Clearing and settlement of all stock exchange transactions are provided by KELER
Ltd. (Central Clearing House and Depository (Budapest) Ltd.).
KELER was founded by the National Bank of Hungary, the Budapest Stock Exchange
and the Budapest Commodity Exchange in 1993 with a depository and clearing house
profile. It provides post trade, custody and depository services to investment
service providers, broker companies, banks and issuers. The clearing house performs
risk-free, fast and effective settlement of transactions concluded by the market
players. In 2009 the KELER was separated into two organizations, by this time
KELER CCP Ltd. acts as central counterparty.
The functions of KELER and KELER CCP:
KELER CCP as a central counterparty guarantees the financial performance of both
the cash and derivative transactions;
KELER as a clearing house runs the settlement of stock exchange and also OTC
KELER as a central depository executes the issue of securities codes and the
central registration of securities, and keeps the central security accounts.
Clearing of cash market transactions
Clearing of transactions made in the equity section and in the debt security
section (with the exception of fixed and auction transactions) is done in a rolling
manner based on the principle of multilateral netting. The length of the settlement
cycle in the equity section is three days (T+3), while in the debt security section,
it is two days (T+2).
Settlement of standardised futures and option transactions
In the derivative and commodity sections, clearing is performed similarly to
that in the equity and debt security sections, in a net manner based on the rolling
principle. A characteristic of standardised exchange derivative transactions is
the daily settlement of results achieved at each position.
In the case of single stock and interest rate based products, and most products
in the commodity section, the settlement at expiration is performed by physical
delivery. Some commodity products as well as all other derivative contracts are
KELER CCP as a central counterparty
KELER CCP acts as a central counterparty both on the cash and derivatives market.
It provides financial guarantee for the settlement of all guaranteed transactions.
On the cash market KELER CCP ensures the financial performance for the positions
resulting from the netting process where netted transactions are sent to KELER
for settlement. With regards to the derivatives market KELER CCP – through novation
– interposes itself between the seller and the buyer in each trade and becomes
the buyer to each seller and the seller to each buyer.
The investment service provider can only take part in the trading of specific
markets and sections if it has an arrangement for the clearing and settlement
of its trades. This can be done in two ways:
the investment service provider becomes a clearing member in KELER CCP, or;
the investment service provider signs a clearing-membership contract with a clearing
member and becomes a sub-clearing member.
A clearing-membership contract with KELER CCP can be signed by investment service
providers and banks that comply with the requirements specified by KELER CCP and
that constantly ensure the guarantee elements for clearing-membership.
Guarantee elements for clearing-membership
The basic financial cover is a fixed amount of money specified by KELER CCP for each market segment that
should be maintained by the member trading on that market.
The variation margin is intended to cover past price movements for positions still open.
The initial margin is calculated based on open interests to the extent of the daily clearing spread
as a fixed amount.
The function of the additional financial collateral is to allow KELER CCP to handle any increased risk to its members (e.g. due
to extremely high open position).
Collective guarantee elements in settlement
The ESF (Exchange Settlement Fund) is a collective fund created to support the
cash market. Its purpose is to reduce the risk arising from the delays or failures
in performance of exchange transactions of clearing members amongst each other
as a surety for a guarantee of the joint and several guarantors. ESF contribution
is at the same time a surety to the extent of the claims of KELER CCP against
The CGF (Collective Guarantee Fund) is a collective fund created to increase
the security of the derivative market. Its purpose is to reduce the deficits arising
from the delays or failures in payment undertakings associated with settlement
of futures and option transactions as a surety for a guarantee of the joint and
several guarantors. The CGF contribution and the reversionary amount is at the
same time a surety to the extent of the claims of KELER CCP against the clearing-members.
More information: KELER and KELER CCP