Initial margin

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.

In case of futures the amount of initial margin is determined by underlying product and is stated in the applicable announcement that KELER CCP publishes on its website. The initial margin determined by the underlying product is applied for every expiring instrument, also taking into consideration the instrument’s contract size. This is because the underlying product is more liquid in every case than the expiring futures, and in many expiring cases because of poor liquidity volatility measurement wouldn’t be efficient. The objective of initial margin is to cover the potential change in the price of the instrument for 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% (EMIR 153/2013/EU RTS article 24.), and lookback period of at least 1 year (EMIR 153/2013/EU RTS article 25) which contains stress event, if not, the lookback period should be increased until a stress event is included. Additionally, to determine the VaR value, the change in the underlying product’s log yield volatility computed for the lookback period is used. The calculated risk measure is supplemented with the buffer (25%) against procyclicality in line with EMIR 153/2013/EU RTS article 28. Moreover, liquidity and expert buffer can be applied based on sensitivity test.

For futures securities with guaranteed physical delivery there is a delivery month supplementary collateral also in the delivery cycle and 4 trading days before the delivery.

When the portfolio level initial margin requirement is calculated, the margin requirement calculated based on the net open positions at the segregation level concerned and the related initial margin parameter is decreased with the spread discounts determined by KELER CCP.  Spread discounts have two types on derivative capital market: 1. Spread discount between products, which is a percentage discount from the sum of initial margin requirements of different product’s opposing positions 2. Spread discounts between maturities which is a percentage discount from the sum of initial margin requirements because of having opposite positons in different maturities in the same product. The determination of spread discounts is based on the Pearson correlation coefficient of daily yields in both cases.

The initial margin parameter of option products is the same as the initial margin parameter for the underlying product in the case of currency options, index options and grain options. The initial margin parameters of stock option products are equal to the announced margin parameter of the futures product with the same underlying product.

The initial margin requirement to be met is calculated at portfolio level with the use of the SPAN® software developed in Chicago. The SPAN® software for some products calculates the initial margin requirement in the underlying product’s currency. In case of these products, the initial margin is converted to HUF on the given day’s MNB (Hungarian National Bank) exchange rate.

KELER CCP’s initial margin model parameters are reviewed regularly (daily, yearly) in line with legal requirements. The methodology of initial margin determination, the use of the risk measure and the method of spread discount determination are detailed in the methodology document published.

The portfolio based initial margin calculation method’s description:

Related links:

Margin parameters