Qualifying Central Counterparty Variation Margin
The CCR Qualifying Central Counterparty Variation Margin (QCCP VM) Violation Approval process allows QCCP VM limit breaches that were caused by a single deal to be approved or closed by the appropriate users. The entity being approved is a Violation Group, which is a group of Violations.
Due to complexities of trade clearing through CCP, Trading Products Violation Management Financing Guideline will not fully apply for counterparties that are CCPs or Clearing Members (indirect clearing). It is important to understand that bank is legally obligated to make payments to CCP and Clearing Member to meet its Default Fund, Initial and Variation Margin requirements. Bank also may be required by regulator to clear certain trades through CCP, limiting bank’s ability to restrict exposure to specific CCP due to lack of immediate alternative.
All limits should be set at the levels sufficient to manage regular exposure to CCPs and Clearing Members used for indirect clearing.
CCP/Clearing Member violations for Initial Margin to be assigned in Adaptiv to the LOB contact (Craig Malloy or delegate) rather than to an individual trader. No trade pre-approval is required for Initial Margin limits and Trading Products Violations Management Financing Guideline will not apply for these violations.
Trading Product Violations Management FG is only partially applicable to CCP Trade Exposure and Variation Margin facilities. If Trade Exposure and Variation Margin lines are at or over the limit, trader can continue clearing through CCP/CM without pre-approval from PM but is responsible for contacting PM via email within 24 hours from the time of the trade that created a violation. An Irregular Prior Approval that is subject to the three strikes rule if found to be a Primary Breach will apply only if trader fails to advise PM within 24 hours period. If the decision is made to suspend trading with particular CCP and such decision is communicated in writing to Trading LOB, any new trades cleared through CCP without pre-approval from PM will be recommended as Irregular Prior Approvals and will be subject to the three strikes rule as appropriate.
After such notification PM should review the limits and determine if limit increase is needed. If PM is supportive of the limit increase he/she will initiate credit submission within 30 days. If PM is not supportive of the limit increase he/she should immediately escalate to MD, Broker/Dealer responsible for this CCP, Credit Executive, Toronto (or delegate) and LOB contact. CCP Working Committee meeting to be called by CM Credit Risk within 5 business days (see Section 12 for further details).
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