JSCC issued $2.8bn VM call on a clearing member in Q1

The call was for a participant in the CCP’s clearing services that cover IRS, CDS and exchange-traded financial products

A single clearing participant at the Japan Securities Clearing Corporation triggered a ¥306 billion ($2.8 billion) variation margin (VM) call in the first quarter of the year, the largest reported by the central counterparty since Q3 2019.

The peak payment obligation was 21% larger than the previous quarter, but 37% smaller than the previous record of ¥486 billion.



The largest aggregate VM call in Q1 posted by JSCC was for participants in the CCP’s clearing services that cover interest rate swaps (IRS), credit default swaps (CDS) and three varieties of exchange-traded financial products.

On one day in Q1, combined VM requests for JSCC's clearing services amounted to ¥502 billion. In Q4 2020, the largest aggregate VM call was ¥377 billion.

The JSCC also revised its estimate of the worst-case payment obligation that would have to be met should one of its participants collapse. The projected largest same-day obligation was set at ¥361 billion, down 3% on the Q4 2020 estimate, and 24% year on year.

What is it?

In public disclosure templates put together by CPMI-Iosco, CCPs report the largest estimated payment obligations that would be caused by the default of any single participant and its affiliates – including transactions cleared for indirect participants – in "extreme, but plausible, market conditions".

They must also report the actual largest intraday and multiday payment obligation of a single participant and its affiliates over the past 12 months.

Why it matters

Higher VM calls likely reflect an increase in cleared volumes. The JSCC did not provide any commentary alongside its latest CPMI-Iosco disclosure, so we can only speculate at this stage.

In March, the CCP expanded the scope of eligible issues for single-name CDS, adding 57 new items to its suite of cleared products. Perhaps one of the clearing members increased the open positions on these products and found itself having to pay to manage the mark-to-market changes to its portfolio.

Or perhaps it’s a direct consequence of the inclusion of Norinchukin Bank – one of the largest Japanese banks – as a registered clearing participant in the JSCC’s IRS clearing service at the start of the year.

What we can say for certain is that despite the large VM call issued in Q1, the JSCC maintains a healthy buffer of liquid assets should the worst happen. As of end-March, the CCP had ¥1.73 trillion in liquidity resources to hand, almost five times more than the payment obligation expected should a participant implode.

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