Risk Management

At Cboe Clear Europe our core focus is risk management. Our advanced risk platform provides a safe, transparent and robust system to manage risk and volatility even in the most extreme circumstances.

The core margin model is based on a Filtered Historical Simulation (FHS), Expected Shortfall (ES) methodology. This model estimates potential loss based on historical price changes (returns). Margin is calculated using this model represent the potential expected loss for a given portfolio based on Cboe Clear Europe's assumed lookback period, liquidation period, and confidence level.

Anti-Procyclicality Measures

Article 28 of the EMIR RTS sets out requirements for CCPs to limit procyclicality of margin requirements to the extent that the soundness and financial security of the CCP is not negatively affected. To comply with regulatory requirements, Cboe Clear Europe applies an anti-procyclicality (APC) measure in the form of a stressed historical simulation (StressHS) margin which aims at reducing the procyclicality of the stand-alone FHS IM (ie. by applying the option set out under Article 28(1)(b) of the EMIR RTS). An APC-compliant margin is then computed as a weighted sum of the FHS and the StressHS margins.

Investment Strategy

Cboe Clear is exposed to investment risk when Clearing Participants lodge cash Collateral to Cboe Clear to cover Margin requirements and Clearing Fund Contributions. To mitigate adverse events that could lead to losses resulting from Investment activities whilst ensuring the principal is sufficiently protected, collateral collected in cash shall be held either:

At central banks seated in the European Economic Area (EEA), the United Kingdom and Switzerland or;
At approved Credit Institutions, which meet Cboe Clear internal credit criteria at all times as set out in the Cboe Clear Investment Policy, through secured investments[1] (highly liquid securities with a minimal external rating of BBB (or equivalent) issued by the governments, including regional municipalities, of the United Kingdom and Northern Ireland, the United States of America, countries of the EEA or the European Union and their respective central banks - including the European Investment Bank, European Stability Mechanism and European Financial Stability Facility) - through the means of outright buys, reverse repurchase or secured deposit agreements, or a combination thereof.

[1] Where cash is maintained overnight then no less than 95% of such cash, calculated over an average period of one calendar month shall be collateralised.

In cases where Cboe Clear undertakes an authorised investment, Cboe Clear shall ensure that:

The tenor of secured investments is no longer then twelve (12) months following the Clearing Day in which the respective secured investment was entered into;
No more than fifty percent (50%) of all funds available for investments will be held at a single Credit institution.

Reporting

Cboe Clear Europe's Risk Reporting provides a clear and transparent view of members collateral and margin requirements. For details of risk reporting please see the following documentation:

Risk Governance

The Risk Committee is an EMIR-required advisory committee composed of three representatives from Clearing Participants, one representative from clients of Clearing Participants, and one independent member of the Supervisory Board, in compliance with EMIR requirements. The EMIR Risk Committee is chaired by Lex Hoogduin - Independent Member.