KPEI values risks by using margins on every position that has not been settled as a result of Clearing Member (CM) and its client transactions. Price is a fundamental component for calculating margins, either current prices or historical prices. Each market has its own data and different price sources. Prices used are either from external or internal KPEI sources. Internal price is the price that is formulated in KPEI system using price models. KPEI conducts periodic evaluations or reviews on the price model used to fit the market risk.
The price source used for margin calculation for each market is as follows:
KPEI calculates the variation margin of portfolio profit/loss due to market prices movements (Mark to Market). These price changes calculated from current price at the transaction and the last market price or also referred as current exposure. Variation margin calculation methods are similar in equity, bonds and derivatives markets, while lending and borrowing securities market uses a different approach. Meanwhile, to calculate the initial margin, KPEI uses different methods for each market. Initial margin is the potential maximum loss on a Clearing Member open position until the position is settled or also referred as potential future exposure.