Mex Cambodia reduces its risk through the mark-to-market (MTM) process at the close of market of each trading day for each contract. All open positions are evaluated daily, on the basis of the respective closing prices and any resulting losses should be settled by Clearing Participants before the opening of Markets on the next day. Collections from Clearing Participants are processed by the Direct Margin Debiting System ("DMDS") through which Mex Cambodia instructs its settlement banks to direct debit the Clearing Participant's bank account. Fund settlement conducted by clearing banks should be confirmed before a designated time to assure that all open positions are fully margined before the opening of Markets.
Intra-day Margin Call
During periods of high market volatility, Mex Cambodia conducts intra-day mark-to-the-market calculations on real-time open positions using the prevailing market prices. Clearing Participants who suffer losses as a result of the intra-day calculation will receive a call from the Mex Cambodia. All intra-day margin calls should be met by Clearing Participants within prescribed time after the notification. On the other hand, if an intra-day mark-to-the-market calculation is made at or before 12:30p.m., participants will receive payments from their respective Clearing Member if they make profits arising from the intra-day calculation. Generally, a margin erosion of 25% in the market or a margin erosion of 35% in the other markets automatically triggers the intra-day margin call. With the backups to conduct intra-day margin calls, Mex Cambodia is not forced to wait until the settlement on the next day and margins for those contracts whose prices have changed significantly can be restored immediately.
Capital Based Position Limit
Mex Cambodia assigns gross and net position limits to each Clearing Participant on the basis of its apportioned Liquid Capital ("LC") maintained with the Clearing House. It is a measure which seeks to ensure that the risk exposures of participant commensurate with their financial strength in terms of LC. Should a Mex Cambodia Participant's total Gross and/or Net position exposure exceed the assigned limits, such participants can extend the limit by lodging guarantees issued by approved banks. However, the ultimate solution for a Mex Cambodia participant to hold positions in excess of his original limit is to increase its capital.
Additional Margin on Concentrated Positions
To minimize the risk arising from the over-concentration of open positions on one participant, Mex Cambodia has the authority to impose additional margins on individual Participants.