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.
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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.
• 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;

The total required margin for a portfolio of OTC transactions is determined by KDPW CCP, include:
 

• market risk margin (IM) – protects against losses resulting from market price fluctuations during the specified position liquidation period of transactions in the event of clearing member default.
• liquidity and concentration risk margin (LCRM) - covers the risk of loss resulting from the closing of a member’s position in connection with the size of the liquidated position and a bid-ask price spread.
• outdated Mark to Market (OutMtM) - is equal to the sum of the values of all transactions in the portfolio accepted for clearing or concluded on auction during the day.
• settlement adjustment (SAdj) - is the total price for taking over of the portfolio on auction, equal to the sum of the products of the winning participant’s quote and the quantity of units covered by the quote.

 

Total required margin	intra-day	IM + LCRM	+ OutMtM	+ SAdj
	end-of-day		-

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:

• dedicated resources I – a dedicated part of KDPW_CCP’s own capital used after the defaulting member’s contributions to the default funds have been used. The amount of the dedicated resources should be at least equal to 25% of the minimum capital,
• dedicated resources II – a dedicated part of KDPW_CCP’s own capital used after the contributions made to the default funds have been used. The amount of the dedicated resources is equal to 25% of the minimum capital,
• other prefunded financial resources – the amount of KDPW_CCP’s own capital determined by the Management Board and approved by the Supervisory Board, in accordance with Article 43(1) of Regulation of the European Parliament and of the Council (EU) No 648/2012 of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR), intended to cover potential losses arising from the default of clearing members, which should be used after all contributions to the relevant default fund covering clearing member default have been used, excluding dedicated resources I and dedicated resources II.

KDPW_CCP calculates at least once per year its minimum capital required under the Regulation of the European Parliament and of the Council (EU) No 648/2012 of 4 July 2012 on OTC derivatives, central counterparties and trade repositories. Furthermore, KDPW_CCP calculates the amount of dedicated resources I and II.

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 clearing guarantee system, KDPW_CCP may call on members to make additional contributions to the default funds up to an amount not exceeding 100% of the value of their previous contribution.