FX market risk management system innovations from April 28, 2014

Moscow Exchange is to introduce the following novelties in its FX market from 28 April 2014:

• Individual risk parameters per a settlement code are now available;
• The risk assessment limits applied to calculate the Single limit of a clearing member are to be determined by a value of its outstanding obligations under trades.

1.  Individual risk parameters

Individual risk parameters will become available for the FX market clearing members. They will be able to manage the risk parameters such as risk assessment range limits, at the level of Settlement codes. 

Individual risk parameters will be set for specific Settlement codes through the FX market trading system. To set the parameters, members will enter the following information in the menu bar "Запрос -> Риск-параметры -> Индивидуальные риск-параметры -> Установка индивидуальных риск-параметров":

• Settlement code;
• Currency (USD, EUR,CNY, GLD, and SLV);
• A multiplier (accurate to two decimal places).

The risk assessment limits are recalculated with the multipliers (that is the same as increased Margin rate): 

Lower/Upper limit = Central rate + K * (Old Lower/Upper limit – the Central rate),

where K – the multiplier.

Risk parameters set by members will become effective from the next trading day. NCC sets multipliers equal one by default for all Settlement codes.  The Single limit per a Settlement code is determined considering the individual risk parameters.

2. Concentration limits

The risk assessment limits used to calculate the Single limit of a clearing member will depend on its value of obligations under trades. Two concentration limit levels are to be introduced.

If the value of obligations exceeds the first level concentration limit, risk parameters for the second level (higher margin rates broadening the risk assessment ranges) are used. Similarly, even higher risk parameters of the third level are applied if the value of obligations exceeds the second level concentration limit. The concentration limits values are set by the NCC and published on its website.

Detailed information about the FX market risk management system, including the Risk Parameters Methodology, values of the risk parameters and concentration limits, are available on the NCC"s website (the new methodology as well as new values of the risk parameters will be published after 21 April).