• PART 12: PART 12: Financial Markets and Insolvency

    • Article 194 - Introduction

      This Part has effect for the purposes of safeguarding the operation of certain financial markets by provisions with respect to:

      (1) the insolvency, administration, winding up or default of a person party to transactions in the market;
      (2) the effectiveness or enforcement of certain charges given to secure obligations in connection with such transactions; and
      (3) rights and remedies in relation to certain property provided as cover for margin in relation to such transactions or subject to such a charge.

    • Article 195 - Market contracts

      (1) This Part applies to "market contracts". Market contracts are contracts which include financial collateral arrangements and close-out netting provisions, where one party is a person other than a natural person and the other party is a financial institution, credit institution or investment undertaking.
      (2) In these Regulations:
      (A) "close-out netting provision" means a term of an agreement or arrangement or any legislative provision under which on the occurrence of an enforcement event, whether through the operation of netting or set-off or otherwise:
      (i) the obligations of the parties are accelerated to become immediately due and expressed as an obligation to pay an amount representing the original obligation's estimated current value or replacement cost, or are terminated and replaced by an obligation to pay such an amount; or
      (ii) an account is taken of what is due from each party to the other in respect of such obligations and a net sum equal to the balance of the account is payable by the party from whom the larger amount is due to the other party;
      (B) "credit institution" means an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account.
      (C) "defaulter" means a person in respect of whom action has been taken by a recognised exchange or recognised clearing house under its default rules; and references in this Part 12 to "default" shall be construed accordingly.
      (D) "financial collateral" means:
      (i) cash;
      (ii) shares in companies;
      (iii) bonds and other forms of instrument giving rise to or acknowledging indebtedness if these are tradeable on the capital market; and
      (iv) any other securities giving the right to acquire such shares, bonds or instruments.
      (E) "financial collateral arrangement" means a title transfer financial collateral arrangement or a security financial collateral arrangement, whether or not these are covered by a master agreement or general terms and conditions.
      (F) "financial institution" means an undertaking other than a credit institution, the principal activity of which is to acquire holdings or to carry on one or more of the following activities:
      (i) acceptance of deposits and other repayable funds;
      (ii) lending, including, inter alia, consumer credit, mortgage credit, factoring (with or without recourse) and financing of commercial transactions (including forfeiting);
      (iii) financial leasing;
      (iv) money transmission services;
      (v) issuing and administering means of payment (for example, credit cards, travellers' cheques and bankers' drafts);
      (vi) guarantees and commitments;
      (vii) trading for own account or for account of customers in:
      (a) money market instruments (cheques, bills, certificates of deposit, etc.);
      (b) foreign exchange;
      (c) financial futures and options;
      (d) exchange and interest-rate instruments; or
      (e) transferable securities;
      (viii) participation in securities issues and the provision of services related to such issues;
      (ix) advice to undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and the purchase of undertakings;
      (x) money broking;
      (xi) portfolio management and advice;
      (xii) safekeeping and administration of securities;
      (xiii) credit reference services; or
      (xiv) safe custody services;
      (G) "enforcement event" means an event of default, or any similar event as agreed between the parties, on the occurrence of which, a close-out netting provision comes into effect;
      (H) "investment undertaking" means an undertaking which provides services involving the holding of funds or securities for third parties and collective investment funds.
      (I) "security financial collateral arrangement" means an agreement or arrangement, including a repurchase agreement, evidenced in writing, where:
      (i) the purpose of the agreement or arrangement is to secure the relevant financial obligations owed to the collateral-taker;
      (ii) the collateral-provider creates or there arises a security in financial collateral to secure those obligations; and
      (iii) the financial collateral is delivered, transferred, held or registered so as to be in the possession or control of the collateral-taker
      (J) "title transfer financial collateral arrangement" means an agreement or arrangement, including a repurchase agreement, evidenced in writing, where:
      (i) the purpose of the agreement or arrangement is to secure or otherwise cover the relevant financial obligations owed to the collateral-taker; and
      (ii) the collateral-provider transfers legal and beneficial ownership in financial collateral to a collateral-taker on terms that when the relevant financial obligations are discharged the collateral-taker must transfer legal and beneficial ownership of equivalent financial collateral to the collateral-provider.
      (3) In this Part:
      (A) "charge" means any form of security, including a mortgage;
      (B) "clearing house" means a person authorised by the laws of any place where it conducts business as such, and may include an exchange where the rules of such exchange effect settlement netting between members;
      (C) "exchange" means a person authorised by the laws of any place where it conducts business as such, and may include an exchange where the rules of such exchange effect settlement netting between members; and
      (D) "designated" means designated pursuant to criteria published or as otherwise specified by the QFC Authority from time to time.
      (4) References in this Part to settlement in relation to a market contract are to the discharge of the rights and liabilities of the parties to the contract, whether by performance, compromise or otherwise.
      (5) In this Part the expressions "margin" and "cover for margin" have the same meaning.
      (6) For the purposes of this Part a person shall be taken to have notice of a matter if he deliberately failed to make enquiries as to that matter in circumstances in which a reasonable and honest person would have done so. This does not apply for the purposes of a provision requiring "actual notice".
      (7) In relation to a designated exchange, this Part 12 applies to:
      (A) contracts entered into by a member or designated non-member of the exchange which are made on or otherwise subject to the rules of the exchange; and
      (B) contracts subject to the rules of the exchange executed through the facilities of the exchange for the purposes of or in connection with the provision of clearing services.
      (8) A "designated non-member" means a person in respect of whom action may be taken under the default rules of the exchange but who is not a member of the exchange.
      (9) In relation to a designated clearing house, this Part 12 applies to contracts subject to the rules of the clearing house cleared through the facilities of the clearing house for the purposes of or in connection with the provision of clearing services for a recognised exchange.
      (10) The QFC Authority may by rules make further provision as to the contracts to be treated as "market contracts", for the purposes of this Part, in relation to a designated exchange or designated clearing house.
      (11) The said rules may add to, amend or repeal the provisions of Article 195(2) and (3).

