Initial margin

On the CEEGEX spot and HUDEX/Gas futures markets

KELER CCP according to the European Parliament and the Council (EU) 2019/834 regulation (EMIR REFIT) article 1. point 10 paragraph (7) publishes the design of it’s initial margin model and it’s key assumptions.

The spot market margin calculation has two components: spot market activity and physical futures transactions being physically delivered.

For spot markets CCP determines turnover margin based on net daily position (buy price) for different look back periods. From this data short and long averages and maximum define the Clearing Member’s required turnover margin.

The base of delivery margin calculation is the available daily to be settled buy price data in the physical futures products delivery cycle. For delivery margins the applicable next two days (T+2) buy price has to be paid, for holidays this value may differ.

On the CEEGEX spot gas market position limit is used, accordingly, the matched transaction can be accepted up to the value of collateral assets deposited in favour of KELER CCP. The position limit is the difference of the value of the blocked collateral assets and the collateral requirement of the open futures transactions in physical delivery.  Thus the turnover margin limits trading, as a result the risk arising from default on the purchase price of gas market products can be prevented as purchase price is covered with collateral instrument. In addition to the amount of the turnover margin the assets deposited in favour of KELER CCP are taken into account when the market position limit is calculated. The position limit cannot be smaller then the CCP defined obligatory turnover margin requirement.

The margin requirement calculated based on transactions in physical delivery are calculated for futures transactions in delivery, as the purchase price of products in delivery must be provided each day. The delivery margin requirement is meant to cover the risks arising upon default on purchase price during the delivery period. The spot market margin requirement and the methodology of position limit calculation are detailed in the applicable announcement published.

On the HUDEX/gas market the amount of initial margin is determined by product and is stated in the applicable announcement that KELER CCP publishes on its website. The objective of initial margin is to cover the potential change in the product price of at least two days, with a confidence level of at least 99%.

KELER CCP determines the initial margin based on the calculation of the delta-normal VaR (Value at Risk), in line with the requirements stated in the applicable regulation.  The parameters applied are as follows: minimum holding period of 2 days (EMIR 153/2013/EU RTS  article 26.), confidence level of 99%, and look back period of at least 1 year (EMIR 153/2013/EU RTS article 25.). Additionally, to determine the VaR value the change in the product’s 250 day log yield volatility is used. The thus calculated risk measure is supplemented with at least the buffer (25%) against procyclicality in line with EMIR 153/2013/EU RTS article 28.

The initial margin requirement to be met is calculated at portfolio level with the use of the SPAN® software developed in Chicago. When the portfolio level initial margin requirement is calculated, the margin requirement calculated is based on the net open positions at the segregation level concerned, and on the initial margin parameter belonging to them. KELER CCP’s initial margin model parameters are supervised regularly (monthly, seasonally, yearly) in line with legal requirements. The methodology of initial margin determination, and the use of the risk measure are detailed in the methodology document published.


Related links:

CEEGEX Spot market Announcement
HUDEX/Gas Market Announcement