4.4.1. Settlement finality

(1) An Authorised Clearing House must have rules and procedures which clearly define:

1. (a) the point at which settlement is final according to the relevant governing law; and
2. (b) the point after which unsettled payments, transfer instructions, or other obligations may not be cancelled by a participant.

(2) An Authorised Clearing House must complete final settlement no later than the end of the value date.

(3)  Notwithstanding (1) above, a settlement by an Authorised Clearing House is final, irrevocable and binding and may not under any circumstances be reversed or avoided after:

1. (a) an amount of money is credited to or debited from a depository account; or
2. (b) an Investment approved for admission to the depository is credited to or debited from a depository account.

(4) Notwithstanding (1) above, transfer instructions and settlement are legally enforceable and, even in the event of insolvency proceedings against a participant, shall be binding on third parties, provided that transfer instructions were entered into a system before the moment of opening of such insolvency proceedings. Where, exceptionally, transfer instructions are entered into a system after the moment of opening of insolvency proceedings and are carried out on the day of opening of such proceedings, they shall be legally enforceable and binding on third parties only if, after the time of settlement, the Authorised Clearing House can prove that it was not aware, nor should have been aware, of the opening of such proceedings.

(5) For the purpose of (4), the moment of opening of insolvency proceedings shall be the moment when the relevant judicial or administrative authority handed down its decision.

4.4.2. Money settlement

(1) Where practical, an Authorised Clearing House must conduct its money settlements in central bank money.

(2) Where a Clearing House conducts its money settlements using commercial bank money, it must:

• (a) adopt appropriate measures to minimise and strictly control the credit and liquidity risk arising from such use;
• (b) ensure that its legal agreements with any settlement banks, at a minimum:
• (i) specify clearly when transfers on the books of individual settlement banks are expected to occur and when they are final; and
• (ii) ensure that funds received are transferable as soon as possible, if not intra-day, at least before the end of the payments day to enable it and its Members and other participants on its facilities to manage their credit and liquidity risks.

4.4.3. Physical delivery

(1) An Authorised Clearing House must:

(a) have rules and procedures which clearly state its obligations with respect to the delivery of physical instruments or commodities; and

(b) identify, monitor, and manage the risks and costs associated with the storage and delivery of physical instruments or commodities.

(2) A Clearing House must have adequate arrangements, including service agreements, which enable it to meet its physical delivery obligations.

Guidance

1. Where an Authorised Clearing House matches participants that have delivery and receipt obligations, the Authorised Clearing House would not need to be involved with the physical storage and delivery process but it should monitor the participants' performance and to the extent practicable, ensure the participants have the necessary systems and resources to be able to fulfil their physical delivery obligations.

2. The legal obligations for delivery should be clearly expressed in the Clearing Rules, Default Rules, and any related agreements, including provisions to specify:

(a) whether the receiving participant should seek compensation from the Authorised Clearing House or the delivering participant in the event of a loss; and

(b) if the Authorised Clearing House holds margin on the matched participants, such margin would only be released when the Authorised Clearing House confirms that both participants have fulfilled their obligations