As a Central Counterparty (hereinafter referred to as “CCP”) of China’s financial market, Shanghai Clearing House (hereinafter referred to as “SHCH”) regards the establishment of a complete and efficient risk management framework as the core to ensure smooth CCP clearing services and effective precautions against systemic risk in the financial markets.
Considering the risk characteristics of innovative financial products, SHCH establishes a set of risk management framework based on the rules of the OTC market for CCP risk management, and the waterfall structure, to prevent risks from expanding and to ensure the stability of China’s OTC market. The risk management framework consists of layered clearing member system, margin, clearing fund, risk reserve, clearing limit, mark-to-market, real-time risk monitoring, default management, etc.
SHCH’s risk management framework presents that the risk resources are used according to the following principles: margin is used before default funds; and defaulting members’ resources are used before non-defaulting members’ resources; and market institutions bear the loss before SHCH. These principles ensure that SHCH has adequate risk resources to cover potential risks in both normal and extreme fluctuations of financial market.
