If the clearing manager determines that its exposure to a industry participant is more than the amount of security the industry participant has already provided, the clearing manager will issue a call for additional security.

The call must be satisfied within three business days or the industry participant is in default of its obligations under the Code and the matter may be investigated by our compliance team.

Types of prudential security

Prudential security may take the form of a cash deposit, a bank guarantee, a third party guarantee from a party with an acceptable credit rating, a bond from a surety with an acceptable credit rating, and/or a hedge contract lodged with and settled by the clearing manager.

Parties with an acceptable credit rating (Standard & Poors A- or equivalent) do not need to provide prudential security.

Hedge settlement agreements that have been lodged with the clearing manager may also be taken into account in the calculation of prudential requirements.

Shortened post-default exit period

The amount of prudential security the clearing manager requires from a participant depends in part on the duration of the participant’s post-default exit period. Clause 14A.22(4) of the Code specifies the duration of the post-default exit period for different participants, but also allows the Authority to approve a shorter post-default exit period than that specified.

A participant that seeks a shorter post-default exit period than that specified in clause 14A.22(4) should apply to the Authority using the application form provided below. This application form sets out what information the Authority requires. We assess each application to approve a shortened post-default exit period against the criteria set out in the Requests for a shortened post-default exit period policy, which is also provided below. Before submitting an application, please read the policy carefully and contact Market Operations if you need any further information on this.

Email: marketoperations@ea.govt.nz

Schedule approvals

The standard forms of prudential security are presented in Schedules 14.1to 14.5 of the Code. The alternative forms of guarantee provided below have also been approved by the Authority for use as prudential security.