Margining

A key safeguard of CDCC's risk management process is the requirement that Clearing Members post collateral in the form of margin to guarantee the performance of their contract obligations. CDCC's risk-based margin is determined using industry-accepted methods and it is designed to provide the proper levels of protection to cover market movements on open positions.

Margining

Margin Requirement is composed of the Initial Margin and the Variation Margin.

Initial Margin

The Initial Margin is composed of the Base Initial Margin (or Adjusted Base Initial Margin, as the case may be) and the Additional Margins. In order to cover the Initial Margin described below, Clearing Members shall deliver to CDCC an acceptable collateral.

Base Initial Margin

The Base Initial Margin requirement covers the potential losses and market risk that may occur as a result of future adverse price movements across the portfolio of each Clearing Member under normal market conditions. The risk methodology for the Options, Futures and Unsettled Items incorporates the historical volatility of the daily price returns of the Underlying Interests for Options, Unsettled Items and Share Futures and the daily price returns of the Futures prices for Futures (excluding Share Futures). In addition, as part of the methodology, CDCC uses a volatility estimator, a confidence level over 99% under the normal distribution or the student’s t-distribution assumption and a variable number of days as the Margin Period of Risk.

The risk methodology for Fixed Income Transactions is the Value at Risk methodology (VaR). This methodology considers a full revaluation method and it is based on Zero Curves. In addition, as part of the methodology, CDCC uses a volatility estimator, a Margin Buffer Multiplier to prevent a large decrease in Margin requirements during periods of low volatility, a confidence level over 99% and a variable number of days as the Margin Period of Risk.

With respect to the Limited Clearing Members, the Base Initial Margin is multiplied by the Effective Ratio to calculate the Adjusted Base Initial Margin.

Additional Margins

In addition to the Base Initial Margin (or Adjusted Base Initial Margin, as the case may be), the Corporation requires Margin Deposits for the following Additional Margins:

  • Additional Margin for Market Liquidity Risk
    This Margin requirement covers the liquidity risk arising when the Corporation has to close-out positions at a price different than the market price. This liquidity risk could be divided into two components: the first one is the inherent market liquidity risk which is mainly associated to the bid-ask spread, and the second one is the additional liquidity risk due to concentrated positions that cannot be liquidated within the bid-ask spread.

  • Additional Margin for Specific Wrong-Way Risk
    This Margin requirement covers the risk that arises when the exposure of a Clearing Member in its own products is adversely correlated with the creditworthiness of that Clearing Member.

    • Call Options:
      When a Clearing Member holds a long Call Option position on the shares issued by itself or its Affiliates, the Option Price or the OTCI Option Price for OTCI Securities Options, as the case may be, is charged as Additional Margin for Specific Wrong-Way Risk. However, the value of all short Call Options for which the Underlying Interest is a security issued by itself or its Affiliates will reduce the amount charged as Additional Margin for Specific Wrong-Way Risk.

    • Put Options:
      When a Clearing Member holds a short Put Option position for which the Underlying Interest is a security issued by itself or its Affiliates, the full strike value amount minus the Option Price or the OTCI Option Price for OTCI Securities Options is charged as Additional Margin for Specific Wrong-Way Risk. For long Put Option position for which the Underlying Interest is a security issued by itself or its Affiliates, the Option Price or the OTCI Option Price for OTCI Securities Options minus the full strike value amount is charged as Additional Margin for Specific Wrong-Way Risk.

    • Share Futures:
      When a Clearing Member holds a long Share Futures position for which the Underlying Interest is a security issued by itself or its Affiliates, the full settlement value amount is charged as Additional Margin for Specific Wrong-Way Risk. However, any short Share Futures position for which the Underlying Interest is a security issued by itself or its Affiliates will reduce the amount charged as Additional Margin for Specific Wrong-Way Risk.

