The non-delivery of securities occurs when a market participant fails to deliver the sold-amount of securities by the settlement date. The proposed tiered penalty framework seeks to administer appropriate penalties when settlement procedures are abused.
To reinforce the gravity of how failed share delivery threatens the orderliness of the securities market, SGX proposes for the penalties to be cumulative in nature1. The imposed penalty amount will begin with the initial amount of $1,000 or 5% of the value of the trade (whichever is higher) on all trades that are not delivered. The penalty amount will progressively build up for persistent non-delivery of securities.
The proposed penalty framework is established to protect the integrity of the securities settlement system and minimise exposure of settlement risks to CDP.
Appeal Process
Market participants have submitted appeals to SGX in cases of non-delivery of securities, citing genuine mistakes or other valid reasons. For such cases, SGX will continue to consider each individual appeal for the waiver of penalties under existing arrangements2. Participants who have been referred to the Disciplinary Committee for the failure to deliver in the buying-in market will similarly have the opportunity to present their case before the Disciplinary Committee.
The key features of the proposed penalty framework include:
 | Settlement Procedures | Key Features for Proposed Framework |
| A. | Securities settlement cycle { T + 3} | (i) Penalty for the non-delivery of securities in the ready market:- To propose that the interim penalty of $1,000 or 5% of the value of the trade (whichever is higher) on all trades that are not delivered be made permanent. |
B. | Buying-in {T + 4 to T + 5} | (ii) Consequences for the non-delivery of securities in the buying-in market: SGX takes a serious view of market participants whose actions lead to the non-delivery of securities in the buying-in market. Under the proposed framework, SGX may refer such misconduct to the Disciplinary Committee. If the charge is established, the participants would be liable to a minimum penalty of $50,000 and/or disbarment from the buying-in market. |
C. | Procurement {T + 6 to T + 7} | (iii) Procurement of securities to cover open positions which remain after buying-in :- To propose that the penalty for procurement be raised from the current $100 per day for each sold contract to $5,000. If there is continued non-delivery, the Clearing Member may be referred to the Disciplinary Committee. A mandatory minimum penalty of $50,000 will be imposed if the Disciplinary Committee is satisfied that the Clearing Member has breached the rule. |
D. | T + 8 | (iv) Clearing Members who fail to procure securities to cover open short positions by T + 8 will be referred to the Disciplinary Committee. If the charge is established, such Clearing Members would be liable to a minimum penalty of $50,000. |
Segregation Of Penalties Collected
In line with the current practice for penalties imposed by Disciplinary Committees, the monies collected from the revised penalty framework will be channeled to a segregated account. These monies do not add to SGX’s revenues, and will be earmarked for use towards funding of educational initiatives for market participants.
Proposed Amendments to CDP Clearing Rules
The proposed penalty framework will be implemented under the CDP Clearing Rules. SGX is also seeking feedback on the proposed amendments to the rules. Please refer to Appendix B for the amendments.
Market participants and members of the public are encouraged to participate in this public consultation. The consultation paper which sets out the proposed amendments to the listing rules will be available from 13 November 2008 to 4 December 2008. The public consultation paper and proposed amendments to CDP Clearing rules are available on our website, www.sgx.com. All feedback and suggestions for the proposed changes should reach us by 4 December 2008 via email and either by post/courier or fax:-
Email : rules@sgx.com
Fax : (65) 6535 5573
Post/Courier : Singapore Exchange Limited
2 Shenton Way, SGX Centre 1, #19-00
Singapore 068804
Attn: Vance Ng, Regulatory Policy
1 For example, a Clearing Member that fails to deliver securities for a sale transaction on Settlement Day will be liable to a penalty of $1,000 or 5% of the value of the trade (whichever is higher). Where that Clearing Member fails to cover the short position after the buying-in period (T + 4 to T + 5), it will be required to procure the securities. An additional penalty of $5,000 per day (for a maximum of 2 days, i.e. T + 6 and T + 7) will be imposed on the same Clearing Member. If the securities remain undelivered on T + 8, the Clearing Member will be referred to the Disciplinary Committee. If the charge is established, the Clearing Member would be liable to a mandatory minimum penalty of $50,000.
2 A penalty is to be paid within five (5) business days of notification. Where SGX is considering an appeal, the penalty need not be paid.
