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Collateral Management

Collateral Management

Collateral deposited by Clearing Members (CMs) is marked-to-market with the latest available prices and valued by applying the relevant haircut rates. Reports will be provided to CMs daily with details of the collateral held in their clearing accounts.

Eligible Collateral

Cash

OTC Clear accepts cash in four currencies (US Dollar, Hong Kong Dollar, Renminbi (offshore) and Euro) as eligible collateral. The cash collateral can be used to fulfill guarantee fund obligations and margin requirements.

Category Purpose of Collateral
Guarantee Fund Margin Requirement[1]
Cash US Dollar BD21301_ BD21301_
Hong Kong Dollar BD21301_ BD21301_
Renminbi (offshore) BD21301_ BD21301_
Euro BD21301_ BD21301_

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.

Category Purpose of Collateral
Guarantee Fund Margin Requirement[1]
Non-Cash UST BD21301_
EFBN BD21301_
MOF BD21301_

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) 3.2%
Euro 6%

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% 6.0%
≥ 1 year & < 3 years 3.0% 3.2% 6.7%
≥ 3 year & < 5 years 3.0% 3.4% 8.0%
≥ 5 year & < 10 years 7.0% 6.6% 22.2%
≥ 10 years 11.7% 8.5%

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.

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.


Updated 06 Dec 2017

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