29 November 2022

On 3 November 2022, Singapore Exchange Regulation (“SGX RegCo”) issued a consultation paper seeking comments on proposed changes to the Central Depository’s (“CDP”) margining framework and the CDP clearing fund. The consultation closes on 5 December 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.

Changes to margin framework

SGX RegCo proposes to:

  • introduce 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;
  • introduce margin offsets for certain securities for greater efficiency; and
  • enhance anti-procyclicality measures to better temper sudden margin increases by replacing the margin floor with a dynamic margin buffer.

Changes to clearing fund framework

SGX RegCo proposes to:

  • change 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;
  • deprioritise the use of clearing members’ contingent contributions, such that funded contributions (of both clearing members and CDP) are utilised ahead of unfunded resources; and
  • place 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 Singapore Exchange website www.sgx.com: