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Collateral management is a risk management tool used by FMDQ Clear to manage the counterparty credit risk of Clearing Members. FMDQ Clear requires Clearing Members to deposit eligible collateral in the form of cash, securities and/or other financial instruments as initial margins and contribution to the Default Fund to back the guarantee of the settlement of obligations.
In order to mitigate a credit risk event, FMDQ Clear imposes a haircut mechanism for collaterals pledged by the Clearing Member. The collateral value is calculated based on market price discounted by the haircut profile applicable to the collateral.
FMDQ Clear does not support a cross collateral mechanism where the same collateral can be pledged for more than one market/product segment. FMDQ Clear also maintains unique collateral accounts for its Clearing Members in each market segment. In line with regulatory requirement and standard global practice, FMDQ Clear operates a flexible model which allows omnibus and segregated warehousing of pledged collaterals at the CCP and Clearing Member levels.
FMDQ Clear accepts highly liquid and secured collateral with low credit and market risk from its members to cover margin liabilities on executed trades. The list of acceptable collateral includes:
Click here to view list of eligible securities
FMDQ Clear determines the criteria for collateral haircuts in line with applicable regulatory requirements and the methodology subjects Clearing Members’ acceptable collateral to these haircut profiles to ensure adequate margin coverage.
FMDQ Clear conducts valuation of Clearing Members’ pledged assets to determine the current market value of the assets. Valuation is carried out at least once daily or more frequently as may be determined due to observable market volatility. Margin call notifications are sent to Clearing Members, requesting for additional margin collateral in instances of insufficient collateral coverage following daily valuation.
Collateral valuation performed by FMDQ Clear is in line with the principle 5 of the International Organisation of Securities Commissions (IOSCO) Principles for Financial Market Infrastructures. This principle requires FMDQ Clear to receive collateral not only considering credit risk, liquidity risk, and lower market risk but also considering Wrong Way Risk, Concentration Risk, Operational Risk and Legal Risk.
Clearing Members may request a withdrawal or deposit of margin collateral via an email request/advice to the Collateral Management Team (firstname.lastname@example.org). Following a request for the withdrawal of pledged collateral, FMDQ Clear shall determine the collateral coverage sufficiency of the Clearing Member before processing the release of margin collateral.
FMDQ Clear’s Investment Policy sets guidelines in accordance with the Rule 14 of the Securities and Exchange Commission (SEC) Rules (Amended) December 2019 which addresses the Investment Policy for the management/investment of cash received from members of the Clearing House as collateral margins and/or contributions to the Default Fund. FMDQ Clear shall invest the above-mentioned cash contributions in line with its Investment Policy which establishes a framework for investments.
The overall objective of the Investment Policy is to preserve and protect the value of the cash margin and contributions to Default Fund as well as secure the value of FMDQ Clear’s own contributions to the regulatory capital. The Investment Policy of FMDQ Clear shall be conservative with preference for safety, liquidity of funds as and when required and incremental income to the stakeholders. The overall investment object and focus shall be to minimise the credit, market, concentration, and liquidity risk.
Therefore, the investment universe that shall be deemed eligible shall include the following based on FMDQ Clear’s investment policy:
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