    • Article 196 - Modifications of the law of insolvency

      (1) These Regulations have effect in relation to market contracts, and action taken under the rules of a designated exchange or designated clearing house with respect to such contracts, subject to the provisions of Articles 197 to 201.
      (2) The QFC Authority may by rules add to, amend or repeal the provisions mentioned in Article 197(1), and any other provision of this Part as it applies for the purposes of those provisions, or provide that those provisions have effect subject to such additions, exceptions or adaptations as are specified in such rules.

    • Article 197 - Proceedings of exchange or clearing house take precedence over insolvency procedures

      (1) None of the following shall be regarded as to any extent invalid at law on the ground of inconsistency with Regulations relating to the distribution of the assets of a Company upon administration, Arrangement or winding up:
      (A) a market contract;
      (B) the default rules of a recognised exchange or recognised clearing house; or
      (C) the rules of a designated exchange or designated clearing house as to the settlement of market contracts not dealt with under its default rules.
      (2) The powers of a relevant insolvency practitioner in his capacity as such, and the powers of the QFC Court under these Regulations shall not be exercised in such a way as to prevent or interfere with:
      (A) the settlement in accordance with the rules of a designated exchange or designated clearing house of a market contract not dealt with under its default rules; or
      (B) any action taken under the default rules of such an exchange or clearing house.
      This does not prevent a relevant officeholder from afterwards seeking to recover any amount under Article 199 or 200 or prevent the QFC Court from afterwards making any such order or decree as is mentioned in Article 201(1) (but subject to Article 201(2) and (3)).
      (3) Nothing in the following provisions of this Part shall be construed as affecting the generality of this Article 197.
      (4) A debt or other liability arising out of a market contract which is the subject of default proceedings may not be proved in a winding up until the completion of the default proceedings.
      (5) A debt or other liability which by virtue of this Article may not be proved or claimed shall not be taken into account for the purposes of any set-off until the completion of the default proceedings.
      (6) For the purposes of Article 197(4) & (5) the default proceedings shall be taken to be completed in relation to a person when a report is made under Article 198 stating the sum (if any) certified to be due to or from him.

    • Article 198 - Duty to report on completion of default proceedings

      A designated exchange or designated clearing house shall, on the completion of proceedings under its default rules, report to the QFC Authority on its proceedings stating in respect of each creditor or debtor the sum certified by them to be payable from or to the defaulter or, as the case may be, the fact that no sum is payable.

    • Article 199 - Net sum payable on completion of default proceedings

      (1) The following provisions apply with respect to the net sum certified by a designated exchange or designated clearing house, upon proceedings under its default rules being duly completed in accordance with this Part, to be payable by or to a defaulter.
      (2) If a winding-up order has been made, or a Resolution For Voluntary Winding Up has been passed, the debt:
      (A) is provable in the winding up or, as the case may be, is payable to the Liquidator; and
      (B) shall be taken into account, where appropriate, under Article 107 (mutual dealings and set-off
      in the same way as a debt due before the commencement of the Liquidation.
      (3) However, where (or to the extent that) a sum is taken into account by virtue of Article 199(2)(B) which arises from a contract entered into at a time when the creditor had notice that a meeting of creditors had been summoned under Article 71 or that a winding up application was pending, or that an application for an Administration Order was pending or that any person had given notice of an intention to appoint an Administrator, the value of any profit to him arising from the sum being so taken into account (or being so taken into account to that extent) is recoverable from him by the relevant officeholder unless the QFC Court directs otherwise.
      (4) Article 199 does not apply in relation to a sum arising from a contract effected under the default rules of a designated exchange or designated clearing house.

