Derivative Market Risk Management

XNOFX Clearing is the Clearing house for all Exchange Traded Derivatives that are processed through XNOFX’s engines.

Furthermore, XNOFX Clearing substitutes all matched trades transacted through the XNOFX.

XNOFX Clearing comprises a number of "Clearing Members" who undertake the Clearing service for the involved parties. Each member takes responsibility for their client’s receipt of funds or products. If a client or a trading member cannot comply with their obligations, the Clearing member will undertake the same responsibility on behalf of its client. XNOFX Clearing, therefore, ensures protection against the risk factors that may occur as a result of not complying with the market obligations.


Lines of Defense

XNOFX Clearing makes use of a set of risk management measures. In the first place, XNOFX Clearing has established entry requirements to become a Clearing member, including financial management and risk management capabilities. Afterwards, all trades are collateralized through a system of margins. The quantum of margin is back-tested against actual market circumstances to ensure performance is registered at the expected interval.

Stress testing is used as a technique to analyze the way portfolios get along in less advantageous scenarios. Ultimately, XNOFX has established a specific fund to which all Clearing members must contribute. The fund can only be accessed to cover losses suffered as the result of a Clearing member default. Subsequently, XNOFX Clearing’s contributions and the non-defaulting Clearing members’ contributions will be used in that respect.

Stress Testing

XNOFX Clearing calculates the amount of total financial capital required to cover default and checks the contributions and the total liability pool on a regular basis. Variation margin fees used to settle daily position gains and losses, original margin kept for the duration of the position, and a default fund are all examples of financial capital. When it comes to stress testing of credit and liquidity risk, XNOFX Clearing considers a list of specific stress situations, both historical and hypothetical.

The size of the XNOFX default fund is determined by the results of credit stress testing. The results are used to track and control XNOFX Clearing's disclosure to Clearing members on a regular basis. The purpose of stress testing for liquidity risk is to determine whether XNOFX Clearing has enough liquid capital to fulfill intra-day and multi-day obligations under pressure. The default of a Clearing member or an operating situation is the most common scenario that can result in liquidity stress.



When a trade is conducted, an initial margin is requested, and a variation margin is reported daily to account for daily performance. The variation margin is the daily profit or loss that is exchanged between the parties to each transaction on a daily basis.

At XNOFX Clearing, the margins are calculated per contract, per beneficial owner, and are revised on a regular basis. The margin is divided according to the client level and a certain part of the offset is given to other positions in similar contracts. XNOFX Clearing back tests margins on a constant basis to ensure that the margin coverage corresponds to the techniques being used. Furthermore, regular stress testing is conducted to estimate the amount by which losses could surpass the margin posted within extreme market conditions.

Default Management

XNOFX Clearing has reported its default management processes and procedures and checked them during simulation exercises to ensure that they are appropriate in the case of a default. In addition, XNOFX Clearing has a well-defined and transparent full-risk waterfall that describes how risk mitigation will be implemented for default purposes. In the case of a Clearing member default, the Clearing house is closing the positions, and any loss is distributed according to the terms of the risk waterfall.



XNOFX Clearing divides all client margins and Clearing member default fund contributions from its own capital in compliance with the XNOFX Derivatives Rules and manages these margins and default contributions according to the XNOFX's terms and conditions. XNOFX Clearing assures, according to the XNOFX Clearing Investment mandate, that there are sufficient funds available on a regular basis to return margin on settled trades and /or cover losses in the case of a default.



The XNOFX Risk Management Team takes responsibility for the continuous risk management of the Derivatives Market and acts under the designated authority of the XNOFX Board. In order to ensure constant stakeholder engagement, the Risk Management Team maintains a partnership with the XNOFX Clearing Advisory Committee, which is an independent advisory committee. The XNOFX Clearing Risk Committee is engaged in revising all risk management policies and methodologies. The XNOFX Risk Committee and XNOFX Board consist of representatives from the Clearing members, independent experts, and XNOFX management.


Clearing and Settlement

We are closely in touch with leading post-trade providers handling the clearing and settlement of trades executed on our markets. Our Clearing members have access to first-class clearing technologies and innovative risk management instruments.