Risk Management

ECC as Central CounterpartyECC serves as a central counterparty for a variety of markets and products. As such ECC places itself between the counterparties, becoming the buyer for every seller and the seller for every buyer and, thus, ensuring the fulfilment of open contracts concluded on the markets for which it provides clearing.

Managing risk is an essential function of ECC.
 

Elements of Counterparty Risk ManagementECC mitigates risks to participants through a system consisting of many elements:

• Novation of trades as soon as they are matched in the different markets’ trading platforms or have been accepted as OTC deals by the two participants. As a result, the trading participant is not exposed to the other trading participants’ credit risk.
• Strict criteria for the admission of Clearing Members: ECC acts on a “principal-to-principal” basis, which means that ECC’s Clearing Members act as intermediaries for their clients’ transactions. With the help of strict admission criteria ECC ensures that its Clearing Members have the necessary resources to fulfil the highest requirements.
• Daily settlement of profits and losses: Open positions are marked to market every day and profits and losses are paid out or collected on a daily basis. Payments are settled on a net basis.
• Margins are required on a daily basis – and, if necessary, intraday in volatile market conditions - to cover current and future exposures of open positions and pending spot market transactions.
• Sharing of residual risk by the Clearing Members, who contribute to ECC’s clearing fund. 
  

ECC constantly reviews and improves its methods and risk tools to provide state-of-the-art risk management. In the development of its margin system ECC cooperates closely with partner exchanges, Clearing Members and the financial supervisory authority.
 

Operational and Investment RiskECC strives to reduce manual intervention in the clearing process thus achieving straight-through processing which reduces the risk of manual errors.

For critical processes ECC operates two geo-redundant IT operation centres that are both linked to ECC’s main office and its backup office. Backup procedures are defined for all critical processes. These backup processes are tested on a regular basis.

For payments ECC uses central bank money for all Euro payments. ECC is a designated payment system according to Article 10 of the Settlement Finality Directive 98/26/EC.

Cash margins received are only invested in assets with minimum market risk at counterparties with minimum counterparty risk.