listed Interest Rates Contracts" means those Listed Interest Rates 

Contracts of a Defaulting Joint Rates Service Clearing Member that are included in a 

Portfolio, whether such Listed Interest Rates Contracts are Portfolio Margined 

Contracts or Hedging Listed Interest Rates Contracts concluded by the Clearing House 

through Risk Neutralisation;

"Rates Service Default Management Process Completion Date" means the date 

when the Rates Service Default Management Process in relation to a Default has been 

completed as determined by the Clearing House in consultation with the Rates Service 

DMG and notified to all Rates Service Clearing Members;

"Rates Service DMG" means the advisory default management group established by 

the Clearing House pursuant to the terms of this Annex;

"Rates Service DMP" means the processes of the Clearing House outlined in this 

Annex, as the same may be supplemented and/or amended from time to time in 

accordance with this Annex;

"Rates Service Funded Contribution" means the SwapClear Funded Contribution 

and Listed Interest Rates Funded Contribution of an SCM;

"Rates Service Unfunded Contributions" means the SwapClear Unfunded 

Contributions and Listed Interest Rates Unfunded Contributions of an SCM;

"Recognised Clearing House" mean an organisation which is declared to be a 

recognised clearing house by a recognition order (that is for the time being in force) 

made under section 290(1)(b) of the Financial Services and Markets Act 2000;

"Remaining Short Bidder" means, in respect of an Auction of:

(a) an OTC Auction Portfolio and

(i) Rule 2.7(b)(ii) of this Annex, a Short Bidder in such Auction whose 

remaining AIP Amount, which is in the form of SwapClear Funded 

Contributions and forms part of the AIP relating to such OTC Auction 

Portfolio, is greater than zero, and

(ii) Rule 2.7(f)(ii) of this Annex, a Short Bidder in such Auction whose 

remaining AIP Amount, which is in the form of SwapClear Unfunded 
 

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Contributions and forms part of the AIP relating to such OTC Auction 

Portfolio, is greater than zero; and

(b) a Basis Portfolio and

(i) Rule 2.8(b)(ii) of this Annex, a Short Bidder in such Auction whose 

remaining AIP Amount, which is in the form of SwapClear Funded 

Contributions and forms part of the AIP relating to such Basis Portfolio, 

is greater than zero, and

(ii) Rule 2.8(f)(ii) of this Annex, a Short Bidder in such Auction whose 

remaining AIP Amount, which is in the form of SwapClear Unfunded 

Contributions and forms part of the AIP relating to such Basis Portfolio, 

is greater than zero;

"Resembling Contract" means, in respect of the SwapClear Contracts in an OTC 

Auction Portfolio, a SwapClear Contract registered in the name of a Non-Defaulting 

SCM that (a) is denominated in the same Auction Portfolio Currency as such SwapClear 

Contracts, and (b) belongs to the SwapClear Contract Category which corresponds to 

the Auction Portfolio Category of such OTC Auction Portfolio; 

"Risk Neutralisation" means the process of reducing the market risk associated with a 

Defaulting SCM's obligations to the Clearing House under SwapClear Contracts and/or 

Portfolio Margined Contracts by hedging the exposure before the auction process as 

described in Rule 2.2 of this Annex;

"Short Bidder" means, in respect of an Auction of:

(a) an OTC Auction Portfolio, a Non-Defaulting SCM that (a) is an Expected 

Auction Participant for such OTC Auction Portfolio, and (b) submitted a bid, 

which is Accepted, but lower than the winning bid, in such Auction; and

(b) a Basis Portfolio, a Non-Defaulting Joint Rates Service Clearing Member that 

submitted a bid, which is Accepted, but lower than the winning bid, in such 

Auction;

"SwapClear Contract Category" means a category of SwapClear Contracts, being 

either the Inflation SwapClear Contract Category or the IRS SwapClear Contract 

Category; 

"SwapClear Funded Contribution" means the SwapClear Contribution of an SCM,

excluding any SwapClear Unfunded Contribution in respect of the SCM;

"SwapClear-Only Clearing Member" means an SCM that is not a Listed Interest 

Rates Clearing Member; and 

"Undiversified Expected Shortfall" means, in respect of the SwapClear Contracts in 

a specific currency and SwapClear Contract Category, the largest loss which the 

Clearing House determines could be incurred it in respect of such SwapClear Contracts, 

using the SwapClear PAIRS margining algorithm based on 2,500 historical scenarios 

(10 years history) and a holding period of 5 days.
 

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Terms used, and not defined, in this Annex shall have the meanings given to them in 

the Regulations or FCM Regulations.

2. Rates Service DMP

The Rates Service DMP in respect of: (a) Rates Service Clearing House Business; (b)

Relevant Auction Contracts in respect of Rates Service Client Clearing Business; 

(c) FCM Rates Service House Business; and (d) FCM Rates Service Client Business 

shall involve the processes described in this Rule 2.

Resources will be allocated based on the order and proportions described in Rules 2.5 

to 2.9 of this Annex. Allocation of resources pursuant to a process or the order in which 

processes are carried out may reduce the resources which are available to meet the 

losses in respect of any subsequent process and, consequently, impact the allocation of 

losses amongst non-defaulting Clearing Members. For the avoidance of doubt, the 

Clearing House may in its sole and absolute discretion determine the order in which it: 

(a) constructs OTC Auction Portfolios and Basis Portfolios; (b) auctions OTC Auction 

Portfolios and Basis Portfolios; and (c) closes out any Listed Interest Rates Contract of 

a Defaulter under the Exchange Rules of any relevant Exchange.

2.1 Portfolio Splitting

The Clearing House, in consultation with and with the assistance of the Rates Service

DMG, shall determine the composition of each OTC Auction Portfolio and Basis 

Portfolio and shall have the discretion to create two or more OTC Auction Portfolios 

and/or two or more Basis Portfolios from a Portfolio, whether by dividing such 

Portfolio or separating certain Contracts from such Portfolio, with the aim of facilitating 

the efficiency of, and reducing the risk associated with, the auction process provided 

for in Rule 2.4 of this Annex. The overriding principle behind the portfolio splitting 

process is that the Clearing House will structure OTC Auction Portfolios and Basis 

Portfolios with the intention of ensuring a Rates Service DMP which best protects the 

resources of the Clearing House, subject to compliance with applicable provisions of 

the CEA and the CFTC Regulations regarding segregation of client assets (including, 

where relevant, compliance with the terms of any CFTC order permitting the 

commingling of client assets). Therefore, nothing in this Rule 2.1 shall be deemed to 

imply: (a) that the Clearing House is under any obligation to split a particular Portfolio 

of a Defaulting SCM (regardless of the number of Contracts that such Portfolio 

contains); or (b) any particular requirements as to the composition of an individual OTC 

Auction Portfolio, including in terms of: (i) combining or separating SwapClear 

Contracts belonging to different SwapClear Contract Categories; (ii) combining or 

separating Inflation SwapClear Contracts having different underlying indices; and/or 

(iii) creating one or more OTC Auction Portfolios from a Portfolio, except that, subject 

to overriding risk procedures, it is broadly anticipated that: (a) the parameters of any 

OTC Auction Portfolio and Basis Portfolio shall not be materially different to those set 

out in the Clearing House's fire drill; and (b) an OTC Auction Portfolio containing 

Inflation SwapClear Contracts will often also contain SwapClear Contracts which are 

not Inflation SwapClear Contracts for the purposes of interest rate Risk Neutralisation 

only.
 

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2.2 Risk Neutralisation

The Clearing House will, in consultation with, and with the assistance of, the Rates 

Service DMG, reduce the market risk associated with a Defaulting Rates Service 

Clearing Member’s obligations to the Clearing House so far as is reasonably practicable 

by hedging the Clearing House's exposure in open Rates Service Contracts to which the 

Defaulting SCM is party, where such hedging may be achieved, without limitation, by:

(a) the splitting of Portfolios pursuant to Rule 2.1 above; 

(b) the Clearing House, for the purpose of hedging: 

(i) executing one or more new SwapClear Transactions and/or new FCM 

SwapClear Transactions (as applicable) with Non-Defaulting Rates 

Service Clearing Members (each, a "Hedging Rates Service Clearing 

Member") on the basis of a separate agreement between the Clearing 

House and the Hedging Rates Service Clearing Member; and

(ii) clearing each such SwapClear Transaction and/or FCM SwapClear 

Transaction (as applicable) in accordance with, and subject to, the 

Rulebook and/or the FCM Rulebook (as applicable), such that:

(A) the Hedging Rates Service Clearing Member’s side of such 

transaction is registered as a SwapClear Contract between the 

Clearing House and the Hedging Rates Service Clearing 

Member; and

(B) the Clearing House's side of such transaction is registered as a 

SwapClear Contract between the Defaulting Rates Service 

Clearing Member and the Clearing House (pursuant to the 

Clearing House’s rights under Default Rule 6(a)) (any such 

SwapClear Contract, a "Hedging SwapClear Contract"); 

(c) the Clearing House, for the purpose of hedging: 

(i) engaging one or more third parties (each, a "Hedging Give Up Agent") 

to execute one or more new Listed Interest Rates Novation Transactions,

FCM Listed Interest Rates Novation Transactions and/or Rates 

Exchange Matches (as applicable), as instructed by the Clearing House; 

and

(ii) clearing each such Listed Interest Rates Novation Transaction, FCM 

Listed Interest Rates Novation Transactions and/or Rates Exchange 

Matches (as applicable) in accordance with, and subject to, the Rulebook 

and/or FCM Rulebook (as applicable), such that:

(A) the Hedging Give Up Agent's side of such transaction or match 

is registered as a Listed Interest Rates Contract and transferred 

to the Defaulting Rates Service Clearing Member, to become a 

Hedging Listed Interest Rates Contract between the Defaulting 

Rates Service Clearing Member and the Clearing House 
 

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(pursuant to the Clearing House’s right under Default Rule 6(q);

and

(B) the other side of such transaction or match is registered as a 

Listed Interest Rates Contract between the Clearing House and 

the relevant Listed Interest Rates Clearing Member; and/or 

(d) the Clearing House, for the purpose of hedging, designating an existing Listed 

Interest Rates Contract of the Defaulting Rates Service Clearing Member as a 

Hedging Listed Interest Rates Contract (pursuant to the Clearing House's right 

under Default Rule 6(q)).

The Clearing House may transfer one or more Hedging Rates Service Contracts from 

one account to any other account in accordance with Default Rule 6(g) (including any 

Hedged Account (in the circumstances provided for in the Rulebook)). 

The Clearing House may undertake Risk Neutralisation before, as part of, concurrently 

with and/or subsequent to the splitting of a Portfolio pursuant to Rule 2.1. Where a 

Hedging Rates Service Clearing Member executes a hedging SwapClear Transaction 

or FCM SwapClear Transaction (as applicable) with the Clearing House, it agrees to 

present such SwapClear Transaction or FCM SwapClear Transaction for clearing with 

the Clearing House in accordance with, and subject to, the Rulebook or FCM Rulebook 

(as applicable) and within the required timeframe under all Applicable Law (and, in any 

event, no later than the time that the SwapClear service closes on the day on which it 

executes such SwapClear Transaction or FCM SwapClear Transaction). 

