SGX

SGX: In order to better match members' obligations with their risk profile, CDP wants to require each clearing member to deposit a margin that is pegged to the member's contribution to market risk, according to a consultation paper by SGX yesterday. The proposed margin - which will be imposed by CDP on members, not end-users - will be calculated based on market volatility, the size of a member's net positions, and the market value of the member's portfolio. The new margin will be the first line of defence if that member defaults. That will add one layer of protection before CDP taps the existing central clearing fund, which pools contributions from SGX and members. The clearing fund has never had to be used. To help reduce the burden on members, CDP will reduce to $500k from $1m the minimum amount that each member has to contribute to the clearing fund. CDP will also remove the requirement for Large Exposure Collateral, which is the current mechanism for getting members who have unusually large positions to post additional collateral. Some brokers expressed concern that the move could result in higher trading costs, as besides having to put money aside for the margin, the logistics of compliance could also increase. Others noted that one way to pass on the costs to customers would be for members to ask clients to post margin for their trades, which could then signal the end of contra.