Default management

IRGiT S.A. has implemented the Event of Default Management process supporting the handling of an event of default affecting one or more Clearing House Members, while taking into account the existing links and power groups. Actions taken by IRGiT S.A. are in each case adjusted to match the scale of business of the entity affected by the Event of Default, the type of event and market conditions. A specially appointed Event of Default Committee is responsible for making decisions in such cases. 

Catalog of circumstances constituting an Event of Default

According to the regulations in place in IRGiT S.A., IRGiT S.A. may determine that an Event of Default has occurred after specific circumstances arise. Each case is analyzed in terms of clearing security and the final decision to launch any risk-mitigating measures is made by the Event of Default Committee.

Management of an Event of Default

At the stage of preliminary analysis of a situation, which may form the basis for finding that an Event of Default has occurred, IRGiT S.A. may take a number of actions mitigating the increase of the risk exposure to the entity affected by the situation. These actions may include, among others, introducing a limit on open positions, blocking the ability to place orders in specific markets or instruments, the option to request additional information, or refusing to accept non-cash collateral.

Where the Committee finds that an Event of Default has occurred, IRGiT S.A. has a full scope of powers that allow it to mitigate risk quickly and effectively, mainly by closing out open positions of the entity affected by the Event of Default.

Communication with market players has an important role in managing an Event of Default. IRGiT S.A. applies the rules that ensure equal access to information for all market players and ensure transparency of its actions.

Closing of open positions

The purpose of closing open positions of an entity, for which an Event of Default has been found, is to fully neutralize the impact of price variations on the valuation of its portfolio, thereby reducing clearing risk.

The solutions enabling IRGiT to close a position include: submitting open market orders on behalf of the entity affected by the Event of Default, or launching auctions operated by the Polish Power Exchange (for EFM and CFIMg) or IRGiT S.A. (for CFIMPR). The organizational and technical solutions introduced by IRGIT S.A. ensure high efficiency of these actions.

Efficient execution of the position closing process depends on the liquidity on the market and the ability of Clearing House Members to participate in the process. The assumptions that had to be adopted in order to close the positions are reflected in the rules for calculating collateral margins and for making contributions to the Guarantee Fund.

Order of using funds from the clearing guarantee system

The IRGiT S.A. clearing guarantee system assumes that each Clearing House Member is responsible for the financial consequences of the concluded transactions, including those resulting from the closing of its open positions when an Event of Default has been determined. This principle is reflected in the order of using funds from the clearing guarantee system.

The model for calculating collateral margins in place in IRGiT S.A. allows price risk to be secured under normal market conditions. This means that the payment to the Guarantee Fund by the Clearing House Member, for which an Event of Default has been identified, as well as payments of other Clearing House Members are used only in a situation where the market conditions were extreme during the position closing process.

Additionally, with regard to § 43a and § 45o of The Regulations of the Exchange Clearing House (Commodity market), IRGiT has Guarantee Fund liquidity pools available for use (in parallel to IRGiT's own funds), which enable support for liquidity risk management in order to minimizing the risk of a situation in which financial settlement of concluded transactions would have to be suspended due to the lack of liquid funds in the clearing guarantee system.

Recovery of funds used

In the event that funds contributed to the Guarantee Fund by other Clearing House Members are used, IRGiT will take all justified measures that could allow it to recover all or part of the funds used from the entity affected by the Event of Default. If the funds are recovered then, in accordance with the existing regulations, IRGiT will return them to the Clearing House Members during the next adjustment of the Guarantee Fund, according to their participation in the coverage of the loss. 

Historical Events of Default