fully aware of the situation and consent to the delivery. Unplanned
delivery can be costly and embarrassing.
It is therefore very important that all of the clearing member’s staff
and those of its clients are fully aware of the consequences of going
to delivery in each contract. The exact procedures and timings are
very important but they should always be confirmed when entering
the delivery period as procedures and timings change from time to
time. An easy mistake that can occur is one which relates to local
times. Most exchanges quote delivery times in their local time, which
in itself should not present too many problems but confusion can
occur when in, for instance, the UK there is a change from
Greenwich Mean Time to or from British Summer Time.
It is vitally important that positions which are coming up to the
delivery period are monitored by both the clearing member and the
end-clients. The clearing member will need to ensure that its clients
are fully aware of the delivery situation and their responsibilities.
Ultimately, the clearing member is liable if the delivery process is
entered into by mistake or if procedures are not followed thor-
oughly.
Where the delivery procedures are not followed in accordance with
the rules and regulations, the exchanges have a range of penalties
and fines, which may be invoked. In some cases these are quite
heavy, as they are designed to be prohibitive and to ensure that the
delivery procedure is both efficient and credible. This has a direct
effect on the success of the exchange and the reason for participants
wanting to trade on the exchange. If the delivery process were not
efficient, and participants could not be sure that making or taking
delivery would take place properly, then it might deter them from
trading on the exchange.
For clearing members, the payment of fines and penalties is not
the only issue. There is a significant element of reputational risk
because the Exchange is often at liberty to publicise information
relating to fines for breaches of delivery procedures. Ultimately,
the clearing house and exchange could suspend the clearing
member and revoke their rights to trade on the Exchange if they
felt that the clearing member was not managing their business
properly.
LCH.Clearnet.Clearnet delivery procedures
LCH.Clearnet sets down all its delivery rules and procedural require-
ments in its publication, ‘General Regulations, Default Rules and
62 Clearing and settlement of derivatives
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