Collateral Cash and Security - Amazon S3...Collateral – Cash and Security 3 of 15 1. Introduction...

Collateral – Cash and Security How-to Guide

22 May 2017

Version 1.3

Collateral – Cash and Security 2 of 15

CONTENTS

1. Introduction .......................................................................................................................... 3

1.1 Document Purpose ........................................................................................................ 3

1.2 Intended Audience ......................................................................................................... 3

1.3 Document History ........................................................................................................... 3

2. Overview ............................................................................................................................. 4

2.1 Margin Calculation and Margin Calls .............................................................................. 4

2.2 Collateral Types ............................................................................................................. 5

3. Cash Collateral .................................................................................................................... 6

3.1 Lodgement of Cash Collateral ........................................................................................ 6

3.2 Valuation of Cash Collateral ........................................................................................... 7

3.3 Release of Cash Collateral ............................................................................................. 7

4. Securities Collateral ............................................................................................................. 10

4.1 Lodgement of Security Collateral ................................................................................. 10

4.2 Valuation of Security Collateral .................................................................................... 12

4.3 Release of Security Collateral ...................................................................................... 13

DISCLAIMER:

THE INFORMATION CONTAINED IN THIS DOCUMENT IS A GUIDE ONLY. ALL PARTICIPANTS ON ANY NZX MARKET MUST COMPLY WITH THE RELEVANT RULES, AND THIS DOCUMENT IS NOT A SUBSTITUTE FOR THOSE RULES. NZX CLEARING WILL DETERMINE, IN ITS SOLE DISCRETION, WHETHER ANY PARTICIPANT OR POTENTIAL PARTICIPANT MEETS THE REQUISITE CRITERIA TO BECOME AND REMAIN A PARTICIPANT. THOSE WISHING EITHER TO TRADE IN ANY PRODUCTS AVAILABLE AT NZX OR TO OFFER AND SELL THEM TO OTHERS SHOULD CONSIDER BOTH THEIR LEGAL AND REGULATORY POSITION, INCLUDING THE RELEVANT RULES, AND THE RISKS ASSOCIATED WITH SUCH PRODUCTS BEFORE DOING SO. NO PART OF THIS PUBLICATION MAY BE REDISTRIBUTED OR REPRODUCED IN ANY FORM OR BY ANY MEANS OR USED TO MAKE ANY DERIVATIVE WORK WITHOUT WRITTEN PERMISSION FROM NZX CLEARING. NZX CLEARING (INCLUDING ITS PARENT COMPANY DIRECTORS, OFFICERS, EMPLOYEES AND CONTRACTORS) SHALL NOT BE LIABLE (EXCEPT TO THE EXTENT REQUIRED BY LAW) FOR THE USE OF THE INFORMATION CONTAINED HEREIN HOWEVER ARISING IN ANY CIRCUMSTANCES CONNECTED WITH ACTUAL TRADING OR OTHERWISE. NZX CLEARING IS NOT RESPONSIBLE FOR ANY ERRORS OR OMISSIONS CONTAINED IN THIS PUBLICATION. THIS PUBLICATION IS FOR INFORMATION ONLY AND DOES NOT CONSTITUTE AN OFFER, SOLICITATION OR RECOMMENDATION TO ACQUIRE OR DISPOSE OF ANY INVESTMENT OR TO ENGAGE IN ANY OTHER TRANSACTION. ALL INFORMATION, DESCRIPTIONS, EXAMPLES AND CALCULATIONS CONTAINED IN THIS PUBLICATION ARE FOR GUIDANCE PURPOSES ONLY, AND SHOULD NOT BE TREATED AS DEFINITIVE.


1. Introduction

1.1 Document Purpose

This document is intended to provide day-to-day guidance for Participants with regards to the process required for the submission and release of cash and security collateral.

1.2 Intended Audience

This document is intended for use by Clearing & Settlement Participants.

1.3 Document History

Version Date Nature of Amendment

1.0 23-Mar-2016 Initial draft

1.1 29-Mar-2016 Head of Clearing review, amendments, final document produced

1.2 21-Dec-2016 Updates for BaNCS V7

1.3 22-May-2017 Amended Collateral Release sections


2. Overview

2.1 Margin Calculation and Margin Calls

BaNCS performs 3 Day in Progress and 1 EOD Started margin call batch processes each day.

