Risk Management
As the central counter-party, NZCL assumes counter-party risk for all trades executed on NZX Markets.
NZCL addresses counter-party risks through key risk management policies, including:
- Requiring Clearing Participants to have minimum financial resources and operational capability.
- Requiring Clearing Participants to collateralise the risk of their open positions.
- Holding capital which can be used in the event of participant default, where margin collected is not sufficient to cover losses.
Other risks faced by NZCL include liquidity risk, operational risk, legal risk and settlement bank risk. These are mitigated through robust operational and financial processes and controls.
Margin
At the end of each trading day the margin requirements are calculated for each Clearing Participant. The margin requirements for each Clearing Participant consist of initial, variation and additional margin.
For derivatives initial margin, NZCL uses SPAN© ("Standard Portfolio Analysis of Risk"). SPAN© is a margining system developed by the Chicago Mercantile Exchange ("CME") and is the industry standard for derivatives margining. By using a defined set of parameters set by NZCL, SPAN© assesses the maximum potential loss for a given portfolio in a normal market, and matches the initial margin required to cover this risk.
Latest Derivative SPAN Margin Circular
Generally a SPAN© parameter file is prepared at the end of each business day that can be used by participants as an input into PC-SPAN.
Download the parameter file from ftp://ftp.cmegroup.com/pub/span/data/nzx