Risk Management


As the central counterparty clearer, the Clearing House assumes counterparty risk for all trades executed on NZX markets through the process of novation. Management of the risk of a Clearing Participant default is addressed through the application of the NZX Clearing Risk Management Framework, which includes the following processes:

  • Participant standards – Clearing Participants are required to have sufficient financial resources and robust operational capacity to meet their obligations as Participants. This includes minimum risk-based capital requirements
  • Participant supervision – ensure there are procedures in place to monitor that Clearing Participants are meeting the participation standards on an ongoing basis
  • Margin requirements – NZX Clearing imposes margin based on each Clearing Participants' outstanding positions. Margin rates are set to cover the highest foreseeable one-day price movements in normal market conditions. Clearing Participants are required to post acceptable collateral to cover margin within the specified time frame.
  • Provision of eligible collateral – includes cash and approved securities. At least 30% of a Participant's collateral requirement must be lodged in cash
  • Settlement practices – in the design of the settlement mechanism, NZX Clearing achieves the reduction in risk through regulating the settlement cycles, utilising delivery versus payment (DVP) and the netting of settlement transactions
  • Risk capital – NZX Clearing sets aside a level of capital to cover credit and liquidity risks arising from a Participant default. The risk capital required is calculated based on historical extreme market conditions and the assumption that the largest market Participant will default. The total amount of risk capital available to the Clearing House is $20m

Other risks faced by NZX Clearing include liquidity risk, operational risk, legal risk and settlement bank risk. These are mitigated through robust operational and financial processes. For more information about our risk calculations and management policies please contact risk@nzx.com.

Risk Capital

The waterfall of capital available to the Clearing House begins with the initial and variation margins imposed on all Clearing Participants. This serves as the main risk management measure for counterparty risk. Following this, the Clearing House's own equity is held to cover quantified risks over and above margin requirements.

The amount of risk capital required has been estimated with reference to the ability of the Clearing House to withstand extreme but plausible market movements. Assessing the adequacy of capital relies on assumptions about which Participant, or Participants, might default and the market conditions at the time of a default. Statistical methods are used to calculate the risk capita

l required by taking into account varying risk factors and parameters. Stress testing of forecast risk capital requirements takes place on a regular basis and is reviewed by the Credit Committee, and the full NZCDC Board.

Actual risk capital requirements (based on each Participant's portfolio of open positions) are calculated and reviewed against estimated requirements and actual financial resources on a daily basis and reported to the Board and regulators monthly.

Mutualised Default Fund

In November 2018, the Clearing House launched the Mutualised Default Fund (the default fund). The default fund is for the purpose of managing any default losses related to derivatives Clearing Participant's exposures only, and the default fund is not exposed to cash market Clearing Participant's exposures.

The default fund is part of the default capital model to manage derivatives Clearing Participant risk, adhering to a minimum 'Cover 1' requirement in line with the IOSCO Principles for Financial Market Infrastructures.

Risk Capital Composition

Risk capital has been provided by way of paid-up capital of $20 million. This risk capital is specifically ring-fenced and can only be used in order to cover a shortfall in the event of Participant default.

Additional Liquidity Support

In 2024 the Clearing House renewed its liquidity support facility that enables it to access up to $20 million of short-term cash funding which can be used to settle trades in the event of a Participant default.

NZX Insurance

The Depository and its operations are covered by insurance policies held in the name of the ultimate parent entity, NZX Limited.


At the end of each trading day the margin requirements are calculated for each Clearing Participant. The margin requirements for each Clearing Participant consist of initial, variation and additional margin.

For derivatives initial margin, uses SPAN© ("Standard Portfolio Analysis of Risk"). is a margining system developed by the Chicago Mercantile Exchange ("CME") and is the industry standard for derivatives margining. By using a defined set of parameters set by , assesses the maximum potential loss for a given portfolio in a normal market, and matches the initial margin required to cover this risk. Download the latest SPAN parameter files here.