Isolation
For risk management purposes, HKSCC may isolate a Clearing Participant's Exchange Trades, or Exchange trades in a particular security, from CNS and settle these trades as isolated trades of which HKSCC does not guarantee settlement.
Marking-to-market
As the settlement counterparty to Clearing Participants and Clearing Agency Participants under the CNS system, HKSCC is exposed to market risk as a result of unfavorable fluctuations of prices of the unsettled stock positions. To monitor and control risk exposure, HKSCC will evaluate the market risk of the unsettled position by reference to the difference between the market value of the stock position and the original contract value. The difference between these two values is called Marks, which is the level of risk expressed in money terms.
All Clearing Participants and Clearing Agency Participants' open CNS stock positions are marked to market daily in Eligible Currencies of the CNS stock positions at day end. CNS stock positions covered by Specific Cash Collateral or Collateral Securities are exempted from marking-to-market. Clearing Participants and Clearing Agency Participants have to pay net unfavorable Marks in form of collateral accepted by HKSCC. Paying net unfavourable Marks by cash must be in Hong Kong dollar unless Preferred Single Settlement Currency in another currency was selected by Clearing Participants.
Where the Eligible Currency in which an Eligible Security is traded is not Hong Kong dollar, HKSCC will convert Marks in the Eligible Currency to Hong Kong dollar at such exchange rate and subject to such haircut as determined by HKSCC from time to time. Where the Participant has maintained a Preferred Single Settlement Currency which is not Hong Kong dollar, HKSCC will further convert Marks from Hong Kong dollar to the Preferred Single Settlement Currency at such exchange rate and subject to such haircut rate as determined by HKSCC from time to time, and collect Marks from the Participant in the Preferred Single Settlement Currency. Notwithstanding the foregoing, HKSCC reserves the right to collect the required amount of Marks in any Eligible Currency. Marking to market and collection of net unfavorable Marks help to confine HKSCC's market risk to about a single day's market fluctuations.
For further protection, Clearing Participants' open positions are also marked to market at 11 am daily. A tolerance limit of HKD5 million has been established for intra-day Marks and Margin payment, which means that Clearing Participants only need to pay the deficit in excess of this amount before 2 pm.
Margin
(i) HKSCC uses margin as a main tool to cover market risk as a result of potential unfavourable fluctuations of prices in respect of the unsettled CNS stock positions.
HKSCC adopts a two-tier margin approach that follows the classification of Hang Seng Composite Index (“HSCI”). Stocks which are constituents of Hang Seng Composite LargeCap Index or Hang Seng Composite MidCap Index, all equity ETPs, and structured products of the aforementioned Tier P instrument(s) as underlyings are subject to Tier P margin calculation. All other non-Tier P instruments and structured products are subject to Tier N margin calculation.
| Margin Requirement |
= |
Tier P Portfolio Margin
(subject to minimum margin level)
|
+ |
Tier N Flat Rate Margin
(subject to margin multiplier)
|
+ |
Add-ons |
Please refer to the
Initial Margin Calculation Guide for details.
(ii)
Collateral Securities and Specific Cash Collateral
Where a Clearing Participant or Clearing Agency Participant wishes HKSCC to reduce the Marginable Position for computation of Margin, it may provide to HKSCC the relevant quantity of Collateral Securities representing a part or the whole of a short CNS stock position or the relevant amount of Specific Cash Collateral representing a part or the whole of a long CNS stock position.
A Clearing Participant or Clearing Agency Participant provides Collateral Securities or Specific Cash Collateral to HKSCC represents and warrants to HKSCC that it has title and authority to provide such Collateral Securities or Specific Cash Collateral to HKSCC, free from all liens, charges, encumbrances, equities and all other third party rights of any nature whatsoever.
(iii)
Tier N Margin Multiplier
The Margin Multiplier, applicable for Tier N instruments, will be defined at individual Participant level. It will be determined by HKSCC from time to time by reference to the level of risk exposure of the individual Clearing Participant or Clearing Agency Participant to HKSCC and such other matters as HKSCC may consider relevant.
(iv)
Favourable Marks Offset and Margin Credit
Favourable Marks resulted from marking-to-market will be applied for offsetting the Margin amount of Clearing Participants and Clearing Agency Participants. A Margin Credit of HKD5 million is granted to each Clearing Participant, which may be subject to further credit assessment, and applied for Margin calculation.
(v)
Margin Requirement
HKSCC will collect Margin from the Clearing Participant in Hong Kong dollar unless the Clearing Participant has maintained a Preferred Single Settlement Currency which is not Hong Kong dollar.
Where the Clearing Participant has maintained a Preferred Single Settlement Currency which is not Hong Kong dollar, HKSCC will convert Margin calculated in Hong Kong dollar to the Preferred Single Settlement Currency at such exchange rate and subject to such haircut rate as determined by HKSCC from time to time, and collect Margin from the Clearing Participant in the Preferred Single Settlement Currency. Notwithstanding the foregoing, HKSCC reserves the right to collect the required amount of Margin in any Eligible Currency.
(vi)
Intra-day Margin
To mitigate the risk arising from significant movements in other major markets during holidays of the Hong Kong market, intra-day Margin will be called from Clearing Participants when there is more than one calendar day, excluding Saturdays and Sundays, in the Hong Kong holiday period. Intra-day Margin calculation will be processed at 2 pm if the day before holiday is a Settlement Day. Intra-day Margin calculation will be processed at 11 am together with intra-day Marks if the day before holiday is a non-Settlement Day.
(vii)
Backtesting and sensitivity analysis
HKSCC performs regular backtesting to evaluate the margin coverage and regular sensitivity analysis to test the sensitivity of the margin model coverage. The margin coverage on selected Clearing Participants’ unsettled positions in Hong Kong Market can achieve single-tailed confidence level of at least 99%.
Collection of Intra-day Marks and Intra-day Margin by CHATS Payment Instruction (CPI)
Clearing Participants shall pay Intra-day Marks and Intra-day Margin by CPIs. CPIs for settling Intra-day Marks and Intra-day Margin will be issued to Clearing Participants’ Designated Banks when the Intra-day Marks or Intra-day Margin payment amount, after converting to preferred settlement currency, exceeds the following amount in respective currencies:
- RMB 10,000
- HKD 10,000
- USD 1,000
For the application of settling Intra-day Marks and Intra-day Margin by CPI, Clearing Participants are required to complete the eService AC 15 “Standing Instruction to HKSCC for Settlement of Intra-day Marks, Intra-day Margin and Intra-day Mainland Settlement Deposit by CPI” via Client Connect.
HKSCC reserves the right to collect Intra-day Marks and Intra-day Margin in any other manner as determined by HKSCC from time to time.
Marks and Margin for Exercised Options Trades (EOT)
EOT which is defined as Clearing Agency Transactions in the General Rules of CCASS will be transmitted from the SEHK Options Clearing House Limited (SEOCH) to HKSCC after the exercise and assignment of Options Contracts. If there are additional Marks and/or Margin requirements after incorporating EOT, Clearing Participants can opt to provide such additional amount either to HKSCC through the regular Marks/Margin collection process at day end, or to SEOCH by their corresponding SEOCH Participants through the SEOCH’s money settlement process on the next Business Day. If Clearing Participants opt to provide EOT Marks and Margin requirements from their corresponding SEOCH Participants, Clearing Participants have to submit the relevant form to SEOCH for such arrangement. The confirmed EOT Marks and/or Margin payments in SEOCH will be transferred to the CCMS accounts of the corresponding Clearing Participants in HKSCC.