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.