The Shanghai Clearing House ("SHCH") has recently issued the Guide to Centralized Clearing Business in the Interbank Market (4th Edition) (the "Guide").
The Guide covers basic concepts, management of clearing participants, centralized clearing business procedures, clearing business for net values of bonds, centralized clearing business for RMB interest rate swap (IRS), clearing business for central counterparties in OTC RMB-for-forex trading, etc. With regard to risk management, among others, the Guide expressly states that the security deposits will be used to make up the losses incurred from the breach of provisions or contracts during the centralized clearing business, and the SHCH will determine, on a daily basis, the amount of required security deposits, according to the net value of cash held by each participant or the risk exposure, mark-to-market gains or losses, and other special risk factors. Furthermore, the Guide states that, preparatory work for the participation in the centralized clearing business includes: applying for becoming the SHCH's clearing member; signing the clearing agreement; registering with the SHCH all agreements for agent clearing business signed with non-clearing members, which, however, is merely compulsory for integrated clearing members; designating or opening relevant accounts; and declaring the clearing quotas.