NG Clearing manages the exposures that it has with each clearing member as a consequence of the clearing contracts that have been accepted by calculating the potential losses it faces if one or more clearing members were to fail to perform their obligations under those clearing contracts when they fall due. NG Clearing covers these exposures by requiring their clearing members to provide collateral.
NG Clearing will calculate a margin requirement in respect of each clearing member, and the clearing member must satisfy the margin requirement through the posting of collateral.
We collect sufficient financial resources to cover credit exposures to each clearing member, fully, with a high degree of confidence; and maintain sufficient additional financial resources to cover a wide range of potential stress scenarios, including the default of the two participants with the largest aggregate credit exposure to NG Clearing in extreme but plausible conditions.
Clearing Members are required to post collaterals to NG Clearing in the form of default fund contributions, membership deposit, and margin deposit. This collateral will be in the form of cash and shall be denominated in Nigerian Naira.
All Clearing Members are required to maintain appropriate minimum deposit with NG Clearing which shall not be below 5 Million Naira for GCM & PCM and 3 Million Naira for SCM. No trading exposure would be provided on this minimum deposit. The membership deposit would be refunded to the members net of all deductions arising from any unsettled claim at the time of cessation of membership. Membership deposit shall doubles as minimum default fund contributions.
Clearing Members are required to post margin, in the form of crystalized MtM losses (during the day), MtM losses determined at the end of the day, Initial Margin, and additional margin, to cover future trading exposure. The margin deposits collected by NG Clearing would cover the margin requirements for the trades cleared and settled by the Clearing Member.
Every Clearing Member is also required to maintain a minimum margin deposit of N300,000.00, in respect of every trading member whose trades such Clearing Member undertakes to clear and settle. Trading exposure would be provided against this margin deposit.
Collateral Deposit Process:
Collateral Utilization Levels:
NG Clearing will limit credit exposure to Clearing Member by disabling Trading Member and/ or Clearing Member upon the full utilization of their collateral. We have pre-agreed collateral utilization threshold which are monitored on a real time basis hence, any collateral breach will lead to the suspension of the Member.
Initial Margin (IM) represents the primary prefunded line of defense deposited by clearing members to NG Clearing as collateral. It is risk-based and generates margin requirements sufficient to cover potential future exposure to participants in the interval between the last margin collection and the close out of positions either. The model is designed to meet an established single-tailed confidence level of at least 99 percent with respect to the estimated distribution of future exposure.
Variation margin is computed by marking the trade price of a contract all the contracts of a member.
We ascertain our current exposure to each participant by marking each participant’s outstanding positions to current market prices which may result to daily (and, when appropriate, intraday) collection of variation margin from participants whose positions have lost value and make payments to participants whose positions have gained value. This prevents current exposures from accumulating and mitigates the potential future exposures NG Clearing might face. NG Clearing may also impose trading limits or position limits to reduce this risk.
The Company, may impose additional risk containment measures over and above minimum margins mandated by the Regulator in the form of additional margins.
Fund Size Determination
NG Clearing will ensure it has sufficient pre-funded financial resources to withstand the simultaneous default of the two largest Clearing Members with a confidence level of 99.9% under stressed scenario.
Clearing Member shall be assessed pro-rata based on the risk that such Clearing Member brought for clearing.