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:
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.
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.
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.