ICE

ICE Clear Netherlands

Risk Management

ICE Clear Netherlands employs advanced and prudent risk management practices, giving customers the confidence that risk is managed in a competent and timely manner. Positions are updated and margin requirements recalculated on a near real-time basis, reducing risk exposure. SPAN4®, which is used under license issued by the CME group, is ICE Clear Netherland’s sophisticated risk management system. The regulators have given their approval for using the system to calculate collateral requirements for credit and market risk. SPAN4® and the used parameters are independently validated each year. The system therefore meets all EMIR requirements. Market values, margin requirements, stress scenarios, and concentration risks of portfolios are calculated on an ongoing basis and values are stored in a central database.

Risk Waterfall

The first line of defense includes a comprehensive set of membership requirements included within the ICE Clear Netherlands Rulebook. The following capital requirements are applicable to ICE Clear Netherlands clearing participants:

In order to clear matches, the direct clearing participant must at all times maintain such capital that is the higher of:

  • EUR 10 million capital; or
  • 10% of 30-day average aggregate margin requirement; or
  • 10% of 250-day average aggregate margin requirement.

In order to clear matches, the general clearing participant must at all times maintain such capital that is the higher of:

  • EUR 25 million capital if the clearing participant clears up to nine trading participants;
  • EUR 30 million capital if the clearing participant clears up to 14 trading participants;
  • EUR 33.75 million capital if the clearing participant clears up to 19 trading participants;
  • EUR 37.5 million capital if the clearing participant clears 20 or more trading participants.
  • 10% of 30-day average aggregate margin requirement; or
  • 10% of 250-day average aggregate margin requirement.

The second line of defense includes the margins requirements calculated over open positions at ICE Clear Netherlands. These are calculated by using SPAN4®, a system currently used by 54 exchanges and clearing organizations worldwide.

The third line of defense is the clearing fund, which each clearing participant must contribute to and which can be used in case of a clearing participant default.

Margin Model Overview

ICE Clear Netherlands has an agreement with the CME Group that permits the Clearing House to use SPAN4® for futures and options margin calculations. The policies and procedures used for the calculation of margin rates are approved by the ICE Clear Netherlands Risk Committee. A list of permitted cover for Members, which can be lodged in respect of initial margin requirements, together with rate of return and/or charges, has been published.

SPAN® is a registered trademark of Chicago Mercantile Exchange Inc., used herein under license. Chicago Mercantile Exchange Inc. assumes no responsibility in connection with the use of SPAN.

Initial margin is a returnable deposit based on a member’s open positions. It is calibrated to be sufficient to cover the expected cost of closing out a defaulting Member’s position in normal market conditions to a 99% confidence interval. Model performance is monitored daily via both portfolio and contract level back-testing.

Members may be required to provide additional margin to cover concentration risk, illiquid positions or wrong way risk.

Changes to margin rates are notified via email to market participants.

Intraday Risk Management

ICE Clear Netherlands recalculates intraday margin requirements on a near real-time basis, using the most up to date positions and prices.

The clearing house can demand additional collateral at any time and whenever there is a significant intraday margin deficit.

Financial Resources

As required under EMIR, article 7.6c of the clearing rulebook confirms that ICE Clear Netherlands will apply its own dedicated financial resources, also known as “skin in the game”, in the event of a member default, prior to the use of clearing fund contributions of non-defaulting clearing members.

In January of each calendar year, ICE Clear Netherlands must commit financial resources which represent 25% of the minimum required capital.

The minimum capital requirement for determining “skin in the game” is the minimum capital ICE Clear Netherlands has to maintain on its balance sheet pursuant to the regulatory technical standards for central counterparties (Commission Delegated Regulation (EU) No 152/2013) on Dec. 31 of each calendar year.

The initial calculation for ICE Clear Netherlands “skin in the game” is based on its balance sheet as at 31 December 2015 and the level of own capital amounts to EUR 1,875,000.00.

Terms Reference

Risk Associated

Dedicated Own Resources