    • Article 200 - Disclaimer of property

      (1) Article 92 (power to disclaim onerous property) does not apply in relation to:
      (A) a market contract; or
      (B) a contract effected by the exchange or clearing house for the purpose of realising property provided as margin in relation to market contracts.
      (2) Article 81 (avoidance of property dispositions effected after commencement of winding up) does not apply to:
      (A) a market contract, or any disposition of property in pursuance of such a contract;
      (B) the provision of margin in relation to market contracts;
      (C) a contract effected by the exchange or clearing house for the purpose of realising property provided as margin in relation to a market contract, or any disposition of property in pursuance of such a contract; or
      (D) any disposition of property in accordance with the rules of the exchange or clearing house as to the application of property provided as margin.
      (3) However, where:
      (A) a market contract is entered into by a person who has notice that an application has been presented for the winding up of the other party to the contract; or
      (B) margin in relation to a market contract is accepted by a person who has notice that such an application has been presented in relation to the person by whom or on whose behalf the margin is provided
      the value of any profit to him arising from the contract or, as the case may be, the amount or value of the margin is recoverable from him by the relevant officeholder unless the QFC Court directs otherwise.
      (4) This Article 200 does not apply where the person entering into the contract is a designated exchange or designated clearing house acting in accordance with its rules, or where the contract is effected or cleared under the default rules of such an exchange or clearing house; but this Article 200 applies in relation to the provision of margin in relation to such a contract.

    • Article 201 - Adjustment of prior transactions

      (1) No order shall be made in relation to a transaction to which this Article applies under:
      (A) Article 142 (transactions at an undervalue); or
      (B) Article 143 (preferences);
      (2) This Article 201 applies to:
      (A) a market contract;
      (B) a contract to which a designated exchange or designated clearing house is a party or which is entered into under its default rules; and
      (C) a disposition of property in pursuance of such contracts referred to in Article 201 (2)(A) and (B).
      (3) Where margin is provided in relation to such a contract or a market contract and no such order as is mentioned in Article 201 (1) has been, or could be, made in relation to that contract, this Article 201 applies to:
      (A) the provision of the margin;
      (B) any contract effected by the exchange or cleared by the clearing house in question for the purpose of realising the property provided as margin; and
      (C) any disposition of property in accordance with the rules of the exchange or clearing house as to the application of property provided as margin.

    • Article 202 - Powers of the QFC Authority to give directions

      (1) The powers conferred by this Article are exercisable in relation to a designated exchange or designated clearing house.
      (2) Where in any case an exchange or clearing house has not taken action under its default rules:
      (A) if it appears to the QFC Authority that it could take action, it may direct it to do so; and
      (B) if it appears to the QFC Authority that it is proposing to take or may take action, it may direct it not to do so.
      (3) Before giving such a direction the QFC Authority shall consult the exchange or clearing house in question; and it shall not give a direction unless it is satisfied, in the light of that consultation:
      (A) in the case of a direction to take action, that failure to take action would involve undue risk to investors or other participants in the market; or
      (B) in the case of a direction not to take action, that the taking of action would be premature or otherwise undesirable in the interests of investors or other participants in the market; or
      (C) in either case, that the direction is necessary having regard to the public interest in the stability of the financial system in the State.
      (4) A direction shall specify the grounds on which it is given.
      (5) A direction not to take action may be expressed to have effect until the giving of a further direction (which may be a direction to take action or simply revoking the earlier direction).
      (6) No direction shall be given not to take action if, in relation to the person in question a winding up order has been made, a Resolution For Voluntary Winding Up has been passed or an Administrator, or provisional Liquidator has been appointed; and any previous direction not to take action shall cease to have effect on the making or passing of any such order, award or appointment.
      (7) Where an exchange or clearing house has taken or been directed to take action under its default rules, the QFC Authority may direct it to do or not to do such things (being things which it has power to do under its default rules) as are specified in the direction. The QFC Authority shall not give such a direction unless it is satisfied that it will not impede or frustrate the proper and efficient conduct of the default proceedings.
      (8) A direction under this Article is enforceable, on the application of the QFC Authority, by injunction; and where an exchange or clearing house has not complied with a direction, the QFC Court may make such order as it thinks fit for restoring the position to what it would have been if the direction had been complied with.

