1.Chart Wording for Back Ground
After Basel III and UMR (Uncleared Margin Rules) are applied, the volume of OTC derivatives central clearing soars
- International Regulation Background
- Basel III： Higher Capital Charge without central clearing
- UMR: non-central cleared transactions ask for more margin for both counterparties
- The motivation for attending central clearing
- Clearing Abroad due to international counterparties’ request
- High clearing cost
- Transactions moving outbound
- Transactions have not cleared abroad facing UMR regulation
- Higher margin demand
- Clearing Abroad due to international counterparties’ request
- Building Local Central Clearing Mechanism
- Strengthen Financial Infrastructure
- Financial Institution clears locally, cutting capital charges and clearing cost
- Localizing clearing business for local transactions
- Offer an alternative option other than UMR
- Reduce Margin Requirements, Reinforce credit risk management
- Utilize central clearing risk management to prevent the systematic risk
- Strengthen Financial Infrastructure
2.Chart Wording for Benefit of participating in central clearing
5 advantages of adopting central clearing from bilateral clearing:
- Simplify the bilateral clearing process
- Reduce counterparty default risk
- Increase market transparency
- Decrease the total risk exposure of the market
- Alleviate operation costs and compliance costs
3.Chart Wording for Features of Central Clearing
TAIFEX OTC derivatives clearing has the following features:
- Default Fund
- TAIFEX’s OTC Derivatives Compensation Reserve Fund
- Members assessments shared by clearing members to keep the market steady and functioning
- Robust risk management system
- Extensive Margin Features
- Apply Risk management mechanisms such as daily mark to market, to reduce the chance of default occurrence
- Apply default Management Process to minimize losses
- Protect the non-default participants and the market via methods such as Porting, Hedging, and Auction
Chart Wording for Transaction Submission Procedure
I. Both parties can submit the transaction to TAIFEX through TR or MarkitWire for clearing. II. After TR and MarkitWire transmit the relevant information to TAIFEX, TAIFEX will conduct the following checks.
- Transaction eligibility: Transactions must comply with the specifications.
- Account status: the clearing account status of both parties are normal.
- Margin adequacy: The excess clearing margins in the transaction parties' clearing accounts must not be lower than the required clearing margin for the new transaction.
- 1.Where all criteria in the preceding paragraph are met: The status is replied to "Accepted", and the number, date, and time of the transaction will be provided.
- 2.For regular transactions that do not meet any of the criteria in the preceding paragraph, or backload transactions that do not meet criterion one or two of the preceding paragraph: The status is replied to "Rejected", and TAIFEX will give a reason for rejection.
- 3.For backload transactions that do not meet the margin adequacy: The status is replied to "Suspended", and a margin payment notice will be sent to the clearing member(s) associated with the party(ies) with an inadequate margin. Another check will be performed by 11:00 to determine whether margin adequacy is met. （1）Where both parties have adequate margins: The status is replied to "Accepted", and the number, date, and time of the transaction will be provided. （2）Where either party has an inadequate margin: The status is replied to "Rejected", and TAIFEX will give a reason for rejection.
