Why NG Clearing
Our Role as a CCP in the Nigerian Financial Ecosystem
Our central role is to improve the safety of our market by delivering best-in-class post-trade services that manages counterparty credit risk and reduces systemic risk. To mitigate these counterparty credit risks in an efficient and robust manner, we will interpose ourselves as a guarantor to both parties in a transaction, thus ensuring the successful execution of derivatives and other trades from various trade points in Nigeria.
We clear transactions submitted to us from trade venues. “Clearing” is the process by which the respective obligations of the buyer and the seller are established i.e. what each buyer and seller is obliged to deliver, and by when, in order to settle the trade. This process may also involve the netting of obligations of the buyer and the seller to the smallest number of obligations to be performed at settlement; and essentially guarantee the settlement of the trade even if one of the counterparties to the trade becomes insolvent or otherwise fails to perform its obligations in respect of that trade. It will do so by interposing itself between the trading counterparties and taking margin to cover the risks of a counterparty’s default. If one counterparty defaults, NG Clearing will use the margin provided by the defaulting counterparty to fund the continuing settlement of the trade with the non-defaulting counterparty.
Our role exposes us to a range of market risks, including the potential failure of one or more large clearing members. We rely heavily on financial collateral to cover exposures to members. The value of collateral provided by clearing members is linked to the changing risks of trades and market conditions. NG Clearing will also maintain “default funds” or “guarantee funds”, contributed by clearing members, which provide a ‘cushion’ against extraordinary losses.