On 15 June, 2021, FIA responded to proposals on the “Introduction of Derivatives Holiday Trading” issued by Osaka Exchange, Inc. (OSE) and Tokyo Commodity Exchange, Inc. (TOCOM) (together, the “Exchange”).
In the comment letter, FIA believes that all elements of the Exchange and Clearing House should function as much as normal and be open for executing and clearing new trades through a holiday period so that effective risk management can take place like an ordinary business day. This will enable risk-reducing trades to take place and additional collateral to be provided at all times.
To allay concerns around the levels of risk that the current proposals could expose participants to, FIA put forward some alternative proposals (in order of preference) for consideration by the Exchange:
1. Variation Margin and Initial Margin to be called on a daily basis in a currency different to the ‘holiday’ currency, in line with best practices across other CCPs in APAC. This will allow for appropriate risk management to take place.
2. MPOR to be increased for the Initial Margin requirements for all positions prior to the holiday, in line with the length of the holiday. This should be called against the client and house account and passed to end-users. To give Holiday Clearing Participants (HCPs) sufficient time to call clients for the additional margin, any increase should also be advised in a timely manner.
3. Each HCP (or split between client and house trading) to be allowed to have pre-agreed holiday trading limits defined by Initial Margin.