2.3 Basis Portfolio Composition

The Clearing House may, in consultation with, and with the assistance of, the Rates 

Service DMG and for each relevant currency construct a Basis Portfolio, which may 

include Hedging Rates Service Contracts concluded by the Clearing House through 

Risk Neutralisation

2.4 Auction

(a) Following the completion of Risk Neutralisation, the Clearing House shall 

auction each OTC Auction Portfolio to Non-Defaulting SCMs and each Basis 

Portfolio to Non-Defaulting Joint Rates Service Clearing Members, in both such 

cases in order to:

(i) seek to re-establish with those Non-Defaulting SCMs and NonDefaulting Joint Rates Service Clearing Members (as applicable) the 

positions the Clearing House had with the Defaulting SCM under the 

relevant Rates Service Contracts; and

(ii) seek to determine the net value of those Rates Service Contracts for the 

purposes of determining the extent of any losses to the Clearing House 

which are to be reduced or borne in the manner provided by Rule 15 of 

the Default Rules or, as the case may be, the extent of any gains to the 

Clearing House. 
 

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The Clearing House, in consultation with the Rates Service DMG, shall 

prescribe such procedures (in addition to those set out in this Annex) for the 

conduct of the auction process as it considers reasonably appropriate from time 

to time.

(b) The Clearing House shall notify each Non-Defaulting SCM of all details that 

may be reasonably required in relation to an OTC Auction Portfolio and each 

Non-Defaulting Joint Rates Service Clearing Member of all details that may be 

reasonably required in relation to a Basis Portfolio, before the relevant Auction.

(c) The auction process may take place over a number of days and Auctions of 

different OTC Auction Portfolios and different Basis Portfolios may take place 

at different times.

(d) The relevant Non-Defaulting SCMs (in respect of each OTC Auction Portfolio) 

and Non-Defaulting Joint Rates Service Clearing Members (in respect of each 

Basis Portfolio) will submit bids to the Clearing House representatives on the 

Rates Service DMG, who will ensure that the identities of the bidders are not 

revealed to the Rates Service Clearing Member representatives on the Rates 

Service DMG. For the avoidance of doubt, a Non-Defaulting Rates Service 

Clearing Member is entitled to submit a bid in respect of an Auction on behalf 

of one or more affiliated Non-Defaulting Rates Service Clearing Members. The 

Rates Service DMG will oversee the bidding process in a manner which it 

considers best protects the resources of the Clearing House and ensures an 

orderly process.

(e) The Clearing House, in consultation with the Rates Service DMG, will have full 

discretion in deciding whether to Accept a particular bid in an Auction and in 

deciding which Accepted bid it will select as the winning bid.

(f) In the case of an Auction in which no bid is Accepted or received, one or more 

further Auctions will be held in relation to the relevant OTC Auction Portfolio

or Basis Portfolio (as applicable). 

(g) As soon as practicable following the submission of bids in an Auction, if:

(i) one or more bid(s) is Accepted, the Clearing House will notify:

(A) in the case of an Auction of an OTC Auction Portfolio, the 

Expected Auction Participants together with any other NonDefaulting SCMs which participated in the Auction that one or 

more bid(s) is Accepted; 

(B) in the case of an Auction of a Basis Portfolio, the Non-Defaulting 

Joint Rates Service Clearing Members which participated in the 

Auction that one or more bid(s) is Accepted; 

(C) in both such cases, the SCM which submitted the winning bid 

that it is the winner of the Auction; and

(ii) no bid is Accepted, the Clearing House will notify all Non-Defaulting 

SCMs of the details of any further Auction (in respect of an OTC 
 

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June January 20221

Auction Portfolio) and all Non-Defaulting Joint Rates Service Clearing 

Members of the details of any further Auction (in respect of a Basis 

Portfolio).

(h) Each Non-Defaulting SCM agrees to use all reasonable efforts to make a bid in 

an Auction for an OTC Auction Portfolio in respect of which it is an Expected 

Auction Participant and each Non-Defaulting Joint Rates Service Clearing 

Member agrees to use all reasonable efforts to make a bid in an Auction for a 

Basis Portfolio.

2.5 Market Losses

(a) Market Losses will be met using the available resources as set out in Rule 15 of 

the Default Rules. Where the Clearing House determines that there are 

insufficient resources under Rules 15(a) to 15(d) of the Default Rules (inclusive) 

to meet such losses, they will be attributed to Non-Defaulters' remaining 

SwapClear Contributions and remaining Listed Interest Rates Contributions in 

the following order and proportions:

(i) Market Losses will be attributed to the remaining SwapClear Funded 

Contribution of each Non-Defaulter pro rata according to the proportion 

that the remaining SwapClear Funded Contribution of such NonDefaulter bears to the total of all such remaining SwapClear Funded 

Contributions.

(ii) If and to the extent there are Market Losses outstanding after the 

attribution process in Rule 2.5(a)(i) of this Annex, those Market Losses 

will be attributed to the remaining Listed Interest Rates Funded 

Contribution of each Non-Defaulting Joint Rates Service Clearing 

Member pro rata according to the proportion that the remaining Listed 

Interest Rates Funded Contribution of such Non-Defaulting Joint Rates 

Service Clearing Member bears to the total of the remaining Listed 

Interest Rates Funded Contributions of all Non-Defaulting Joint Rates 

Service Clearing Members.

(iii) If and to the extent there are Market Losses outstanding after the 

attribution process in Rule 2.5(a)(ii) of this Annex, those Market Losses 

will be attributed to the remaining Listed Interest Rates Funded 

Contribution of each Non-Defaulting Listed Interest Rates-Only 

Clearing Member pro rata according to the proportion that the 

remaining Listed Interest Rates Funded Contribution of such NonDefaulting Listed Interest Rates-Only Clearing Member bears to the 

total of the remaining Listed Interest Rates Funded Contributions of all 

Non-Defaulting Listed Interest Rates-Only Clearing Members.

(iv) If and to the extent there are Market Losses outstanding after the 

attribution process in Rule 2.5(a)(iii) of this Annex, those Market Losses 

will be attributed to the remaining SwapClear Unfunded Contributions 

of each Non-Defaulter pro rata according to the proportion that the 

remaining SwapClear Unfunded Contributions of such Non-Defaulter 
 

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June January 20221

bear to the total of all such remaining SwapClear Unfunded 

Contributions.

(v) If and to the extent there are Market Losses outstanding after the 

attribution process in Rule 2.5(a)(iv) of this Annex, those Market Losses 

will be attributed to the remaining Listed Interest Rates Unfunded 

Contributions of each Non-Defaulting Joint Rates Service Clearing 

Member pro rata according to the proportion that the remaining Listed 

Interest Rates Unfunded Contributions of such Non-Defaulting Joint 

Rates Service Clearing Member bear to the total of the remaining Listed 

Interest Rates Unfunded Contributions of all Non-Defaulting Joint Rates 

Service Clearing Members.

(vi) If and to the extent there are Market Losses outstanding after the 

attribution process in Rule 2.5(a)(v) of this Annex, those Market Losses 

will be attributed to the remaining Listed Interest Rates Unfunded 

Contributions of each Non-Defaulting Listed Interest Rates-Only 

Clearing Member pro rata according to the proportion that the 

remaining Listed Interest Rates Unfunded Contributions of such NonDefaulting Listed Interest Rates-Only Clearing Member bear to the total 

of the remaining Listed Interest Rates Unfunded Contributions of all 

Non-Defaulting Listed Interest Rates-Only Clearing Members.

(b) The Clearing House will attribute Market Losses (if any) pursuant to Rule 2.5(a) 

of this Annex on each business day during the implementation of the Rates 

Service DMP at the same time as its end of day margin and settlement call.

2.6 Auction Incentive Pools

(a) The Clearing House will calculate an auction incentive pool (each, an "AIP") 

for:

(i) the OTC Auction Portfolio(s) in a specific Auction Portfolio Currency 

and Auction Portfolio Category; and

(ii) each Basis Portfolio. 

(b) The AIP for the OTC Auction Portfolio(s) in a specific Auction Portfolio

Currency and Auction Portfolio Category will be the sum of the AIP Amounts

for such OTC Auction Portfolio(s).

(c) The AIP for a Basis Portfolio will be the sum of the AIP Amounts for such Basis

Portfolio.

(d) For the avoidance of doubt, an AIP and the AIP Amounts which comprise such 

AIP will change as the remaining SwapClear Funded Contributions and 

remaining SwapClear Unfunded Contributions change throughout the 

implementation of the Rates Service DMP.
 

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June January 20221

2.7 Auction Losses – OTC Auction Portfolios

(a) Auction Losses, in respect of an OTC Auction Portfolio, will be met using the 

available resources as set out in Rule 15 of the Default Rules. Where the 

Clearing House determines there are insufficient resources under Rules 15(a) to 

15(d) of the Default Rules (inclusive) to meet such losses, they will be attributed 

to Non-Defaulters' remaining SwapClear Contributions and remaining Listed 

Interest Rates Contributions in accordance with the loss attribution process 

described in Rule 2.7(b) to 2.7(i) of this Annex.

(b) In the case of an Auction of an OTC Auction Portfolio, for which the Clearing 

House determines there are insufficient resources under Rule 15(a) to 15(d) of 

the Default Rules (inclusive) to meet the Auction Losses for such Auction, such 

losses will be met first by the Non-Defaulters' remaining SwapClear Funded 

Contributions that are included in the AIP relating to the OTC Auction Portfolio 

in the following order and proportions:

(i) the Auction Losses will be attributed to the remaining AIP Amounts of 

those Non-Defaulting SCMs which are both Expected Auction 

Participants, in respect of the OTC Auction Portfolio, and Non-Bidders 

in the Auction. Auction Losses will be attributed to the remaining AIP 

Amount of each such Non-Defaulting SCM pursuant to this 

subparagraph (i) pro rata according to the proportion that such SCM's 

remaining AIP Amount bears to the total of the remaining AIP Amounts 

of all Non-Defaulting SCMs which are both Expected Auction 

Participants, in respect of the OTC Auction Portfolio, and Non-Bidders 

in the Auction;

(ii) if and to the extent there are Auction Losses outstanding after the 

attribution process in sub-paragraph (i) above, those Auction Losses will 

be attributed to the remaining AIP Amounts of the Remaining Short 

Bidders for the OTC Auction Portfolio in accordance with this 

subparagraph (ii). Where:

(A) the Loss Portion applicable to each Remaining Short Bidder is 

less than or equal to its remaining AIP Amount, then the Clearing 

House will, in respect of each Remaining Short Bidder, attribute 

Auction Losses equal to the Loss Portion applicable to the 

Remaining Short Bidder to its remaining AIP Amount; or

(B) the Loss Portion applicable to one or more Remaining Short 

Bidders is greater than its remaining AIP Amount, then the 

Clearing House will attribute Auction Losses to all of the 

remaining AIP Amounts of such Remaining Short Bidders only 

(so that they cease to be Remaining Short Bidders for the 

purposes of this Rule 2.7(b)(ii) and the Auction) and will repeat 

the loss attribution process in this Rule 2.7(b)(ii) for any 

outstanding Auction Losses until the Auction Losses are fully 

met or the remaining AIP Amounts of all Remaining Short 

Bidders for the OTC Auction Portfolio are fully attributed; and 
 

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June January 20221

(iii) if and to the extent there are Auction Losses outstanding after the 

attribution process in sub-paragraph (ii) above, those Auction Losses 

will be attributed to the remaining AIP Amount of the Non-Defaulting 

SCM who submitted the winning bid in the Auction, together with 

(where applicable) the remaining AIP Amount of any Non-Defaulting 

SCM who submitted a bid which was an Equal Bid or an Out Bid in 

relation to that winning bid. The outstanding Auction Losses will be 

attributed to the remaining AIP Amount of each such SCM pursuant to 

this sub-paragraph (iii) pro rata according to the proportion that such 

SCM's remaining AIP Amount bears to the total of the remaining AIP 

Amounts of: (A) the SCM which submitted the winning bid in the

Auction; (B) any SCMs which submitted an Equal Bid to such winning 

bid in the Auction; and (C) any SCMs which were Out Bidders in the 

Auction.

