Procedures and forms for management of collateral, cash and physical settlement.
The Collateral Management Service
The Collateral Management Service (CMS) is the service managing collateral for clearing on Nasdaq Financial and Commodities derivatives markets. The service manages both cash and non-cash collateral for covering margin requirements as well as cash transactions for daily cash settlement (premiums, fees, variation margin (mark-to-market)). The collateral flows are managed in an advanced cash optimization process taking into account both cash and non-cash collateral to optimize each participant’s use of collateral and to minimize the number of cash transactions to and from the Collateral Management Service.
Participants hold specific custody accounts at Nasdaq Clearing for use with the Collateral Management Service and both cash and non-cash collateral can be registered on the same custody account.
In addition, participants must hold a bank account within an approved settlement bank in each applicable currency for managing cash transfers to and from the Collateral Management Service. To enable efficient cash transactions the service has an integrated payment system that with the use of direct debit instructions enable automatic cash transfers. Automatic cash transfers are, together with the use of the cash optimization feature, used to fully automate the flow of cash collateral to and from the collateral management service.
To control the flow of collateral, participants can also instruct collateral transactions outside the automated flow. Posting of supplementary cash collateral to a custody account is achieved by depositing cash to a Nasdaq Clearing collateral bank account in one of the settlement banks approved for the service. Bank accounts for this purpose are available for each of the eligible cash collateral currencies. Posting securities to a custody account is done through one of the CSDs/ICSDs/Custodians connected to the collateral management service. Participants do not need to be a direct member of a CSD or ICSD but can use a settlement agent to execute securities transactions.
Calculation of Margin Requirement
Collateral posted to Nasdaq can be segregated by
- Clearing Member’s House
- Group of clients
- Group of indirect clients
- or on a client-by-client basis, based on the participant’s account setup.
The process of valuation and evaluation of collateral is fully automated and is done per segregation category (e.g. for house, clients, indirect clients and individual clients) as further described in the Rules. During the daily cash optimization process, posted collateral is valued using market prices taking into account applicable haircuts and pending transactions and is then evaluated to make sure the collateral value is sufficient to cover the participant’s margin requirement(s). In case of deficit, a direct debit transaction is executed to cover the shortage and in the case of a surplus, a credit instruction is automatically executed (subject to settings on each account).
Margin requirements, daily cash settlement information as well as information on cash optimization transactions are retrieved through Genium INET Clearing Workstation 1 and Q-Port, over the OMnet API, or via CMS Web. Settlement instructions for posting and withdrawing cash and securities are done via SWIFT Net, over MQ or through the CMS Web application.
Through the CMS Web application, a user can access custody-related information including complete management of collateral. The CMS Web application also holds margin requirements and collateral evaluation information from the clearing system. More information about the CMS Web tool can be found under the clearing Technology & Connectivity section.
The Cash Optimization Service is a payment netting arrangement whereby amounts in a permitted currency across all Clearing Accounts or Integrated Trading and Clearing Accounts are netted for operational efficiency. Certain operational aspects of Cash Optimization Service are described in Cash Optimization Service Procedures document.
The daily cycle, illustrated in the figure below, provides an overview of the daily events and when they occur.
Margin requirements may be fulfilled using approved securities or cash in the eligible currencies. The eligible collateral list is found in the Rules of the respective market and on the CMS Web.
For the Financial Markets the collateral list can be found under the appendices section (Appendix 14) of the Clearing Rules of Nasdaq Derivatives Markets.
The eligible collateral list for Nasdaq Commodities can be found in Appendix 10 of the General Terms of the Clearing Rules of Nasdaq Commodities.
The list of eligible collateral is continuously monitored and changed if deemed necessary. If a security type accepted as collateral is deemed riskier than acceptable, the collateral will be removed from the list. If a security type meets the criteria of having low market and credit risk, sufficient liquidity and daily prices, the security type can be added to the list of eligible collateral. Any such changes will be communicated via exchange notices well in advance.
