ECC Clearing Circular 28/2023 | Changes in the Default Fund Methodology and Calculation of Default Fund Contributions

    Introduction


    ECC plans to change the methodology to determine ECC’s total Default Fund and the
    allocation of the Default Fund Contributions to Clearing Member. The change will
    become effective on 1 September 2023 based on the end-of-day values from 31 August
    2023.

    Details


    The current allocation of Default Fund Contributions consider the Clearing Members
    initial margin history over a one year lookback period and the EMIR Netting Cap to
    consider the portfolio margin restrictions in Article 27 of the EMIR RTS 153/2013.


    The new total Default Fund will be based on the average daily stress test results over
    the last month increased by a buffer of 30%. The total Default Fund will be capped at
    10% of the average total initial margin (IM) over the last month.

    The Default Fund Contribution will be calculated as proportional share of the Total
    Default Fund based on the Clearing Member’s equally weighted average IM and stress
    loss over intiital margin (SLOIM) share. A minimum of 2% based on the average
    Clearing Member IM is applied. There is no change to the monthly update frequency of
    the Default Fund Contributions.

    If the daily cover-2 stress test scenario result exceeds a share of the total Default Fund,
    the excess cover-2 exposure is mitigated via Supplementary Margin call. The
    Supplementary Margin process will remain unchanged.


    The EMIR Netting Cap will be removed and will be directly integrated into the IM
    calculation. The applied margin credits will be capped at 80% for contracts that are
    considered to be different products according to the ESMA opinion.


    For details regarding the Default Fund methodology and the Supplementary Margin
    process please refer to the “Default Fund and Supplementary Margin Methodology”
    documentation on the ECC website.


    For details regarding the portfolio margining cap please refer to the “ECC Margining
    document” on the ECC website.


    All parameters are subject to regular review. The applicable values will be published on
    ECCs website.