Risk Management and Control
Control of Risk in the Process of Clearing and Settlement
The main commercial risks and the most important measures by CAVALI in order to mitigate them are described next
It is the risk that the counterparty of an operation does not comply with the total amount of its obligation, nor in the settlement date nor in any later moment.
Adopted measures Description Implementation of operation netting With the purpose of reducing the cash flow at the moment of payment of the operations, CAVALI carries out during clearing, netting of payment obligations of the participants. Establishment of minimum requirements and monitoring to the participants. The compliance of minimum requirements from the participants previous to their acceptance, regarding their financial, operational and technological capacity, among other aspects, and a permanent (yearly) evaluation of the validity of such requirements, has been established. Establishment of Minimum Coverage Amount (IMC in Spanish) The IMC is an amount that each participant must set up before CAVALI, to be used in the reduction of the market exposure in view of possible credit risks. The IMC for each participant is established by CAVALI and updated every three months.
The liquidity risk is the risk of a counterparty not settling an obligation for the total value when it expires, but in a later date.
Adopted measures Description Electronic confirmation of the operation Once the operations have been carried out, CAVALI requests to its participants the electronic confirmation of the operation which has been delivered directly by the centralized trading mechanism. Implementation of operation netting With the purpose of the facilitating the liquidity (of cash) of the participants, CAVALI carries out during clearing, the netting of payment obligations of the participants. Realization of the settlement of cash through the Central Bank CAVALI carries out the settlement of cash through an open account in the Central Reserve Bank of Peru (BCRP in Spanish), reducing this way the risk of a commercial settlement agent (private bank) Application of the delivery versus payment settlement outline CAVALI has adopted the Delivery vs. Payment (DvP) settlement outline, which works completely automated and establishes a direct link between the transfer of securities and cash, discouraging this way from each participant having an amount in excess of securities or funds, only to cover the non-payment risk.
It is the risk that comes from the fluctuation in the price of securities or currencies since the moment of the transaction until the settlement of operations.
Adopted measures Description
Establishment of the Settlement Fund (SL)
The SF is an independent wealth differentiated from CAVALI's, but managed by it, whose purpose is protecting the participants covering the price differentials since the moment of the failure to comply until the moment of effective settlement.
Minimum Amount of the Settlement Fund
The minimum amount of the Settlement Fund allows accomplishing the purpose for which it was created. CAVALI establishes it and updates it once a year. The minimum amount of the Settlement Fund calculated for year 2014, including only the non-complied operations with variable and fixed income instruments, is of PEN 10,324,991.55
Description PEN USD Earned
Total PEN Initial Amount 02.01.2016 15,742,446.17 11,831.29 213,552.90 15,997,029.87 Final Amount 02.29.2016 15,726,432.14 11,784.23 239,472.50 16,007,396.69