Within the Risk Management (GSD) section of the Learning Center, you can learn about:
- the purpose of the GSD Clearing Fund,
- CF requirements and components,
- CF composition,
- the Clearing Fund Management (CFM) System,
- FICC Customer Reporting (FIR), and
- Clearing Fund and Funds Only Settlement Timeframes.
You may also review GSD Risk-related reference documents and GSD Risk Frequently Asked Questions.
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As a CCP for eligible trades submitted by its Netting Members, GSD mitigates credit, market and liquidity risks in the financial services sector by standardizing and implementing risk management practices. GSD manages these risks that arise from outstanding obligations through various processes like mark-to-market, margining through collection of a Clearing Fund and cross-margining to ensure that FICC GSD is well collateralized to fulfill its outstanding obligations in case of a potential member default.
Credit, Market & Liquidity Risk
Credit risk is defined as the risk that a GSD Netting Member defaults on its obligations to GSD. In order to monitor ongoing creditworthiness, GSD monitors its Netting Members’ financial conditions, including capital adequacy across membership types and categories, as well as any impacts arising from changes in business activities. Using internal credit risk ratings as well as qualitative factors, firms considered to be undergoing financial challenges are more closely scrutinized by DTCC’s Enterprise Risk Management (ERM) unit. As a result, a firm’s continued activities with GSD may be limited and/or it may be required to post an additional deposit to the Clearing Fund. Finally, GSD has the right to suspend or cease to act for a Netting Member that no longer meets membership criteria as set forth in FICC GSD’s Rules.
Market risk is the risk that an insolvent Netting Member’s outstanding portfolio is under-collateralized. The most important tool used by GSD to manage its exposure to a Netting Member’s default is the calculation and collection of margin from the Netting Member. A Netting Member’s required deposit margin is calculated to cover the amount of potential loss incurred if it defaults and GSD as a CCP must satisfy the insolvent Netting Member’s Obligations at prevailing market prices. These margin deposits are held in what is referred to as the Clearing Fund.
Liquidity risk is the risk that a credit or market event or a combination of the two leaves GSD with inadequate resources to allow for orderly settlement on the day due. GSD’s liquidity risk management is aimed at having sufficient funding resources to cover the settlement of an insolvent defaulting Netting Member’s transactions (GSD’s obligations) on settlement date. For liquidity purposes, DTCC’s Enterprise Risk Management conducts daily liquidity studies for GSD. Generally speaking, liquidity studies calculate the liquidity needs under extreme but plausible conditions whereby FICC ceases to act for the family of accounts with the largest settlement obligations based on guaranteed activity and compares these needs against available liquidity resources. Study results to date indicate there is sufficient liquidity to cover the maximum needs resulting from the failure of any affiliated family of accounts 100 percent of the time—assuming GSD’s funding needs can be fulfilled via the repo arrangements that GSD has established.