Margin collateral

What is margin collateral

Cash and/or liquid securities held by a clearing participant in an account with the central counterparty. This reserve is needed to cover possible losses on open positions and fulfill transaction obligations even during sharp market movements.

Margin collateral is not a fee for services, it is a participant's funds, temporarily restricted in use until complete fulfillment of obligations under transactions.

Why is it necessary?

The central counterparty assumes the risk of default on transactions. Margin collateral:

reduces the risk of default by one participant for the entire market
helps the KASE Clearing Center to promptly close or hedge positions during unfavorable price movements
improves settlement reliability and protects bona fide participants

This is essentially the first level of financial protection in the central counterparty's risk management system.

What is it formed from?

Margin collateral may include:

cash
liquid securities included in the approved Collateral List T+

The specific list of instruments, rating and currency requirements, and discounts are defined by internal documents of the KASE Clearing Center. While an asset is used as collateral, it cannot be freely withdrawn or used in other operations.

Main types of margin collateral

Initial margin

Initial margin is a reserve that is blocked when opening or increasing a position.

calculated taking into account an instrument's volatility, liquidity and other risk factors;
covers potential future losses from unfavorable price changes over a specified risk horizon;
used as one of the primary sources of loss coverage in case of a participant's default in default management procedures.

Initial margin is a reserve that is blocked when opening or increasing a position.

calculated taking into account an instrument's volatility, liquidity and other risk factors;
covers potential future losses from unfavorable price changes over a specified risk horizon;
used as one of the primary sources of loss coverage in case of a participant's default in default management procedures.

Variation margin reflects the daily (and, if necessary, intraday) result of revaluation of positions:

if the price moves in a participant's favor, they receive a positive variation margin;
If the price moves against a participant, a negative variation margin is formed, and the participant must deposit the missing collateral.

Thus, the variation margin records the current profit/loss on positions and maintains the market value of obligations at the current level.

Stress collateral is an additional individual collateral that is calculated by KACC using:

stress scenarios for extreme but realistic market fluctuations;
special stress parameters for credit, market and systemic risk.

It serves as an additional protection layer for the clearing system in case of rare but strong shocks.

Initial margin is a reserve that is blocked when opening or increasing a position.

calculated taking into account an instrument's volatility, liquidity and other risk factors;
covers potential future losses from unfavorable price changes over a specified risk horizon;
used as one of the primary sources of loss coverage in case of a participant's default in default management procedures.

Variation margin reflects the daily (and, if necessary, intraday) result of revaluation of positions:

if the price moves in a participant's favor, they receive a positive variation margin;
If the price moves against a participant, a negative variation margin is formed, and the participant must deposit the missing collateral.

Thus, the variation margin records the current profit/loss on positions and maintains the market value of obligations at the current level.

Stress collateral is an additional individual collateral that is calculated by KACC using:

stress scenarios for extreme but realistic market fluctuations;
special stress parameters for credit, market and systemic risk.

It serves as an additional protection layer for the clearing system in case of rare but strong shocks.

Single limit

Shows the amount of free collateral available to a participant for:

concluding the new transactions
maintaining the open positions

Calculation of the single limit takes into account:

Initial margin
Variation margin - the daily and intraday result of position revaluation
Established risk parameters and discounts
The value of assets from the Collateral List T+
Other elements specified by the Clearing Rules

Guarantee collateral

Used in the derivatives market.

This is the funds and/or assets reserved to cover risks of derivative instruments. It complements the margin system and is taken into account in the overall protection level for futures contracts.

Frequently asked questions

To assess sufficiency of collateral, KACC uses special calculated indicators.

KACC monitors the level of collateral at key points of the clearing process. The check is carried out:

upon submission of new orders;
upon significant changes in price boundaries;
at the end of each mark-to-market clearing session;
if necessary - during the day, upon sharp market movements.

If, based on the calculation results, the available collateral is insufficient, a margin call is automatically generated after the mark-to-market.

A margin call is a requirement to provide additional collateral if the current margin level following the mark-to-market is no longer sufficient to cover the risk of the positions.

What a participant does:

Receives a margin call notification through established channels (usually through a broker or directly if it is a clearing participant).
Within the specified time:
- contributes additional cash and/or assets accepted as collateral from the Collateral List T+,
- or reduces positions to reduce risk and the required margin amount.
After replenishing the collateral, the single limit is restored, and the participant can continue trading as usual.

If a margin call is not fulfilled in time, KACC has the right to:

restrict the ability to open new positions;
initiate the forced closure of a part or all of a participant's positions;
use available collateral to cover the incurred losses in accordance with the Clearing Rules.

What is margin collateral

Main types of margin collateral

Initial margin

Single limit and guarantee collateral

Single limit

Guarantee collateral

Frequently asked questions