SGX mulls segregation of collateral of derivatives clearing members’ affiliates

To provide more safeguards against default.

Singapore Exchange is proposing the introduction of an Affiliate Segregation rule, wherein the collateral of an affiliate of an SGX Derivatives Clearing (SGX-DC) member is protected if the member defaults on its own contracts.

Under the arrangement, the affiliate’s positions may also be transferred to another SGX-DC member. The proposed scheme is optional for SGX-DC members and will provide affiliates a higher level of protection in the event the member defaults. 

“Affiliate Segregation will complement any arrangement that members may have in place to help their bank affiliates achieve greater capital efficiency under Basel III,” SGX said. 

Under Basel III, a bank must maintain adequate capital for its exposure to a central counterparty. The amount of capital required depends on the level of protection the bank has from a default or insolvency of its clearing member and the clearing member’s other clients.

THe SGX is seeking feedback on the proposed scheme. The public consultation is open till 4 September 2015.