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What is a Clearinghouse?

The exchange-listed or standardized derivatives markets have a clearinghouse to function as guarantor of all the financial obligations arising from transactions in standardized derivative products.

Asigna, Compensación y Liquidación (Asigna) handles clearing and settlement for the Mexican Derivatives Market (MexDer). Its main purpose is to serve as a counterpart, and therefore guarantor, of all the financial obligations derived from trading contracts. It must therefore abide by the rules issued by the financial authorities: the Ministry of Finance and Public Credit (SHCP), the National Banking and Securities Commission (CNBV) and Banco de Mexico, as well as by the rules of the MexDer derivatives market itself.

What is ASIGNA?

Asigna is an administration and payment trust incorporated within BBVA Bancomer in 1998, in order to be the counterparty to clear and settle transactions in derivative products that take place on MexDer. Its trustors are Mexico’s leading financial groups: Banamex-Citigroup, BBVA Bancomer, ScotiaBank Inverlat, Santander-Serfin, and the Securities Depository Institute (S.D. Indeval).

Asigna is governed by the rules issued by the competent authorities, and also has its own regulations and internal manuals for participants, in order to ensure their compliance with the obligations they take on within the Market. Asigna also has a group of committees that handle decision-making in the organization: the Technical Committee, Sub-Committee on Admission and Risk Management, Sub-Committee on Management, Sub-Committee on Auditing, Sub- Committee on Compliance and Ethics and Sub-Committee on Discipline and Arbitration.

Who are the Clearing Members?

Clearing Members are administration and payment trusts who contribute to the equity of the Clearinghouse and who settle the transactions performed on the Market. All traders in the Market must have the services of a Clearing Member.

There are two types of clearing members:

•    Proprietary Position Clearing Members. These clear and settle transactions of the institutions that are members of their own financial group.

 

•    Third-Party Position Clearing Members. These clear and settle transactions for clients.

Obligations of Asigna:

a)  Act as counterparty to all traders, banks, brokerage firms or clients, in the transactions performed in MexDer that Clearing Members settle on their behalf.

b) Clear and settle trades performed on MexDer.

c)  Establish margin requirements, haircuts for securities deposited as margins, and position limits.

d) To manage and keep custody of the Clearing Fund and the Contributions Fund in cash and securities.

e)  Real time surveillance.

f)  Apply disciplinary measures in the event of default or bankruptcy of a Clearing Member. Clearing and calculation of the settlement are performed through the Intracs/400 system. Transactions are recorded and updated in the system in real time. At the close of the trading session, individual positions are adjusted depending on the opening and closing of positions, and the resulting positions are valued at the settlement price (mark to market). The system also receives information on assets that have been pledged as collateral.

Clearing and settlement is carried out through two types of accounts: proprietary and client accounts. Proprietary positions are netted, and third-party positions are segregated in gross form.

Proprietary accounts: The Long Positions are netted against the short position of each class/ series to determine the amount of margin required.

Client accounts: Long and short positions are segregated and the margin is determined in gross form for each type of position.

Once the clearing has been determined, the market settlement is calculated: the positive or negative balance of the margins is compensated against the settlement of interests, commissions, price changes, and other cash adjustments; so that for each Clearinghouse member, a single debit or credit balance is generated. Settlement of this amount is performed through the central bank’s centralized payment system (known as SPEUA) on the following business day between 9:00 a.m.and 10:00 a.m.

Risk Management

As a counterpart for all contracts traded, Asigna is involved in a series of activities whose purpose is to maintain the market’s financial integrity. In these, it applies the leading risk management techniques and uses secure systems to monitor these risks.

Asigna establishes …

•    Margins Requirements for each contract.

•    Valuation discounts (haircuts) applied to marginable securities.

•    Maximum number of Open Contracts in a single Class or Series that a client may hold (position limits). Asigna monitors and controls:

•    The concentration of open positions.

•    Market behavior on an ongoing basis.

•    Sufficiency and liquidity of clearing members.

•    Daily settlement and settlement at maturity.

•    Participants’ compliance with trading parameters.

Asigna protects …

•    Monitors positions and sufficiency of resources in real time.

•    Conducts simulations involving extreme price movements.

•    Establishes alarms for insufficient resources.

•    Applies extraordinary settlement in the event existing contributions are insufficient.

Asigna manages...

•    The margins fund (cash and securities).

•    Clearing Fund.

•    Minimum Capital.

A Risk Monitoring and Management System was designed to track the risk involved in derivatives trading. The system has functions for account management, markets, alarms, and monitoring by type of market and by account. The system activate accounts by type of client and by fundamental parameters such as market behavior, contracts, underlying asset, position limit, derivative price and price of underlying asset, contributions, contract size, margins for individual and opposite positions, expiration dates, settlement and delivery.