Margin methodology (356.41 kB)
Oslo Clearing in its capacity a central counterparty requires margin collateral from its clearing members to mitigate its credit exposures on a daily basis.
Margin requirements are issued to each clearing member each morning and must be met in full by 11:00 (CET). Oslo Clearing may issue an intra-day margin requirement, if the collateral provided by a clearing member is deemed insufficient, or in other circumstances when considered necessary in view of the prevailing market conditions. Clearing Members must ensure that the intra-day margin requirement is met by the time due decided by Oslo Clearing.
Oslo Clearing applies a methodology based on the statistical properties of the cleared equity instruments. Oslo Clearing uses different margin models, and applies different principles for the equities and derivatives clearing respectively.
Equity Market Instruments
The margin requirement for a clearing member is the sum of the Initial Margin (IM) and the Variation Margin (VM), where the Initial Margin is calculated following the principles of the value-at-risk (VaR), methodology, incorporating margin rates and correlation coefficients for the clearing transactions. The Initial Margin is calculated at the 99 pct. confidence level. The Variation Margin is the liquidation value of the clearing transactions.
More detailed information is available in the description of the margin methodology
Derivatives and securities lending
For calculating the margin requirement, Oslo Clearing uses the RIVA Delta Hedge methodology in SECUR™ developed by OMX Technology. The scanning range constitutes the outer point for calculating the outcome given a stepwise change in asset prices, but also change in volatility. The Delta hedge methodology considers 14 different scenarios of price and volatility changes when calculating the margin requirements, where the most extreme price changes are determined by the scanning range of the relevant instrument.
Scanning ranges are based on the statistical properties of the underlying equity instrument in a derivatives contract, or the actual equity used for securities lending, or as collateral. The margin is calculated at the 99,8 pct. confidence level.
For a portfolio consisting of several positions in the same underlying instruments, the margin for each position is calculated independently, however offsetting margins for opposite way positions. Margin offsets are not allowed for positions in different underlying instruments.
The margin requirement is calculated at the end client level. Clearing members that act as representatives for their end clients are joint and severally liable for their end clients’ obligations towards Oslo Clearing.
Midas Margin Methodology
The MagiCa project uses the Midas Margin Model when calculating margins. The margin model is developed by Oslo Clearing and will replace the methodologies that currently are in use, both in the derivative segment and in the equity segment.
The Margin Methodology document is a detailed document which accounts for the methods and assumptions that are used in the Midas Margin model.