Clearing, Variation Margin Calculation - Securities Market. Theory and practice


The clearing procedure is to define and commit:

• The quoted price for each type of traded contracts;

• the state of the participants' clearing accounts on the basis of the trading session.

In the course of trading, the current and quoted prices are distinguished. The current price is calculated by the formula

where Р i - the prices of the deals concluded from the beginning of the trading session to the current moment;

Ni - the number of contracts concluded at the price of Pi; n - the number of concluded deals.

In this formula, transactions that change in price relative to the quoted price do not exceed the value of the limit deviation are taken into account; which satisfy the condition

where Рi - the transaction price;

P is the quoted price;

Δi - the rate of the marginal deviation of the transaction price.

The current price acquires the status of quotation as a result of clearing. If there were no deals during the trading session, the quoted price of the previous trading session is accepted as the quotation price.

Variation Margin Calculation

As a result of the change in the current price during the trading session, the size of the variation margin for each position opened by bidders is calculated. Variation margin is calculated by the formulas:

where Mk is the variation margin for one contract purchased during the trading session;

Mn is the variation margin for one contract sold during the trading session;

Р - current price of the trading session for this contract;

Р0 - the price of the transaction made in the current trading session for this contract;

N - the number of concluded contracts of this type.

A positive sign of the variation margin means that the margin amount is transferred to the bidder, negative - the margin amount is debited from the participant's account in favor of another counterparty.

The total amount of the variation margin that is subject to write-off or accrual on the clearing account is equal to the sum of the variation margin volumes for each trades participant's open position.

State of the clearing account. During the trading session, the current status of the clearing account of the bidder is calculated based on the results of each transaction made in the system. The current state of the account at the time t during the trading session is determined by the formula

where S t is the sum of the free funds of the clearing account at the time t;

S - the total amount of the funds of the clearing account at the beginning of the trading session;

ΣM - the sum of the variation margin calculated at the time t ;

N i is the number of open positions for the i contract at the time t ;

P t - the current price of the i-th contract, calculated at the time moment t ;

k i is the deposit margin rate of the i contract.

The final state of the clearing account for execution and execution of payments is determined by the same formula, but t is the time of the clearing. If, based on the results of clearing, the trading participant has a positive balance of free funds of the clearing account, he may demand it after the trading session.

Following the results of each trading session after clearing, the trading participant is obligated to make the following payments from his clearing account:

• transfer of variation margin in favor of counterparty participants in transactions;

• Transfer of clearing fees to the Exchange.

If there is a deficit on the clearing account of the trading participant, the exchange fulfills the obligations for the participant.

After the end of the last trading session for this type of contracts, if there are corresponding open positions, the participant, in fulfillment of his delivery obligations, is obliged to transfer the required amount of money to his basic account to the clearing house or deposit the underlying asset in the contractual depository with the depository.

If the hedger has provided a real financial asset to the depository as security for the contract, then the need for a cash security is no longer necessary. There is no longer a need to constantly recalculate the amount of the money pledge depending on the market value of the underlying asset. At the same time, the hedger's expenses for transaction insurance are minimized and the risks of default on transactions are reduced. This is very important, since any delays in the delivery of a financial asset cause the hedgers to close short positions on the exchange of futures contracts at any price.

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