Derivatives clearing, exchange-trading and collateral in Norway

Types of transaction

What categories of equity derivatives transactions must be centrally cleared and what rules govern clearing?

Equity derivatives transactions listed on the Oslo Stock Exchange must be centrally cleared through SIX x-clear Ltd, Norwegian Branch. The clearing house or the central counterparty (CCP) accedes to the agreement as the counterparty - both as purchaser towards the seller and seller towards the purchaser - and guarantees settlement between the parties and the delivery of securities that are traded. The most important task of the CCP is to act as counterparty and guarantee performance of the contract.

What categories of equity derivatives must be exchange-traded and what rules govern trading?

Securities firms trading in derivatives listed on a regulated market shall be settled via an authorised CCP. The Oslo Stock Exchange decides which derivatives are to be listed on the regulated market and it is these derivatives that must be exchange-traded. See questions 21 and 25 regarding the rules governing trading.

Describe common collateral arrangements for listed, cleared and uncleared equity derivatives transactions.

The collateral arrangements for derivatives can be divided into two major groups. In the local market and in transactions between dealers and its customers the collateral arrangements utilise local-law-governed security documents. Such documentation is standardised and the collateral mostly consists of cash or securities (bonds or shares). Daily valuations of the collateral and the mark-to-market value of the outstanding transactions is common, and the customers must be prepared to post additional collateral on a daily basis.

In transactions between the major dealers and the most sophisticated customers, it is common to use the ISDA Master Agreement and a Credit Support Annex.

The collateral arrangements for listed and cleared derivatives are based on standardised local documentation.

Must counterparties exchange collateral for some categories of equity derivatives transactions?

With respect to options, both the issuer and the dealer are required to provide collateral as security for their obligations (the dealer on behalf of the investor). The collateral may be cash, shares, government bonds, listed funds, warrants or derivatives registered at the dealer’s derivative account with SIX x-clear Ltd, Norwegian Branch.

With respect to forwards and futures, both the buyer and the seller are required to place collateral as security for their obligations. The collateral must be valid until the term lapses or the transaction is closed.

Daily mark-to-market valuations of the exposure and value of the collateral are commonly applied in the market. The collateral requirements are estimated with the use of the margin calculating system Midas Margin Model SIX x-clear Ltd, Norwegian Branch.