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 The clearing services offered include Risk Management, Collateral Management, and the supplementary service Delivery Management as part of the settlement process within the Central Counterparty (CCP) concept.
The following graphic provides an overview of the clearing functionalities offered:
Systems |
Cambodia Mercantile Exchange System |
Platforms |
Core Functions |
Trade Management |
Risk Management |
Collateral Management |
Delivery Management |
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Trade Capture |
Margin Requirements Calculations |
Procedure to control collateral with regards of calculated risk exposure of pending obligations |
Settlement Netting |
Post-trade Management |
Margin requirements were matched with collaterals deposited from CM's intraday or on day-today basis |
Collection and Release of cash and securities collateral |
Settlement Creating/Delivery Instructions on behalf Members |
Exercises/Assignments of options |
Providing pending trade and delivery info's |
Cambodian Derivatives Clearing House PLC provides front-end clearing applications for the two systems.
Harmonized Clearing House
As central counterparty to its clearing members, the clearing house is exposed to the risk that one or more clearing members will default on their contractual obligations. This would generally expose the clearing house to replacement cost risks and also to liquidity risks. In addition, principal risks may exist if contracts provide for delivery (rather than exclusively for cash settlement) and if a delivery-versus-payment mechanism is not utilized to effect deliveries. In those cases in which clearing houses use private banks rather than central banks to effect money settlements, another source of credit and liquidity risks are the possibility of failure of a settlement bank. Clearing houses face other risks relating to the financial resources they typically maintain to help cover losses and ensure timely settlements; the investment of such resources usually entails some credit risks, liquidity risks, market risks or custody risks. And, like any other payment and settlement system, exchange clearing house face various operational risks. Finally, clearing houses face legal risks. For example, bankruptcy laws or other laws may impede the operation of safeguards that the clearing house relies upon to limit its credit and liquidity exposures, and ambiguities in money settlement arrangements may lead to disputes regarding the obligations of the various participants in the event of a default. The Clearing House employs systems to manage their risks which includes:
- * Financial and operational requirements for membership in the Clearing House;
- * Margin requirements that collateralize potential future credit exposures and either collateralize current credit exposures or limit the build-up of such exposures by periodically settling gains and losses;
- * Procedures that authorize prompt resolution of a clearing member's default through close-out of its proprietary positions and transfer (to a non-defaulting clearing member) or close-out of its clients' positions; and
- * The maintenance of supplemental Clearing House resources (capital, asset pools, credit lines, guarantees, or the authority to make assessments on non-defaulting members) to cover losses that may exceed the value of the defaulting member's margin collateral and to provide liquidity during the time it takes to realize the value of that margin collateral.
- * Consistent delivery processes in almost all transactions concluded on Mex Cambodia Trading Platform.
- * Fewer delivery instructions and thus lower settlement costs due to the netting of positions due for settlement (settlement netting)
- * Automated and harmonized processing of corporate actions on all pending settlement positions from the cash and derivatives markets
- * Reduced collateral requirements from pending deliveries thanks to liquidity saving and comprehensive risk calculation for all markets
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