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Lines of Defence

  • As a central counterparty OMIClear has established a sound framework of safeguards - lines of defence - to protect its clearing members, the clearing house itself and the overall marketplace.
  • The combination of OMIClear’s admission requirements, margining procedures and risk management framework promotes a safe, robust and trustworthy field to perform its clearing and settlement activities.
  • The lines of defence to cope with severe market events are the following:

Line of Defence

Contributed by:

Purpose

Description

1. Membership criteria

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To ensure a sound structure of the CCP

OMIClear only accepts as Clearing Members entities with a reduced credit risk based on a robust internal risk assessment (Credit Risk Policy).
Please see Instruction B02/2014 - Requirements for Clearing Members.

2. Margins

Clearing Members

To cover potential losses of risk takers (“defaulter pays” principle)

Initial Margin methodology based on member’s portfolio (“SPAN” concept);

Variation Margin / Premium Margin / MtM - covering market risk resulting from market price fluctuations (collateralized or daily cash settled);

Other margins.

Please see Instruction B10/2014 - Calculation of Margins and Settlement Values.

3. Additional guarantees (when applicable)

Clearing Members

To cover potential losses of risk takers (“defaulter pays” principle)

Additional collateral required by OMIClear for clearing members with equity capital or risk level values below the pre-defined membership thresholds.

Please see Instruction B02/2014 - Requirements for Clearing Members.

4. Clearing Fund contribution

Clearing Members

To cover potential losses of risk takers (“defaulter pays” principle)

After exhausting margins and additional guarantee of defaulting clearing member its contribution to the clearing fund will be used to cover the losses resulting from the default event.

Please see Instruction B07/2014 - Clearing Fund.

5. OMIClear dedicated own resources

OMIClear

To incentivise robustness of OMIClear’s risk management framework and alignment between CCP and market interests (“CCP pays” principle)

OMIClear’s dedicated own funds (SIG amount + autonomous reserve) are put at risk in default waterfall before accessing to non-defaulting clearing members funds. SIG amount shall be replenished within 20 business days.

Please see Instruction B12/2014 - Default Waterfall.

6. Clearing Fund contributions of non-defaulting clearing members (pre-funded)

Clearing Members

To cover potential losses of risk takers (mutualisation; “survivor pays” principle)

Clearing members must contribute with pre-funded collateral to OMIClear’s clearing fund, proportionately to their recent risk profile (initial margin amounts) based on a mutualisation principle.

Please see Instruction B07/2014 - Clearing Fund.

7. Additional responsibilities of non-defaulting clearing members (not-prefunded)

Clearing Members

To cover potential losses of risk takers (mutualisation; “survivor pays” principle)

In case the clearing fund contributions of non-defaulting CMs are exhausted OMIClear has assessment powers to request them additional collateral (not pre-funded).

Please see Instruction B07/2014 - Clearing Fund.

8. OMIClear equity capital

OMIClear

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If all the resources from 2 to 7 are exhausted the last CCP’s line of defence is OMIClear’s equity capital.

  • Further details on OMIClear’s default waterfall are provided in Instruction B12/2014 - Default Waterfall.