Clearing Risk Management
OSE as Central Counterparty
OSE is a central counterparty of futures and options trading and FX margin trading listed on OSE as well as the securities and derivatives marketplace. In the event of default, OSE advances the settlement funds on behalf of the defaulting participant and takes necessary steps for secured execution of settlement.
OSE conducts risk management to prevent default such as monitoring Clearing Participants’ positions, etc.
Improvement of Clearing Risk Management Structure
As a central counterparty, OSE has been improving clearing risk management structure by forming an advisory committee including practicians and academic experts in order to ensure the smooth and secured execution of clearing and settlement.
Clearing Risk Management
OSE conducts clearing risk management from the following perspectives.
Financial Condition
OSE clearing qualification is required for each in order to clear futures and options trading and FX margin trading listed on OSE. Financial basis criteria, such as Capital-to-Risk Ratio, are set up as clearing qualification criteria for both applicants and participants.
Risk Exposure
OSE estimates probable loss (i.e. risk exposure), which is due to certain market movement, from each Clearing Participants’ positions of futures and options trading and FX margin trading during trading hours.
In case the result of each Clearing Participant’s daily stress test for clearing risk shows that the estimated amount of the loss exceeds certain amount against the net amount of assets, OSE requests the Clearing Participant to report regarding their position in order to conduct detailed risk analysis.
Collateral Deposit Status
OSE restricts collateral deposits for margin and clearing deposit as follows, considering the liquidity risk, etc., in the case of default.
- Prohibition of depositing stocks in an amount exceeding 5% of the listed stocks
- Prohibition of depositing securities issued by the depositor (including its parent company, its subsidiary and subsidiary of its parent company)
Implementation Status Report for Clearing Risk Management
Semiannual Activity Summary of Clearing Risk Management
Loss Sharing Rule and Clearing Deposit
OSE sets up the scheme to secure the execution of settlement (loss sharing rule) in the event of Clearing Participant’s default whereas preventing the default by conducting risk management and investigating participants as stated above.
All Clearing Participants are required to contribute to a clearing deposit as part of loss sharing rule.
Market credibility and stability is maintained by the rule.
