SGX consults public on new securities margining rules

Singapore Exchange (SGX) is consulting the public on proposed rules to introduce margining for securities cleared by the Central Depository (CDP) as part of its continual efforts to enhance its risk management practices.

The proposed margin framework will reinforce CDP’s position as a safe, efficient and transparent venue for participants to conduct business. It will align CDP’s practices with new international standards established by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) for central counterparties in April 2012.

At present, CDP maintains a Clearing Fund, comprising contributions from CDP and its Members, that covers losses that may arise from the liquidation of a defaulting Member’s positions. With the proposed margin framework, CDP will hold additional financial resources from individual Members which are available to meet their obligations in the event of their own default. If the margins are insufficient, the remaining losses will be covered by the Clearing Fund.

The key features of the proposed margin framework are:

• Margins will be imposed on a Member’s portfolio of outstanding securities transactions, which are transacted for the account of the Member, as well as its customers. Margin payments will vary directly with the risk that their portfolio of trades bring to the clearing system.
• A Member’s margin requirement must be met by its own funds. CDP will not require margins to be collected from customers by Members for securities.
• Members’ margin requirement will be calculated using a single margin rate.
• An intra-day margin cycle and an end-of-day margin cycle will be conducted daily.
• The existing margin frameworks for derivatives cleared by CDP and the Singapore Exchange Derivatives Clearing Limited (SGX-DC) are not affected by the introduction of the margin framework for securities.

In its public consultation, SGX is seeking views on the proposed rules relating to the margin framework, including the methodology for maintenance margin and the determination of the margin rate. Separately, SGX will also be consulting the public on other refinements to its clearing rules over the next few months to achieve closer alignment on other aspects of securities and derivatives clearing with the CPSS-IOSCO standards.