may 22, 2003risk management in keler1 risk management in keler budapest may 22, 2003 kristóf...
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![Page 1: May 22, 2003Risk management in KELER1 Risk management in KELER Budapest May 22, 2003 Kristóf Matuszka risk analyst](https://reader036.vdocuments.site/reader036/viewer/2022062717/56649e555503460f94b4c175/html5/thumbnails/1.jpg)
May 22, 2003 Risk management in KELER 1
Risk management inRisk management in
KELERKELER
Budapest
May 22, 2003
Kristóf MatuszkaKristóf Matuszkarisk analystrisk analyst
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May 22, 2003 Risk management in KELER 2
Overview
• Introduction
• CCP model
• Risk Management tools
– clearing membership
– monitoring
– margining
– collateral management
– fails management
• Summary
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May 22, 2003 Risk management in KELER 3
Introduction
Markets Clearing model Settlement model
BCE derivatives CCP since 1994
BSE derivatives CCP since 1995
BSE cash CCP since May, 2002multilateral netting, T+3 for equities, T+2 for bonds
OTC market real-time DVP
DERIVATIVES
CASH
Markets and C&S models in KELER:
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May 22, 2003 Risk management in KELER 4
CCP conception Benefits
• Increased market security via novation
• Anonimity
• Netting and spreads between products &
markets
• Set-offs in margin calculation
• Integrity & connectivity
KELER becomes a seller to every buyer and a buyer to every seller in the exchange transactions.
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May 22, 2003 Risk management in KELER 5
CCP conception Types of risk
• Partner risk
• Market risk (price risk, liquidity risk)
• Operational risk
KELER assumes different kinds of risk during its activity:
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May 22, 2003 Risk management in KELER 6
Risk Management tools
• clearing membership
• monitoring
• margining
• collateral management
• fails management
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May 22, 2003 Risk management in KELER 7
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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May 22, 2003 Risk management in KELER 8
Membership Requirements
• Basic corporate documents
• Approval from the HFSA
• Capital requirements for BCE clearing members:
• Members: banks, brokerage firms, agricultural producers, trading firms, purchasers
ICM - own account
transactions
ICM - own and client
transactionsGCM
BCE grain der. 10 20 500
BCE meat der. 3 20 500
BCE financial der. 20 100 500
Market segment
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May 22, 2003 Risk management in KELER 9
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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May 22, 2003 Risk management in KELER 10
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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May 22, 2003 Risk management in KELER 11
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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May 22, 2003 Risk management in KELER 12
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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May 22, 2003 Risk management in KELER 13
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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May 22, 2003 Risk management in KELER 14
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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May 22, 2003 Risk management in KELER 15
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):
BCE market segmentBasic financial
deposit
Grain derivatives 6
Meat derivatives 1
Financial derivatives 7,5
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May 22, 2003 Risk management in KELER 16
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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May 22, 2003 Risk management in KELER 17
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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May 22, 2003 Risk management in KELER 18
Margining Financial resources
Fiancial guarantee of BCE trades is backed by robust
Funds (in HUF million):
Financial resources (as of 30/04/2003) BCE derivatives All markets
Members' individual margin 3 464 7 995
Collective Guarantee Fund 35 1 093
KELER's capital 10 710
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May 22, 2003 Risk management in KELER 19
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 re-evaluation facility)
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May 22, 2003 Risk management in KELER 20
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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May 22, 2003 Risk management in KELER 21
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