180 likes | 397 Views
JSE SECURITIES EXCHANGE SOUTH AFRICA. Margining Methodology. Margining Methodology. Objectives Process Overview Methodology Results & Examples Implementation Conclusion. JSE SE SA Objectives. Accurate transparent methodology Compensate for volatility, liquidity & deal size risk
E N D
JSE SECURITIES EXCHANGE SOUTH AFRICA Margining Methodology
Margining Methodology • Objectives • Process Overview • Methodology • Results & Examples • Implementation • Conclusion
JSE SE SA Objectives • Accurate transparent methodology • Compensate for volatility, liquidity & deal size risk • Enable pre-trade risk management • Consistency with SAFEX margining • Secure daily data transfer • Rapid implementation
Specific Margin Objectives • The margin should take into account the specific risk of the position, including the price volatility, liquidity and specific size (nominal shares) involved from EOD on T+3. MARGIN Volume Price Volatility Relative Spread Size
Methodology • MtM uncommitted trades on EOD on T+3 • Compute 2-day VaR margin • Scale VaR for liquidity horizon • Adjust margin for position size • Compile margin matrix • Provide information to JSE • JSE margins trades
The Margining Matrix Deal Size 39,500 Sec. Codes 8% NPK
200 Securities Example High Risk Medium Risk Low Risk
Margin Requirements: AGL v NPK • AGL: Ave Volume 2.7m, Volatility 43.49% • NPK: Ave Volume 1.7m, Volatility 28.63%
Median Margin Examples 11,000
Spread Risk • Relative Spread = (Offer - Bid)/Mid • Quantifies spread as % of asset price • Allows objective spread comparison • Enables spread risk comparison • Implicit risk (cost) of trading
Implementation Brokers RisCura A Daily Download Risk Engine B Pre-Trade Risk Analytics C FTP D Email E JSE SE SA Failed Trades Margin Matrix
Conclusion • Fully covers volatility, liquidity and position size risk • Consistent with SAFEX margining • Tested & ready to implement • Fully automated • Data transfer redundancy • Broker pre-trade risk analysis • Compensates JSE for risk