On 22 September 2021, Izba Rozliczeniowa Giełd Towarowych S.A. (IRGiT) in cooperation with Towarowa Giełda Energii S.A. (Polish Power Exchange, POLPX, TGE) carried out a simulation of actions to be taken in case of a default (insolvency) of the market participant.
20 IRGiT members represented by 40 traders participated in the tests.
The analysis of the test outcome will be included in a report containing conclusions from the position closing process, to be shared with all market participants.
On 22 September 2021, IRGiT and TGE conducted test of the procedure to be applied in case of a default of a market participant, the purpose of which is to prepare the Clearing House members for the actions to be expected in the event of such a situation and to validate IRGiT’s applicable regulations, thereby increasing the level of security of its clearings and improving the efficiency of the whole process.
The test covered a simulation of a case in which a market participant was unable to fulfill its liabilities arising from executed transactions. In accordance with the general rules adopted by clearing houses, in such situation the clearing house is required to close the positions of the defaulted market participant as soon as possible in order to reduce to the lowest possible extent the impact of market fluctuations on the portfolio valuation and minimize potential losses. The minimization of potential losses is of crucial significance both for IRGiT as the entity ensuring the security of clearing and for all market participants. This is because, in the event of a loss exceeding the value of the collateral provided by the defaulting market participant, the Clearing House makes use of the funds collected in the Guarantee Fund, consisting of contributions paid by all Clearing House Members. IRGiT’s objective during the tests was to conduct communication in a manner making market participants aware of the resulting risks and the steps necessary to mitigate them. The tests were successfully completed, and their outcomes and conclusions drawn will be included in a special report to be presented to market participants during a special webinar.
During our default management simulation, IRGiT not only applied international standards devised to ensure the security of clearing, but also focused on education of market participants on the rules applicable in extreme market situations. I am glad that our Members have showed great interest and that they consider it helpful to be properly prepared for situations where it may be necessary for the Clearing House to conduct a position closing process. We intend to conduct such tests every year, modify scenarios, collect suggestions from market participants, draw conclusions and implement them as part of our default management procedures. One may boldly say that it was another step towards creating a more secure market with IRGiT’s participation, said Łukasz Goliszewski, Vice-President of the IRGiT Management Board.