Eligible Collateral for OTC Clear

Category		Purpose of Collateral
		Guarantee Fund	Margin Requirement Except for Participating Margin requirement[1]	Participating Margin Requirement
Cash	US Dollar
	Hong Kong Dollar
	Renminbi (offshore)
	Euro

Non-Cash

OTC Clear accepts: (i) US Treasury Bills/Notes (UST); (ii) Hong Kong Exchange Fund Bills/Notes (EFBN); and (iii) Bonds issued by the Ministry of Finance of the People’s Republic of China denominated in offshore RMB (MOF), as eligible non-cash collateral to fulfill margin requirements except Participating Margin requirement.

Category		Purpose of Collateral
		Guarantee Fund	Margin Requirement Except for Participating Margin requirement[1]	Participating Margin Requirement
Non-Cash	UST
	EFBN
	MOF

A CM who intends to post any of the above eligible non-cash collateral must comply with the requirements under section 7.3 of the OTC Clearing Hong Kong Limited Clearing Procedures.

Collateral Haircut

OTC Clear will value all its collateral accounts in its base currency (i.e. Hong Kong Dollar). Haircuts applied to collateral reflect the potential decline of asset values and liquidity during the interval between the last revaluation and the time taken by OTC Clear to liquidate that collateral asset.

Currency of cash collateral	Haircut Rate[2]
US Dollar	0.7%
Hong Kong Dollar	0.5%
Renminbi (offshore)	2.6%
Euro	6.0%

OTC Clear will value non-cash collateral receiving from CMs in its base currency (i.e. Hong Kong Dollar). Different haircut rates are applied to different types of non-cash collateral according to their asset types and remaining time to maturity.

Remaining Time to Maturity	Haircut Rate[2]
	UST	EFBN	MOF
< 1 year	1.4%	2.0%	3.2%
≥ 1 year & < 3 years	3.0%	3.2%	3.6%
≥ 3 year & < 5 years	3.0%	3.3%	3.8%
≥ 5 year & < 10 years	7.0%	5.6%	6.5%
≥ 10 years	10.6%	8.4%

Collateral Concentration Limit

Collateral Concentration Limits will be applied to individual CMs as well as to OTC Clear as a whole to mitigate potential risks arising from acceptance of non-cash collateral. OTC Clear will review and may revise the Collateral Concentration Limits from time to time as necessary. CMs are encouraged to contact OTC Clear to ascertain their applicable limits prior to the posting of non-cash collateral.

OTC Clear may also impose a limit to restrict the maximum amount of cash in each eligible currency that may be delivered by a CM for the purposes of satisfying its Participating Margin requirement.

For more details of collateral management, please refer to the Chapter 7 of the OTC Clearing Hong Kong Limited Clearing Procedures or contact the OTC Clear Member Services Team (Tel: 2211 6538).

 

[1] End of Day Variation Margin must be settled in contractual currency.

[2] The haircut rate will be subject to OTC Clear’s review and may change from time to time.