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Interest Rate SwapMargin

Initial Margin for IRS

In order to cover exposures for IRS, 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 IRS consists of ①Initial Margin and ②Liquidity Charge.
(※)The total required IRS Initial Margin amount contributed by all Clearing Participants was JPY 896.8B (as of 30, September, 2019)

Please see here for Trial Calculation Value of Initial Margin
  • Initial Margin
    The required amount of initial margin is calculated using historical simulation (expected shortfall) methodology to cover risks from interest rate fluctuations. Specifically, it is set to cover a certain amount of an NPV fluctuation calculated using a daily yield curve fluctuation scenario for a given historical period.
    Parameters used in the calculation include a reference period of 1,250 days, a confidence level of the average of the worst 1%, and a holding period of 5 days (7 days for customer transactions). In addition to the data from the reference period, data from the significant historical interest rate fluctuations are also used as stress scenarios. This is to prevent sudden changes in required initial margin when stress events are applied to or removed from the reference period data.
    Additionally, JSCC has methodologies in place (Volatility Scaling methodology based in Exponentially Weighted Moving Average method) to revise the historical interest rate fluctuation scenarios, based on current interest rate trends.

Illustration of Initial Margin

Generation and Application of Scenarios

  • Liquidity Charge
    Liquidity Charge is calculated to cover market liquidity risk arising from the liquidation of a defaulting Clearing Participant’s positions. This charge is calculated based on by multiplying the PV01 by an ask/bid spread derived from a market survey of Clearing Participants.

Liquidity Charge

After above calculation related to each tenor, Liquidity Charge for participant’s portfolio is calculated
based on correlation of past interest rate fluctuations between the tenors.

Market Data to be Used for Calculation

Quotes as of 15:02 will be obtained from Clearing Participants and inter-dealer brokers with respect to grid points prescribed by JSCC, average of such quotes after discarding the highest and the lowest of such value (in principle) will be calculated and the yield curves are to be generated based on such averages. For settlement rates as of 15:02, please see following:

Settlement Rates related to IRS【Daily】

Structure of Increasing Initial Margin

  • Increase according to Credit Standing
    If JSCC considers necessary in light of the credit standing of the IRS Clearing Participant, JSCC may increase the Required Initial Margin Amount. For detail, please refer to the “Interest Rate Swap Clearing Business Rules” Article 32, the “Handling Procedures of Interest Rate Swap Business Rules” Article 24, and the “Guidelines concerning Credit Standing of Clearing Participants, etc. in IRS Clearing Business.
Please see here for Rules for OTC Derivatives (IRS)