(c) If and to the extent there are Auction Losses outstanding following the 

attribution process in Rule 2.7(b) of this Annex, those Auction Losses will be 

attributed to the remaining SwapClear Funded Contribution of each NonDefaulting SCM pro rata according to the proportion that the remaining 

SwapClear Funded Contribution of such Non-Defaulting SCM bears to the total 

of the remaining SwapClear Funded Contributions of all Non-Defaulting SCMs.

(d) If and to the extent there are Auction Losses outstanding following the 

attribution process in Rule 2.7(c) of this Annex, those Auction Losses will be 

attributed to the remaining Listed Interest Rates Funded Contribution of each 

Non-Defaulting Joint Rates Service Clearing Member pro rata according to the 

proportion that the remaining Listed Interest Rates Funded Contribution of such 

Non-Defaulting Joint Rates Service Clearing Member bears to the total 

remaining Listed Interest Rates Funded Contributions of all Non-Defaulting 

Joint Rates Service Clearing Members.

(e) If and to the extent there are Auction Losses outstanding following the 

attribution process in Rule 2.7(d) of this Annex, those Auction Losses will be 

attributed to the remaining Listed Interest Rates Funded Contribution of each 

Non-Defaulting Listed Interest Rates-Only Clearing Member pro rata

according to the proportion that the remaining Listed Interest Rates Funded 

Contribution of such Non-Defaulting Listed Interest Rates-Only Clearing 

Member bears to the total remaining Listed Interest Rates Funded Contributions 

of all Non-Defaulting Listed Interest Rates-Only Clearing Members.

(f) If and to the extent there are Auction Losses outstanding following the 

attribution process in Rule 2.7(e) of this Annex, the remaining SwapClear 

Unfunded Contributions that are included in the AIP relating to the OTC 

Auction Portfolio will be used in the following order:

(i) the Auction Losses will be attributed to the remaining AIP Amounts of 

those Non-Defaulting SCMs which are both Expected Auction 

Participants, in respect of the OTC Auction Portfolio, and Non-Bidders 

in the Auction. Auction Losses will be attributed to the remaining AIP 

Amount of each such Non-Defaulting SCM pursuant to this subparagraph (i) pro rata according to the proportion that such SCM's 
 

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June January 20221

remaining AIP Amount bears to the total of the remaining AIP Amounts 

of all SCMs which are both Expected Auction Participants, in respect of 

the OTC Auction Portfolio, and Non-Bidders in the Auction;

(ii) if and to the extent there are Auction Losses outstanding after the 

attribution process referred to in sub-paragraph (i) above, those Auction 

Losses will be attributed to the remaining AIP Amounts of the 

Remaining Short Bidders for the OTC Auction Portfolio in accordance 

with this sub-paragraph (ii). Where:

(A) the Loss Portion applicable to each Remaining Short Bidder is 

less than or equal to its remaining AIP Amount, then the Clearing 

House will, in respect of each Remaining Short Bidder, attribute 

Auction Losses equal to the Loss Portion applicable to the 

Remaining Short Bidder to its remaining AIP Amount; or

(B) the Loss Portion applicable to one or more Remaining Short 

Bidders is greater than its remaining AIP Amount, then the 

Clearing House will attribute Auction Losses to all of the 

remaining AIP Amounts of such Remaining Short Bidders only 

(so that they cease to be Remaining Short Bidders for the 

purposes of this Rule 2.7(f)(ii) and the Auction) and will repeat 

the loss attribution process in this Rule 2.7(f)(ii) for any 

outstanding Auction Losses until the Auction Losses are fully 

met or the remaining AIP Amounts of all Remaining Short 

Bidders for the OTC Auction Portfolio are fully attributed; and

(iii) If and to the extent there are Auction Losses outstanding after the 

attribution process referred to in sub-paragraph (ii) above, those Auction 

Losses will be attributed to the remaining AIP Amounts of the NonDefaulting SCM who submitted the winning bid, together with (where 

applicable) the remaining AIP Amount of any Non-Defaulting SCM 

who submitted a bid which was an Equal Bid or an Out Bid in relation 

to that winning bid. The outstanding Auction Losses will be attributed 

to the remaining AIP Amount of each such Non-Defaulting SCM 

pursuant to this subparagraph (iii) pro rata according to the proportion 

that such SCM's remaining AIP Amount bears to the total of the 

remaining AIP Amounts of: (A) the SCM which submitted the winning 

bid in the Auction; (B) any SCMs which submitted an Equal Bid to such 

winning bid in the Auction; and (C) any SCMs which were Out Bidders 

in the Auction.

(g) If and to the extent there are Auction Losses outstanding following the 

attribution process referred to in Rule 2.7(f) of this Annex, those Auction Losses 

will be attributed to the remaining SwapClear Unfunded Contributions of each 

Non-Defaulting SCM pro rata according to the proportion that the remaining

SwapClear Unfunded Contributions of such Non-Defaulting SCM bear to the 

total of the remaining SwapClear Unfunded Contributions of all NonDefaulting SCMs.
 

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June January 20221

(h) If and to the extent there are Auction Losses outstanding following the 

attribution process referred to in Rule 2.7(g) of this Annex, those Auction 

Losses will be attributed to the remaining Listed Interest Rates Unfunded 

Contributions of each Non-Defaulting Joint Rates Service Clearing Member pro 

rata according to the proportion that the remaining Listed Interest Rates

Unfunded Contributions of such Non-Defaulting Joint Rates Service Clearing 

Member bear to the total remaining Listed Interest Rates Unfunded

Contributions of all Non-Defaulting Joint Rates Service Clearing Members.

(i) If and to the extent that there are Auction Losses outstanding following the 

attribution process described in Rule 2.7(h) of this Annex, those Auction Losses 

will be attributed to the remaining Listed Interest Rates Unfunded Contributions 

of each Non-Defaulting Listed Interest Rates-Only Clearing Member pro rata

according to proportion that remaining Listed Interest Rates Unfunded 

Contributions of such Non-Defaulting Listed Interest Rates-Only Clearing 

Member bear to the total remaining Listed Interest Rates Unfunded 

Contributions of all Non-Defaulting Listed Interest Rates-Only Clearing

Members.

2.8 Auction Losses - Basis Portfolios

(a) Auction Losses, in respect of a Basis Portfolio, will be met using the available 

resources as set out in Rule 15 of the Default Rules. Where the Clearing House 

determines there are insufficient resources under Rules 15(a) to 15(d) of the 

Default Rules (inclusive) to meet such losses, they will be attributed to NonDefaulters' remaining SwapClear Contributions and remaining Listed Interest

Rates Contributions in accordance with the loss attribution process described in 

Rule 2.8(b) to 2.8(i) of this Annex.

(b) In the case of an Auction of a Basis Portfolio, for which the Clearing House 

determines there are insufficient resources under Rule 15(a) to 15(d) of the 

Default Rules (inclusive) to meet the Auction Losses for such Auction, such 

losses will be met first by the Non-Defaulting Joint Rates Service Clearing 

Members' remaining SwapClear Funded Contributions that are included in the 

AIP relating to the Basis Portfolio in the following order and proportions:

(i) the Auction Losses will be attributed to the remaining AIP Amounts of 

those Non-Defaulting Joint Rates Service Clearing Members which are 

Non-Bidders in the Auction. Auction Losses will be attributed to the 

remaining AIP Amount of each such Non-Defaulting Joint Rates 

Service Clearing Member pursuant to this sub-paragraph (i) pro rata

according to the proportion that such Non-Defaulting Joint Rates 

Service Clearing Member's remaining AIP Amount bears to the total of 

the remaining AIP Amounts of all Non-Defaulting Joint Rates Service 

Clearing Members which are Non-Bidders in the Auction; 

(ii) if and to the extent there are Auction Losses outstanding after the 

attribution process in sub-paragraph 2.7(b)(i) above, those Auction 

Losses will be attributed to the remaining AIP Amounts of the 

Remaining Short Bidders for the Basis Portfolio in accordance with this 

sub-paragraph (ii). Where:
 

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June January 20221

(A) the Loss Portion applicable to each Remaining Short Bidder is 

less than or equal to its remaining AIP Amount, then the Clearing 

House will, in respect of each Remaining Short Bidder, attribute 

Auction Losses equal to the Loss Portion applicable to the 

Remaining Short Bidder to its remaining AIP Amount; or

(B) the Loss Portion applicable to one or more Remaining Short 

Bidders is greater than its remaining AIP Amount, then the 

Clearing House will attribute Auction Losses to all of the 

remaining AIP Amounts of such Remaining Short Bidders only 

(so that they cease to be Remaining Short Bidders for the 

purposes of this Rule 2.8(b)(ii) and the Auction) and will repeat 

the loss attribution process in this Rule 2.8(b)(ii) for any 

outstanding Auction Losses until the Auction Losses are fully 

met or the remaining AIP Amounts of all Remaining Short 

Bidders for the Basis Portfolio are fully attributed; and

(iii) if and to the extent there are Auction Losses outstanding after the 

attribution process in sub-paragraph 2.7(b)(ii) above, those Auction 

Losses will be attributed to the remaining AIP Amount of the NonDefaulting Joint Rates Service Clearing Member who submitted the 

winning bid in the Auction, together with (where applicable) the 

remaining AIP Amount of any Non-Defaulting Joint Rates Service 

Clearing Member who submitted a bid which was an Equal Bid or an 

Out Bid in relation to that winning bid. The outstanding Auction Losses 

will be attributed to the remaining AIP Amount of each such NonDefaulting Joint Rates Service Clearing Member pursuant to this 

subparagraph (iii) pro rata according to the proportion that such NonDefaulting Joint Rates Service Clearing Member's remaining AIP

Amount bears to the total of the remaining AIP Amounts of: (A) the 

Joint Rates Service Clearing Member which submitted the winning bid 

in the Auction; (B) any Joint Rates Service Clearing Members which

submitted an Equal Bid to such winning bid in the Auction; and (C) any 

Joint Rates Service Clearing Member which were Out Bidders in the 

Auction.

