SGX implements refinements to CDP margin and clearing fund frameworks

27 June 2023

Singapore Exchange (“SGX”) has proceeded to implement refinements to the margin and clearing fund frameworks of The Central Depository (Pte) Limited (“CDP”) following a consultation on the changes held in 2022.

CDP collects margins and clearing fund contributions to mitigate the impact a clearing member default could have on the rest of the financial system. If a clearing member defaults, any loss suffered by CDP will first be met with margins collected from the defaulter. If the default loss exceeds the defaulter’s margins, the clearing fund will be used to mutualise the residual loss.

SGX sought feedback on the refinements to the frameworks and the consequential amendments to the CDP Clearing Rules (“Rules”) in a consultation paper published on 3 November 2022. On 26 May 2023, SGX issued its response. 

The amendments to the Rules took effect from 26 May 2023, while the changes to the margin framework took effect from 12 June 2023. 

Changes to margin framework

Key amendments to the margin framework include:

  • the introduction of differentiated margin rates for groups of securities with different risk profiles so that margins will commensurate more closely with the level of risk brought to the system;
  • the introduction of margin offsets for certain securities for greater efficiency; and
  • enhancements to the anti-procyclicality measures to better temper sudden margin increases by replacing the margin floor with a dynamic margin buffer.

Changes to clearing fund framework

Key amendments to the clearing fund framework include:

  • changes to the approach for sizing the clearing fund and clearing members’ contribution so that they will move more dynamically in tandem with the level of risk brought to the clearing system;
  • deprioritising the use of clearing members’ contingent contributions, such that funded contributions (of both clearing members and CDP) are utilised ahead of unfunded resources; and
  • placing a cap on clearing members’ clearing fund liability to give them certainty on their maximum exposure.

Reference materials 

The following materials are available on the SGX website www.sgx.com: