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Margining

Margining plays an important role in reducing systemic risk by helping to ensure the central counterparty can meet its obligations if a clearing participant defaults

Cash market margining

Applied to equities, warrants and interest rate products traded on ASX Trade. Cash market margining is a principal-to-principal margin, lodged with ASX Clear by a clearing participant to ensure that, if it defaults, ASX Clear can close out the defaulting clearing participant’s net novated settlement obligations with minimal impact to the broader market.

Derivatives market margining

Applied to exchange-traded options on ASX Trade, as well as over-the-counter (OTC) equity and index options. We have adopted the widely used Standard Portfolio Analysis of Risk (SPAN) margining system developed by the Chicago Mercantile Exchange (CME) in 1988, which calculates the maximum potential loss for a portfolio of derivatives grouped by product.

Cash market margining

Overview

In line with international best practice, ASX Clear takes a user pays approach. That means we calculate cash market margins only on transactions received and novated by ASX Clear. Transactions received but not novated by ASX Clear are not included.

The Cash Market Margining (CMM) model used to calculate margins has two components:

  • Risk margin: covers any forward-looking losses and is calculated using either:
    • a flat rate calculation for warrants, interest rate securities and less liquid equities
    • a historical value at risk (HsVaR) calculation methodology for securities that meet liquidity requirements set by ASX Clear.
  • Mark-to-market: a daily revaluation of cash market transactions to reflect their current value as at close of business. Currently applied to the top 500 equities only.

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Derivative market margining

For exchange-traded options on ASX Trade, and OTC equity and index options, ASX has adopted the widely used Standard Portfolio Analysis of Risk (SPAN) margining system, developed by the Chicago Mercantile Exchange, which calculates the maximum potential loss for a portfolio of derivatives grouped by product.