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.
On 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 Margin
ECC 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:
|2020-06-15||ECC Risk Parameters||Margining||pdf (256 KB)|
|2020-04-16||Back and Stress Testing Disclosure Report||Margining||pdf (36 KB)|
|2020-02-17||Initial Margin Spot Market Sample Calculator (*.xlsm) (V3.0.3)||Margining||xlsm (319 KB)|
|2019-08-26||ECC Margining||Margining||pdf (2 MB)|
|2019-08-01||EUA Expiry Timeline||Margining||pdf (284 KB)|
|2016-02-25||IVM2 Product List||Margining||xlsx (18 KB)|
|2014-07-31||Variation Margin Correction||Margining||pdf (139 KB)|
|2012-07-30||ECC Margining Sample Calculations||Margining||zip (2 MB)|
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.
Concentration Risk Margin ECC
The SPAN® initial margin is calibrated to fulfill article 26 RTS 153 which requires a liquidation period of at least two days. If the real liquidation period in narrow markets exceeds this regulatory minimum requirement an additional concentration risk margin is charged. The liquidation period of a position within a given market is the ratio of the net position size (“net quantity times contract value”) and the daily market capacity.
Concentration risk margin on account level
The concentration risk margin is calculated and charged on account level where the effective liquidation period l per account is the position weighted liquidation period per market.
Concentration risk margin on Clearing Member level
To take into account any remaining or through the aggregation of positional volumes of different accounts resulting concentration risk an analogues calculation is performed on Clearing Member level based on the net position. If the resulting concentration risk on Clearing Member level is not covered by the sum of the accounts concentration risk margin requirements and an available margin buffer an additional margin requirement for the Clearing Member arises. The margin buffer considers a share of the difference between the gross margin requirement for all accounts and the hypothetical margin requirement for the Clearing Member’s net position.
Caps and floors
To consider the time needed to identify a default and design the close out strategy the calculation of the liquidation period takes an additional add-on of 0.3 days into account.
On account level the final liquidation period is capped at 3 days. On Clearing Member level the concentration risk margin is capped at 50% of the gross margin requirement for all accounts.
ECC validates the adequacy and, if necessary, adjusts the caps and floors on a regular basis.