(c) If and to the extent there are Auction Losses outstanding following the

attribution process in Rule 2.8(b) of this Annex, those Auction Losses will be 

attributed to the remaining SwapClear Funded Contribution of each NonDefaulting SCM pro rata according to the proportion that the remaining 

SwapClear Funded Contribution of such Non-Defaulting SCM bears to the total 

of the remaining SwapClear Funded Contributions of all Non-Defaulting SCMs. 

(d) If and to the extent there are Auction Losses outstanding following the 

attribution process in Rule 2.8(c) of this Annex, those Auction Losses will be 

attributed to the remaining Listed Interest Rates Funded Contribution of each 

Non-Defaulting Joint Rates Service Clearing Members pro rata according to 

the proportion that the remaining Listed Interest Rates Funded Contribution of 

such Non-Defaulting Joint Rates Service Clearing Member bears to the total 

remaining Listed Interest Rates Funded Contributions of all Non-Defaulting 

Joint Rates Service Clearing Members.
 

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(e) If and to the extent there are Auction Losses outstanding following the 

attribution process in Rule 2.8(d) of this Annex, those Auction Losses will be 

attributed to the remaining Listed Interest Rates Funded Contribution of each 

Non-Defaulting Listed Interest Rates-Only Clearing Member pro rata

according to the proportion that the remaining Listed Interest Rates Funded

Contribution of such Non-Defaulting Listed Interest Rates-Only Clearing 

Member bears to the total remaining Listed Interest Rates Funded Contributions 

of all Non-Defaulting Listed Interest Rates-Only Clearing Members.

(f) If and to the extent there are Auction Losses outstanding following the 

attribution process in Rule 2.8(e) of this Annex, the remaining SwapClear 

Unfunded Contributions that are included in the AIP relating to the Basis 

Portfolio will be used in the following order:

(i) the Auction Losses will be attributed to the remaining AIP Amounts of 

those Non-Defaulting Joint Rates Service Clearing Members which are 

Non-Bidders in the Auction. Auction Losses will be attributed to the 

remaining AIP Amount of each such Non-Defaulting Joint Rates 

Service Clearing Member pursuant to this sub-paragraph (i) pro rata

according to the proportion that such Non-Defaulting Joint Rates 

Service Clearing Member's remaining AIP Amount bears to the total of

the remaining AIP Amounts of all Non-Defaulting Joint Rates Service 

Clearing Members which are Non-Bidders in the Auction;

(ii) if and to the extent there are Auction Losses outstanding after the 

attribution process referred to in sub-paragraph (i) above, those Auction 

Losses will be attributed to the remaining AIP Amounts of the 

Remaining Short Bidders for the Basis Portfolio in accordance with this 

sub-paragraph (ii). Where:

(A) the Loss Portion applicable to each Remaining Short Bidder is 

less than or equal to its remaining AIP Amount, then the Clearing 

House will, in respect of each Remaining Short Bidder, attribute 

Auction Losses equal to the Loss Portion applicable to the 

Remaining Short Bidder to its remaining AIP Amount; or

(B) the Loss Portion applicable to one or more Remaining Short 

Bidders is greater than its remaining AIP Amount, then the 

Clearing House will attribute Auction Losses to all of the 

remaining AIP Amounts of such Remaining Short Bidders only 

(so that they cease to be Remaining Short Bidders for the 

purposes of this Rule 2.8(f)(ii) and the Auction) and will repeat 

the loss attribution process in this Rule 2.8(f)(ii) for any 

outstanding Auction Losses until the Auction Losses are fully 

met or the remaining AIP Amounts of all Remaining Short 

Bidders for the Basis Portfolio are fully attributed; and

(iii) if and to the extent there are Auction Losses outstanding after the 

attribution process referred to in sub-paragraph (ii) above, those Auction 

Losses will be attributed to the remaining AIP Amounts of the Non-
 

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Defaulting Joint Rates Service Clearing Members who submitted the 

winning bid, together with (where applicable) the remaining AIP 

Amount of any Non-Defaulting Joint Rates Service Clearing Member

who submitted a bid which was an Equal Bid or an Out Bid in relation 

to that winning bid. The outstanding Auction Losses will be attributed 

to the remaining AIP Amount of each such Non-Defaulting Joint Rates 

Service Clearing Member pursuant to this sub-paragraph (iii) pro rata

according to the proportion that such Non-Defaulting Joint Rates 

Service Clearing Member's remaining AIP Amount bears to the total of 

the remaining AIP Amounts of: (A) the Joint Rates Service Clearing 

Member which submitted the winning bid in the Auction; (B) any Joint 

Rates Service Clearing Members which submitted an Equal Bid to such 

winning bid in the Auction; and (C) any Joint Rates Service Clearing 

Members which were Out Bidders in the Auction.

(g) If and to the extent there are Auction Losses outstanding following the 

attribution process referred to in Rule 2.8(f) of this Annex, those Auction Losses 

will be attributed to the remaining SwapClear Unfunded Contributions of each 

Non-Defaulting SCM pro rata according to the proportion that the remaining 

SwapClear Unfunded Contributions of such Non-Defaulting SCM bear to the 

total of the remaining SwapClear Unfunded Contributions of all NonDefaulting SCMs.

(h) If and to the extent there are Auction Losses outstanding following the 

attribution process referred to in Rule 2.8(g) of this Annex, those Auction 

Losses will be attributed to the remaining Listed Interest Rates Unfunded 

Contributions of each Non-Defaulting Joint Rates Service Clearing Member pro 

rata according to the proportion that the remaining Listed Interest Rates 

Unfunded Contributions of such Non-Defaulting Joint Rates Service Clearing 

Member bear to the total remaining Listed Interest Rates Unfunded 

Contributions of all Non-Defaulting Joint Rates Service Clearing Members.

(i) If and to the extent that there are Auction Losses outstanding following the 

attribution process described in Rule 2.8(h) of this Annex, those Auction Losses 

will be attributed to the remaining Listed Interest Rates Unfunded Contributions

of each Non-Defaulting Listed Interest Rates-Only Clearing Member pro rata

according to proportion that remaining Listed Interest Rates Unfunded 

Contributions of such Non-Defaulting Listed Interest Rates-Only Clearing 

Member bear to the total remaining Listed Interest Rates Unfunded 

Contributions of all Non-Defaulting Listed Interest Rates-Only Clearing 

Members.

2.9 Exchange Closed-Out Contracts

(j) Exchange Losses relating to a Defaulting Listed Interest Rates-Only Clearing 

Member will be met using the available resources as set out in Rule 15 of the 

Default Rules. Where the Clearing House determines there are insufficient 

resources under Rules 15(a) to 15(d) of the Default Rules (inclusive) to meet 

such losses, they will be met in the following order and proportions:
 

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(i) first, by recourse to the Listed Interest Rates Funded Contribution of 

each Non-Defaulting Listed Interest Rates Clearing Member attributed 

pro rata according to the proportion that the Listed Interest Rates 

Funded Contribution of such Non-Defaulting Listed Interest Rates 

Clearing Member bears to the total of the Listed Interest Rates Funded 

Contributions of all Non-Defaulting Listed Interest Rates Clearing 

Members;

(ii) second, by recourse to the SwapClear Funded Contributions of each 

Non-Defaulting SCM attributed pro rata according to the proportion 

that the SwapClear Funded Contribution of such Non-Defaulting SCM 

bears to the total of the SwapClear Funded Contributions of all NonDefaulting SCMs;

(iii) third, by recourse to the Listed Interest Rates Unfunded Contributions 

of each Non-Defaulting Listed Interest Rates Clearing Member 

attributed pro rata according to the proportion that the Listed Interest 

Rates Unfunded Contribution of such Non-Defaulting Listed Interest 

Rates Clearing Member bears to the total of the Listed Interest Rates 

Unfunded Contributions of all Non-Defaulting Listed Interest Rates 

Clearing Members; and

(iv) fourth, by recourse to the SwapClear Unfunded Contributions of each 

Non-Defaulting SCM attributed pro rata according to the proportion 

that the SwapClear Unfunded Contributions of such Non-Defaulting 

SCM bear to the total of the SwapClear Unfunded Contributions of all 

Non-Defaulting SCMs.

(k) Exchange Losses relating to a Defaulting Joint Rates Service Clearing will be 

met using the available resources as set out in Rule 15 of the Default Rules. 

Where the Clearing House determines there are insufficient resources under 

Rules 15(a) to 15(d) of the Default Rules (inclusive) to meet such losses, they 

will be met in the following order and proportions: 

(i) first, recourse to the remaining Listed Interest Rates Funded 

Contributions of each Non-Defaulting Joint Rates Service Clearing 

Member attributed pro rata according to the proportion that the 

remaining Listed Interest Rates Funded Contribution of such NonDefaulting Joint Rates Service Clearing Member bears to the total of the 

remaining Listed Interest Rates Funded Contributions of all NonDefaulting Joint Rates Service Clearing Members;

(ii) second, by recourse to the remaining Listed Interest Rates Funded 

Contribution of each Non-Defaulting Listed Interest -Only Clearing 

Member attributed pro rata according to the proportion that the 

remaining Listed Interest Rates Funded Contribution of such NonDefaulting Listed Interest Rates-Only Clearing Member bears to the 

total of the remaining Listed Interest Rates Funded Contributions of all 

Non-Defaulting Listed Interest Rates-Only Clearing Members; 
 

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June January 20221

(iii) third, by recourse to the remaining SwapClear Funded Contributions of 

each Non-Defaulting SCM attributed pro rata according to the 

proportion that the remaining SwapClear Funded Contribution of such 

Non-Defaulting SCM bears to the total of the remaining SwapClear 

Funded Contributions of all Non-Defaulting SCMs;

(iv) fourth, by recourse to the remaining Listed Interest Rates Unfunded 

Contributions of each Non-Defaulting Joint Rates Service Clearing 

attributed pro rata according to the proportion that the remaining Listed 

Interest Rates Unfunded Contributions of such Non-Defaulting Joint 

Rates Service Clearing Member bears to the total of the remaining 

Listed Interest Rates Unfunded Contributions of all Non-Defaulting 

Joint Rates Service Clearing Members;

(v) fifth, by recourse to the remaining Listed Interest Rates Unfunded 

Contributions of each Non-Defaulting on Listed Interest Rates-Only 

Clearing Member attributed pro rata according to the proportion that the 

remaining' Listed Interest Rates Unfunded Contribution of such NonDefaulting Listed Interest Rates-Only Clearing Member bears to the 

total of the remaining Listed Interest Rates Unfunded Contributions of 

all Non-Defaulting Listed Interest Rates-Only Clearing Members; and

(vi) sixth, by recourse to the remaining SwapClear Unfunded Contributions 

of each Non-Defaulting SCM attributed pro rata according to the 

proportion that the remaining SwapClear Unfunded Contribution of 

such Non-Defaulting SCM bears to the total of the remaining SwapClear 

Unfunded Contributions of all Non-Defaulting SCMs.

