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.
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.
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.
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.
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.
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.
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).