Risk management

Risk management activities undertaken by SFE Clearing are designed to ensure that the interests of its Participants and clients are protected and that the integrity of the marketplace is maintained. These activities are primarily focused on two key types of risk: Market Risk and Credit Risk.

Market Risk represents SFE Clearing's exposure to its Clearing Participants irrespective of the performance of individual Participants. It encapsulates factors that impact upon the entire market such as extremely large price movements (for example, the October 1987 sharemarket crash or concentration risks).

Credit Risk represents SFE Clearing's exposure to a loss arising from actions undertaken by an individual Clearing Participant and its clients. Such factors may include a deterioration of the capitalisation of a Participant, or a Participant holding a position that is beyond its financial capacity to absorb a loss arising from that position.

SFE Clearing undertakes a number of activities to manage these risks including the following:

  • Margins and position monitoring
  • Capital Based Position Limits ('CBPL')
  • The SFE Clearing Guarantee and Capital Reserve
  • Admission Criteria, including ongoing minimum financial adequacy requirements
  • SFE operates a fidelity fund to cover losses sustained by a client of an SFE Participant caused by defalcation or fraudulent misuse of money or other property which was entrusted to the Participant for the purposes of futures trading.