2.10 Gains

(l) If, at any point during the Rates Service DMP, but before the implementation 

of the Rates Service Loss Distribution Process, the Clearing House determines 

that gains have accrued in respect of any OTC Auction Portfolio(s) and/or Basis 

Portfolio(s), it will reimburse each Non-Defaulter (to the extent that Market 

Losses, Exchange Losses or Auction Losses have been attributed to it pursuant 

to this Annex) by the amount of such gains in the following order and 

proportions:

(A) The Clearing House will reimburse each Non-Defaulter for such gains 

pro rata according to the proportion that the Market Losses and 

Exchange Losses attributed to such Non-Defaulter's Rates Service 

Unfunded Contributions bear to the total Market Losses and Exchange 

Losses attributed to all Non-Defaulters' Rates Service Unfunded 

Contributions, up to a maximum of the Market Losses and Exchange 

Losses attributed to such Non-Defaulter's Rates Service Unfunded

Contributions.

(B) If and to the extent there are gains remaining to be reimbursed following 

the process described in Rule 2.10(a)(i) of this Annex, the Clearing 

House will reimburse each Non-Defaulter for such gains pro rata

according to the proportion that the Auction Losses attributed to such 
 

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Non-Defaulter's SwapClear Unfunded Contributions bear to the total 

Auction Losses attributed to all Non-Defaulters' SwapClear Unfunded 

Contributions, up to a maximum of the Auction Losses attributed to such 

Non-Defaulter's SwapClear Unfunded Contributions.

(C) If and to the extent there are gains remaining to be reimbursed following 

the process described in Rule 2.10(a)(ii) of this Annex, the Clearing 

House will reimburse each Non-Defaulter for such gains pro rata

according to the proportion that the Market Losses and Exchange Losses 

atributed to such Non-Defaulter's Rates Service Funded Contribution 

bear to the total Market Losses and Exchange Losses attributed to all 

Non-Defaulters' Rates Service Funded Contributions, up to a maximum 

of the Market Losses and Exchange Losses attributed to such NonDefaulter's Rates Service Funded Contribution.

(D) If and to the extent there are gains remaining to be reimbursed following 

the process described in Rule 2.10(a)(iii) of this Annex, the Clearing 

House will reimburse each Non-Defaulter for such gains pro rata

according to the proportion that the Auction Losses attributed to such 

Non-Defaulter's SwapClear Funded Contribution bear to the total 

Auction Losses attributed to all Non-Defaulters' SwapClear Funded 

Contributions, up to a maximum of the Auction Losses attributed to such 

Non-Defaulter's SwapClear Funded Contribution.

(b) The Clearing House's calculation of the amount by which a gain that is 

reimbursed to a Non-Defaulter pursuant to Rule 2.10(a)(i), (ii), (iii) and/or (iv) 

of this Annex increases such Non-Defaulter's SwapClear Contributions and/or 

Listed Interest Rates Contributions is determinative and final and, after such 

reimbursement and increase, the totality of such Non-Defaulter's Rates Service 

Contributions will be subject to subsequent attribution of losses (if any)

pursuant to this Annex.

(c) Rule CS8 of the Rates Service Default Fund Supplement will not apply to the 

gains reimbursed to this Rule 2.10.

3. Default Management in respect of Rates Service Client Clearing Business and FCM 

Rates Service Client Business

3.1 The Rates Service DMP for any Rates Service Contract in respect of Rates Service 

Client Clearing Business shall involve the stages described in the Client Clearing 

Annex (which such stages, for the avoidance of doubt, will result in a Rates Service 

Contract in respect of Rates Service Client Clearing Business being dealt with in 

accordance with Rule 2 above in the event that it cannot be ported by the Clearing 

House).

3.2 The Rates Service DMP for any FCM Rates Service Contract forming part of a 

Defaulter's FCM Rates Service shall be conducted in accordance with FCM Regulation 

13(e) (Transfer). The provisions of Default Rule 10 shall also apply.

4. Transfer of Cash Flows and Registration of Positions
 

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SCHEDULE 3

FOREXCLEAR DMP ANNEX

1. Scope and interpretation

1.1 The Clearing House has established a ForexClear DMP which will apply to ForexClear 

Contracts following the Default of a ForexClear Clearing Member and in respect of 

which, for the avoidance of doubt, the Clearing House will have no recourse to the 

process of invoicing-back. The fundamental principles of the ForexClear DMP are 

elaborated to the fullest extent possible in this Annex. Where exhaustive detail cannot 

be laid out in the provisions of this Annex, the ForexClear DMP will be undertaken on 

the basis of the principles contained herein.

1.2 The Clearing House has an obligation to ensure the on-going integrity of the ForexClear 

Service and of the ForexClear Contracts in the interests of the Non-Defaulting 

FXCCMs. When a ForexClear Clearing Member defaults, Non-Defaulting FXCCMs 

are required to supply impartial expertise through the ForexClear DMG and to bid for 

the Auction Portfolios of a Defaulting FXCCM, as laid out in this Annex. In addition, 

most FXCCMs or their parent companies or subsidiaries or fellow subsidiaries, have 

direct interests in that integrity, notably as contributors to the various default funds of 

the Clearing House. Each FXCCM shall take all steps and execute all documents 

necessary or required by the Clearing House to comply with its obligations as an

FXCCM arising out of this ForexClear DMP Annex.

1.3 The initial margining process in respect of ForexClear Contracts will be such so as to 

ensure that the acceptance of bids for the Auction Portfolio of a Defaulting FXCCM 

will recognise risk premiums.

1.4 In this Annex:

"Accepted" means, in respect of a bid in an Auction, that the Clearing House has 

accepted such bid as one that it may select as the winning bid for such Auction and 

"Accept" and "Accepts" shall have a corresponding meaning;

"AIP" has the meaning given in Rule 2.5 of this Annex;

"AIP Amount" means, in respect of a Non-Defaulting FXCCM and the Auction 

Portfolio(s) in a specific Auction Portfolio Currency Pair and Auction Portfolio 

Category, the product of (a) such Non-Defaulting FXCCM's AIP Ratio applicable to 

the Auction Portfolio Currency Pair and Auction Portfolio Category of such Auction 

Portfolio(s), and (b) the total of its (i) remaining ForexClear Funded Contribution, and 

(ii) remaining ForexClear Unfunded Contributions;

"AIP Ratio" means, in respect of a Non-Defaulting FXCCM and the Auction 

Portfolio(s) in a specific Auction Portfolio Currency Pair and Auction Portfolio 

Category, the ratio that (a) the Undiversified Initial Margin Amount for the ForexClear 

Contracts of such Non-Defaulting FXCCM that are registered in its name at the time of 

the relevant Default and are in such Auction Portfolio Currency Pair and Auction 

Portfolio Category bears to, (b) the aggregate Undiversified Initial Margin Amount for 

all the ForexClear Contracts that are registered in the name of such Non-Defaulting 

FXCCM at the time of the relevant Default;
 

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"Auction" means the process of bidding by Non-Defaulting FXCCMs for an Auction 

Portfolio as prescribed by the Clearing House following consultation with the 

ForexClear DMG from time to time in accordance with Rule 2.3 of this Annex;

"Auction Losses" means, in respect of an Auction Portfolio, all losses arising from:

(a) the auction and sale of such Auction Portfolio; and

(b) a change in the net present value of the ForexClear Contracts within such 

Auction Portfolio during the Auction Losses Calculation Period;

"Auction Losses Calculation Period" means, in respect of an Auction Portfolio and 

the business day on which the Clearing House auctions and sells such portfolio, the 

period:

(d) commencing immediately after the end of day margin and settlement call of the 

Clearing HouseDaily Calculation Period for the previous business day; and

(e) ending at the point at which the Clearing House sells such portfolio;

"Auction Portfolio" means: (a) a Portfolio; or (b) a group of ForexClear Contracts 

resulting from the splitting of a Portfolio pursuant to Rule 2.1 of this Annex, including

in both such cases any connected Hedging ForexClear Contracts concluded by the 

Clearing House through Risk Neutralisation;

"Auction Portfolio Category" means, in relation to an Auction Portfolio, the

ForexClear Contract Category to which the ForexClear Contracts in the Auction

Portfolio belong.

"Auction Portfolio Currency Pair" means in relation to an Auction Portfolio, the 

Currency Pair in which the ForexClear Contracts in the Auction Portfolio are 

denominated;

"Bankruptcy Code" means the U.S. Bankruptcy Code, as amended;

"CEA" means the U.S. Commodity Exchange Act, as amended;

"CFTC" means the U.S. Commodity Futures Trading Commission;

"Currency Pair" has the meaning set out at Part A of the Schedule to the ForexClear 

Regulations;

"Daily Calculation Period" means, in respect of a business day, the period, in respect 

of which the Clearing House determines the end of day margin and settlement payments 

for ForexClear Contracts and such business day.

