Margins

The purpose of the Extraordinary Margin is to cover BME CLEARING’s risk in relation to the Clearing Members in extraordinary situations.

BME CLEARING may require Extraordinary Margins for each Segment, either individually from a Clearing Member, or generally from all Clearing Members, and also to Direct Clearing Clients, in cases which BME CLEARING considers to be high risk.

BME CLEARING has a Circular called “Cases for Posting of Extraordinary Margins” detailing all cases in which the CCP may request this kind of margin to Clearing Members. These cases can be summarized in:

• If the Extraordinary Margin Fluctuation Parameter has been exceeded (margin call), which is a parameter of maximum level of price variation or the change in basis points between the Zero Rate real-time curve and the curve of the last Zero Rate Margin Call consumption (in Swaps), with the purpose of allowing BME CLEARING to regain a sufficient level of funds in situations of exceptional volatility. This parameter is established in the Circular “Margin Calculation Parameters” of each Segment.
• If the solvency of any Member is in the lowest S9 level , the Member concerned must immediately post the extraordinary margin that it would be required to deposit in the event of a price fluctuation above the Extraordinary Margin Fluctuation parameters. In the case of both the OTC Interest Rate Derivatives Segment and the xRolling FX contracts belonging to the Financial Derivatives segment, the additional margin due to having a credit rating below investment grade will be added up to the Initial Margin.
• In any exceptional situation, because of the general state of the market or because of a Member's specific circumstances, and which in BME CLEARING's opinion constitutes a high risk that is not adequately covered by the Individual Funds and the Initial Margin.

The Individual Fund may be requested by the CCP to Clearing Members or Direct Clearing Clients. Likewise, in accordance with Article 29.3 of BME CLEARING´s Rulebook, the Non-Clearing Members of a General Clearing Member when the latter has been declared in Default must post and Individual Fund.

The purpose of  the Individual Fund is to cover BME CLEARING’s risk in relation to the Clearing Members. It can be only used to manage a default by that Clearing Member.

There are two different classes of Individual Funds, based on the Default Waterfall:

• Individual Funds specific to a Segment: which in case of enforcement of the funds the priority will be to cover the outstanding debit balance of the segment to which they were assigned, and only the remaining amounts would be used to cover the outstanding debit balances in other segments.
• Generic Individual Funds, which will be used after the Default Fund contribution of the defaulting Member in each Segment with an outstanding debit balance, and which will be distributed on a pro-rata basis amongst the Segments with outstanding debt balances from the Defaulting Member.

BME CLEARING may require an Individual Fund from Clearing Members in the manner and in the cases established by Circular. In any event, the following Members must post an Individual Fund:

• Clearing Members that manage Omnibus accounts. BME CLEARING shall establish, in the Circular “Individual Fund” of each Segment, the amount to be posted by these Clearing Members.
• Clearing Members exceeding their Position or Trade limits set forth by BME CLEARING.
• To enable an entity to be admitted as a Clearing Member if its own resources do not meet the minimum capital requirements established in the CCP's rules.
• To cover the stress test risk whenever their risk obtained in the stress test results are higher than the set parameters as established in the “Stress Test of the Default Fund” Circular.
• BME CLEARING may establish in the General Conditions of a specific Segment an additional minimum Individual Fund, to be specified in the corresponding Individual Fund Circular of the Segment.

The CCP has a pre-funded fund known as the Default Fund, which has been separated by segment. Thus, if a Clearing Member does not hold positions or trade in a segment, it will never be affected by the default of a Clearing Member with losses in that segment.

Clearing Members and Agent Members of Direct Clearing Clients must make contributions to the Default Fund.

Default Fund contributions shall be posted in cash Euro only, deposited by the Clearing Member, or by its Payment Agent in BME CLEARING account in the payments module of the TARGET2 platform system.

The purpose of the Default Fund is to cover any debit balances which may result from managing the Default of a Clearing Member, and which are not covered by the amounts corresponding to the sum of Initial Margins, Individual and Extraordinary Margins and the contribution to the Default Fund of the Defaulting Member, in addition to BME CLEARING's own dedicated funds.

The Circular “Default Fund” shall establish the minimum amount of the total contribution to the Default Fund for each Segment, consisting of the sum of the different minimum contributions for each Clearing Member, depending on their Segment.

The Circular corresponding to each Segment may establish criteria to require contributions additional to the minimum contribution, based on the relative risk of each Clearing Member within the Segment in question.

Criteria on the minimum size of this fund, how Members’ contributions and minimum contributions to the fund are calculated, drawdowns on the fund and the replenishing of contributions and refunding thereof in the event a Member ceases its Membership are set forth in the “Default Fund” Circular for each of the CCP’s segments pursuant to the provisions laid down in BME CLEARING’s Rule Book.

The criteria to calculate the contributions of each Clearing Member, described in each “Default Fund” Circular, are based on proportionality. Contributions shall be proportional to each Clearing Member’s share of its average exposure compared to the total average exposure for all the CCP's Clearing Members.

In the event that the Default Fund should need to be used, the amount withdrawn shall be allocated proportionally to the Clearing Members, depending on the contribution they have made for each of their Segments in the most recent recalculation or replenishment.

The above shall be done without prejudice to the rules preferentially applied, which are the ones set down in the Rule Book or the General Conditions for a specific Segment.

Clearing Members shall be obliged to restore their contributions and to provide the additional contributions to the Default Fund, following the procedures, within the periods and within the limits stipulated, where appropriate, by Circular.