    • Article 203 - Application to determine whether default proceedings to be taken

      (1) Where there has been made or passed in relation to a member or designated non-member of a designated exchange or a member of a designated clearing house a winding up order, a Resolution For Voluntary Winding Up or an order appointing a provisional Liquidator and the exchange or clearing house has not taken action under its default rules in consequence of the order, award or resolution or the matters giving rise to it, a relevant officeholder appointed by, or in consequence of or in connection with, the order, award or resolution may apply to the QFC Authority.
      (2) The application shall specify the exchange or clearing house concerned and the grounds on which it is made.
      (3) On receipt of the application the QFC Authority shall notify the exchange or clearing house, and unless within three business days after the day on which the notice is received the exchange or clearing house:
      (A) takes action under its default rules; or
      (B) notifies the QFC Authority that it proposes to do so forthwith
      then, subject as follows, the provisions of Articles 196 to 201 above do not apply in relation to market contracts to which the member or designated non-member in question is a party or to anything done by the exchange or clearing house for the purposes of, or in connection with, the settlement of any such contract.
      (4) The provisions of Articles 196 to 201 are not disapplied if before the end of the period mentioned in Article 203(3) the QFC Authority gives the exchange or clearing house a direction under Article 202(2)(A) (direction to take action under default rules). No such direction may be given after the end of that period.
      (5) If the exchange or clearing house notifies the QFC Authority that it proposes to take action under its default rules forthwith, it shall be under a duty to do so; and that duty is enforceable, on the application of the QFC Authority, by injunction.

    • Article 204 - Market charges

      (1) In this Part "market charge" means a charge, granted:
      (A) in favour of a designated exchange, for the purpose of securing debts or liabilities arising in connection with the settlement of market contracts;
      (B) in favour of a designated clearing house, for the purpose of securing debts or liabilities arising in connection with their ensuring the performance of market contracts;
      (C) in favour of a person who agrees to make payments as a result of the transfer or allotment of securities made through the medium of a computer-based system established for the purpose of securing debts or liabilities of the transferee or allottee arising in connection therewith; or
      (D) a security financial collateral arrangement as defined in Article 195(2)(I).
      (2) Where a charge is granted partly for purposes specified in Article 204(1)(A), (B) or (C) and partly for other purposes, it is a "market charge" so far as it has effect for the specified purposes.
      (3) In Article 204(1)(C):
      (A) "securities" includes any right to such securities; and
      (B) "transfer", in relation to any such securities or right, means a transfer of the beneficial interest.
      (4) The QFC Authority may by rules make further provision as to the charges granted in favour of any such person as is mentioned in Article 204(1)(A), (B) or (C) which are to be treated as "market charges" for the purposes of this Part; and such rules may add to, amend or repeal the provisions of Article 204(1) to (3) above.
      (5) Rules made by the QFC Authority may provide that a charge shall or shall not be treated as a market charge if or to the extent that it secures obligations of a specified description, is a charge over property of a specified description or contains provisions of a specified description.

    • Article 205 - Modifications of the law of insolvency

      The general law of insolvency has effect in relation to market charges and action taken in enforcing them subject to the provisions of Article 206.

    • Article 206 - Administration

      (1) The following Articles (which relate to administrations) do not apply in relation to a market charge:
      (A) Articles 26(1)(C) and 27(2)(C) (restriction on enforcement of security while application for Administration Order pending or order in force); and
      (B) Article 32 (power of Administrator to deal with charged property).
      (2) However, where a market charge falls to be enforced after an Administrator has been appointed, an application for an Administration Order has been made or notice of intention to appoint an Administrator has been given, and there exists another charge over some or all of the same property ranking in priority to or pari passu with the market charge, the QFC Court may order that there shall be taken after enforcement of the market charge such steps as the QFC Court may direct for the purpose of ensuring that the chargee under the other charge is not prejudiced by the enforcement of the market charge.
      (3) Article 81 (avoidance of property dispositions effected after commencement of winding up), does not apply to a disposition of property as a result of which the property becomes subject to a market charge or any transaction pursuant to which that disposition is made.
      (4) However, if a person (other than the chargee under the market charge) who is party to a disposition mentioned in Article 206(4) has notice at the time of the disposition that an application has been made for the winding up of the party making the disposition, the value of any profit to him arising from the disposition is recoverable from him by the relevant officeholder unless the QFC Court directs otherwise.
      (5) In a case falling within both Article 206(4) (as a disposition of property as a result of which the property becomes subject to a market charge) and Article 200(3) (as the provision of margin in relation to a market contract), Article 200(4) applies with respect to the recovery of the amount or value of the margin and Article 206(5) above does not apply.

