Singapore Exchange (SGX) has proposed the introduction of affiliate segregation, a system designed to protect the collateral of an SGX Derivatives Clearing (DC) member’s affiliates in the case of a default.
The collateral of an affiliate of an SGX DC member would be protected if the member defaults on its own contracts. The affiliate’s positions could also be transferred to another member.
The system is optional for DC members, and designed to complement any arrangements that they may already have in place to offer their bank affiliates better capital efficiency.
Under the Basel III regulation, banks must maintain a certain level of capital to allow for its exposure to a central counterparty. This depends on the levels of protection the bank already has in place, considering default, or insolvency of the clearing member or the clearing member’s other clients.
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