Media Release
ICCL takes Counterparty Default Insurance for INR 375 Crore
Mumbai, March 10, 2014: BSE's Clearing Corporation, ICCL has taken a defaults insurance cover of INR 375 Crore from United India Assurance. It is a very unique deal in this sector. After the 2008 financial crisis, default risks were not covered by Insurers or were covered for very small amounts. INR 375 Crore is more than twice the expected 1 day loss for ICCL in all open positions put together as per the various stress scenarios tested by ICCL. ICCL has slowly moved to secure itself further by creating such defences. Recently, ICCL was granted "IND AAA" rating by India Ratings ltd and Care Ratings Ltd.
ICCL remains committed to the safety of investors and members and to further add to this security, ICCL has subscribed to a unique Insurance Policy for INR 375 Crore. The objective of the Policy is to protect ICCL against counterparty defaults, and add a further capital cushion to the ICCL networth making the resources of the non-defaulting members even safer. The policy also adds to the ability of ICCL to absorb higher losses before any resources of the non-defaulting members are put at risk.
About ICCL Ltd:
Indian Clearing Corporation Limited (ICCL) acts as the clearing corporation to all trades executed on the various segments of BSE. ICCL is a globally recognised Central Counterparty (“CCP”) which caters to domestic as well as international participants. ICCL has been accorded Qualified CCP status by the Securities and Exchange Board of India.
ICCL provides full novation and has the responsibility of guaranteeing contractual performance by playing the role of a central counterparty for all trades on BSE, thereby eliminating counterparty risk for the members. In essence, it splits the original contract between the initiating counterparties into two new contracts; one each between ICCL and the initiating counterparties. ICCL has put in place a risk management framework to mitigate the risk it undertakes in its capacity as a Clearing Corporation.
However, as a second line of defence to the margining and risk management systems, ICCL has subscribed to the Insurance policy. In the case of loss arising out of defaults, the capital of Clearing Corporation and its non-defaulting members would be at risk, in accordance with the default waterfall. The magnitude of potential loss due to default a clearing corporation can undertake without affecting the capital of non-defaulting members is contingent upon the networth of the Clearing Corporation and additional capital cushions, which insulate the default loss and the non-defaulting members’ resources.
ICCL, with its networth of over INR 450 Crore, which is nearly 3 times its default fund requirements, is well capitalized and instills a high level of confidence in its members and investors of the ability of ICCL to handle extreme loss situations. The additional capital cushion of INR 375 Crore, provided by the Insurance cover, along with the networth covers over 5 times the default fund requirement of ICCL and further increases the safety for domestic and international participants alike.
For More Information
Yatin Padia – 022 2272 8516
Marketing Communications
yatin.padia@bseindia.com