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Credit Default SwapMargin

Initial Margin for CDS

In order to cover exposures for CDS, JSCC requires the deposit of variation margin and initial margin from all Clearing Participants.

Please see here for outline of each margin

Initial Margin for CDS consists of ①Initial Margin Base Amount, ②Short Charge, ③Bid/Ask Charge, ④Credit Event Margin and ⑤Single Name Margin.
（※）The total required CDS Initial Margin amount contributed by all Clearing Participants was JPY 71.4 bil. (as of Mar. 29, 2024)

1．Initial Margin Base Amount
The Initial Margin Base Amount is calculated according to a historical simulation (expected shortfall) methodology, in order to cover the risk from price fluctuations. Specifically, it is set to cover a certain level of NPV fluctuation determined using daily prices during a certain historical period for the CDS positions on the date of calculation. Calculation parameters include a reference period of 750 days, a confidence level of the average of the worst 1%, and a holding period of 5 days. In addition to data during the reference period, a stress scenario is included with double the regular holding period (10 days) for the largest historical fluctuation. These considerations take into account the tendency for CDS to experience sudden price fluctuations.
2．Short Charge
The Short Charge is calculated to cover “jump-to-default” risk. Net positions are calculated for each reference entity and the Short Charge is calculated by multiplying the notional amount of the largest net short position by the ratio, which is prescribed by JSCC.
3．Bid/Ask Charge
The Bid/Ask Charge is calculated to cover liquidity risk arising when liquidating positions following a Clearing Participant default. Net positions are calculated for each issue and the Bid/Ask Charge is calculated by multiplying the sensitivity (CS01) of the net position by the bid/ask spread, which is prescribed by JSCC.
4．Credit Event Margin
Credit Event Margin is added to initial margin to cover the risk arising from a reference entity which has experienced a credit event. The net short positions of trades referencing such reference entity are calculated. The net positions are then multiplied by a ratio, applicable to the reference entity, which is prescribed by JSCC in consideration of market conditions.
5．Single Name Margin
Single Name Margin is added to initial margin to cover the risk of a reference entity experiencing a restructuring credit event. Net positions of transactions referencing such reference entity are calculated. For net short positions, the Single Name Margin is derived by multiplying the net position by a ratio, applicable to the reference entity, which is prescribed by JSCC dependent on market conditions. For net long positions, the Single Name Margin is derived by taking the present value of future cash flows for trades referencing the reference entity.

Market Data to be Used for Calculation

Quotes will be obtained from Clearing Participants with respect to Issues / Reference Entities prescribed by JSCC, average of such quotes after discarding outliers (in principle) will be calculated. For daily settlement pates, please see following:

Settlement Prices related to CDS【Daily】

Structure of Increasing Initial Margin

  • Increase according to Credit Standing
    If JSCC considers necessary in light of the credit standing of the CDS Clearing Participant, JSCC may increase the Required Initial Margin Amount. For detail, please refer to the “CDS Clearing Business Rules” Article 32, the “Handling Procedures of CDS Business Rules” Article 31, and the “Guidelines concerning Credit Standing of Clearing Participants, etc. in CDS Clearing Business.
    Please see here for Rules for OTC Derivatives (CDS)
  • Increasing according to position concentration（Concentration Charge）
    JSCC also applies a concentration charge to cover the risk of certain Clearing Participants with concentrated CDS positions. Specifically, JSCC increases the required initial margin of Clearing Participants which hold positions in excess of a level set based on market size. This measure acts to discourage Clearing Participants from taking excessive positions relative to the market size.

Initial Margin Intraday Deposit Scheme

  • Normally, CDS margin required amount calculated based on the closing position of the day is deposited on the following business day by 11:00; provided, however, JSCC may call intraday additional margin, when market fluctuates significantly.
Triggering Criteria Required Amount
When the difference between spread value of Index On-the-Run Series at 11:00 (Intraday Spread Value) and clearing price on immediately preceding day exceeds the threshold value*1. Required Initial Margin Amount calculated based on Intraday Spread Value (house account) +difference between Net Present Value based on settlement price on immediately preceding day and Net Present Value based on Intraday Spread Value (house account and customer account)*2 .

*1 Calculated as the average of the top１% fluctuation in past 750 days.
*2 When deposited amount falls short of the required amount by JPY10 M., an additional deposit will be called.