CCIL’s settlement of CLS trades for its members by becoming a
third party settlement agency to ABN AMRO as a settlement bank (so that the
members become fourth parties) exposes CCIL to the same kind of risks that the
Settlement Banks are exposed to. To take care of such risks, Settlement Banks
usually set limits for all entities settling through them. As a settlement
agency, CCIL do not take any clean exposure on its members. Risk management
processes at CCIL is therefore designed in such a way that the CCIL’s exposure
on a member on account of the outstanding CLS trades of the member is covered
through collateral or bank guarantees. The risk is monitored by setting
Exposure Limits for members, which are arrived at on the basis of the
collaterals deposited.
CCIL sets two types of limits for a member (both denominated
in US Dollars).
i) Base CLS Limit – Minimum limit for each settlement date
ii) Additional CLS Limit - Only for specified settlement date
Total Limit for a member for a settlement date is equal to the
sum of the Base CLS Limit and the Additional CLS Limit. Exposure Limit
utilization monitoring is on-line and system driven. A member’s exposure in any
currency is marked to market daily and is further adjusted for the currency
fluctuation factor by way of a distinct hair-cut rate for each currency.
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