Risk Management

General description

On the energy markets ECC is the central counterparty, KELER CCP as the General Clearing Member of ECC provides guarantee undertaking. As a General Clearing Member KELER CCP has Non-clearing Members that trade on the markets cleared by ECC, KELER CCP is responsible towards ECC for the risks they take, i.e. in case of Non-clearing Member default on purchase price or margin KELER CCP has to provide the missing amount to ECC. KELER CCP collects from its Non-clearing Members the margin requirement determined by ECC and forwards it to ECC. KELER CCP is entitled to collect additional margin from the Non-clearing Members both on the spot and the futures market due to taking additional risk. KELER CCP publishes the margin amounts in the applicable announcement.

KELER CCP contributes to the default fund of ECC,, part or even all of which is forwarded to the Energy market Non-clearing Members in a proportionate manner. The actual size of the forwarded amount and the applicable cut off time is published in the applicable announcement.

KELER CCP operates a guarantee system to manage the risks arising from default by Non-clearing Members. Regarding the energy markets guarantee system KELER CCP applies the following individual collateral elements:

ECC has one default fund for all the markets it clears.  KELER CCP contributes to the default fund of ECC, part or even all of which is forwarded to the Energy market Non-clearing Members in a proportionate manner. The actual size of the forwarded amount and the applicable cut off time is published in the applicable announcement.  

Spot market turnover margin

On the spot markets cleared by ECC the so-called turnover margin is determined. The objective of this margin is to manage the risks that may arise upon default on financial obligations related to buy transactions. It is calculated in line with the internal methodology of ECC, in line with the requirements of EMIR. KELER CCP collects from the Non-clearing Members the margin determined by ECC and forwards it to ECC, however, it may increase the value with the use of an internal risk multiplier to cover risks arising upon default by the Non-Clearing Member concerned towards KELER CCP. The value of the internal risk multiplier is determined in the applicable announcement.

Futures market initial margin

On the futures market cleared by ECC the value of initial margin is determined by instruments and is published on the website of ECC. Its objective is to cover the potential unfavorable change in the value of the open position due to the change of the product price of at least 2 days, with a level of confidence of at least 99%. KELER CCP collects from the Non-clearing Members the margin stated by ECC and forwards it to ECC, however, it may increase the value with the use of an internal risk multiplier to cover risks arising upon default by the Clearing Member concerned towards KELER CCP. The value of the internal risk multiplier is determined in the applicable announcement.

Initial margin on products in delivery

For the futures contracts that will be physically delivered after expiry margin requirement is determined during the period of delivery also, its objective is to cover during the period of delivery also the risks that may arise from any default on purchase price.

On the spot and derivatives markets cleared by ECC, ECC allows trading limits to be applied. KELER CCP calculates trading limit for all its energy market non-clearing member, that will be reviewed at least on a quarterly basis. KELER CCP notifies its non-clearing members regarding the result of the revision. The trading limit is solely a financial limit KELER CCP does not apply any quantity limits.

The trading limit is the result of an internal process and regulated confidentially within KELER CCP, based on the following components:

• individual risk assessment: based on the result of annual KYC due diligence questionnaire and the analyses of the provided audited corporate Financial Statement,
• the volume of the provided basic financial collateral,
• the average margin requirement calculated by ECC of the last quarter,
• volume of supplementary financial collateral (if available)

The calculated trading limit can be allocated by KELER CCP's non-clearing members themselves between spot and futures markets as needed. On the spot markets a pre-trade limit can be set both for auction and continuous trading markets. On the auction trading markets the trading limit is for trading days and it resets on every business days, however on the continuous trading markets the trading limit is linked to the settlement cycle, therefore it has to be sufficient to cover weekend and ECC holiday periods.

For non-clearing members with derivatives market membership, a post-trade TMR (Total Margin Requirement) margin limit is set. The nature of the post trade margin limit, is that the sum of margin requirement (spot and derivatives included) calculated by ECC can not exceed the set TMR value. More information can be found in the applicable announcement published by KELER CCP on its’ website.

The spot and futures market collateral requirement calculated by ECC can be met in settlement currency bank money only towards KELER CCP; KELER CCP transfers it to ECC. KELER CCP reserves the right to collect collateral from the Non-clearing Member in addition to the collateral requirement determined by ECC, such additional collateral can be provided in the eligible assets stated in the valid Conditions of acceptance of securities and currencies collateral.

In line with the legal requirements KELER CCP accepts only highly liquid assets as collateral, the value of which is taken into account after the deduction of the appropriate haircut. Haircuts are determined in line with the regulations, depending on the liquidity of the instrument and in the case of securities after consideration of the credit rating of the issuer, based on the calculation of VaR. The haircut calculated based on the risk measure is to cover a price change of at least 2 days, with a confidence level of 99.9% that is increased with at least the amount of the procyclicality buffer.

Collateral instruments are marked to market daily. If justified intraday mark-to-market can be ordered, the conditions of acceptance or the haircuts can also be modified.

KELER CCP caps the total value of the accepted collateral assets with the application of concentration limits in line with EMIR. The collateral requirement in addition to the requirement of ECC can be met in the eligible assets stated in the valid Conditions of acceptance of securities and currencies collateral.

On the energy markets KELER CCP as General Clearing Member provides guarantee undertaking to its Non-clearing Members. ECC as central counterparty licensed under EMIR runs stress, back and sensitivity tests in line with legal requirements. At the same time KELER CCP backtests regularly the margining model of ECC and also runs stress test for internal use.

In order to cope with the default of the financial obligation of Clearing Members, KELER CCP operates guarantee system. Elements of the guarantee system in addition to KELER CCP’s own and other financial resources are the individual and collective elements of the Clearing Members. The elements of the guarantee system are used in the order specified in case of default, as shown in the picture below.

Please click here to view the prevailing amount of the other financial resources of KELER CCP.