"Derivatives Clearing Organization" means an organisation designated and 

registered as such by way of United States Code - Title 7, Chapter 1, paragraph 7a–1;

"Difference" means, in respect of an Auction and a Remaining Short Bidder who bid 

in the Auction, the difference between (a) the winning bid for such Auction, and (b) the 

bid of such Remaining Short Bidder in the Auction;
 

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"Equal Bid" means an Accepted bid in an Auction, which is equal to another Accepted 

bid in the same Auction;

"Expected Auction Participant" means, in respect of an Auction Portfolio, any NonDefaulting FXCCM who, at the time of the relevant Default, has at least one 

Resembling Contract registered in its name;

"FCM ForexClear Client Business" means the provision of FCM ForexClear Client 

Clearing Services by an FCM Clearing Member to its FCM Clients;

"FCM ForexClear House Business" means the FCM ForexClear Contracts entered 

into by an FCM Clearing Member for its Proprietary Account;

"ForexClear Contract Category" means a category of ForexClear Contracts, being

either the ForexClear Non-Deliverable Contract Category or the ForexClear 

Deliverable Contract Category;

"ForexClear Default Management Process Completion Date" means the date when 

the ForexClear Default Management Process in relation to a Default has been 

completed as determined by the Clearing House in consultation with the ForexClear 

DMG and notified to all FXCCMs;

"ForexClear Deliverable Clearing Member" means an FXCCM who is designated 

by the Clearing House as a ForexClear Clearing Member eligible to have registered in 

its name ForexClear Deliverable Contracts;

"ForexClear Deliverable Contract Category" means the category of ForexClear 

Contract which comprises ForexClear Deliverable Contracts registered with the 

Clearing House;

"ForexClear Deliverable-Only Clearing Member" means a ForexClear Clearing 

Member who is not also a ForexClear Non-Deliverable Clearing Member;

"ForexClear DMG" means the advisory default management group established by the 

Clearing House pursuant to the terms of this Annex;

"ForexClear DMP" means the processes of the Clearing House outlined in this Annex, 

as may be supplemented and/or amended from time to time in accordance with this 

Annex;

"ForexClear Funded Contribution" means the ForexClear Contribution of a 

ForexClear Clearing Member, excluding any ForexClear Unfunded Contribution in 

respect of the ForexClear Clearing Member;

"ForexClear Non-Deliverable Clearing Member" means an FXCCM who is 

designated by the Clearing House as a ForexClear Clearing Member eligible to have 

registered in its name ForexClear Non-Deliverable Contracts;

"ForexClear Non-Deliverable Contract Category" means the category of ForexClear 

Contracts which comprises ForexClear Non-Deliverable Contracts registered with the 

Clearing House; 
 

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"ForexClear Non-Deliverable-Only Clearing Member" means a ForexClear NonDeliverable Clearing Member who is not also a ForexClear Deliverable Clearing 

Member;

"ForexClear Unfunded Contribution" has the meaning assigned to "Unfunded 

Contribution" in Rule F8 of the ForexClear Default Fund Supplement;

"Guidance" means guidance, in the form of one or more written notices, issued from 

time to time by or on behalf of the Clearing House to FXCCMs, supplementing the 

detail or conduct of any aspect of the ForexClear DMP;

"Hedging ForexClear Contract" has the meaning given in Rule 2.2(b)(ii)(B) of this 

Annex; 

"Hedging ForexClear Service Clearing Member" has the meaning given in Rule 

2.2(b)(i) of this Annex; 

"Loss Portion" means, in respect of an Auction of an Auction Portfolio, a Remaining 

Short Bidder who bid in such Auction, and

(a) Rule 2.6(b)(ii) of this Annex, the amount equal to the product of:

(i) the outstanding Auction Losses to be attributed to Remaining Short 

Bidders under Rule 2.6(b)(ii) of this Annex, and

(ii) the proportion that the Difference in respect of such Remaining Short 

Bidder and Auction bears to the total Differences in respect of all 

Remaining Short Bidders who bid in such Auction, and

(b) Rule 2.6(d)(ii) of this Annex, the amount equal to the product of:

(iii) the outstanding Auction Losses to be attributed to Remaining Short 

Bidders under Rule 2.6(d)(ii) of this Annex, and

(iv) the proportion that the Difference in respect of such Remaining Short

Bidder and Auction bears to the total Differences in respect of all 

Remaining Short Bidders who bid in such Auction;

"Market Losses" means any losses in respect of the implementation of the ForexClear 

DMP, including losses arising from the execution of hedging ForexClear Transactions 

for the purpose of Risk Neutralisation, but excluding Auction Losses;

"Non-Bidder" means, in respect of an Auction, an FXCCM, which (a) did not bid in 

such Auction, or (b) bid in such Auction, but whose bid was not Accepted;

"Non-Defaulter" means an FXCCM that is not a Defaulter;

"Non-Defaulters' Contributions" means the ForexClear Contributions made by NonDefaulting FXCCMs to the ForexClear Default Fund;

“Out Bid" means a bid in an Auction, which is Accepted and higher than the winning 

bid in such Auction;
 

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"Out Bidder" means, in respect of an Auction, a Non-Defaulting FXCCM, which 

submitted an Out Bid in such Auction;

"Portfolio" means, in respect of each Currency Pair, the ForexClear Contracts in such 

Currency Pair registered in the name of a Defaulting FXCCM in respect of House 

Clearing Business or the ForexClear Contracts in such Currency Pair registered in the 

name of a Defaulting FXCCM in respect of Client Clearing Business (or, in the case of 

an FCM Clearing Member that is a Defaulter, the FCM ForexClear Contracts in such 

Currency Pair registered in respect of its FCM ForexClear Client Business) and, in both 

such cases includes, where relevant, any Hedging ForexClear Contracts connected to 

the relevant ForexClear Contracts concluded by the Clearing House through Risk 

Neutralisation. For the avoidance of doubt, a Portfolio containing ForexClear Contracts 

relating to the Client Clearing Business or FCM ForexClear Client Business of a 

Defaulting FXCCM will only contain ForexClear Contracts relating to Client Clearing 

Business or FCM ForexClear Client Business, as appropriate. The Clearing House shall 

not be entitled to combine client and house positions in a single Portfolio;

"Recognised Clearing House" mean an organisation which is declared to be a 

recognised clearing house by a recognition order (that is for the time in force) made 

under section 290(1)(b) of the Financial Services and Markets Act 2000;

“Remaining Short Bidder" means, in respect of an Auction of an Auction Portfolio 

and

(c) Rule 2.6(b)(ii) of this Annex, a Short Bidder in such Auction whose remaining 

AIP Amount, which is in the form of ForexClear Funded Contributions and 

forms part of the AIP relating to such Auction Portfolio, is greater than zero, 

and

(d) Rule 2.6(d)(ii) of this Annex, a Short Bidder in such Auction whose remaining 

AIP Amount, which is in the form of ForexClear Unfunded Contributions and 

forms part of the AIP relating to such Auction Portfolio, is greater than zero;

"Resembling Contract" means, in respect of the ForexClear Contracts in an Auction 

Portfolio, a ForexClear Contract registered in the name of a Non-Defaulting FXCCM 

that (a) is denominated in the same currencies as the Auction Portfolio Currency Pair 

and (b) belongs to the ForexClear Contract Category which corresponds to the Auction 

Portfolio Category of such Auction Portfolio;

"Risk Neutralisation" means the process of reducing the market risk and/or settlement 

risk associated with a Defaulting FXCCM's obligations to the Clearing House under 

ForexClear Contracts by hedging the exposure before the auction process as described 

in Rule 2.2 of this Annex;

"Short Bidder" means, in respect of an Auction of an Auction Portfolio, a NonDefaulting FXCCM that (a) is an Expected Auction Participant for such Auction 

Portfolio, and (b) submitted a bid, which is Accepted, but lower than the winning bid, 

in such Auction; and
 

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"Undiversified Initial Margin Amount" means, in respect of the ForexClear Contracts 

in a specific Currency Pair and ForexClear Contract Category, the required initial 

margin amount for such ForexClear Contracts, as determined by the Clearing House.

1.5 Terms used, and not defined, in this Annex shall have the meanings given to them in 

the Regulations or FCM Regulations.

2. ForexClear DMP

The ForexClear DMP in respect of: (a) ForexClear Clearing House Business; (b) 

Relevant Auction Contracts in respect of ForexClear Client Clearing Business; (c) FCM 

ForexClear House Business; and (d) FCM ForexClear Client Business, shall involve 

the stages described in this Rule 2.

Resources will be allocated based on the order and proportions described in Rules 2.4 

to 2.6 of this Annex. Allocation of resources pursuant to a process or the order in which 

processes are carried out may reduce the resources which are available to meet the 

losses in respect of any subsequent process and, consequently, impact the allocation of 

losses amongst Non-Defaulters. For the avoidance of doubt, the Clearing House may 

in its sole and absolute discretion determine the order in which it constructs Auction 

Portfolios and auctions Auction Portfolios.

2.1 Portfolio Splitting

The Clearing House, in consultation with and with the assistance of the ForexClear 

DMG, shall determine the composition of each Auction Portfolio and shall have the 

discretion to divide a Portfolio into two or more individual Auction Portfolios with the 

aim of facilitating the efficiency of, and reducing the risk associated with, the auction 

process provided for in Rule 2.3 of this Annex. The overriding principle behind the 

portfolio splitting process is that the Clearing House will structure Auction Portfolios 

with the intention of ensuring a ForexClear DMP which best protects the resources of 

the Clearing House, subject to compliance with applicable provisions of the CEA and

the CFTC Regulations regarding segregation of client assets. Therefore, nothing in this 

Rule 2.1 shall be deemed to imply: (a) that the Clearing House is under any obligation 

to split a particular Portfolio of a Defaulting FXCCM (regardless of the number of 

ForexClear Contracts that such Portfolio contains); or (b) any particular requirements 

as to the composition of an individual Auction Portfolio (including in terms of 

combining or separating ForexClear Contracts belonging to different ForexClear

Contract Categories), except that, subject to overriding risk procedures it is broadly 

anticipated that the parameters of any Auction Portfolio shall not be materially different 

to those set out in the Clearing House's fire drill.

2.2 Risk Neutralisation

The Clearing House will, in consultation with and with the assistance of the ForexClear 

DMG, reduce the market risk and/or settlement risk associated with a Defaulting 

FXCCM's obligations to the Clearing House so far as is reasonably practicable by 

hedging the Clearing House's exposure in open ForexClear Contracts to which the 

Defaulting FXCCM is party, where such hedging may be achieved, without limitation, 

by: 
 

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(a) the splitting of Portfolios pursuant to Rule 2.1; and/or

(b) the Clearing House, for the purpose of hedging: 

(i) executing one or more new ForexClear Transactions and/or new FCM 

ForexClear Transactions (as applicable) with Non-Defaulting FXCCMs

(each, a "Hedging ForexClear Service Clearing Member") on the 

basis of a separate agreement between the Clearing House and the 

relevant Hedging ForexClear Service Clearing Member; and

(ii) clearing each such ForexClear Transaction and/or FCM ForexClear 

Transaction (as applicable) in accordance with, and subject to, the 

Rulebook and/or FCM Rulebook (as applicable), such that: 

(A) the Hedging ForexClear Service Clearing Member’s side of such 

transaction is registered as a ForexClear Contract between the 

Clearing House and the Hedging ForexClear Service Clearing 

Member; and

(B) the Clearing House's side of such transaction is registered as a 

ForexClear Contract between the Defaulting ForexClear Service 

Clearing Member and the Clearing House (pursuant to the 

Clearing House's rights under Default Rule 6(a)) (any such 

ForexClear Contract, a "Hedging ForexClear Contract"). 

The Clearing House may transfer one or more Hedging ForexClear Service Contracts 

from one account to any other account in accordance with Default Rule 6(g) (including 

any Hedged Account (in the circumstances provided for in the Rulebook)). 

The Clearing House may undertake Risk Neutralisation before, as part of, concurrently 

with and/or subsequent to the splitting of a Portfolio pursuant to Rule 2.12.1. Where a 

Hedging ForexClear Service Clearing Member executes a hedging ForexClear 

Transaction or FCM ForexClear Transaction (as applicable) with the Clearing House, 

it agrees to present such ForexClear Transaction or FCM ForexClear Transaction for 

clearing with the Clearing House in accordance with, and subject to, the Rulebook or 

FCM Rulebook (as applicable) and within the required timeframe under all Applicable 

Law (and, in any event, no later than the time that the ForexClear service closes on the 

day on which it executes such ForexClear Transaction or FCM ForexClear Transaction).

