Nasdaq Clearing has laid out a set of membership requirements that a Clearing Member must fulfil on an ongoing basis to qualify as a member. The objective of the requirements is to ensure that Clearing Members have sufficient financial resources and operational and risk management capacity to perform their clearing related tasks and meet their obligations with Nasdaq Clearing. The membership requirements are comprised of:
- Regulatory requirements
- Financial requirements
- Credit requirements
- Operational and risk management requirements
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Nasdaq Clearing has laid out a set of membership requirements that a Clearing Member must fulfil on an ongoing basis to qualify as a member. The objective of the requirements is to ensure that Clearing Members have sufficient financial resources and operational and risk management capacity to perform their clearing related tasks and meet their obligations with Nasdaq Clearing. The membership requirements are comprised of:
- Regulatory requirements
- Financial requirements
- Credit requirements
- Operational and risk management requirements
Beyond the mentioned membership requirements above, each clearing member is assigned an exposure limit that the initial margin requirement cannot exceed.
Nasdaq Clearing monitors the adherence of clearing members to membership requirements and individual exposure limits and will act according to set procedures in case of a breach.
Refer to the clearing rules for the full details of the applicable membership requirements
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Beyond the mentioned membership requirements above, each clearing member is assigned an exposure limit that the initial margin requirement cannot exceed.
Nasdaq Clearing monitors the adherence of clearing members to membership requirements and individual exposure limits and will act according to set procedures in case of a breach.
Refer to the clearing rules for the full details of the applicable membership requirements
Depending on a clearing member's type of membership and clearing activity, each clearing member may have to satisfy the following criteria:
- be a credit institution licensed in accordance with legislation implementing the Directive 2013/36/EU (Capital Requirements Directive)
- be an investment firm licensed in accordance with legislation implementing the Directive 2014/65/EU (re-cast Markets in Financial Instruments Directive)
- be an entity holding a similar license from another jurisdiction approved by Nasdaq Clearing.
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Depending on a clearing member's type of membership and clearing activity, each clearing member may have to satisfy the following criteria:
- be a credit institution licensed in accordance with legislation implementing the Directive 2013/36/EU (Capital Requirements Directive)
- be an investment firm licensed in accordance with legislation implementing the Directive 2014/65/EU (re-cast Markets in Financial Instruments Directive)
- be an entity holding a similar license from another jurisdiction approved by Nasdaq Clearing.
Financial Requirements
The capital requirement should help Nasdaq Clearing ensure that Clearing Members have sufficient financial capacity to serve their positions in any market conditions without risking their operations. Nasdaq Clearing uses both a minimum capital requirement in the membership requirements and a capital-based exposure limit. The capital requirement differs between membership categories and clearing activity as summarized in the table below.
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The capital requirement should help Nasdaq Clearing ensure that Clearing Members have sufficient financial capacity to serve their positions in any market conditions without risking their operations. Nasdaq Clearing uses both a minimum capital requirement in the membership requirements and a capital-based exposure limit. The capital requirement differs between membership categories and clearing activity as summarized in the table below.
| Membership/Activity | Financial Derivatives | Commodity Derivatives |
|---|---|---|
| General Clearing Member | SEK 200 million-500 million for clearing of generic rates instruments | €20 million |
| Direct Clearing Member/Clearing Member | SEK 50 million-500 million for clearing of generic rates instruments (OTC-traded interest rate derivatives) |
€5 million |
| Direct Clearing Client | SEK 50 million-500 million for clearing of generic rates instruments (OTC-traded interest rate derivatives) |
€5 million |
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Membership/Activity Financial Derivatives Commodity Derivatives General Clearing Member SEK 200 million-500 million for clearing of generic rates instruments €20 million Direct Clearing Member/Clearing Member SEK 50 million-500 million for clearing of generic rates instruments
(OTC-traded interest rate derivatives)€5 million Direct Clearing Client SEK 50 million-500 million for clearing of generic rates instruments
(OTC-traded interest rate derivatives)€5 million
Credit Requirements
Credit Scores
A clearing member must at all times satisfy a minimum internal credit score which is determined by Nasdaq Clearing. Nasdaq Clearing uses an internal credit rating methodology to calculate a credit score for each Clearing Member that is used to assess and monitor the creditworthiness of clearing members across clearing services. The methodology is founded on statistical analyses and uses financial, behavioral as well as qualitative information to assign a credit score from 0-8 to each counterparty, where 8 represents the strongest creditworthiness. The credit score represents a relative estimate of the likelihood of default for each clearing member relative to the other clearing members.
A clearing member must have a credit score of at least 1 to be admitted and remain a clearing member to Nasdaq Clearing. The purpose of using credit scores as a minimum requirement for clearing members is to ensure a minimum creditworthiness and thereby a reduced default risk of the clearing member active at Nasdaq Clearing.
