Oslo Clearing is Norwegian publicly limited company, which is authorized to act as a central counterpart in accordance with the Norwegian Securities Trading Act. Oslo Clearing undertakes as such clearing of equities, financial derivative and security lending products.

Oslo Clearing key services include novation, trade capture and position management, margining, a state of the art netting model which includes netting between underlying securities and derivative or security lending positions, collateral management, risk management, settlement, a flexible account structure, default management and a legal framework.

Oslo Børs VPS Holding ASA which is the holding company of the VPS group owns 100 per cent of Oslo Clearing ASA.

Oslo Clearing as counterpart

Financial Situation

The Norwegian Securities Trading Act provides a capital requirement, stating that a Clearing house shall have sufficient risk capital according the risk exposure with a minimum of MNOK 50 in liable capital. There are also strict regulations of the investment management of the Clearing house capital.

Oslo Clearing is continuously stress testing the open positions in both markets and evaluating the required risk capital.

Oslo Clearing has a total risk capital of approximately MNOK 135 ( 1st of Januar 2009 ).

A unique clearing concept

In the clearing process, a clearing house takes on the role as central counter party between the buyer and the seller of derivatives contracts, and guarantees settlement of the contracts. Thus the clearing house acts as the seller versus the buyer and the buyer versus the seller. The clearing house covers its obligations by collecting collateral (a margin) from the buyer and the seller, respectively.

Even if almost all clearing houses have the same above basic concept there are several differences between the clearing concept and services they are offering towards their clearing members. Oslo Clearings offer include several features that make our clearing concept unique.

Direct legal relationship

All market participants, including clearing members, end-customers and deposit banks, have a direct legal relationship with Oslo Clearing. Despite the legal relationship end clients normally does not participate directly in the clearing process but are instead represented by a clearing or trading representative. The identification of the end clients are also known by Oslo Clearing

Ownership

Oslo Clearing is totally owned by Oslo Børs VPS Holding ASA and is not a member owned organization as many other clearing houses.

Thus, the clearing concept differs from the traditional member-owned clearing organization, for example in the manner in which potential counterparty losses are handled.

End client clearing

Oslo Clearing offer an end client clearing model which mean that accounts for end clients is kept and calculated separately within the clearing system. All end clients are represented by a clearing representative organization which normally is a bank, brokerage firm or a custodian institution. The clearing representatives are mutually responsible for all their end client’s obligations towards the clearing house.

Oslo Clearing replaces the counterparty risk by assuming the liabilities involved in a transaction by becoming buyer to every seller, and the seller to every buyer, which assumes legal responsibility for a contract’s financial performance and by doing so, the counterparty risk between the clearing members is replaced by the single counterparty risk towards Oslo Clearing.

End clients also have a limited counterparty risk towards their clearing member’s because of the direct relationship between the clearing organization and the end client. All end clients accounts are kept in their own name and can therefore if all obligations towards the clearing house is fulfilled be transferred to another clearing member in case of a defaulting clearing member

Netting model

Oslo Clearing operates as the only clearing house in the world a netting model which includes derivative positions, underlying securities and security lending contracts. Due to Oslo Clearing model with all end clients accounts kept separately within the clearing system and their close co-operation with VPS we have been able to create a state of the art netting model which for example allows all clearing members and end clients to keep their underlying securities as collateral pledged to Oslo Clearing for their derivative positions. A long position in an underlying security will therefore automatically be netted towards a short derivative position with the same underlying. This in turn considerably reduces the margin requirements and improves capital efficiency for all participants.

Settlement and delivery on a net basis

Cash settlement and delivery are carried out on a net basis for both end clients and members, since all contracts registered on the clearing account are taken into consideration, and facilitates efficient netting effects. Oslo Clearing also operates a voluntary secured settlement solution directly towards the end client’s cash accounts throughout our deposit banks.

Collateral management

End clients or clearing members can either open a cash account directly at one of Oslo Clearings approved deposit banks or keep collateral in forms of approved securities by their clearing representative or by one of Oslo Clearing approved custodians. All cash or security accounts are pledged to Oslo Clearing.

Default Arrangements

Default arrangements are stated in the Rulebooks. Both the definitions of default and Oslo Clearing’s actions in regard to defaults are fully expressed. The insolvency or default by a member will cause a closure of the defaulting member’s open positions.

All his lodged collateral will be realised, and any deficiency on closing the clearing account is for the account and risk of the Clearing house.