2.3 Auction

(a) Following the completion of Risk Neutralisation, the Clearing House shall 

auction each Auction Portfolio to Non-Defaulting FXCCMs in order to:

(i) seek to re-establish with those Non-Defaulting FXCCMs the positions 

the Clearing House had with the Defaulting FXCCM under the relevant 

ForexClear Contracts; and

(ii) seek to determine the net value of those ForexClear Contracts for the 

purposes of determining the extent of any losses to the Clearing House 

which are to be reduced or borne in the manner provided by Rule 15 of 
 

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the Default Rules or, as the case may be, the extent of any gains to the 

Clearing House.

The Clearing House, in consultation with the ForexClear DMG, shall prescribe 

such procedures (in addition to those set out in this Annex) for the conduct of 

the auction process as it considers reasonably appropriate from time to time.

(b) The Clearing House shall notify each Non-Defaulting FXCCM of all details that 

may be reasonably required in relation to an Auction Portfolio before the 

relevant Auction.

(c) The auction process may take place over a number of days and Auctions of 

different Auction Portfolios may take place at different times.

(d) The relevant Non-Defaulting FXCCMs will submit bids to the Clearing House 

representatives on the ForexClear DMG, who will ensure that the identities of 

the bidders are not revealed to the FXCCM representatives on the ForexClear 

DMG. For the avoidance of doubt, a Non-Defaulting FXCCM is entitled to 

submit a bid on behalf of one or more affiliated Non-Defaulting FXCCMs. The 

ForexClear DMG will oversee the bidding process in a manner which it 

considers best protects the resources of the Clearing House and ensures an 

orderly process.

(e) The Clearing House, in consultation with the ForexClear DMG, will have full 

discretion in deciding whether to Accept a particular bid in an Auction and in 

deciding which Accepted bid it will select as the winning bid.

(f) In the case of an Auction in which no bid is Accepted or received (as the case 

may be), one or more further Auctions will be held in relation to the relevant 

Auction Portfolio. 

(g) As soon as practicable following the submission of bids in an Auction, if:

(i) one or more bid(s) is Accepted, the Clearing House will notify the

Expected Auction Participants together with any other Non-Defaulting 

FXCCMs which participated in the Auction that one or more bid(s) is 

Accepted, and shall notify the FXCCM who submitted the winning bid 

that it is the winner of the Auction; and

(ii) no bid is Accepted, the Clearing House will notify all Non-Defaulting 

FXCCMs of the details of any further Auction.

(h) Each Non-Defaulting FXCCM agrees to use all reasonable efforts to make a bid 

in an Auction for an Auction Portfolio in respect of which it is an Expected 

Auction Participant.

2.4 Market Losses

(e) Market Losses will be met using the available resources as set out in Rule 15 of 

the Default Rules. Where the Clearing House determines that there are 

insufficient resources under Rules 15(a) to 15(d) of the Default Rules (inclusive) 
 

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to meet such losses, they will be attributed to Non-Defaulters' remaining 

ForexClear Contributions in the following order and proportions:

(i) Market Losses will be attributed to the remaining ForexClear Funded 

Contribution of each Non-Defaulter pro rata according to the proportion 

that the remaining ForexClear Funded Contribution of such Non 

Defaulter bears to the total of all such remaining ForexClear Funded 

Contributions; and

(ii) if and to the extent there are Market Losses outstanding after the 

attribution process in Rule 2.4(a)(i) of this Annex, those Market Losses 

will be attributed to the remaining ForexClear Unfunded Contributions 

of each Non-Defaulter pro rata according to the proportion that the 

remaining ForexClear Unfunded Contributions of such Non-Defaulter 

bear to the total of all such remaining ForexClear Unfunded 

Contributions.

(f) The Clearing House will attribute Market Losses (if any) pursuant to Rule 2.4(a) 

of this Annex on each business day during the implementation of the ForexClear 

DMP at the same time as its end of day margin and settlement call.

2.5 Auction Incentive Pools

(a) The Clearing House will calculate an auction incentive pool (each, an "AIP") 

for the Auction Portfolio(s) in a specific Auction Portfolio Currency Pair and 

Auction Portfolio Category.

(b) The AIP for the Auction Portfolio(s) in a specific Auction Portfolio Currency 

Pair and Auction Portfolio Category will be the sum of the AIP Amounts for 

such Auction Portfolio(s).

(c) For the avoidance of doubt, an AIP and the AIP Amounts which comprise such 

AIP will change as the remaining ForexClear Funded Contributions and 

remaining ForexClear Unfunded Contributions change throughout the 

implementation of the ForexClear DMP.

2.6 Auction Losses – Auction Portfolios

(a) Auction Losses, in respect of an Auction Portfolio, will be met using available 

resources as set out in Rule 15 of the Default Rules. Where the Clearing House 

determines there are insufficient resources under Rules 15(a) to (d) of the

Default Rules (inclusive) to meet such losses, they will be attributed to NonDefaulters' remaining ForexClear Contributions in accordance with the loss 

attribution process described in Rules 2.6(b) to 2.6(e) in this Annex.

(b) In the case of an Auction of an Auction Portfolio, for which the Clearing House 

determines there are insufficient resources under Rule 15(a) to 15(d) of the 

Default Rules (inclusive) to meet the Auction Losses for such Auction, such 

losses will be met first by the Non-Defaulters' remaining ForexClear Funded 

Contributions that are included in the AIP relating to the Auction Portfolio in 

the following order and proportions: 
 

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(i) the Auction Losses will be attributed to the remaining AIP Amounts of 

those Non-Defaulting FXCCMs which are both Expected Auction

Participants, in respect of the Auction Portfolio, and Non-Bidders in the 

Auction. Auction Losses will be attributed to the remaining AIP Amount

of each such Non-Defaulting FXCCM pursuant to this sub-paragraph (i) 

pro rata according to the proportion that such FXCCM's remaining AIP 

Amount bears to the total of the remaining AIP Amounts of all NonDefaulting FXCCMs which are both Expected Auction Participants, in 

respect of the Auction Portfolio, and Non-Bidders in the Auction;

(ii) if and to the extent there are Auction Losses outstanding after the 

attribution process in subparagraph (i) above, those Auction Losses will 

be attributed to the remaining AIP Amounts of the Remaining Short 

Bidders for the Auction Portfolio in accordance with this sub-paragraph

(ii). Where:

(A) the Loss Portion applicable to each Remaining Short Bidder is 

less than or equal to its remaining AIP Amount, then the Clearing 

House will, in respect of each Remaining Short Bidder, attribute 

Auction Losses equal to the Loss Portion applicable to the 

Remaining Short Bidder to its remaining AIP Amount; or

(B) the Loss Portion applicable to one or more Remaining Short 

Bidders is greater than its remaining AIP Amount, then the 

Clearing House will attribute Auction Losses to all of the 

remaining AIP Amounts of such Remaining Short Bidders only 

(so that they cease to be Remaining Short Bidders for the 

purposes of this Rule 2.6(b)(ii) and the Auction) and will repeat 

the loss attribution process in this Rule 2.6(b)(ii) for any 

outstanding Auction Losses until the Auction Losses are fully 

met or the remaining AIP Amounts of all Remaining Short 

Bidders for the Auction Portfolio are fully attributed; and

(iii) if and to the extent there are Auction Losses outstanding after the 

attribution process in sub-paragraph (ii) above, those Auction Losses 

will be attributed to the remaining AIP Amount of the Non-Defaulting 

FXCCM who submitted the winning bid in the Auction, together with 

(where applicable) the remaining AIP Amount of any Non-Defaulting 

FXCCM who submitted a bid which was an Equal Bid or an Out Bid in 

relation to that winning bid. The outstanding Auction Losses will be 

attributed to the remaining AIP Amount of each such FXCCM pursuant 

to this sub-paragraph (iii) pro rata according to the proportion that such 

FXCCM's remaining AIP Amount bears to the total of the remaining 

AIP Amounts of: (A) the FXCCM which submitted the winning bid in 

the Auction; (B) any FXCCMs which submitted an Equal Bid to such 

winning bid in the Auction; and (C) any FXCCMs which were Out

Bidders in the Auction.

(c) If and to the extent that there are Auction Losses outstanding following the 

attribution process in Rule 2.6(b) of this Annex, then:
 

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(i) where the Auction Portfolio Category of the Auction Portfolio is the 

ForexClear Non-Deliverable Contract Category, those Auction Losses 

will be attributed:

(A) first, to the remaining ForexClear Funded Contribution of each 

Non-Defaulting ForexClear Non-Deliverable Clearing Member 

pro rata according to the proportion that the remaining 

ForexClear Funded Contribution of such Non-Defaulting 

ForexClear Non-Deliverable Clearing Member bears to the total 

of the remaining ForexClear Funded Contributions of all NonDefaulting ForexClear Non-Deliverable Clearing Members; and

(B) then, to the remaining ForexClear Funded Contribution of each 

Non-Defaulting ForexClear Deliverable-Only Clearing Member 

pro rata according to the proportion that the remaining 

ForexClear Funded Contribution of such Non-Defaulting 

ForexClear Deliverable-Only Clearing Member bears to the total 

of the remaining ForexClear Funded Contributions of all NonDefaulting ForexClear Deliverable-Only Clearing Members; or

(ii) where the Auction Portfolio Category of the Auction Portfolio is the 

ForexClear Deliverable Contract Category, those Auction Losses will 

be attributed:

(A) first, to the remaining ForexClear Funded Contribution of each 

Non-Defaulting ForexClear Deliverable Clearing Member pro 

rata according to the proportion that the remaining ForexClear 

Funded Contribution of such Non-Defaulting ForexClear 

Deliverable Clearing Member bears to the total of the remaining 

ForexClear Funded Contributions of all Non-Defaulting 

ForexClear Deliverable Clearing Members; and

(B) then, to the remaining ForexClear Funded Contribution of each 

Non-Defaulting ForexClear Non-Deliverable-Only Clearing 

Member pro rata according to the proportion that the remaining 

ForexClear Funded Contribution of such Non-Defaulting 

ForexClear Non-Deliverable-Only Clearing Member bears to 

the total of the remaining ForexClear Funded Contributions of 

all Non-Defaulting ForexClear Non-Deliverable-Only Clearing 

Members.