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A clearing member must at all times satisfy a minimum internal credit score which is determined by Nasdaq Clearing. Nasdaq Clearing uses an internal credit rating methodology to calculate a credit score for each Clearing Member that is used to assess and monitor the creditworthiness of clearing members across clearing services. The methodology is founded on statistical analyses and uses financial, behavioral as well as qualitative information to assign a credit score from 0-8 to each counterparty, where 8 represents the strongest creditworthiness. The credit score represents a relative estimate of the likelihood of default for each clearing member relative to the other clearing members.
A clearing member must have a credit score of at least 1 to be admitted and remain a clearing member to Nasdaq Clearing. The purpose of using credit scores as a minimum requirement for clearing members is to ensure a minimum creditworthiness and thereby a reduced default risk of the clearing member active at Nasdaq Clearing.
Exposure Limits
In addition to the credit score requirement, each clearing member has an individual exposure limit towards Nasdaq Clearing, to help ensure that a clearing member has sufficient financial capacity to serve its positions, also during extended periods of stress. A clearing member shall not have an initial margin requirement (including concentration margin add-on) greater than the lower of the following measures:
- Liquid asset implied limit: 50% of clearing participant's liquid assets after haircuts
- Capital implied limit: clearing participant's capital multiplied by a credit factor.
The liquid asset implied exposure limit ensures that longer margin periods of risk than assumed in Nasdaq Clearing's initial margin methodology could be withstood by the clearing members through its liquid assets, whereas the capital implied limit ensures the clearing member's capacity to withstand losses from its clearing operations without risking its solvency.
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In addition to the credit score requirement, each clearing member has an individual exposure limit towards Nasdaq Clearing, to help ensure that a clearing member has sufficient financial capacity to serve its positions, also during extended periods of stress. A clearing member shall not have an initial margin requirement (including concentration margin add-on) greater than the lower of the following measures:
- Liquid asset implied limit: 50% of clearing participant's liquid assets after haircuts
- Capital implied limit: clearing participant's capital multiplied by a credit factor.
The liquid asset implied exposure limit ensures that longer margin periods of risk than assumed in Nasdaq Clearing's initial margin methodology could be withstood by the clearing members through its liquid assets, whereas the capital implied limit ensures the clearing member's capacity to withstand losses from its clearing operations without risking its solvency.
Operational and Risk Management Requirements
The purpose of operational and risk management requirements are to ensure that the clearing member has the operational and risk management capacity at all times to fulfil its obligations as a counterparty to Nasdaq Clearing. This means that a clearing member must possess a suitable organization, an adequate level of competence, necessary risk management routines, secure and sound technical systems, and otherwise be suitable to participate in clearing operations in Nasdaq Clearing's opinion. A clearing member must also have licenses as required by Nasdaq Clearing. Clearing members who clear on behalf of clients may be subject to stricter requirements compared to members clearing only on their own behalf.
Nasdaq Clearing may set additional objective and non-discriminatory requirements at its discretion for each membership category proportional to the perceived riskiness of such membership category. Any such additional requirements will be published on Nasdaq Clearing’s webpage.
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The purpose of operational and risk management requirements are to ensure that the clearing member has the operational and risk management capacity at all times to fulfil its obligations as a counterparty to Nasdaq Clearing. This means that a clearing member must possess a suitable organization, an adequate level of competence, necessary risk management routines, secure and sound technical systems, and otherwise be suitable to participate in clearing operations in Nasdaq Clearing's opinion. A clearing member must also have licenses as required by Nasdaq Clearing. Clearing members who clear on behalf of clients may be subject to stricter requirements compared to members clearing only on their own behalf.
Nasdaq Clearing may set additional objective and non-discriminatory requirements at its discretion for each membership category proportional to the perceived riskiness of such membership category. Any such additional requirements will be published on Nasdaq Clearing’s webpage.
Anti-Financial Crime Requirements
Financial Crime Score
A clearing member must at all times fulfill the minimum financial crime score requirement, which is determined by Nasdaq Clearing. Nasdaq Clearing uses an internal methodology to calculate a financial crime score for each clearing member that is used to assess and monitor the financial crime risk of clearing members. The methodology is based on qualitative information and has a scale from 1-4, where 1 represents the lowest financial crime risk and 4 the highest.
A Clearing Member must have a financial crime score of 1-3 to be admitted and remain a clearing member to Nasdaq Clearing. A financial crime score of 4 is considered high risk and therefore not accepted by Nasdaq Clearing.
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A clearing member must at all times fulfill the minimum financial crime score requirement, which is determined by Nasdaq Clearing. Nasdaq Clearing uses an internal methodology to calculate a financial crime score for each clearing member that is used to assess and monitor the financial crime risk of clearing members. The methodology is based on qualitative information and has a scale from 1-4, where 1 represents the lowest financial crime risk and 4 the highest.
A Clearing Member must have a financial crime score of 1-3 to be admitted and remain a clearing member to Nasdaq Clearing. A financial crime score of 4 is considered high risk and therefore not accepted by Nasdaq Clearing.
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