Principle 4: Credit risk An FMI should effectively measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes. An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence. In addition, a CCP that is involved in activities with a more- complex risk profile or that is systemically important in multiple jurisdictions should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the two participants and their affiliates that would potentially cause the largest aggregate credit exposure to the CCP in extreme but plausible market conditions. All other CCPs should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would potentially cause the largest aggregate credit exposure to the CCP in extreme but plausible market conditions.
4.1	An FMI should establish a robust framework to manage its credit exposures to its participants and the credit risks arising from its payment, clearing, and settlement processes. Credit exposure may arise from current exposures, potential future exposures, or both.
APEX Clear faces credit risks from its Clearing Members and Settlement Banks and has in place various risk policies to manage these risks. The policies cover: (i) The admission of financially strong institutions which are CMS Licence Holders or Banks licenced in Singapore that have good commercial and financial standing with sufficient financial resources and that meet the admission requirements listed in Chapter 3 of the Clearing Rules. These institutions must have robust and adequate risk management processes, compliance oversight, systems capability, human resources, and internal controls. This ensures that Clearing Members are able to meet their financial obligations to APEX Clear. For Settlement Banks, APEX Clear will only deal with banks with strong credit ratings and regulated by a recognized bank regulator. In addition, there are exposures and concentration limits to curb the exposures to a counterparty bank. This is discussed further in the write-up for Principle 16. (ii) The on-going compliance of Clearing Members with the Clearing Rules on capital adequacy, risk management practices and reporting requirements. (iii) The active management of APEX Clear’s credit risks through daily monitoring of clearing risk exposures and risk concentrations, and taking additional risk mitigating measures where necessary. Limits on exposures and concentrations are set up and monitored and these may include Position Limits and Exposure Limits at the Product, Individual Participant and Clearing Member levels. (iv) APEX Clear manages credit risks from Clearing Members by requiring them to post Initial Margins (to address potential price movements), Variation Margins (to address actual price movements during the day, also known as Settlement Variation in other Derivatives Clearing Houses), Delivery Margins (to address the additional risks before or during the delivery period) and Special Margins (to address the position concentrations, credit deterioration or liquidity concerns, delivery default, excessive potential stress losses or other concerns to the Clearing House arising from a Customer or a Clearing Member when necessary). (v) APEX Clear maintains a conservative and scalable Guaranty Fund to cover its credit exposure to Clearing Members in conditions of extreme market stress. The Guaranty Fund comprises contributions from APEX Clear and Clearing Members and will be used to meet losses in the event of Clearing Member default.