Equities

As a Central Counterparty (CCP), IDClear is required to have and maintain sufficient financial resources to address counterparty risk caused by the default of Clearing Members, which could have significant implications for the market. The need for financial resources must be periodically estimated by IDClear to assess their adequacy in facing extreme market conditions that may arise.

Based on PFMI-IOSCO, CCPs are advised to periodically review the methodology used in stress testing the financial resource requirements. Stress testing is a method to estimate extreme (but possible) losses in abnormal market conditions by recalculating the portfolio value using price changes that exceed the highest changes used in Historical VaR (HsVar). The stress testing scenarios performed by IDClear only cover market risk, which is the risk IDClear must bear due to market price fluctuations.

IDClear uses one of the stress testing methods, namely Monte Carlo Simulation. Monte Carlo Simulation is a random simulation process on a model built for each risk component, performed repeatedly to generate possible portfolio values for a specific target horizon.

In this simulation, various risk factors and operational data for a specific period are selected, and then analyzed to determine the type of distribution and its parameters, which are then integrated into a model. The output of this model is the risk value that must be covered by the financial resources of the exchange transactions. Next, simulations will be performed with 10,000,000 iterations to generate a distribution of possible financial resource needs, with a confidence level of 99.9%.