Market participants can be admitted into OMX Nordic Exchange's marketplaces and clearing operations for derivatives as exchange and/or clearing members, end-customers, custodian institutions and settlement banks. A single bank can sometimes be permitted to fulfil all of the above roles, but with certain restrictions with respect to serving in certain capacities regarding affiliates.
An exchange and clearing member – typically a bank or brokerage firm – is associated with OMX Derivatives Markets for derivatives trading and clearing by entering into an ‘Exchange Member and Clearing Member Agreement’. Upon approval of the application, the legal entity is admitted as an exchange and clearing member, and is thereby permitted to open one or more trading and clearing accounts. Normally the member is a combined exchange and clearing member, although it is possible to act only as a clearing member, or only as an exchange member.
Clearing members
OMX Derivatives Markets sets minimum standards for accepting a derivatives clearing member. The capital requirement of clearing members is one of the standards set, and is designed to grant clearing membership only to organizations that have the capacity to meet their obligations. The members must meet the minimum financial requirements set forth in the rules and regulations for derivatives in order to gain membership. Further to these financial requirements, a potential member must also demonstrate to the exchange that it possesses the adequate resources, systems and procedures to meet its obligations. The detailed clearing membership requirements are stated in section 3.2 of the rules and regulation of OMX Derivatives Markets.
Exchange members
An exchange member must meet the minimum financial requirements set out in the rules and regulations of OMX Derivatives Markets in order to gain membership. Potential members must also demonstrate to the exchange that they possess management, organisational and administrative routines – as well as risk management routines – which correspond to the intended activities. Furthermore, exchange members shall also be electronically connected to the exchange trading system either through OMnet or another connection. The detailed exchange membership requirements are stated in section 2.2 of the rules and regulation of OMX Derivatives Markets.
End-customers
An end-customer becomes associated with OMX Derivatives Markets for derivatives trading and clearing by signing a ‘Customer Agreement’, and by opening a trading and clearing account. By signing the customer agreement, the end-customer is legally bound by the provisions set forth in the rules and regulations for OMX Derivatives Markets. OMX Derivatives Markets has a principal-to-principal relationship with each individual end-customer. End-customers are entitled and obligated to OMX Derivatives Markets in the same manner as if the actions taken by the member on behalf of the end-customer had been taken by the end-customer itself.
One major difference between a clearing member and an end-customer is that the clearing member is a legal entity that may act for an end-customer. As an agent, the clearing member has full authority for issuing instructions on behalf of each end-customer’s account.
The anonymity of end-customers towards OMX Derivatives Markets is maintained through account registration at Clearing Control AB (CCAB), a review and control organization owned jointly by OMX and the Swedish Securities Dealers Association. CCAB shall, upon request by and on behalf of OMX Derivatives Markets, conduct audits at the premises of exchange members and clearing members. When a member reports a trade to the exchange, the end-customer is identified by its specific account number reference. In certain circumstances, such as end-customer default, or if there are any concerns about an end-customer’s capacity to perform, OMX Derivatives Markets has the right to instruct CCAB, or the member, to immediately disclose the identity of the end-customer.
Custodian institutions
An approved Custodian Institution holds pledged collateral on behalf of the clearing organization and confirms that required net values of eligible collateral have been pledged to OMX Derivatives Markets in accordance with the specified margin requirements. In order mitigate the counterparty risk inherent in dealing with custodian institutions, there are specific qualifying requirements for custodian institutions.
A Custodian Institution becomes associated with OMX Derivatives Markets following formal approval and proper execution of a ‘Custodian Institution Agreement’. Institutions seeking approval as custodians must provide evidence that they satisfy the criteria for custodian institutions as prescribed in the rules and regulations for derivatives, and must demonstrate the ability to perform the operational and administrative custodial functions required on an ongoing basis. The minimum total equity requirement for a custodian institution is SEK 500 millions.
Settlement banks
The derivatives members of OMX Derivatives Markets must be participants in the Swedish central bank’s payment system RIX. If they are not, they must use an institution that does participate. To be a participant in the payment system, the Swedish central bank has requirements that have to be fulfilled by the participant, according to the rules and regulations for RIX (see the website of the Swedish central bank, www.riksbank.se). Participants in the RIX payment system are typically large commercial banks.