    • Unsettled Items:
      When a Clearing Member holds an Unsettled Item position for which the Underlying Interest is a security issued by itself or its Affiliates, the last price of the Underlying Interest is used for the calculation of the Additional Margin for Specific Wrong-Way Risk. Depending if the Unsettled Item position results from an exercise or an assignment, it could either increase or lower the Additional Margin for Specific Wrong-Way Risk. The Additional Margin for Specific Wrong-Way Risk is netted and capped at the product level. The value cannot be lower than zero.

  • Additional Margin for Mismatched Settlement Risk
    The Additional Margin for Mismatched Settlement Risk is requested if the risk arising from a lag between the settlement of positions results in a margin offset. More specifically, CDCC faces a risk that a Clearing Member settles a position that provides either a Base Initial Margin offset with other positions on the rest of the portfolio.

    Given the fact that margin offsets are granted when Fixed Income Transactions portfolios have both long and short positions without taking into account the settlement dates, this Additional Margin charge will be calculated for the positions that could cause mismatched settlement exposure prior to a default.

    In order to address such risk, CDCC will perform forward looking analysis to forecast material changes in the Base Initial Margin as a result of settlements of Fixed Income Transactions.

    The Additional Margin for Mismatched Settlement Risk will be calculated by using the maximum of several scenarios representing the potential cases that may trigger a Mismatched Settlement Risk following the settlement of positions, minus the Base Initial Margin.

  • Additional Margin for Intra-Day Variation Margin Risk
    The risk covered by the Additional Margin for Intra-Day Variation Margin Risk arises when market volatility of cleared volumes produces unusually large Variation Margin exposures. The Additional Margin for Intra-day Variation Margin Risk requirement corresponds to the sum of the Additional Margin for Intra-day Variation Margin Risk in respect of Futures and the Additional Margin for Intra-day Variation Margin Risk in respect of Fixed Income Transactions. When calculating the value of Additional Margin for Intra-day Variation Margin Risk for Futures or Fixed Income Transactions, the value cannot be lower than zero.

    In order to address the Intra-Day Variation Margin Risk, the Corporation may call for Additional Margin from each Clearing Member if it determines that the intra-day exposure for Futures and/or Fixed Income Transactions of the Clearing Member exceeds certain limits (thresholds expressed in percentage) in relation to the Clearing Member's respective Base Initial Margin. The Additional Margin for Intra-Day Variation Margin Risk is subject to a minimum value (floor).

  • Additional Margin for Unpaid Option Premium Exposure Risk
    The Additional Margin for Unpaid Option Premium Exposure Risk covers the risk incurred by the Corporation in guaranteeing to each Clearing Member the settlement of the Net Daily Premium on a daily basis.

  • Additional Margin for Banking Holiday Risk
    This Additional Margin considers the risk associated to uncovered exposures arising from new trades and the additional market risk that the Corporation could face during the Banking Holiday.

    The incremental exposure is based on the historical fluctuation of the Base Initial Margin requirement over a specific period and it is designed to capture the potential uncovered Base Initial Margin requirement arising from new trades during the Banking Holiday.

    With respect to the additional market risk, one (1) more Business Day is added to the MPOR of the Base Initial Margin requirement for the eligible tradeable products during the Banking Holiday. This Base Initial Margin requirement is then compared to the Base Initial Margin calculated with the MPOR. The difference between the two values corresponds to the additional market risk.

  • Additional Margin for Variation Margin Delivery Risk
    This Margin requirement covers the risk incurred by the Corporation in guaranteeing to each Clearing Member having pledged specific securities to cover its Net Variation Margin Requirement, the return of such specific securities, in the event that another Clearing Member to which the specific securities were initially delivered fails to return such specific securities and becomes Non-Conforming or is Suspended. In this case, the Corporation will have to buy the specific securities in the market to return to the Clearing Member that had initially pledged the specific securities. To cover this potential risk, an amount representing a percentage of the total Variation Margin requirement or a specific percentage set at the securities level will be collected from the Clearing Member who initially receives the specific securities, as Additional Margin for Variation Margin Delivery Risk


  • Additional Capital Margin Risk
    This Additional Margin intends to measure the credit exposure of all Clearing Members (excluding Limited Clearing Members) that arises if the exposure of a Clearing Member is superior to its capital amount.

