Financial Markets Act, 2012 (Act No. 19 of 2012)RegulationsFinancial Markets Act RegulationsChapter VI : Central Counterparties33. Margin requirements33.3 Percentage |
| (1) | A central counterparty must calculate initial margins to cover the exposures arising from market movements for each financial instrument that is margined on a product basis, over the time period defined in Regulation 33.4 and assuming a time horizon for the liquidation of the position as defined in Regulation 33.5. |
| (2) | A central counterparty must adhere to the following confidence intervals for the calculation of initial margins— |
| (a) | for OTC derivatives, 99.5%; and |
| (b) | for securities other than OTC derivatives, 99%. |
| (3) | For the determination of the adequate confidence interval for each class of securities it clears, a central counterparty must in addition consider at least the following factors— |
| (a) | the complexities and level of pricing uncertainties of the class of securities which may limit the validation of the calculation of initial and variation margin; |
| (b) | the risk characteristics of the class of securities, which can include, but are not limited to, volatility, duration, liquidity, non-linear price characteristics, jump to default risk and wrong way risk; |
| (c) | the degree to which other risk controls do not adequately limit credit exposures; and |
| (d) | the inherent leverage of the class of securities, including whether the class of securities— |
| (i) | is significantly volatile; |
| (ii) | is highly concentrated among a few market players; or |
| (iii) | may be difficult to close out. |
| (4) | Where a central counterparty clears OTC derivatives that have the same risk characteristics as derivative instruments executed on licensed exchanges or an equivalent trading venue jurisdiction on the basis of an assessment of the risk factors listed in subregulation (3), the central counterparty may use an alternative confidence interval from the one specified in subregulation (2)(a) of at least 99% for these contracts, if the risks of OTC derivatives it clears are appropriately mitigated using such confidence interval and the conditions in subregulation (3) are adhered to. |
| (5) | A central counterparty must inform the Authority and its clearing members of the criteria considered to determine the percentage applied to the calculation of the margins for each class of securities. |