Margin refers to cash or security paid by clearing members to SHCH, used to cover loss caused by clearing members’ default or rule violation. There are three types of margins - minimum margin, variation margin and special margin. Margin requirement can be adjusted by SHCH according to each clearing member’s creditworthiness as well as market conditions.
Minimum margin is used to cover loss that may be potentially caused under a certain confidence level by clearing members’ default or rule violations. SHCH calculates minimum margin for each clearing member based on its clearing limit of a certain central clearing service. Clearing limit refers to the amount of net position or risk exposure a clearing member can hold in a certain central clearing service.
Variation margin includes over-limit margin and mark-to-market margin. Over-limit margin requirement generates when a clearing member’s net position or risk exposure exceeds relevant clearing limit. Over-limit margin makes up for the loss uncovered by minimum margin caused by clearing members’ default or rule violation. Mark-to-market margin covers mark-to-market loss of clearing members’ current positions.
Special margin refers to the extra loss that may be potentially caused by clearing members’ default or rule violation under circumstances including (i) abnormal fluctuation of market prices, (ii) overly-concentrated positions,(iii) long holidays ahead, (ⅳ)other circumstances identified by SHCH.
The concrete executive rules under above abnormal circumstances are formulated in the business rules of central clearing services.