Every margin call process calculates the margin required, values the current collateral lodged for each participant and, based on those two factors, computes a margin call if required.

The Day in Progress margin is calculated for current outstanding unsettled obligations, which includes those arising from current day's transactions and excludes obligations that have been settled. The price used for intraday margin computation is the latest available price in BaNCS for corresponding instruments.

The EOD Started margin call batch is scheduled to run in the EOD batch processing and calculates the margin for all the outstanding obligations at the end of the business day.

The following table shows the batch time as well as the batch purpose:

Window Indicator

Run Indicator

Batch Time

Purpose

Day in Progress

1 8:00AM Reassess the margin requirement for derivative participants after 6 hours in the current day’s trading.

Day in Progress

2 9:30AM

BOD margin call to examine whether participants, mainly NZ based participants, have met the previous day's "EOD Started" margin call. Note - there might be small differences between the margins computed in this batch with the “EOD Started” margin figure. The EOD margin call is considered as being met if the collateral valued at 9:30am covers the previous day’s EOD margin requirement.

Day in Progress

3 11:15AM Reassess the margin requirement after the first cash market settlement batch.

Day in Progress

4 3:45PM Reassess the margin requirement after the second cash market settlement batch.

EOD Started

1 7PM-10PM

End of day margin calculation.

Participants are required to meet the EOD Started margin call by 9:30am on the following business day. For all the Day in Progress margin call, the cut off time for meeting the call will be specified in the notice of the margin call.

In order to view margin call details, participants should access BaNCS and navigate to:

Clearing | Margining | Query->Margin Calls


Select EOD Started from the drop down in the ‘Window Indicator’ field, and enter the appropriate collateral type in the ‘Collateral Group ID’ field. The date used should be the previous business day.

Once the Day in Progress margin call is completed, a participant can review it for the current business day. In BaNCS navigate to:

Clearing | Margining | Query->Margin Calls

Select Day in Progress from the drop down in the ‘Window Indicator’ field, enter the number from 1 to 4 in the ‘Run Indicator’ field and the appropriate collateral type in the ‘Collateral Group ID’ field. The date used should be the current business day. Where sufficient collateral has been provided, the margin call will be shown as nil.

2.2 Collateral Types

Collateral can be lodged as cash, ordinary shares in companies in the NZX50 index, or a combination of any of these. A condition on the provision of collateral for market settlement is that a minimum of 30% the total margin requirement must be met with cash. This condition applies to both cash and derivative Clearing as well as Stock Lending.


3. Cash Collateral Participants should remit cash required for collateral to the NZX Clearing ESAS account (via NZClear or SWIFT) or to the NZX Clearing Citibank account (via NZX SSI) as part of their daily funding requirements.

The amount required for settlement and cash collateral should be added together by the Participant and submitted as one amount. NZX Clearing will then internally reflect the cash in the Participants designated settlement account’s "Cleared" balance. Participants are then able to lodge cash collateral in BaNCS, transferring the required amount to fulfil their margin call / collateral obligations.

3.1 Lodgement of Cash Collateral

The process for submitting cash collateral in BaNCS is described below.

1. Navigate to Clearing | Collateral Management | Collateral Deposits Cash | Create->Cash Collateral

2. Complete the following fields:

a. Exchange/Source Enter ‘XNZE00000’

b. Market Select the appropriate market (e.g. Exchange Trades)


c. Segment Select the appropriate market segment (e.g. Equity etc.)

d. BP ID This field will be locked to the appropriate BP ID

e. A/c No Select the cash account which is linked to the collateral account you require the collateral to be lodged against

f. Segregation Type Select the appropriate segregation Type e.g. Segregated Client, House or Omnibus

g. Amount Select the appropriate currency (i.e. cash market = NZD, dairy derivatives = USD, equity derivatives = NZD etc.) the select the amount. Any amount of collateral can be lodged, provided it is equal or greater than the required amount

h. Purpose Collateral must be lodged to a specific purpose (e.g. Cash Clearing, Derivatives Clearing, Securities Lending and Borrowing etc.)

