Financial Risk Controls
Financial Risk Management
Managing Financial Risk with Confidence
DTCC's financial risk controls help identify, monitor and manage credit, market, liquidity, model and systemic risks across our clearing agencies. Through ongoing surveillance, risk monitoring, stress testing and governance, we help promote and protect resilient markets and reinforce confidence in critical financial market infrastructure.
DTCC's financial risk controls help identify, assess and manage credit, market, liquidity, model and systemic risks across its clearing agencies. Through ongoing surveillance, risk monitoring, governance and stress testing, these controls help promote market resilience, settlement certainty and confidence in the markets we support.
Strong data quality underpins every aspect of financial risk management, helping ensure informed decision-making and effective risk oversight across the enterprise.
Evaluating Participant Strength and Monitoring Ongoing Exposure
DTCC's counterparty credit risk controls help assess participant financial strength and monitor potential exposure across our clearing agencies.
Before admission, applicants undergo a detailed review that considers factors such as organizational structure, governance, regulatory oversight, risk controls and financial condition. Once admitted, participants are subject to ongoing surveillance to help ensure they continue to meet established standards.
Through continuous monitoring, financial analysis and market surveillance, DTCC helps identify emerging risks and support the resilience of the markets we serve.
Managing Exposure through Margin, Collateral and Ongoing Monitoring
Overview
The Clearing Agencies maintain comprehensive market risk management programs designed to, among other things, effectively:
- manage market risk exposures to their clearing participants.
- manage market risk exposures arising from their payment, clearing and settlement processes.
- limit the assets they accept as collateral to those with low credit, liquidity and market risks.
- set and enforce appropriately conservative haircuts and concentration limits on the assets they accept as collateral.
In addition, as central counterparties, NSCC and FICC also include risk-based margin systems in their risk management programs designed to, among other things:
- cover market risk exposures to their clearing participants.
- produce margin levels commensurate with the risk and attributes of each product, portfolio and market.
- mark participant positions to market.
- calculate margin sufficient to cover the potential future exposure to their participants in the interval between the last margin collection and the closeout of positions following a participant default.
The Teams
The Equity Risk team is responsible for the market risk management program at NSCC and DTC. The FICC Market Risk team is responsible for FICC’s market risk management program.
A core objective of these programs is for each Clearing Agency to maintain sufficient financial resources to cover market risk exposures to participants fully, with a high degree of confidence and under a wide range of foreseeable stress scenarios.
Clearing Agency Specific Programs
How market risk presents itself and is managed is unique to each Clearing Agency. Click on the NSCC, FICC and DTC tabs above for more information about their specific market risk management programs.
To learn more about market risk management at the Clearing Agencies, see their respective CPMI-IOSCO Disclosure Frameworks – Principles/Standards 4 (Credit Risk) and 5 (Collateral); and for NSCC and FICC, also Principle/Standard 6 (Margin).
NSCC’s Trade Guarantee
Market risk management is the foundation supporting NSCC’s trade guarantee to members.
As central counterparty, NSCC:
- serves as buyer for every seller, and seller for every buyer, for settlement purposes.
- ensures completion of trades if one of the trading partners defaults.
- through multilateral netting, significantly reduces (i) security movements, (ii) value of trade obligations requiring settlement, and (iii) capital requirements.
Equity Risk Team
The Equity Risk team monitors risks presented to NSCC by its clearing members.
Monitoring takes a variety of forms, including:
- start of day and intraday (15 minute) Clearing Fund assessment and collection.
- daily margin and collateral backtesting and stress testing.
- market and portfolio risk monitoring; including intraday exposure and projected liquidity sufficiency.
NSCC’s Clearing Fund
NSCC’s Clearing Fund provides a liquidity and loss resource in the event of a member default. Clearing Fund Requirements are calculated and collected daily based on each member’s net unsettled positions.
Some key components of the Clearing Fund Requirement include:
- volatility charge – which is either a model-based VaR charge or a haircut-based charge depending on asset type and liquidity profile.
- margin requirement differential – which mitigates the risks from day-over-day fluctuations in a member’s portfolio.
- mark-to-market – which is the difference between the contract price and the current market price.
NSCC Market Risk Resources
FICC’s Trade Guarantee
Market risk management is the foundation supporting FICC’s trade guarantee to members.
As central counterparty, FICC:
- serves as buyer for every seller, and seller for every buyer, for settlement purposes.
- ensures completion of trades if one of the trading partners defaults.
- through multilateral netting, significantly reduces (i) security movements, (ii) value of trade obligations requiring settlement, and (iii) capital requirements.
The FICC Market Risk Team
The FICC Market Risk team monitors risks presented to FICC by its clearing members.
Monitoring takes a variety of forms, including:
- start of day and intraday (hourly) Clearing Fund assessment and collection.
- daily margin and collateral backtesting and stress testing.
- market and portfolio risk monitoring; including cycle over cycle exposure, projected liquidity sufficiency and indirect participant activity.
