Summary of Nasdaq Clearing´s Investment Policy
Approved by Nasdaq Clearing AB Board of Directors
Effective as of September 16, 2016
Nasdaq Clearing’s Investment Policy sets guidelines for the investments of cash received from members of the clearinghouse as collateral and/or contributions to Default fund or Loss Sharing Pool. In addition, the Investment Policy governs investments made by Nasdaq Clearing including investments of regulatory capital used by the clearinghouse to support its Article 16 capital and own funds contributed by Nasdaq Clearing to the Waterfall.
The Investment Policy stipulates how Nasdaq Clearing is allowed to invest above mentioned cash contributions and regulatory funds. The Investment Policy establishes a framework for investments and is compliant with the regulations set forth by EMIR and CPSS-IOSCO. The Investment Policy is approved by the Board of Directors of Nasdaq Clearing and is also subject to the Swedish FSA’s consent.
The overall objective of the Investment Policy is to preserve and protect the value of the cash margin and contributions to Default Fund or Loss Sharing Pool as well as secure the value of Nasdaq Clearing´s own contributions to the regulatory capital. For that reason the Investment Policy is conservative and when investing the cash Nasdaq Clearing shall minimize the credit, market, concentration and liquidity risk to ensure that any funds can be realized with minimum impact on invested value and within a very short time frame.
Therefore, debt instruments bought as investments must be issued or explicitly guaranteed by:
- Central bank
- Multilateral Development bank
- EFSF (European Financial Stability Facility) or ESM (European Stability Mechanism)
Repurchase agreements and Reverse Repurchase Agreements including Buy/Sell backs are also authorized investments. However, the underlying security received as collateral must satisfy the same requirements as the debt instruments authorized to buy as investments. Uncollateralized cash holdings with commercial banks must not exceed 5% of the portfolio calculated as an average over one calendar month (excl funds deposited with central bank). Cash holdings are also subject to maximum exposures towards individual banks.
The investments shall be made in the same currency as the cash contribution, unless the clearinghouse, in relation to its liquidity framework, needs to cover liquidity requirements in any other currency. In those circumstances the currency risk arising shall be hedged with authorized counterparties with whom Nasdaq Clearing has ISDA agreements in place.
Nasdaq Clearing’s own assets shall be invested in eligible investments in SEK.
In order to reduce the credit risk, the cash received shall be invested within the constraints of the Investment Policy. The requirements are as follows:
- Minimum rating requirements by investment type
- Maximum CDS spread for issuer and counterparty
- Maximum term by investment type
- Maximum total exposure to a single issuer
- Maximum total counterparty risk
Further, according to the Investment Policy the duration of the portfolio has a stipulated maximum in order to limit the interest rate exposure.
Derivative contracts are not accepted investments, however they may be used under the following circumstances:
- to hedge a portfolio of a defaulted member
- to hedge currency risk arising from ongoing liquidity management
Cash received from members as collateral, member contributions to the Default Fund or Loss Sharing Pool and Nasdaq Clearing´s own contributions to the regulatory capital can be used by Nasdaq Clearing as liquidity resources for clearing operational purposes. Cash received by members can never be used for other corporate usage.
Any breaches of the Investment Policy shall be reported to Nasdaq Clearing´s Clearing Risk Committee, and the Board of Directors of Nasdaq Clearing.
If regulations of EMIR are violated due to breaches, the CCO should inform the competent authorities immediately.
All breaches must be rectified as soon as possible.
Complete version of the Investment Policy will be provided to members of Nasdaq Clearing upon request.