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Balancing (netting) risk between the derivatives and FX markets

The service for risk balancing launched on July 28, 2014 allows members trading on the derivatives and FX markets to reallocate risk between their derivatives market positions and FX market obligations. It provides additional opportunities for members to manage their positions by netting collateral posted for counter positions. 

To use the service, members should file a request to link the derivatives market brokerage firm with the relevant FX market settlement code. After the request is filed, the derivatives market clearing system will include certain FX market settlement codes for the relevant brokerage firm. If a brokerage firm does not have the FX market settlement code, then risk balancing is not available. 

The application should be submitted to the NCC derivatives market clearing team via the EDI system.

How to use the service

New instruments supporting risk transfer (EURRUB_RSK and USDRUB_RSK) will be introduced to the trading and clearing systems of the derivatives (SPECTRA) and FX markets. The instruments are not de jure for trading purposes. To transfer the risk, a member should enter a non anonymous order in the relevant instrument, with the volume indicated, via SPECTRA. The broker code should be indicated in the Counterparty field. The order is registered at the current settlement price set for the risk transfer instrument at the central rate determined in accordance with the Moscow Exchange methodology for FX and precious metals market risk parameters. 

Risk management

 After a non anonymous order is entered, two orders in the risk transfer instrument with opposite directions are generated automatically, on the derivatives and FX markets, respectively. Every such order is checked for collateral sufficiency in both trading and clearing systems by the relevant risk management algorithms. Collateral in the SPECTRA trading and clearing system is taken for the larger deal leg (half netting). Collateral sufficiency in the FX market trading and clearing system is checked by recalculating the single limit on a full netting basis. If the collateral sufficiency checks are successful in both systems, then transactions in the risk transfer instruments are made, followed by a review of member"s obligations on each trading system. During the clearing session, the risk transfer instruments are recorded at the current central rate, with no variation margin or collateral deposits extra charge. A position arising from such a transaction is open ended; it may be closed out by making a counter transaction in the same risk transfer instrument.   

Changes in interfaces and reports

The SPECTRA system generates a supporting transaction in the risk transfer instrument, which is visible in the gateway interfaces with the attribute nosystem=1 in the deals table.

The relevant risk transfer instruments are to be introduced on the RSKC board in the FX market trading and clearing system.

Existing reports will remain unchanged. Special reports will be produced to show risk balancing transactions.

Presentation

Testing

Derivatives and FX market clearing members have been able to test the risk balancing service since 21 April. To participate in testing, please send a request to help@moex.com with the following information:

  • Goal: risk forwarding testing
  • Derivatives market section (clearing register)
  • FirmID and settlement code for FX market linking.

For further information regarding testing, please contact the Technical support service on +7(495) 733 9507 or at help@moex.com.

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