(d) If and to the extent there are Auction Losses outstanding following the 

attribution process in Rule 2.6(c) of this Annex, the remaining ForexClear 

Unfunded Contributions that are included in the AIP relating to the Auction 

Portfolio will be used in the following order:

(i) the Auction Losses will be attributed to remaining AIP Amounts of 

those Non-Defaulting FXCCMs which are both Expected Auction 

Participants, in respect of the Auction Portfolio, and Non-Bidders in the 

relevant Auction. Auction Losses will be attributed to the remaining AIP 

Amount of each such Non-Defaulting FXCCM pursuant to this sub-
 

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paragraph (iv) pro rata according to the proportion that such FXCCM's 

remaining AIP Amount bears to the total of the remaining AIP Amounts 

of all FXCCMs which are both Expected Auction Participants, in respect 

of the Auction Portfolio, and Non-Bidders in the Auction;

(ii) if and to the extent there are Auction Losses outstanding after the 

attribution process referred to in sub-paragraph (iv) above, those 

Auction Losses will be attributed to the remaining AIP Amounts of the 

Remaining Short Bidders for the Auction Portfolio in accordance with 

this sub-paragraph (ii). Where:

(A) the Loss Portion applicable to each Remaining Short Bidder is 

less than or equal to its remaining AIP Amount, then the Clearing 

House will, in respect of each Remaining Short Bidder, attribute 

Auction Losses equal to the Loss Portion applicable to the 

Remaining Short Bidder to its remaining AIP Amount; or

(B) the Loss Portion applicable to one or more Remaining Short 

Bidders is greater than its remaining AIP Amount, then the 

Clearing House will attribute Auction Losses to all of the 

remaining AIP Amounts of such Remaining Short Bidders only 

(so that they cease to be Remaining Short Bidders for the 

purposes of this Rule 2.6(d)(ii) and the Auction) and will repeat 

the loss attribution process in this Rule 2.6(d)(ii) for any 

outstanding Auction Losses until the Auction Losses are fully 

met or the remaining AIP Amounts of all Remaining Short 

Bidders for the Auction Portfolio are fully attributed; and

(iii) if and to the extent there are Auction Losses outstanding after the 

attribution process referred to in sub-paragraph (iv) above, those 

Auction Losses will be attributed to the remaining AIP Amounts of the 

Non-Defaulting FXCCM and who submitted the winning bid, together 

with (where applicable) the remaining AIP Amount of any NonDefaulting FXCCM an Out who submitted a bid which was an Equal 

Bid or a Higher Bid in relation to that winning bid. The outstanding 

Auction Losses will be attributed to the remaining AIP Amount of each 

such Non-Defaulting FXCCM pursuant to this sub-paragraph (b) pro 

rata according to the proportion that such FXCCM's remaining AIP 

Amount bears to the total of the remaining AIP Amounts of: (A) the 

FXCCM which submitted the winning bid in the Auction; (B) any 

FXCCMs which submitted an Equal Bid to such winning bid in the 

Auction; and (C) any FXCCMs which were Out Bidders in the Auction.

(e) If and to the extent there are Auction Losses outstanding following the

attribution process referred to in Rule 2.6(d) of this Annex, then:

(i) where the Auction Portfolio Category of the Auction Portfolio is the 

ForexClear Non-Deliverable Contract Category, those Auction Losses 

will be attributed:
 

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(A) first, to the remaining ForexClear Unfunded Contributions of 

each Non-Defaulting ForexClear Non-Deliverable Clearing 

Member pro rata according to the proportion that the remaining 

ForexClear Unfunded Contributions of such Non-Defaulting 

ForexClear Non-Deliverable Clearing Member bear to the total 

of the remaining ForexClear Unfunded Contributions of all NonDefaulting ForexClear Non-Deliverable Clearing Members; and

(B) then, to the remaining ForexClear Unfunded Contributions of 

each Non-Defaulting ForexClear Deliverable-Only Clearing 

Member pro rata according to the proportion that the remaining 

ForexClear Unfunded Contributions of such Non-Defaulting 

ForexClear Deliverable-Only Clearing Member bear to the total 

of the remaining ForexClear Unfunded Contributions of all NonDefaulting ForexClear Deliverable-Only Clearing Members; or

(ii) Where the Auction Portfolio Category of the Auction Portfolio is the

ForexClear Deliverable Contract Category, those Auction Losses will

be attributed:

(A) first, to the remaining ForexClear Unfunded Contributions of 

each Non-Defaulting ForexClear Deliverable Clearing Member 

pro rata according to the proportion that the remaining 

ForexClear Unfunded Contributions of such Non-Defaulting 

ForexClear Deliverable Clearing Member bear to the total of the 

remaining ForexClear Unfunded Contributions of all NonDefaulting ForexClear Deliverable Clearing Members; and

(B) then, to the remaining ForexClear Unfunded Contributions of 

each Non-Defaulting ForexClear Non-Deliverable-Only 

Clearing Member pro rata according to the proportion that the 

remaining ForexClear Unfunded Contributions of such NonDefaulting ForexClear Non-Deliverable-Only Clearing Member 

bear to the total of the remaining ForexClear Unfunded 

Contributions of all Non-Defaulting ForexClear NonDeliverable-Only Clearing Member.

2.7 Gains

(a) If, at any point during the ForexClear DMP, but before the implementation of 

the ForexClear Loss Distribution Process, the Clearing House determines that 

gains have accrued in respect of any Auction Portfolio(s), it will reimburse each 

Non-Defaulter (to the extent that Market Losses or Auction Losses have been 

attributed to it pursuant to this Annex) by the amount of such gains in the 

following order and proportions:

(i) The Clearing House will reimburse each Non-Defaulter for such gains 

pro rata according to the proportion that the Market Losses attributed to 

such Non-Defaulter's ForexClear Unfunded Contributions bear to the 

total Market Losses attributed to all Non-Defaulters' ForexClear 
 

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June January 20221

Unfunded Contributions, up to a maximum of the Market Losses

attributed to such Non-Defaulter's ForexClear Unfunded Contributions.

(ii) If and to the extent there are gains remaining to be reimbursed following 

the process described in Rule 2.7(a)(i) of this Annex, the Clearing House 

will reimburse each Non-Defaulter for such gains pro rata according to 

the proportion that the Auction Losses attributed to such NonDefaulter's ForexClear Unfunded Contributions bear to the total Auction 

Losses attributed to all Non-Defaulters' ForexClear Unfunded 

Contributions, up to a maximum of the Auction Losses attributed to such 

Non-Defaulter's ForexClear Unfunded Contributions.

(iii) If and to the extent there are gains remaining to be reimbursed following 

the process described in Rule 2.7(a)(ii) of this Annex, the Clearing 

House will reimburse each Non-Defaulter for such gains pro rata

according to the proportion that the Market Losses attributed to such 

Non-Defaulter's ForexClear Funded Contribution bear to the total 

Market Losses attributed to all Non-Defaulter's ForexClear Funded

Contributions, up to a maximum of the Market Losses attributed to such 

Non-Defaulter's ForexClear Funded Contribution. 

(iv) If and to the extent there are gains remaining to be reimbursed following 

the process described in Rule 2.7(a)(iii) of this Annex, the Clearing 

House will reimburse each Non-Defaulter for such gains pro rata

according to the proportion that the Auction Loses attributed to such 

Non-Defaulter's ForexClear Funded Contribution bear to the total

Auction Losses attributed to all Non-Defaulter's ForexClear Funded 

Contributions, up to a maximum of the Auction Losses attributed to such 

Non-Defaulter's ForexClear Funded Contribution.

(b) The Clearing House's calculation of the amount by which a gain that is 

reimbursed to a Non-Defaulter pursuant to Rule 2.7(a)(i), (ii), (iii) and/or (iv) 

of this Annex increases such Non-Defaulter's ForexClear Contributions is 

determinative and final and, after such reimbursement and increase, the totality 

of such Non-Defaulter's ForexClear Contributions will be subject to subsequent 

attribution of losses (if any) pursuant to this Annex.

(c) Rule F12 of the ForexClear Default Fund Supplement will not apply to the gains 

reimbursed pursuant to this Rule 2.7.

3. Default Management in respect of ForexClear Client Clearing Business and FCM 

ForexClearClient Business Client Business

3.1 The ForexClear DMP for any ForexClear Contract in respect of ForexClear Client 

Clearing Business shall be conducted in accordance with the Client Clearing Annex 

(which such stages, for the avoidance of doubt, will result in a ForexClear Client 

Contract in respect of ForexClear Clearing Business being dealt with in accordance 

with Rule 2 above in the event that it cannot be ported by the Clearing House).
 

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3.2 The ForexClear DMP for any FCM ForexClear Contract forming part of a Defaulter's 

FCM ForexClear Client Business shall be conducted in accordance with FCM 

Regulation 13(e) (Transfer). The provisions of Default Rule 10 shall also apply.

4. Transfer of Cash Flows / Registration of Positions

4.1 Following the disposal of an Auction Portfolio by way of Auction (and notwithstanding 

that other Auction Portfolios of the Defaulting FXCCM may not yet have been 

auctioned) the Clearing House, will, with the co-operation of the Non-Defaulting 

FXCCMs, transfer to the Non-Defaulting FXCCM whose bid won the relevant Auction 

Portfolio the rights and obligations, from the Defaulting FXCCM, arising out of the 

positions which that Non-Defaulting FXCCM has successfully bid for under the 

ForexClear DMP. Such transfer may take place by way of registration of new positions 

with the Clearing House in the name of the relevant Non-Defaulting FXCCM, or 

novation of rights and obligations to the relevant Non-Defaulting FXCCM. All such 

registrations shall be made in a way that recognises the Collateral paid or received in 

respect of variation margin and any amounts paid or received in respect of settlement

in relation to the ForexClear Contracts of the Defaulting FXCCM representing such 

new positions.

4.2 In order to effect the transfer of positions, the Clearing House shall prescribe such 

procedures and timetable as it considers reasonably appropriate in the circumstances. 

FXCCMs will be required to exercise best endeavours to comply with such 

requirements as may be established by the Clearing House, after consultation with the 

ForexClear DMG, to effect the transfer of positions, including but not limited to the 

payment of any sums due as a result of the winning bid and the provision of Collateral 

in an amount required by the Clearing House in respect of initial margin and variation 

margin obligations in respect of positions which are to be registered in their names. 

The Clearing House agrees that in such procedures it shall make provision for set-off 

by the Clearing House of amounts owed by the Clearing House to the individual NonDefaulting FXCCMs as a result of the operation of the ForexClear DMP against sums 

owed by those individual Non-Defaulting FXCCMs to the Clearing House in respect 

thereof.

4.3 Where, as a result of an Auction, the Clearing House is required to make a payment to 

a Non-Defaulting FXCCM in respect of a winning bid, the Clearing House shall not be 

permitted to register any position, whether as a new position or as a novation of existing 

rights and obligations, to any such FXCCM if the Clearing House does not 

simultaneously credit that FXCCM with the requisite amount. If any position is so 

registered without such payment, such registration shall be deemed void ab initio and 

unenforceable against the relevant FXCCM. For the avoidance of doubt, the Clearing 

House will utilise the resources available to it pursuant to Rule 15 of the Default Rules 

for the purposes of making such a payment notwithstanding that other Auction 

Portfolios of the Defaulting FXCCM may not yet have been auctioned and that the loss 

attribution process provided for by Rule 2.6 has not yet occurred.

5. Information regarding the ForexClear DMP

5.1 Whenever the ForexClear DMP is implemented by the Clearing House in respect of a 

Defaulting FXCCM, the Clearing House will, with the assistance of the ForexClear