3. Select ‘Create’ from the top right of the window.

Once submitted collateral has been valued (see 3.2 below) it can be queried in BaNCS via the following screen:

Clearing | Collateral Management | Collateral Deposits | Cash | Query->Cash Collateral

3.2 Valuation of Cash Collateral

Collateral can be lodged at any time of the day, but collateral to meet an EOD margin call must be lodged by 9:30am, the time at which the second Day in Progress margin call batch is run.

The lodged collateral will be valued on a real time basis such that the collateral valuation will reflect the new submission at the time the collateral is lodged. Note that the submitted collateral is valued at the latest price or exchange rate, while the existing collateral will not be revaluated unless a collateral valuation batch is run. The intraday collateral valuation batch will be run as part of the Day in Progress margin call process.

3.3 Release of Cash Collateral

Participants can submit a request to withdraw excess collateral at any time by completing a Collateral Release request in BaNCS. Release requests for collateral submitted for the purpose of Clearing will be processed in the EOD batch, as per the current process in BaNCS V3. Release requests for collateral submitted for the purpose of Stock Lending and Borrowing may be processed intraday and available same day provided the release is accepted. For all intraday SLB collateral releases, please notify the Clearing House before 3.30pm NZ time and if actionable it will be processed intraday. All intraday SLB collateral release requests received after 3.30pm NZ time will be processed in the EOD batch.

The process for requesting a release of cash collateral in BaNCS is described below:


1. Navigate to Clearing | Collateral Management | Collateral Release | Cash | Create->Cash Release


a. Exchange Enter XNZE00000


c. Segment Select the appropriate market segment (e.g. Equity, Debt, Derivatives etc.)

d. BP ID This will be locked to the participant’s BP ID

e. A/c No The account from which you require the collateral to be released

f. A/c No Select the segregation type that corresponds to the relevant account


g. Collateral Purpose Collateral releases must be assigned a specific purpose (e.g. Cash Clearing, Derivatives Clearing, Securities Lending and Borrowing etc.)

a. Request Date Select the date on which you require the release to be executed (i.e. today or a date in the future)

h. Requested Amount Select the required currency from the dropdown list. Any amount of collateral can be requested for release. The system will action the release during the EOD batch, provided the amount requested is available for release

3. Select ‘Create’ at the top right of the window.

Once the request has been created, it will sit in ‘Pending Confirmation’ status until the EOD batch runs. The request does not need to be authorised by the participant after it has been created.

Submitted release requests can be queried in BaNCS via the following screen:

Clearing | Collateral Management | Collateral Release | Cash | Query->Cash Release

Release requests for collateral submitted for the purpose of Clearing will be processed in the EOD batch, as per the current process in BaNCS V3. Release requests for collateral submitted for the purpose of Stock Lending and Borrowing may be processed intraday and available same day provided the release is accepted. For all intraday SLB collateral releases, please notify the Clearing House before 3.30pm NZ time and if actionable it will be processed intraday. All intraday SLB collateral release requests received after 3.30pm NZ time will be processed in the EOD batch.

Cash collateral release will credit the account against which the collateral was originally lodged.


4. Securities Collateral

4.1 Lodgement of Security Collateral

The process for submitting security collateral in BaNCS is described below. First, the amount of stock to be lodged as security collateral must be transferred to the security account which has the account type ‘Collateral / Margin’. Once the amount exists in the account, the stock must be lodged as security collateral.

1. Navigate to Depository | Depository Services | Account Transfer | Create Account Transfer


a. Source A/c Owner Enter your BP ID

b. Source A/c No Enter the account you require the collateral to be transferred from

c. Target A/c Owner Enter your BP ID

d. Target A/c No Enter the account you require the collateral to be lodged to

e. Instrument ID Enter the security’s ISIN or Ticker Code and select the corresponding dropdown list option


f. Quantity/Nominal Enter the number of stock you wish to transfer

g. Transaction Date Select the date on which you require the transfer to be executed (i.e. today or a date in the future)

h. Transfer Type Select ‘Account Transfer’ from the dropdown list

3. Select ‘Release’ in the top right of the window to submit the transfer

4. Navigate to Clearing | Collateral Management | Collateral Deposits | Security | Create Security Collateral


a. Exchange/Source Enter XNZE00000


c. Segment Select the appropriate market segment (e.g. Equity, Debt, Derivatives etc.)

