IRGiT, the Commodity Clearing House focuses on providing a high performance, reliable clearing house to its market player. It is responsible for both clearing and financial settlements of transactions carried out on commodity and financial markets, regulations of deliveries resulting from the transactions with the overall aim of constant improving security and ensuring the performance of contracts.
Clearing and settlement
It carries out the clearing and settlement of transactions using a modern technology system and its own settlement model. During the settlement process, all financial assets and financial liabilities for each transaction are established and combined so the final balance can be determined. A clearing house provides daily settlement services by debiting or crediting the accounts of clearing members that participate in the payment system.
A clearing house fulfils a vital function for commodity exchanges, not only by establishing an operational process to support the settlement of transactions cleared through a clearing house but also by creating the market regulations which are necessary to ensure that any policy objectives are taken into account in the design and operation a clearing house. The regulations establish the common rules for the supply of traded commodities. The supplies carried out are:
by the participants of commodity exchanges who are responsible for the commodity supply and act in accordance with the regulations as determined by the clearing houses. A clearing house monitors the supply process;
by specialized institutions contracted to the commodity clearing houses, i.e. energy and gas transmission system operators;
If one of the parties does not meet the supply obligation, a clearing house acts on behalf of that party. In such a case, the supply is then carried out in accordance with the regulations as set up by the clearing house and the securities lodged by a participant can be used.
A clearing house plays a fundamental role in responding to and resolving any defaults of clearing members. By recognizing and managing the risk, a clearing house immediately reduces the probability of a clearing house default. Financial risk management serves to identify the risk associated with the market in general and that involved with any individual participant in particular.
IRGiT satisfies the formal, technical and regulatory requirements to carry out the clearing services for commodity markets both in Poland and worldwide. IRGiT has the necessary competences and capabilities, i.e. risk management policies, modern technology systems and highly qualified specialists.
Since 1 April 2011, IRGiT has been a member of EACH which is a testimony to the clearing house meeting the safety and clearing standards as presented in the CPSS-10SCO Recommendations. Joining EACH has enabled IRGiT to cooperate with the best experts in the field of clearing, settlement as well as collaterization in Europe.
IRGiT carries out the clearing and settlement of transactions using a modern technology system and its own settlement model. As mentioned above, during the settlement process all financial assets and financial liabilities for each transaction are established and combined so the final balance can be determined. IRGiT provides daily settlement services by debiting or crediting the accounts of the clearing members that participate in the payment system, thus significantly reducing costs and possible threats to any financial operations.
The core functions in the clearing process are:
- processing transactions until the successful fulfilment of the legal obligations either at expiration, the settlement day or any day on which legal obligations are fulfilled;
- management of transactions between execution and fulfilment of the legal obligation between the two trading partners or other associated institutions as nominated by the trading parties;
- counterparty risk exposure calculation covering all the relevant risks for the period of transaction between the execution and fulfilment of legal obligations;
- collaterals, either in the form of securities or cash, evaluated on a daily basis to ensure adequate coverage of risk exposure regardless of whether or not it has been legally pledged or changed in ownership;
- sending instructions to settlement institutions’ custodians and payment banks with regard to the legal fulfilment of obligations resulting from transactions and meeting margin requirements;
- issuing of daily reports regarding transactions, modifications and exposure components.
IRGiT helps to simplify and make more transparent the credit chains that may develop in repeated transactions among market participants.
IRGiT uses a legacy engine powered by X-stream technology CONDICO After Trade Engine (ATE), designed by NASDAQ OMX which gives IRGiT both improved functionality and opportunities to expand its clearing capabilities to a variety of asset classes, including commodities. With this technology, IRGiT is in a strong position to execute its own expansion vision. Contracts can be easily replaced with equivalent futures contracts with shorter periods and the procedure can be applicable in the case of weekly, monthly, yearly and quarterly contracts.
The IRGiT Risk Management Department provides and takes responsibility for executing correct operations of the clearing guarantee system including: collaterals, transaction margins and guarantee fund.
IRGiT plays a fundamental role in responding to and resolving clearing member defaults and other circumstances that threaten the orderly operations of a clearing house. It provides a foundation for centralized risk management such as multilateral netting, collateralization and loss mutualization and data processing operations that benefit the clearing members.