Transcript I. Agria Tőzsdekonferencia 1998. November 6-8.

Budapest
May 22, 2003
Risk management in
KELER
Kristóf Matuszka
risk analyst
May 22, 2003
Risk management in KELER
1
Overview
• Introduction
• CCP model
• Risk Management tools
– clearing membership
– monitoring
– margining
– collateral management
– fails management
• Summary
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Risk management in KELER
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Introduction
Markets and C&S models in KELER:
Markets
Clearing model
BCE derivatives
CCP since 1994
BSE derivatives
CCP since 1995
BSE cash
CCP since May, 2002
Settlement model
DERIVATIVES
CASH
OTC market
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Risk management in KELER
multilateral netting, T+3 for
equities, T+2 for bonds
real-time DVP
3
CCP conception
Benefits
KELER becomes a seller to every buyer and a buyer to
every seller in the exchange transactions.
• Increased market security via novation
• Anonimity
• Netting and spreads between products & markets
• Set-offs in margin calculation
• Integrity & connectivity
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CCP conception
Types of risk
KELER assumes different kinds of risk during its activity:
• Partner risk
• Market risk (price risk, liquidity risk)
• Operational risk
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Risk Management tools
• clearing membership
• monitoring
• margining
• collateral management
• fails management
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Membership
Structure
• Trading & Clearing Membership is independent from
each other
• 3-level clearing membership
– General CM: entitled to clear for other trading members
– Individual CM: clears own & client trades only
– Non-CM: a trading member has no direct link with KELER,
clears through a GCM
• Modularity
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Membership
Requirements
• Basic corporate documents
• Approval from the HFSA
• Capital requirements for BCE clearing members:
ICM - own
ICM - own
Market segment
account
and client
transactions transactions
GCM
BCE grain der.
10
20
500
BCE meat der.
3
20
500
20
100
500
BCE financial der.
• Members: banks, brokerage firms, agricultural
producers, trading firms, purchasers
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Membership
Survelliance
• Member rating via Quarterly and Annual Reports
• Calculation of position limits
– market concentration
– and equity-based limits
• Close monitoring of „problematic” members
• On-site visits at the members
– management interview
– checking administration & systems
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Membership
Sanctions
In case a member breaches the rules set out in
KELER’s Unified Rules:
• recommendations
• instructions
• extra margin requirements
• suspension of membership
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Monitoring
• Real-time position management & monitoring
– own account
– individual client accounts
• Real-time technical price calculation
• Real-time position evaluation
• Intraday clearing & margining facility
• Daily checking of limit utilizations
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Margining
Structure & elements
• Individual margin
– Variation margin
– Initial margin (calculated by SPAN4RM®)
– Basic financial deposit
– Additional margin
• Collective margin
– Collective guarantee funds
• KELER’s equity capital
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Margining
Variation margin
To cover price movements in the past
• daily mark-to-market of positions
• calculation of the gains / losses accumulated on the
positions using actual closing prices
• set-offs between different products
• daily price movements, cash settlement for derivatives
• difference between the closing price and trade price OR
between the actual and last day’s closing prices
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Margining
Initial margin
To cover a 1-day price movement in the future
in normal market conditions
• based on the open positons
• net margining
• portfolio-based calculation using SPAN4RM
(developed by CME)
• margin parameters (price scan ranges) determined
on a VAR basis
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Margining
Basic financial deposit
To cover the risk of the positions that potentially
can be opened during the next trading day
• prerequisite for a member to hold positions
• fix sum determined by KELER for each market
segment (in HUF million):
Grain derivatives
Basic financial
deposit
6
Meat derivatives
1
BCE market segment
Financial derivatives
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Risk management in KELER
7,5
15
Margining
Additional margin
In reasonable cases KELER is entitled to call
extra margin from its members with increased
risk exposure
• in case of an increased risk exposure (eg. exceeding
limits, non-performance of reporting obligations, as a
result of an on-site visit)
• as a fix sum or as a percentage of initial margin
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Margining
CGF
To cover extreme price movements
• embodies the mutual guarantee between the members
• collective fund is owned by the members but managed by
KELER
• can be utilized in case of a default of any member
• calculation of the contributions to the BCE derivatives CGF:
2% of the average of the initial margin requirement of the
last 3 months, minimum 0,5 HUF million, but maximum 6
HUF million - monthly calculation
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Margining
Financial resources
Fiancial guarantee of BCE trades is backed by robust
Funds (in HUF million):
Financial resources (as of 30/04/2003)
Members' individual margin
Collective Guarantee Fund
BCE derivatives
All markets
3 464
7 995
35
1 093
KELER's capital
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10 710
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Collateral management
• KELER-eligible instruments
– cash
– bank guarantees
– government bonds
– mortgage bonds
– corporate bonds
– equities in the BUX-index
• Daily mark-to-market of collateral (intraday reevaluation facility)
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Fails Management
• settlement expediting methods (overdraft via repo)
• suspension of membership
• blocking cash & securities accounts
• transfer of positions to another member
• set-off between positions
• forced liquidation of positions
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Summary
• Central counterparty clearing
• Integrated risk measurement & manegement for
several markets
• Real-time monitoring and intraday clearing facility
• Mark-to-market of collateral
• Huge financial resources
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