d. BP ID This will be locked to the participant’s BP ID


e. A/c No Select the security account which has the account type as ‘Collateral / Margin’ which you require the collateral to be lodged against


g. Collateral Purpose Collateral must be lodged to a specific purpose (e.g. Cash Clearing, Derivatives Clearing, Securities Lending and Borrowing etc.)

h. Instrument Enter the security’s ISIN or Ticker Code and select the corresponding dropdown list option

i. Quantity Enter the amount of stock you wish to lodge as security collateral

j. Deposit Date Select the date on which you require the lodgement to be executed (i.e. today or a date in the future)

6. Select ‘Create in the top right of the window to submit the transfer

Once submitted collateral can be queried in BaNCS via the following screen: Clearing | Collateral Management | Collateral Deposits | Security | Query->Security Collateral

4.2 Valuation of Security Collateral

Collateral can be lodged at any time of the day, but collateral to meet an EOD margin call must be lodged by 9:30am, the time at which the collateral valuation batch for EOD margin calls is run as part of BOD.

Collateral Valuation batch processes automatically run at the following times:

7:35am

11:00am

3:00pm

6:00pm

If collateral is lodged outside of the scheduled collateral valuation batch times, Participants may request a manual valuation batch process be run by phoning +64 4 471 0427 or emailing [email protected].

Securities will be valued using the latest close price available at the time that the collateral valuation batch is run. It will be revalued each at each subsequent running of the collateral valuation batch throughout the course of the day.

The valuation of securities will include a 30% haircut reflecting the requirement to hold a minimum of 30% collateral as cash.


4.3 Release of Security Collateral

Participants can submit a request to withdraw excess collateral at any time by completing a Collateral Release request in BaNCS. Release requests for collateral submitted for the purpose of Clearing will be processed in the EOD batch, as per the current process in BaNCS V3. Release requests for collateral submitted for the purpose of Stock Lending and Borrowing may be processed intraday and available same day provided the release is accepted. For all intraday SLB collateral releases, please notify the Clearing House before 3.30pm NZ time and if actionable it will be processed intraday. All intraday SLB collateral release requests received after 3.30pm NZ time will be processed in the EOD batch.

The process for requesting a release of securities collateral in BaNCS is described below:

1. Navigate to Clearing | Collateral Management | Collateral Release | Security | Create -> Security Release


a. Exchange Enter XNZE00000

b. Market Enter the relevant market (e.g. Exchange Trades)

c. Segment Enter the relevant market segment (e.g. Debt, Equity etc.)

d. BP ID This field will be locked to the appropriate BP ID


e. A/c No Enter the account from which you require the collateral to be released


g. Collateral Purpose Select the appropriate purpose for the collateral release (e.g. Cash Clearing, Trading etc.)

h. Security ID Enter the security’s ISIN or Ticker Code and select the corresponding dropdown list option

i. Request Date Select the date on which you require the release to be executed (i.e. today or a date in the future)

j. Requested Qty Enter the desired quantity

3. Select ‘Create’ at the top right of the window

Once the request has been created, it will sit in ‘Pending Confirmation’ status until the EOD batch runs. The request does not need to be authorised by the participant after it has been created.

Submitted release requests can be queried in BaNCS via the following screen:

Clearing | Collateral Management | Collateral Release | Security | Query->Security Release

Release requests for collateral submitted for the purpose of Clearing will be processed in the EOD batch, as per the current process in BaNCS V3. Release requests for collateral submitted for the purpose of Stock Lending and Borrowing may be processed intraday and available same day provided the release is accepted. For all intraday SLB collateral releases, please notify the Clearing House before 3.30pm NZ time and if actionable it will be processed intraday. All intraday SLB collateral release requests received after 3.30pm NZ time will be processed in the EOD batch.

Security collateral release will credit the account against which the collateral was originally lodged.

Collateral Cash and Security - Amazon S3...Collateral – Cash and Security 3 of 15 1. Introduction...

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