In general, DTCC Market Risk Management is responsible for the day‐to‐day tasks and activities that help identify, measure, monitor, manage, and mitigate the credit/market risk to which FICC, NSCC, and DTC (collectively, the Clearing Agencies) are exposed. These activities include:
- Establishing, monitoring, and maintaining risk-based margin systems at NSCC and FICC as Central Counterparties (the CCPs)
- Monitoring Member/Participant activity, collateral and margin amounts
- Surveillance of established thresholds, including back testing and stress testing
- Establishing, monitoring, and maintaining collateral haircuts and concentration limits
- Establishing, maintaining, and enforcing procedures designed to limit credit/market risk
More specifically, the DTCC Market Risk Management program is designed to help ensure that the Clearing Agencies each maintain sufficient financial resources to cover each Clearing Agency’s credit exposure to each member or participant fully with a high degree of confidence under a wide range of foreseeable stress scenarios, including the default of the member or participant family that would potentially cause the largest aggregate credit/market exposure to the Clearing Agency in extreme but plausible market conditions (a Cover One obligation).
At the CCPs, risk management is the foundation supporting the trade guarantees that the CCPs provide to their members. A core function of the CCPs is to complete securities transactions on behalf of their members, notwithstanding the failure of a member, thereby reducing the risk of loss of such failure. If a CCP member cannot or will not complete settlement of a transaction guaranteed by the CCP, then the CCP will step in to complete it.
Similarly at DTC, which is not a CCP, risk management focuses on assessing and mitigating the risk presented to DTC by its participants and their potential default or operational failure, and managing DTC’s Participants Fund, which serves as a liquidity resource for DTC in the event of losses or liabilities incident to participant activity.
These activities are described further in the DTCC Clearing Agency Disclosure Frameworks for Covered Clearing Agencies and Financial Market Infrastructures – CPMI-IOSCO Principles 4-6 and Covered Clearing Agency Standards (e)(4)-(6). For more information about the Market Risk Management practices at the Government Securities Division of FICC, please click here.
< Return to Managing Risk