The transfer of equity securities is implemented via electronic book entry at the central securities depository. If the security intended for trading is not yet in book-entry form, it needs to be immobilized first so the securities settlement of PSE trades can be done via book-entry debits and credits at the depository. Cash settlement is effected through net debits and net credits to the Clearing Members' cash settlement accounts with the settlement banks. All PSE trades in listed securities are reported, confirmed and settled through SCCP on a Clearing Member level (not beneficial customer level). Upon uploading of the PSE Trades into SCCP's Central Clearing and Central Settlement system, multilateral netting takes place, and novation of the original PSE Trade contracts occurs. The securities settlement instructions are netted multilaterally into a net receipt or delivery position in a given security for each Clearing Member. All cash debits and credits from these securities settlement instructions are also netted into a single net cash position for each Clearing Member. On settlement date, book-entry settlement instructions will be created for each net position to facilitate movements from the net delivering Clearing Members to the net receiving Clearing Members.

As a result of novation, SCCP becomes a Central Counterparty ("CCP") to all matched trades executed at the Philippine Stock Exchange. As a CCP, SCCP assumes the role of a seller to all net buying Clearing Members and the buyer to all net selling Clearing Members. Thus, SCCP as the Central Counterparty takes the buyer's credit risks and assumes the seller's delivery risks, thereby addressing settlement concerns for market participants. The settlement of trades of listed securities takes place three business days after the transaction date or on T+3 on a Delivery-versus-Payment Multilateral Net Settlement basis. As such, cleared funds must be deposited in the Clearing Member's cash settlement account in the settlement bank and securities must be made available in the Clearing Member's securities accounts in the central depository's system not later than 12:00 noon of settlement date. If the securities are not delivered by the selling Clearing Member, the Clearinghouse will not release the corresponding cash entitlement to him, and vice versa. Late deliveries are imposed a monetary fine/penalty by the Clearinghouse.

SCCP has established a Clearing and Trade Guaranty Fund ("CTGF" or Clearing Fund) to assist the SCCP in meeting its obligations as a Central Counterparty.

The CTGF is a credit management tool and is intended to assist SCCP in meeting its obligations as Central Counterparty in the event that Clearing Members default on their settlement obligations. The Clearing Fund is continuously being built up through the collection of (i) monthly contributions from its active Clearing Members, based on the Clearing Members' total monthly turnover value net of block sales and cross transactions of the same flag and (ii) initial contribution from new or returning Clearing Members. It is a last resort tool for covering failed trades., In case it is utilized, the concerned Clearing Member will be required to promptly replenish the amount advanced from the CTGF as a result of its settlement default.

The Clearing Fund is comprised funded by of the following:

• Contribution from the Philippine Stock Exchange;
• Contributions required of Clearing Members;
• Reserve Fund of SCCP; and
• Interest income from the investments of the Clearing Fund.

Under Rule 5.1.5 of the SCCP Clearinghouse Rules, the CTGF shall be used only for the following purposes:

• Payment of the net money obligations in order to settle a failed trade;
• Buy-in of subject securities in order to settle a failed trade;
• For use as collateral in securing credit facilities from the settlement banks for the purpose of settling a failed trade;
• For use as collateral in borrowing securities through the Securities Borrowing and Lending facility;
• Payment of premium on any insurance policy taken for the Clearing Fund; and
• Satisfaction of losses, liabilities and expenses of SCCP incidental to the operation of its Clearing and Settlement functions.

In case the CTGF is insufficient at any time to meet the aggregate liabilities of SCCP to its Clearing Members, each entitled Clearing Member shall receive payment pro-rata the amount due to it in relation to the aggregate amount due to all the Clearing Members or in such other manner that the SCCP shall consider fair and appropriate. SCCP shall, however, remain liable for such unsettled liabilities but payment of the balance of such amount due shall only be made as and when and to the extent that funds are subsequently available.

Settlement assurance by the Clearinghouse involves the administration of appropriate risk management functions to prevent any untoward event that may affect its settlement process. In line with this, SCCP established a Risk Monitoring and Management System that continuously monitors potential risks that may impair the financial and operational capacity of Clearing Members to successfully settle their trade obligations. The Risk Management System of SCCP includes the following:

