Resources of the clearing guarantee system

The process begins when the application is filed and checks whether the participant meets the own capital criteria. KDPW_CCP regularly assesses participants’ compliance with the capital requirements and prudential standards under the law.
more

Margins are determined on the basis of the Expected Shortfall margining model and their purpose is to cover the change in the amount for clearing over the assumed time horizon as a result of adverse changes in market prices. Margins may only be used in the event of default of the participant who has posted them. The main advantage of this solution is to guarantee that resources posted as margins cannot be used for any other purpose.

Types of margins:

- initial margin
 

• posted by the clearing member for transactions to be cleared in the OTC clearing system;
• the amount of the initial margin is set by KDPW_CCP and is not lower than the amount that would result from calculations based on the volatility estimated over a historical look-back period of 10 years;
• the amount of the initial margin required from a participant is determined by the size of the risk arising from the transaction taking into account risk reduction due to correlations between derivatives or repo and sell transactions, respectively.
• the amount of a participant’s required initial margin is updated on each day on which transactions are cleared in KDPW_CCP;

- initial deposit
 

• posted by clearing members for transactions which, according to the clearing instruction, are to be cleared in the OTC clearing system;
• the minimum amount of the initial deposit is determined in a resolution of the KDPW_CCP S.A. Management Board;

Information on margin requirements

Information on margin requirements for each account is provided in messages:
 

• colr.ins.001.xx - posted or released collateral
• colr.sts.001.xx – posted or released collateral status
• colr.sgf.002.xx – settlement fund update message – OTC
• colr.mrg.003.xx – Margin payments

The message structures are available in the tab IT Tools

In case of exceptional changes on the market, the value of resources deposited as margins may be insufficient. This additional risk, known as uncovered risk, is secured with the resources of the guarantee fund and calculated separately for own portfolios of the clearing member and for client portfolios, for stress-test scenarios defined by KDPW_CCP. Uncovered risk under a stress-test scenario is equal to the difference between the hypothetical loss on a portfolio (determined by KDPW_CCP as the difference between the value of the portfolio under the stress-test scenario and the value of the portfolio as at the end of day in the clearing system) and the value of the initial margin requirement, provided that uncovered risk of client portfolios of clearing members has a floor value equal to zero.

KDPW_CCP own capital are maintained in order to cover the insolvency of the two largest exposed clearing members in extreme market conditions. The dedicated portion of own capital (dedicated resources) may be used after the contribution of the insolvent member to the fund has been utilised.

The resources of the clearing guarantee system comprise own capital of KDPW_CCP S.A. including dedicated resources separated from the own assets of KDPW_CCP. KDPW_CCP dedicates own resources equal to at least 25% of the capital requirement (according to Article 16(2) of EMIR).

The amount of dedicated resources is calculated taking into account the allocation of such resources in relation to the amount of the clearing fund and the guarantee funds operated by KDPW_CCP. The dedicated resources of KDPW_CCP are used immediately after the contributions of the defaulting member to the clearing fund or the relevant guarantee fund are used. Next, after the resources contributed by other participants to the clearing fund or the relevant guarantee fund are used, the own resources of KDPW_CCP are used up to 110% of the capital requirement. After these are used, the members are requested to make additional contributions to the clearing fund or the relevant guarantee fund in an amount up to 50% of the previous contribution. Finally, the remaining own resources of KDPW_CCP are used. The resources waterfall is presented in the chart.

KDPW_CCP informs participants of the amount of the dedicated resources and the allocation of such resources in the tab Funds, main resource and allocation.

Having used all the resources within the system, including own capital assets up to the level of 110% of the minimal required value, KDPW_CCP may call on members to make additional contributions to the funds up to an amount not exceeding 50% of the value of their previous contribution.