The Loss Sharing Pool is an incentive structure funded by all members that clears interest rate OTC derivatives with Nasdaq. This will cover losses in a defaulted portfolio that contains OTC instruments. The Loss Sharing Pool is junior to the Financial Markets Default Fund and senior to Nasdaq’s Junior Capital in the waterfall of the clearing house. The Loss Sharing requirement is calculated as the three month average Initial Margin for all cleared Fixed Income positions.
Loss Allocation in an OTC Default
If there is a default where the defaulted portfolio contains cleared OTC products - and observed losses exceed the available collateral pledged by the participant - Nasdaq will allocate collateral to Fixed Income and other instruments based on the relative initial margin for each part. This ensures that contributions to the Loss Sharing Pool are not used to cover losses from other instruments. The Fixed Income portfolio loss will first be absorbed by the Loss Sharing Pool before losses are allocated to the Financial Market Default Fund.
The minimum contribution to the Loss Sharing Pool is 10 000 000 SEK and the maximum contribution is 500 000 000 SEK.
Contributions are made on the same days as the contribution for the Financial Default Fund
- March 1st
- June 1st
- September 1st
- December 1st
(If the date is not a business day, contributions will be made on the next business day.)
Members are notified about their Loss Sharing contribution no later than 10 business days prior to the contribution day. Loss Sharing Requirements are visible in reports from Genium INET and contributions can be placed through the CMS web application.
The Loss Sharing Pool accepts the same collateral as the Default Fund, details regarding the eligible collateral are found under the Default Fund section.
The Loss Sharing Pool has the same interest calculations for cash contributions as the Default Fund. Information regarding the calculations is available under the Interest Calculations
on the Default Fund section.
Standing Settlement Instructions
The Loss Sharing Pool uses the SSI’s available on the Default Fund section. Members that wish to contribute securities in a segregated CSD account can request this in their SSI form.
Clearing members wishing to settle their securities contributions on T+0 must have placed complete settlement instruction on the respective CSD/ICSD at least two (2) hours prior to last settlement batch.
Procedures and Agreements
Members must open a Loss Sharing Custody Account and enter into a Loss Sharing Custody Account Agreement.
Nasdaq will establish a custody account for each member once they have signed the Default Management Commitment and the Loss Sharing Custody Account Agreement.
Members must submit the Loss Sharing Standing Settlement Instructions in order for Nasdaq to facilitate call backs from the Loss Sharing Pool.