Risk Management Framework

Clearing involves undertaking counterparty risk. The ability to manage this risk is dependent on pro-active risk management where minimizing the counterparty risk is the key goal. The main elements of the risk management framework are:

• Maintaining strict clearing membership criteria which must be fulfilled throughout the membership period.
• Monitoring the creditworthiness of existing members.
• Maintaining exposure limits and monitor the exposure for each member on a continuous basis.
• Collecting collateral to cover the obligations based on an advanced portfolio based margining system, where the margin requirements are set to cover 99.8% of expected market movements.
• Monitoring the markets to ensure that NOS at all times has the correct risk picture.
• Maintaining a sound legal foundation through a standardised rulebook and agreements
• Maintaining default rules and default procedures enabling NOS to undertake swift actions to minimise the risk of incurring loss.
• Maintaining risk bearing capital and insurance-covered credit support that serves as a buffer between any defaulting counterparty and all other counterparties.