    The Corporation compares the Clearing Member’s capital amount to the Base Initial Margin. In the event that the Base Initial Margin of the Clearing Member exceeds the capital amount, Additional Margin in the amount of the excess will be collected from the Clearing Member.

    The capital level is derived from regulatory reports received on a regular basis. The Corporation uses the net allowable assets, the net Tier 1 capital or any other comparative measure to assess the capital level of each Clearing Member.

  • Additional Margin For Uncovered Risk of Limited Clearing Members (LCMs)
    This Additional Margin covers the risk exposure that arises if the total value of the risk represented by an LCM to the Corporation is greater than the aggregate amount of the Limited Clearing Member’s Adjusted Base Initial Margin and the total value of the Clearing Fund. The risk represented by the LCM is determined by the Corporation by calculating the estimated loss that the Corporation would face in extreme but plausible market conditions. This Additional Margin is calculated on a daily basis and is required from Limited Clearing Members only.

Variation Margin

The Variation Margin requirement covers the risk due to the change in price of a Derivative Instrument or an OTCI or a change in the Floating Price Rate since the previous evaluation in accordance with the Rules. The following table evidences the type of Variation Margin coverage that will be required by CDCC for each type of products:

Products Variation Margin Coverage Type
Options Collateralized
Futures Cash Settled
Fixed Income Transactions Collateralized (subject to Variation Margin process)
Unsettled Items Collateralized
  • Options
    For Options, the Variation Margin is collateralized every Business Day and at each Intra-Day Margin Call based on the Option Price reported by the Exchange, or the last OTCI Option Price for OTCI Securities Options3, as the case may be, and, in the event of the unavailability or inaccuracy of such price, the Corporation shall set such price in accordance with the best information available as to the correct price.

  • Futures
    For Futures, the Variation Margin is cash settled every Business Day based on the last Settlement Price reported by the Exchange, and, in the event of the unavailability or inaccuracy of such price, the Corporation shall set the last Settlement Price in accordance with the best information available as to the correct price.

  • Fixed Income Transactions
    The Variation Margin Requirement in respect of each Fixed Income Transaction is calculated on a daily basis and represents the sum of the Price Valuation Requirement and the Repo Rate Requirement, each as defined in Section D-601 of the Rules.

  • Price Valuation Requirement
    The Price Valuation Requirement represents, in respect of a Repurchase Transaction, an amount which is the aggregate amount calculated in respect of the difference between (i) the Market Value of the Purchased Security and (ii) the Repurchase Price of the Repurchase Transaction, plus any Coupon Income payable to the holder between the calculation date and the Repurchase Date, and, in respect of a Cash Buy or Sell Trade, an amount which is the difference between (i) the Market Value of the Purchased Security and (ii) the Purchase Price of the Cash Buy or Sell Trade; which amount is owed to the Corporation by a Fixed Income Clearing Member that is a party to such Repurchase Transaction or Cash Buy or Sell Trade or by the Corporation to such Fixed Income Clearing Member.

  • Repo Rate Requirement
    The Repo Rate Requirement represents a change in the current Floating Price Rate and means, in respect of a Repurchase Transaction, an amount which is calculated in respect of the difference between the Floating Price Rate and the Repo Rate; which amount is owed to the Corporation by a Fixed Income Clearing Member that is a party to such Repurchase Transaction or by the Corporation to such Fixed Income Clearing Member.

Unsettled Items

The Variation Margin for Unsettled Items with respect to both Options and Futures is collateralized. With respect to Variation Margin for Unsettled Items related to Options, the Corporation calculates a Variation Margin requirement equal to the intrinsic value of the Option multiplied by the position and the contract size. With respect to Variation Margin for Unsettled Items related to Futures, the Corporation calculates a Variation Margin requirement equal to the difference between the last Settlement Price of the Futures and the price of the Underlying Interest related to the Futures, multiplied by the position and the contract size.

For more details on how CDCC computes margin requirements, please refer to the Risk Manual: https://cdcc.ca/f_rules_en/cdcc_operations_manual_en.pdf