Lines of Defence

ECC’s capability to effectively manage risks is based on the various lines of defence.
 

First Line of Defence: Clearing Member Admission CriteriaECC operates under a principal-to-principal system which means that participants trade through a Clearing Member who becomes the counterparty for ECC. The Clearing Member guarantees the fulfilment of all requirements that result from its clients’ trades.

ECC has strict admission criteria to ensure that Clearing Members are financially sound. They have to have robust operational processes and procedures in place to ensure reliable processing of their clients’ trades. We monitor compliance with these requirements on a regular basis.
 

Second Line of Defence: Margin RequirementsECC settles changes in profit and loss on a daily basis by paying out or collecting Variation Margin, thereby preventing risk from building up over time. In the case of large Variation Margins building up during the day (e.g. because of large positions being created or due to high volatility), ECC has the right to issue an Intraday Margin call.

Margin requirements are calculated according to ECCs margin system. Margin requirements are used to cover the risk from open positions on the derivatives markets and pending payments resulting from spot market deliveries with a confidence of 99% in the case of a default of the clearing member.
 

Third Line of Defence: Clearing FundECC has a clearing fund to cover losses that exceed the losses covered by margin requirements. The Clearing Members and ECC contribute to the clearing fund with contributions in proportion to the each Clearing Member’s respective exposure. Clearing Members are required to replenish the clearing fund after it has been used. 

Fourth Line of Defence: ECC's other Financial ResourcesECC maintains sufficient available financial resources to cover potential losses that exceed the margins and the clearing fund in extreme but plausible market conditions.