Systemic Risk Management
Systemic risks of NCC may originate from simultaneous default of several clearing members or counterparties of NCC, which prevents other counterparties from performing their obligations to the Company properly and when due.
Since NCC is systemically important as a financial market infrastructure facility, its systemic risk may also originate from relationships between the Company and other financial market organizations.
Efficient management of its risks (credit, market, operational, custody, liquidity, etc.) enables NCC to maintain stability in all financial market segments, where it provides its services, thus facilitating the systemic risk mitigation.
Stress Testing of Financial Stability
Stress-testing of NCC’s financial sustainability is designed to reduce its risks to the acceptable level enabling it to maintain its stability in all financial market segments where it provides its services.
NCC’s risks stress-testing cover the financial risks inherent in its activities, including credit, market and liquidity risks, as well as the risks arising from its combining the functions of the central counterparty and other functions.
NCC performs stress testing in compliance with Bank of Russia Regulation No. 576-P, dated 30 December 2016 ‘On the Requirements for the Methodologies for Risk Stress-testing and Model Accuracy Assessment of the Central Counterparty, Risk Stress-testing and Model Accuracy Assessment of the Central Counterparty, and the Procedure and Timeframes for Providing Information on the Results of Risk Stress-testing of the Central Counterparty to Clearing Members’.
Stress testing of NCC’s risks includes direct and reverse stress testing, sensitivity analysis and analysis of validity of the scenarios used.
The results of stress testing performed in 2020 evidence NCC’s ability to maintain the common financial sustainability without any threat to its business continuity determined through sufficiency of risk coverage resources, in a range of simulated stress scenarios and their combination. NCC’s financial resources (safeguard levels) are sufficient to cover any possible losses (not covered by the collateral), which may arise from non-performance or undue performance of obligations by two major loss-generating clearing members.
As a part of implementation of the road map of NCC’s risk management framework development till 2025 approved in 2020, the efforts to further improve RMF will be aimed at:
- transiting to process-based risk management – building a unified matrix of NCC’s business processes and risks, unified cumulative source of information on NCC’s key processes, risks inherent therein, relevant control processes; recording the areas of responsibility in employees’ personal documents and taking risk mitigation measures, including the micro strategy for key risk management;
- building MEORiMa, a new risk management platform, to develop automation and transition to online management of key risks of NCC on this platform;
- improving and further developing the risk management methodologies and approaches, inter alia, for the most intensive emerging markets, such as SFD. A methodology, technology platform for building a new risk management framework and SFD collateral monitoring, is planned to be developed and introduced.