Since equities trades executed in the Exchange are settled three business days after Trade Date (T+3), the SCCP is exposed to risks at any given time equivalent to three days' worth of unsettled trades. Since the market price of the stocks that have been matched can fluctuate, price or market risk exists, where, if any of the counterparties to a trade fails to deliverSecurities sold or fails to pay for purchases made, SCCP as the Central Counterparty is exposed to losses due to fluctuation in market prices that may occur during the period where Trades have not yet been settled. To address the price or market risks, SCCP performs a daily revaluation called "mark-to-market". SCCP computes for the exposure on each of the three (3) days' worth of unsettled trades by comparing the contract price of each traded stock against its prevailing market value based on the stock's closing price and, netting out the buy and sell trades per stock. The computed exposure of each of the three days' unsettled trades is then netted out against each other to arrive at a net exposure which shall be the basis for the amount of the collateral to be required from a Clearing Member. Cash and securities which comprise the PSE index, and PSE shares are accepted as collaterals. Securities accepted as collateral are however, subjected to a 20-percent haircut. Alternatively, a Clearing Member can do an early delivery of the securities which caused the negative exposures. Clearing Members concerned must deliver their mark-to-market collateral no later than 12:00 noon of T+1. After collateral has been put up by a Clearing Member to cover his net negative exposure, it is possible that on the succeeding day/s, a Clearing Member shall be entitled to withdraw such collateral, in whole or in part. In any event that after performing the mark-to-market calculations for the day, SCCP determines that a Clearing Member's existing collateral balance is greater than the collateral requirement, or that a Clearing Member's net negative exposure no longer exists, such Clearing Member will be entitled to either a full or a partial refund.

Securities Eligible as Collateral Effective: February 01, 2024 Company Stock Code Aboitiz Equity Ventures, Inc. AEV AC Energy Corporation ACEN Alliance Global Group, Inc. AGI Ayala Corporation AC Ayala Land, Inc. ALI Bank of the Philippine Islands BPI BDO Unibank, Inc. BDO Bloomberry Resorts Corporation BLOOM Century Pacific Food, Inc. CNPF Converge Information Communications Technol., Inc CNVRG DMCI Holdings, Inc. DMC Emperador Inc. EMI Globe Telecom, Inc. GLO GT Capital Holdings, Inc. GTCAP International Container Terminal Services, Inc. ICT JG Summit Holdings, Inc. JGS Jollibee Foods Corporation JFC LT Group, Inc. LTG Manila Electric Company MER Metropolitan Bank & Trust Company MBT Monde Nissin Corporation MONDE Nickel Asia Corporation NIKL Philippine Long Distance Telephone Company TEL Philippine Stock Exchange, Inc. PSE Puregolf Price Club , Inc PGOLD San Miguel Corporation SMC Semirara Mining Corporation SCC SM Investments Corporation SM SM Prime Holdings, Inc. SMPH Universal Robina Corporation URC Wilcon Depot, Inc. WLCON

• Unusual Settlement Obligations
  
  SCCP sets the threshold to determine unusual settlement obligations based on the behavior of each Clearing Member's settlement activities during the immediately preceding six (6) months (most recent). This becomes the basis for establishing a separate normal limit for cash and securities obligations. In determining the Clearing Members with above normal and highly unusual settlement obligations, SCCP computes the risk multiple of each Clearing Member which is equivalent to its actual amount of cash/securities obligations for a given settlement date divided by its own 6 months' moving average net cash/securities obligations. A Clearing Member with a risk multiple exceeding the established threshold is included in the list of brokers subject to monitoring.


• Trade Concentration on a Stock
  
  SCCP sets a threshold to determine securities that exhibit trade concentration on a particular security. A "trade concentration" report is prepared and submitted to the Capital Markets Integrity Corp. (CMIC).

• Daily Average Netted Obligation vs Net Liquid Capital
  
  SCCP has established a threshold to determine the capability of Clearing Members to fulfill their settlement obligations to SCCP by comparing their Net Liquid Capital (NLC) against their Daily Average Netted Obligations (DANO) for the month.
  
  The ratio of the Clearing Member's NLC over its DANO (NLC/DANO) shows the fraction of a Clearing Member's NLC for every peso of its average obligation. This ratio shows the extent by which SCCP may readily recover from any of its defaulting Clearing Members and in the same manner, the value of SCCP's exposure on its Clearing Members with deficient NLC.
  
  On the other hand, the ratio of a Clearing Member's DANO against its NLC (DANO/NLC) shows the percentage by which the NLC may be used up in order to cover its outstanding settlement obligations. Any resulting ratio in excess of 100% represents the percentage of settlement obligations that cannot be covered by a Clearing Member's NLC.
  
  During the review of the Clearing Member's DANO vs Net Liquid Capital, other relevant factors such as the Clearing Member's Risk Based Capital Adequacy Ratio is taken into consideration.


• Compliance to Settlement Deadline
  
  Monitoring Clearing Members' compliance to settlement deadline is subdivided into three parts:
  
  
  • Recurring Fails Report which identifies Clearing Members with cash and security fails of greater than or equal to two times within seven trading days for the month.
  • Habitual Lates Report which identifies brokers who have incurred cash or securities fail at least three times during the year.
  • DVP Settlement Deadline Fails Report which shows the details of cash payment and security delivery fails beyond 12:00 noon during the month and the reasons for incurring settlement fails.