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Clearing is the procedure by which financial trades settle – that is, the correct and timely transfer of funds to the seller and securities to the buyer. Often with clearing, a specialized organization acts as an intermediary known as a clearinghouse, and assumes the role of tacit buyer and seller in a transaction to reconcile orders between transacting parties. Clearing is necessary for the matching of all buy and sell orders in the market, providing smoother and more efficient markets as parties can make transfers to the clearing corporation rather than to each individual party with whom they transact. When trades don't clear, the resulting out trades can cause real monetary losses.
Clearing is the process of reconciling purchases and sales of various options, futures, or securities, as well as the direct transfer of funds from one financial institution to another. The process validates the availability of the appropriate funds, records the transfer, and in the case of securities ensures the delivery of the security to the buyer. Non-cleared trades can result in settlement risk, and if trades do not clear accounting errors will arise where real money can be lost.
PLEASE SEE BELOW CLEARING AND SETTLEMENT RULES FOR THE ESE
9.1.1 All purchases and sales between dealing members shall be settled in cash against delivery of the scrip or other documents of title in negotiable order.
9.1.2 Dealing members shall settle purchases and sales made for clients in cash except where other acceptable arrangements with clients obtain.
9.1.3 Settlement shall be on individual deal terms and on a rolling T+5 basis.
9.1.4 A dealing member may not stop payment on any cheque given to another dealing member or to SSX settlement system.
9.2 RESPONSIBILITIES OF DEALING MEMBERS AND CLIENTS
9.2.1 Dealing members buying or selling listed securities shall be equally responsible for the due fulfilment of all transactions entered into between them, and members shall, at all times, guarantee the fulfilment of the bargains by counterparties to such transactions.
9.2.3 Dealing members shall be responsible for ensuring that buyers and sellers of listed securities are aware of their material obligations in terms of these Rules.
9.3 GOOD DELIVERY
9.3.1 A dealing member selling securities shall be responsible for the delivery and genuineness of security certificates and other documents of title necessary for effecting the transfer from the selling to the buying client’s name.
9.3.2 For the purpose of these rules, good delivery shall mean the delivery of a security certificate including other documents of title required by the buyer to effect the transfer of securities bought into his name without further assistance from the seller.
9.3.3 Scrip shall not be good delivery unless accompanied by the requisite transfer form in negotiable order signed by the registered holder.
9.3.4 The signature on a transfer form shall be certified correct by the dealing member or an authorised representative of a recognised financial institution.
9.3.5 Scrip shall not be good delivery where the certificate is mutilated, damaged or a material part of the wording is obliterated.
9.3.6 If alterations have been made on the certificate, the alterations shall be initialled by the person signing the transfer form.
9.4 TRANSFER SECRETARIES
Scrip, transfer forms or other documents of title shall be handed to the transfer secretary of the issuer who shall effect the transfer and issue a new certificate within seven (7) days from the date of lodgement of the old certificate and accompanying transfer form.
9.5 FAILED DELIVERY AND SETTLEMENT
9.5.1 Dealing members shall submit reports of misdeals, defaults, failed deliveries and failed settlements to the SSX as soon as they occur or following the lapse of the T+ 5 settlement period.
9.5.2 A dealing member who fails to meet his obligations in terms of these Rules shall be declared a defaulter.
9.6 DELIVERY FAILURE
9.6.1 Dealing members selling securities shall ensure that they have, in their possession, securities in sufficient numbers before proceeding to sell securities on the SSX.
9.6.2 Where delivery failure occurs due to insufficient securities being proffered on settlement day, a buy-in procedure shall be initiated on the SSX on behalf of the defaulting dealing member to purchase the necessary quantity of securities at the going offer price.
9.6.3 Where the securities are not readily available in the market, the defaulting dealing member shall continue to seek and procure the securities during subsequent trading until sufficient numbers are obtained.
9.6.4 The dealing member on behalf of whom the buy-in is conducted shall be responsible to pay all expenses associated with and shall bear all losses arising from the buy-in procedure.
9.6.5 The securities procured in a buy-in process in terms of this Rule shall be used to complete the previously failed delivery.
9.7 FAILED SETTLEMENT
9.7.1 Dealing members buying securities shall ensure that they have sufficient funds to pay for those securities before proceeding to buy securities on the SSX.
9.7.2 If a dealing member fails to effect payment for bought securities on settlement day, a sell-out procedure shall be initiated in the SSX on behalf of the defaulting dealing member to enable him to sell the necessary quantity of securities in the market at the going bid price in order to raise the funds required to pay for the failed settlement.
9.7.3 Where the securities are not readily bought on the market, the defaulting dealing member shall continue to offer the securities to the market during subsequent trading sessions until the required amount to settle the trade is raised.
9.7.4 The dealing member on behalf of whom the sell-out is conducted shall be responsible for paying all expenses and shall bear all losses associated with the sell-out procedure.
9.7.5 The proceeds raised in a sell-out process in terms of this Rule shall be utilised to complete the previously failed settlement.
9.10 PENALTIES FOR FAILED DELIVERIES AND SETTLEMENTS
9.10.1 In cases where dealing members report misdeals, defaults, failed deliveries and settlements, the SSX shall-
(a) within two (2) business days, initiate buy-ins or sell-outs, as the case may be, against the defaulting dealing member; and
(b) allow ten (10) consecutive business days for the procedure so initiated to run its course.
9.10.2 In addition to what is stipulated under 9.10.1, the SSX may-
(a) reprimand or censure first time offenders;
(b) impose a penalty of 0.1% of the value of the transaction;
(c) impose a fine not exceeding 0.3% of the value of the transaction;
(d) suspend common offenders; or
(e) expel persistent and habitual offenders.