The securities company shall apply to the CSDCC for admission as the CSDCC clearing participant in order to participate in the central securities clearing and settlement system. The CSDCC and its participant shall enter into a Clearing & Settlement Agreement which serves to clearly define obligations and rights for each party.

The securities company that is not a clearing participant may enter into an Agency Clearing & Settlement Agreement with a clearing participant under which the clearing participant will act as the clearing & settlement agency on behalf of the securities company.

The CSDCC shall prescribe and publicize the standard samples for the Clearing & Settlement Agreement as well as the Agency Clearing & Settlement Agreement.

The CSDCC shall designate a qualified commercial bank for settlement of money obligations in respect of the securities clearing and settlement services. The eligibility criteria and conditions applicable to the Designated Clearing Bank shall be set out by the CSDCC.

The central securities clearing & settlement is structured as a stratified system wherein the CSDCC acts as the central counterparty to each clearing participant who in turn acts as the counterpart to each of its clients.

The CSDCC shall set up a Central Stock Clearing Account and Central Cash Clearing Account for settlement of delivery or payment obligations due to or from the clearing participants on each settlement day.

Each clearing participant shall have a Stock Clearing Account and a Cash Clearing Account in the CSDCC for settlement of delivery or payment obligations in line with the provisions set out by the CSDCC. In relation to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, a Brokerage Stock Clearing Account and a Brokerage Cash Clearing Account for settlement of brokerage trading shall be established as well and be separated from the Proprietary Stock Clearing Account and the Proprietary Cash Clearing Account which are used for settlement of proprietary trading.

The CSDCC may adopt a Multilateral Net Settlement System (the MNS System), wherein the CSDCC becomes substituted as the common settlement counterparty to each clearing participant and settlement will be effected between each clearing participant and the CSDCC on a delivery versus payment basis (DVP basis).

Under the MNS System, the Clearing & Settlement Agreement entered between the CSDCC and its participant shall address the following aspects:

1. The payment or delivery obligations/ between the participants under a particular transaction will be transferred to the CSDCC, which becomes substituted as the sole settlement counterparty for the buyer and seller;
2. Upon effective transfer of entitlements or obligations under a particular transaction, the CSDCC shall be obligated to satisfy the settlement obligations whilst be entitled to any benefit entitlement under that transaction.

Underthe MNS System, the obligation to deliver securities or the amounts to be paid between the CSDCC and each clearing participant in respect of the same issue of securities and having the same settlement date shall be set-off against each other to arrive at a net money position or net obligation of securities to be delivered. The clearing participants will be kept informed of its net money or securities position as calculated in the netting process.

Other securities settlement procedures are set out separately.

Prior to the central settlement of transactions in the CSDCC, the clearing participant shall ensure that there are sufficient securities in its Stock Clearing Account as well as sufficient funds in its Cash Clearing Account available to effect the settlement by collectingthe securities and funds due from its clients.

The transfer of securities ownership between the clearing participant and its client shall be executed by the CSDCC.

The CSDCC will settle the net outstanding money/stock position at the stated settlement period by taking the money or securities due from the clearing participant, whilst making the payment or delivery of securities it owes to the clearing participant on an irrevocable basis.

The clearing participant who fails to make full payment of any sumpayable or fails to deliver the securities due on a timely basis may not receive the money or securities due from its counterparty.

With regard to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, the CSDCC may select to apply the funds in its Proprietary Cash Clearing Account to meet the liabilities owed by its client, provided that the funds in the Brokerage Cash Clearing Account are insufficient to meet the liabilities.

When the central settlement closes, the clearing participant shall settle the payment or transfer of securities due to the clients.

The transfer of securities ownership between the clearing participant and its client shall be executed by the CSDCC.

The CSDCC shall specify in its operating rules the settlement period for the central settlement of delivery of securities or money obligation between the CSDCC and its clearing participants, and the settlement of payment or transfer of securities between the participants and its clients respectively.

The clearing participants shall guarantee the satisfaction of the settlement obligations owed to both the CSDCC and the client within the stated settlement period as prescribed by the CSDCC.

The clearing participant may request the CSDCC to take remedial actions towards the error in calculation of net money position or stock settlement positions for which the CSDCC assumes direct responsibilities, and to indemnify the clearing participant against any direct losses incurred as a result of the error, provided that the participant has satisfied any of the delivery or payment obligations.