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DETERMINATION OF THE COLLATERAL REQUIREMENTS TO BE DEPOSITED BY FINANCIAL ENTITIES TO THE CENTRAL COUNTERPARTY
Abstract
The central counterparty (CCP) is that market infrastructure entity that comes between the parties of a transaction, becoming a buyer for each seller and a seller for each buyer, thus ensuring the proper execution of transactions in the process of settlement, or of the obligations relating to open positions. This market infrastructure entity can provide guarantee services for transactions based on financial instruments carried out both on the spot trading venues and on the venues specific to the derivatives market. In the following paper, we present a methodology for determining the collateral requirements (margin) to be deposited by the debtor participants of a CCP. Such methodology can be applied by any CCP in its risk management activity, or by some other market infrastructure entity that manages guarantee systems in order to ensure the lowest possible failure level regarding the financial transactions settlement operations.
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References7
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