The guarantee system provides brokerage firms with a guarantee that trades that they have executed will be settled whatever their counterparty’s situation and within a predetermined maximum number of days. The Casablanca Stock Exchange has put in place the appropriate resources required to resolve any problems arising from a shortfall in securities or cash without any loss being sustained by the party which is the victim of the unsettled trade.
The guarantee covers the following :
Securities : All listed securitis are guaranteed. If, for any particular reason, the Casablanca Stock Exchange decides to temporarily or definitively to suspend the guarantee such as in the event of a corporate action or de-listing, then it will inform brokerage firms of its decision through a notice, giving the effective date. All trades prior to this date will hawever be guaranteed, however, until they are finally settled.
Transactions : Only ISB flows (Inter-Brokerage Firms) are guaranteed. In the payment/delivery system, the brokerage firm settles two types of flows for Central Market transactions.
Membership : Each brokerage firm is automatically a member of the guarantee system and is subject to the system’s operating procedures. In the event that a member ceases its activity, it remains subject to the system’s operating procedures until all movements are settled.
Market : Only transactions carried out on the central market are guaranteed. The block-trade market is similar to an OTC market in which each intermediary chooses its counterparty itself and is therefore without risk.
Trading risk is related to a potentially unfavourable change in the value of movements to be settled between the trade date and the date of effective settlement. At the end of each stock market session, it is possible to correctly estimate the price change which would have to be borne in the event of settlement by a buy-in or resale procedure taking into account the price change.
Liquidation risk is related to uncertainty in respect of the potential price differential which may arise between the time that the default of a member is recorded and the time that the buy-in or resale is executed. Furthermore, the buy-in or resale could itself move the share price if the position which is to be liquidated is sizeable.
To insure against the risk of partial or total default by a member, the guarantee system calls for margin to be deposited. This is earmarked to cover potential losses which may arise from the liquidation of the defaulting member’s position. Margin may not be shared on a reciprocal basis.
Initial contribution is a cash contribution requested of each memeber of the guarantee system which is intended to cover the liquidation risk .
Regular contribution : At the end of each stock market session, the guarantee system assesses each brokerage firm’s level of trading risk by evaluating its unsettled and suspended movements based on the reference price of the following stock market session.
Exceptional contribution : The notion of an exceptional contribution is inspired by the principle of “market solidarity”. In the event of structural default by a member and if its margin does not cover its liabilities, an exceptional contribution may be requested from all members in order to be able to liquidate the positions of the defaulting member. Each member’s share in the hedging of the overall exceptional contribution will be in proportion to its share of the overall initial contribution.