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 Risk management is the primary function of Mex Cambodia safeguard system. The System is to provide the highest level of safety and the early detection of unsound financial practices. Its purpose is to protect all Mex Cambodia participants and their customers against the consequences of a default by a participant in the clearing structure. The system is constantly being reviewed and modified to reflect the most advanced risk management techniques.
The overall objective of Mex Cambodia Risk Management System is to financially secure the marketplace and its participants at all times, without increasing the operational cost or compliance overheads of members.
The Safeguards
Clearing participation Standard
Participation standard is the first line of defense in the risk management system. There are two categories of the clearing participative, namely, Individual Clearing participation and General Clearing Participation. As on today, the clearing participation is only open to the Mex Cambodia members. As per bye laws and rules of Mex Cambodia, the capital adequacy for Individual Clearing Participants and General Clearing Participants has been fixed. In addition to the capital requirement, Mex Cambodia also considers the other factors including (1) background of the company or individual, (2) financial status, (3) the experience of the company's directors / key personnel and (4) the compliance, surveillance and risk management system employed by the member.
Clearing System
We are dependent on Cambodian Derivatives Clearing House PLC for the state of the art clearing set up and mechanism. The Derivatives Clearing and Settlement System (DC&SS) employed by Cambodian Derivatives Clearing House PLC, is a fully automated integrated clearing and settlement system for the derivative markets covering futures and options products of Mex Cambodia. It also provides a seamless interface for derivatives trading and clearing, which reduces cost through common hardware, software and communication links. DC&SS enables all participants to establish and maintain positions in either in house or in their client accounts.
Margining System
Margin requirements are funds held in good faith to guarantee the performance of the contracts. Clearing House and Client margin levels for all products traded in Mex Cambodia are established with reference to historical price volatilities, current and anticipated market conditions, and other relevant information. Mex Cambodia calculates the margin requirements of the participants at the end of each trading day using Portfolio Risk Margining System software (PRMS) , a SPAN compatible margining algorithm that underpins the margining engine of DC&SS. PRMS determines the margin requirements based on its assessment of the maximum potential risk exposure of a portfolio over a one-day period under different realistically simulated market scenarios. It takes into consideration the major risk factors, such as the daily movement in the prices of underlying assets, the time until expiration and the risk-free interest rate when assessing the potential loss (risk) of the portfolio's value.
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