As a central counterparty, ECC assumes the counterparty risk for all transactions concluded at its partner exchanges. In the event of a default, ECC guarantees payment and delivery (ECC covers the settlement risk). Managing the counterparty risk is an essential part of ECC’s business. ECC calls margins for every open position. In order to reflect the diversified risk in large portfolios ECC recognises spreads between different products which reduce the margin requirement.
The Spot Margin and SPAN® Initial Margin constitute the two main margin types at ECC.
Spot MarginOn spot markets, trading and clearing takes place 24/7 including times when settlement of payments is not possible due to TARGET II closure. ECC measures credit exposure on spot markets near to real time on a 24/7 basis using the Current Exposure Spot Market (CESM). This margin has to be covered with collateral at all times.
In order to avoid frequent margin calls due to collateral shortfalls and to cover exposures that might arise from trading activities during TARGET II closure times ECC has developed a bespoke model to calculate the Initial Margin Spot Market (IMSM). This margin is a buffer which is designed to cover exposure from potential spot transactions in the future.
The models consider correlation effects between the different products that are cleared by ECC to realise portfolio effects which increase the collateral efficiency.
SPAN® Initial MarginECC calculates portfolio-based margin requirements using the SPAN® industry standard. This methodology allows ECC to align margin requirements with risk, thereby realising efficient margining. ECC updates the SPAN® risk parameters daily. These parameters are available on ECC’s website and the FTP Server for downloading.
Extensive Set of Inter-Commodity Margin Credits
Inter-Commodity Margin Credits are calculated for any combination of opposite positions for different products according to the correlation between the two products and on different levels of netting. This improves collateral efficiency and increases economies of scale in diversified portfolios.
Back Tests are performed and analyzed daily for the spot and derivative models. This means that the parameters and assumptions underlying the margin models are reviewed continuously. The results are categorized using the Basle Traffic Light Approach. Back Testing Results are reported to ECC's board on a monthly basis.
Members can request aggregated backtesting results from ECC Risk Controlling.
For further details and examples please download the following documents:
SPAN® is a registered trademark of Chicago Mercantile Exchange Inc. Chicago Mercantile Exchange Inc. assumes no liability in connection with the use of SPAN® by any person or entity.