    • Article 207 - Application of margin not affected by certain other interests

      (1) The following provisions have effect with respect to the application by a designated exchange or designated clearing house of property (other than land) held by the exchange or clearing house as margin in relation to a market contract.
      (2) So far as necessary to enable the property to be applied in accordance with the rules of the exchange or clearing house, it may be so applied notwithstanding any prior equitable interest or right, or any right or remedy arising from a breach of fiduciary duty, unless the exchange or clearing house had notice of the interest, right or breach of duty at the time the property was provided as margin.
      (3) No right or remedy arising subsequently to the property being provided as margin may be enforced so as to prevent or interfere with the application of the property by the exchange or clearing house in accordance with its rules.
      (4) Where an exchange or clearing house has power by virtue of the above provisions to apply property notwithstanding an interest, right or remedy, a person to whom the exchange or clearing house disposes of the property in accordance with its rules takes free from that interest, right or remedy.

    • Article 208 - Proceedings against market property by unsecured creditors

      (1) Where property (other than land) is held by a designated exchange or designated clearing house as margin in relation to market contracts or is subject to a market charge, no execution or other legal process for the enforcement of a judgment or order may be commenced or continued, and no distress may be levied, against the property by a person not seeking to enforce any interest in or security over the property, except with the consent of:
      (A) in the case of property provided as cover for margin, the exchange or clearing house in question; or
      (B) in the case of property subject to a market charge, the person in whose favour the charge was granted.
      (2) Where consent is given the proceedings may be commenced or continued notwithstanding any provision of these Regulations.
      (3) Where by virtue of this Article a person would not be entitled to enforce a judgment or order against any property, any injunction or other remedy granted with a view to facilitating the enforcement of any such judgment or order shall not extend to that property.

    • Article 209 - Right of use under a security financial collateral Arrangement

      (1) If a security financial collateral arrangement provides for the collateral-taker to use and dispose of any financial collateral provided under the arrangement, as if it were the owner of it, the collateral-taker may do so in accordance with the terms of the arrangement.
      (2) If a collateral-taker exercises such a right of use, it is obliged to replace the original financial collateral by transferring equivalent financial collateral on or before the due date for the performance of the relevant financial obligations covered by the arrangement or, if the arrangement so provides, it may set off the value of the equivalent financial collateral against or apply it in discharge of the relevant financial obligations in accordance with the terms of the arrangement.
      (3) The equivalent financial collateral which is transferred in discharge of an obligation as described in Article 209(2), shall be subject to the same terms of the security financial collateral arrangement as the original financial collateral was subject to and shall be treated as having been provided under the security financial collateral arrangement at the same time as the original financial collateral was first provided.
      (4) If a collateral-taker has an outstanding obligation to replace the original financial collateral with equivalent financial collateral when an enforcement event occurs, that obligation may be the subject of a close-out netting provision.

    • Article 210 - Standard test regarding the applicable law to book entry securities financial collateral arrangements

      (1) This Article 210 applies to financial collateral arrangements where book entry securities collateral is used as collateral under the arrangement and are held through one or more intermediaries.
      (2) Any question relating to the matters specified in Article 210(4) which arises in relation to book entry securities collateral which is provided under a financial collateral arrangement shall be governed by the domestic law of the country in which the relevant account is maintained (and domestic law in relation to an account maintained in the QFC shall mean QFC law).
      (3) For the purposes of Article 210(2) "domestic law" excludes any rule under which, in deciding the relevant question, reference should be made to the law of another country.
      (4) The matters referred to in Article 210(2) are:
      (A) the legal nature and proprietary effects of book entry securities collateral;
      (B) the requirements for perfecting a financial collateral arrangement relating to book entry securities collateral and the transfer of passing of control or possession of book entry securities collateral under such an agreement;
      (C) the requirements for rendering a financial collateral arrangement which relates to book entry securities collateral effective against third parties;
      (D) whether a person's title to or interest in such book entry securities collateral is overridden by or subordinated to a competing title or interest; and
      (E) the steps required for the realisation of book entry securities collateral following the occurrence of any enforcement event.

    • Article 211 - Officeholders

      Relevant officeholders for the purposes of this Part are Liquidators, provisional Liquidators and Administrators.