By JAMIE LEE

INDUSTRY watchers have hailed the proposed changes by Singapore Exchange (SGX) to the Central Depository (CDP) clearing fund structure, saying that the move is a confidence booster for market players. But they also urge SGX to factor in the respective risk management practices of clearing members.

Under the proposed changes unveiled by SGX on Monday, each of its securities clearing members need to contribute at least $1 million in cash - four times the minimum amount now - to the clearing fund.

Bigger clearing members would foot a larger part of the bill, as they would be asked to pay a portion of its trading turnover.

This would bring the total contribution from CDP's 24 clearing members to $30 million, doubled from $15 million currently, with an eventual increase to $40 million later.

The CDP, which operates the clearing system as a counter-party for trades matched, will itself raise its contribution to the first layer of the clearing fund from $25 million to $30 million.

SGX said that with the increase in securities turnover, clearing members' current contribution of $15 million is too low when compared with the risks from their outstanding trades.

The proposed changes have been discussed by the clearing members with SGX for some time, said a DBS Vickers Securities' spokesman. While supporting the move, the brokerage said that SGX should look into the risk management systems of the clearing members.

'We suggest that SGX can further refine the clearing fund structure to risk-weight clearing members accordingly, differentiate clearing members with sound risk management systems and determine the contribution required of the members,' said the spokesman.

Chief executive of CIMB-GK Securities Carol Fong said that the use of the turnover as a basis on contribution 'sounds reasonable' and that she can understand the rationale behind such a move. 'I think they want to protect the retail clients as well,' she said.

A senior executive from a large local brokerage here said that this move would instil more confidence in the market.

He added that this would prevent trading from 'coming to a standstill' if any major defaults occur in the future.

'After the Lehman event, it's probably a good time to look into strengthening risk management,' he said.

Investment bank Lehman Brothers - a former clearing member of SGX - had collapsed last year, sparking worries of counter-party defaults. SGX later announced that Lehman was meeting its financial obligations to the exchange's securities and derivatives clearing houses.

This article was first published in The Business Times.