Swiss CCP SIS x-clear says its value-at-risk model has enabled it to reduce the Default Fund for counterparty transactions from over CHF 300 million on average to CHF 200 million from 1 October this year.
X-Clear says the reduction of the Default Fund contribution requirements will relieve its participants from the burden of tying up excessive collateral via a measured reduction of collateral requirements. It says this can be achieved without impairing the high level of protection in cases of default.
“Central counterparties must find the optimal balance between the amount of collateral required and their exposure to potential risks, which includes a stress scenario approach,” explains Marco Strimer, CEO SIS x-clear. “The substantial reduction of SIS x-clear’s Default Fund would not have been possible without the new risk model based on state-of-the-art evaluation methods and the real-time ability of the SECOM system.”
The Board of Directors of SIS Swiss Financial Services Group, the Swiss National Bank and the Swiss Federal Banking Commission have approved the adjustment of the Default Fund.
SIS x-clear, who has been operating in the role of central counterparty for virt-x for almost three years, claims an automated settlement rate of 99.97%. In August last year, the CCP was granted the status of a Recognised Overseas Clearing House (ROCH) in the UK.
All members of SIS x-clear contribute to the Default Fund by providing collateral in the form of money or securities. The necessary total amount of the Default Fund is defined by the potential loss occurring in stress scenarios where the two largest market participants default. The Default Fund thus covers possible systemic risks (domino effect) and Defense lines (complementary security measures intended to prevent systemic risks for the entire financial market). Their main components are the daily provision of collateral based on client positions, contributions to the Default Fund, and margin calls.