Instituting a Line of Defence

Various strategies are deployed in determining an optimal degree of exposure and cover at every point in time

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CREATING THE ROADMAP FOR NIGERIA’S DERIVATIVES MARKET

Margin

Initial Margin
Initial Margin (IM) represents the primary prefunded line of defense deposited by clearing members to NG Clearing as collateral. It is risk-based and generates margin requirements sufficient to cover potential future exposure to participants in the interval between the last margin collection and the close out of positions either. The model is designed to meet an established single-tailed confidence level of at least 99 percent with respect to the estimated distribution of future exposure.

Variation Margin
Variation margin is computed by marking the trade price of a contract all the contracts of a member

We ascertain our current exposure to each participant by marking each participant’s outstanding positions to current market prices which may result to daily (and, when appropriate, intraday) collection of variation margin from participants whose positions have lost value and make payments to participants whose positions have gained value. This prevents current exposures from accumulating and mitigates the potential future exposures NG Clearing might face. NG Clearing may also impose trading limits or position limits to reduce this risk.

Special Margins
The Company, may impose additional risk containment measures over and above minimum margins mandated by the Regulator in the form of additional margins.

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