FICC’s Clearing Fund
FICC’s Clearing Fund provides a liquidity and loss resource in the event of a member default. Clearing Fund Requirements are calculated and collected daily based on each member’s net unsettled positions.
Some key components of the Clearing Fund Requirement include:
- Value at Risk (VaR) volatility charge which uses (i) a 3-day liquidation horizon – i.e., the estimated length of time to liquidate or hedge a defaulted member’s portfolio – and (ii) a 99% confidence interval.
- Portfolio Differential (PD) an exponentially weighted moving average of the increase in a member's VaR charge calculated twice each business day to address portfolio variability risk.
- Margin Liquidity Adjustment (MLA) margin liquidity adjustment which addresses FICC’s risk of cost increase from liquidating a defaulted member’s concentrated portfolio.
FICC Market Risk Resources - GSD
- GSD Clearing Fund Methodology
- GSD Haircut Schedule
- GSD Schedule of MLA Charge Asset Groups and Subgroups
- Schedule of Indicative Haircut Rates and Risk Factor Rates
- Treasury Clearing
FICC Market Risk Resources - MBSD
DTC Risk Controls
DTC employs risk management controls to protect against a participant’s failure to settle. The Equity Risk team is responsible for monitoring DTC’s risk controls throughout the day to ensure:
- each participant’s posted collateral is equal to or greater than its Net Debit Balance, as managed through DTC’s Collateral Monitor.
- each participant’s net debit settlement balance remains at or below its assigned Net Debit Cap.
Collateral Monitor
DTC’s Collateral Monitor:
- tracks a participant’s collateral sufficiency to cover its settlement obligation.
- prevents completion of transactions that would cause the participant’s net debit settlement balance to exceed its available collateral.
- applies a percentage haircut to the collateral’s market value.
Collateral haircuts are determined by factors such as security type, ratings, market price, and security exchange listing. Haircuts are at least as conservative as the haircuts set under DTC’s committed line of credit, so that collateral will be sufficient to secure a borrowing if necessary.
Intraday price declines are monitored, and intraday prices and/or haircut adjustments may be made effective immediately. Daily backtesting and stress testing is conducted to determine haircut sufficiency and Collateral Monitor adequacy.
Net Debit Cap
DTC’s Net Debit Cap limits the net debit settlement balance a participant can incur.
The maximum Net Debit Cap for Affiliated Families and Unaffiliated Participants is $3.844BN – the Net Debit Cap of any Participant is based on the Participant's three largest peaks average over a rolling 70-business day period.
Transactions causing a participant’s net debit settlement balance to exceed its assigned Net Debit Cap will pend. Settlement funds may be sent intraday to DTC’s account at the Federal Reserve to lift the pend order and permit the transactions to process.
DTC Market Risk Resources
Maintaining Resources to Support Settlement Obligations
Liquidity risk controls help ensure DTCC's clearing agencies maintain sufficient liquid resources to meet settlement obligations under extreme but plausible market conditions.
The Liquidity Risk Management program measures, monitors and manages liquidity exposure across DTC, NSCC and FICC. Through daily analysis, stress scenarios and liquidity planning, DTCC helps enable same-day, intraday and multi-day settlement obligations while maintaining alignment with regulatory expectations.
In addition, DTCC provides tools that help firms gain greater transparency into liquidity needs, funding requirements and projected obligations.
Why It Matters
Liquidity risk controls help support:
- Settlement certainty
- Market stability
- Funding transparency
- Member preparedness during periods of market stress
Testing Resilience Under Extreme but Plausible Market Conditions
Stress testing helps DTCC evaluate whether its clearing agencies maintain sufficient financial and liquidity resources during severe market events.
Using a combination of historical and hypothetical scenarios, DTCC assesses the potential impact of extreme market conditions on exposures, collateral requirements, liquidity needs and financial resources.
This ongoing process helps ensure informed decision-making, strengthened risk management practices and enhanced confidence in the resilience of the markets we support.
What Stress Testing Evaluates
Stress testing helps assess:
- Market risk exposure
- Liquidity sufficiency
- Clearing fund adequacy
- Participant concentration risk
- Emerging and systemic risks
Scenario Types
- Historical Scenarios
Based on significant historical market events and periods of heightened volatility. - Hypothetical Scenarios
Designed to evaluate potential future events, emerging risks and conditions not fully represented by historical data.
Evaluating Participant Strength and Monitoring Ongoing Exposure
DTCC's counterparty credit risk controls help assess participant financial strength and monitor potential exposure across our clearing agencies.
Before admission, applicants undergo a detailed review that considers factors such as organizational structure, governance, regulatory oversight, risk controls and financial condition. Once admitted, participants are subject to ongoing surveillance to help ensure they continue to meet established standards.
Through continuous monitoring, financial analysis and market surveillance, DTCC helps identify emerging risks and support the resilience of the markets we serve.