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Stress Testing

HKSCC performs daily stress testing of its risk exposure arising from being the central counterparty to Exchange Trades and China Connect Securities Trades.

Key assumptions of the stress testing are:

Market movement assumptions:

For Hong Kong market:

 

+/- 22% for non-structured products

+/-100% for structured products

For China Connect Market:

+/-10%

 
Default assumption:
 
Largest plus the 5th largest Clearing Participants’ default

 

Financial resources available to cover HKSCC's stressed risk exposure include Margin, Mainland Settlement Deposit, Mainland Security Deposit and collateral provided by the respective Clearing Participants, the Guarantee Fund and HKEX shareholders’ fund set aside for the purpose of strengthening the risk management regime of the three clearing houses and supporting their roles as central counterparties.

Guarantee Fund 

A Guarantee Fund has been set up to cover losses incurred by HKSCC as a result of guaranteeing the CNS trades in Eligible Securities, including China Connect Securities, or acceptance of defective securities deposited by Clearing Participants who subsequently defaulted in Hong Kong and/or China Connect Market(s).

The resources available to the Guarantee Fund comprise Basic Contributions and Dynamic Contributions made by Clearing Participants, interest income of the Guarantee Fund, Clearing House’s resources appropriated as contributions to the Guarantee Fund (10% of Guarantee Fund size) and other resources as arranged by HKSCC from time to time.

Clearing Participants’ contributions to the Guarantee Fund are in two parts, Basic Contribution and Dynamic Contribution and are in proportion to their average daily CNS positions* for the most recent 60 Business Days. The minimum amount of Basic Contribution to be made by each Direct Clearing Participant (DCP) shall be HKD50,000 or HKD50,000 in respect of each Stock Exchange Trading Right held by such DCP in the Exchange, whichever is the higher. The minimum amount of Basic Contribution to be made by each General Clearing Participant (GCP) shall be HKD150,000 or the aggregate of HKD50,000 in respect of each Stock Exchange Trading Right held by it and HKD50,000 in respect of each Non-Clearing Participant  with whom such GCP has entered into a Clearing Agreement, whichever is the higher. 

The minimum aggregate amount of Basic Contributions is HKD100 million. There is no minimum aggregate amount for Dynamic Contributions. Generally, each Clearing Participant is allowed a HKD1 million Dynamic Contribution Credit in arriving at its required Dynamic Contribution. Clearing Participants’ required contributions are reviewed at least monthly.

The size of the Guarantee Fund is reviewed at least once a month, and a threshold is imposed on the Guarantee Fund with reference to the highest Guarantee Fund size in the past 10 years. Guarantee Fund risk collateral in the amount of net projected loss of the CP in excess of 50% of the Guarantee Fund threshold will be collected from the concerned CPs should the Guarantee Fund threshold be reached.

Guarantee Fund Threshold: HKD6.6 billion (effective 1 June 2018).

* In the context of Guarantee Fund calculations, CNS positions of a Clearing Participant refer to the higher of (i) the aggregate of the value of the total cross-day net long CNS stock positions of the Clearing Participant and the money settlement obligations of the Clearing Participant on that day and (ii) the value of the total cross-day net short CNS stock positions of such Clearing Participant on that day, each subject to adjustments which HKSCC may from time to time consider appropriate. The values of the CNS stock positions in Eligible Securities, including positions in China Connect Securities, are computed with reference to the Mark-to-market value of the relevant CNS stock positions determined by HKSCC. “Money settlement obligations” of a Clearing Participant refers to the amounts payable by the Clearing Participant for the settlement of its Market Contracts.

 


Updated 01 Jun 2018

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