Interest on Cash Collateral
Interest on cash contributions is calculated using the Nasdaq Deposit Rate (NDR). Current interest rates can be found on the CMS Web.
Interest will accrue daily and be capitalized on a monthly basis. After capitalization the capitalized interest will either be debited from participant’s custody account balance or paid to the participant’s bank account according to the settlement instruction supplied by the participant.
Securities as Collateral
You may choose to cover your Margin Requirement with Securities. Prerequisites are that you either have direct access to your depository in the actual (I)CSD or use a custody bank in relation to such (I)CSD and in order to post securities as collateral you need to provide your SSI-details to Nasdaq Clearing via the Member Portal request.
When the SSI is in place, you process the deposit through the CMS WEB-portal. The instruction in CMS WEB creates Nasdaq’s receiving instruction (Free of Payment) to the actual (I)CSD, and you, or your custody bank must then send a matching instruction to the (I)CSD in order to have the deposit settled. When the deposit is settled in the I(CSD), a deposit confirmation message will be sent to the Clearing system which increases your collateral value connected to the custody (Margin) account in question.
The instruction and its status can be monitored in the CMS WEB-portal which also displays the collateral value after the deposit is settled. The portal also includes the list of securities eligible to post as collateral.
A call back of securities works in the same way as a deposit. The instruction is registered in the CMS WEB-portal, the request for call back is sent to the Clearing system and is evaluated at 11:05 CET. If your collateral surplus allows, the system will send a delivery instruction (Free of Payment) to the (I)CSD which you or your custody bank must meet with your own receiving instruction in order to have it matched and settled on your own depository.
Cancellation of instrument collateral settlement instructions
Settlement instructions, that were not matched/settled towards Nasdaq Clearing before end-of-day on the intended settlement day, will be cancelled at CMS closing time or, in some cases, by 9:30 CET cash optimization batch next morning.
As matched instructions must be bilaterally cancelled, Nasdaq Clearing’s counterparties are expected to also cancel their instruction. Instructions with future settlement date will be left pending until settlement day and canceled if not matched/settled at CMS closing time. If cancellation instructions are matched, bilateral cancellation should take place.
Hold & Release
Nasdaq Clearing will only utilize the so-called Hold and Release functionality for collateral call backs where collateral call backs with future settlement date are instructed with “party-hold” and released on settlement date (after delivery capacity check).
For other flows Nasdaq Clearing will not instruct with “party-hold”.
It is expected that members will not put their settlement instructions on hold towards Nasdaq Clearing jeopardizing that settlement instructions fail to settle on intended settlement day.
Nasdaq Collateral Custody Account Agreement Download Nasdaq Collateral Custody Account Agreement
General Terms for Collateral Custody Accounts Download General Terms for Collateral Custody Accounts
Nasdaq Default Fund Custody Account Agreement Download Nasdaq Default Fund Custody Account Agreement
General Terms for Default Fund Custody Account Agreement Download General Terms for Default Fund Custody Account Agreement
Loss Sharing Custody Account Agreement Download Loss Sharing Custody Account Agreement
General Terms for Loss Sharing Account Agreement Download General Terms for Loss Sharing Account Agreement
Nasdaq SSI's for placing Collateral (Cash and Securities) Download Nasdaq SSI's for placing Collateral (Cash and Securities)
Member Cash collateral SSI form (All currencies) Download Member Cash collateral SSI form (All currencies)
Member Securities collateral SSI form Euroclear Bank Download Member Securities collateral SSI form Euroclear Bank
Member Securities collateral SSI form Euroclear Sweden Download Member Securities collateral SSI form Euroclear Sweden
Member Securities collateral SSI form - VP Denmark Download Member Securities collateral SSI form - VP Denmark
Standing Settlement Instructions - VPS Norway Download Standing Settlement Instructions - VPS Norway