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DETERMINATION OF THE COLLATERAL REQUIREMENTS TO BE DEPOSITED BY FINANCIAL ENTITIES TO THE CENTRAL COUNTERPARTY

R. Mihai, P. Baranga, L. E. Naghi

First published: 2019https://doi.org/10.5593/SWS.ISCSS.2019.1/S03.043View metrics

Abstract

The central counterparty (CCP) is that market infrastructure entity that comes between the parties of a transaction, becoming a buyer for each seller and a seller for each buyer, thus ensuring the proper execution of transactions in the process of settlement, or of the obligations relating to open positions. This market infrastructure entity can provide guarantee services for transactions based on financial instruments carried out both on the spot trading venues and on the venues specific to the derivatives market. In the following paper, we present a methodology for determining the collateral requirements (margin) to be deposited by the debtor participants of a CCP. Such methodology can be applied by any CCP in its risk management activity, or by some other market infrastructure entity that manages guarantee systems in order to ensure the lowest possible failure level regarding the financial transactions settlement operations.

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Title
DETERMINATION OF THE COLLATERAL REQUIREMENTS TO BE DEPOSITED BY FINANCIAL ENTITIES TO THE CENTRAL COUNTERPARTY
Authors
R. Mihai, P. Baranga, L. E. Naghi
Proceedings
6th SWS International Scientific Conference on Social Sciences ISCSS 2019
Publisher
STEF92 Technology
Year
2019
Pages
315-322
SWS Citekey
Mihai20193315322
ISSN
2682-9959
ISBN
978-619-7408-91-1
Language
en
Publication type
Proceedings Paper
Keywords
central counterpartyfinancial instrumentsgross exposurenet debit positionsmarket risk
References7

  1. BarangДѓ L.P., Local Central Counterparty, Review of Financial Studies, volume 4, issue 6, Romania, 2019, pp 115-121;

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  3. Koopman S.J., Jungbacker B., Hol E., Forecasting daily variability of the S&P 100 stock index using historical, realised and implied volatility measurements, Journal of Empirical Finance, vol. 12, issue 3, Romania, 2005, pp. 445-475;

  4. BarangДѓ L.P., Panait, I. , Estimating the credit risk score for non-bank stock exchange intermediaries in the eventuality of changeover to euro currency, Financial Studies, vol. 22, issue 4, Romania, 2018, pp. 25-40;

  5. Hull J.C., Nelken I., White A.D. , Merton’s model, credit risk and volatility skews, Journal of Credit Risk, vol.1, issue 1, 2004, pp. 3-29;

  6. Bank for international Settlements & OICV-IOSCO, Principles for financial market infrastructures, 2012

  7. Regulation (EU) No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR).

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