Principle 3: Framework for the comprehensive management of risks An FMI should have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational, and other risks.
3.1	An FMI should have risk-management policies, procedures, and systems that enable it to identify, measure, monitor, and manage the range of risks that arise in or are borne by the FMI. Risk-management frameworks should be subject to periodic review.
The risks faced by APEX Clear in its clearing activities include credit, liquidity, legal, regulatory, technology, operational, reputation and other risks. These risks may also include default, liquidity and custody risks from its settlement and custodian banks. APEX Clear has in place an ERM Framework that includes various policies, procedures and systems to identify, measure, monitor and manage the key risks that arise from its exchange and clearing activities. The ERM Framework as well as the risk policies and procedures are reviewed at least on an annual basis. APEX Clear’s ERM Framework incorporates a governance structure that provides Board and Management oversight of its key risks, assigns ownership, roles and responsibilities, as well as independent reporting lines. The Board-level Risk Management Committee exercises independent oversight on APEX Clear’s risk strategies and risk appetite, and ensures that effective risk management framework, policies and resources are in place to achieve its business objectives. The Management-level Enterprise Risk Committee reviews and recommends for Board approval, the risk management policies relating to the clearing and counterparty risks, liquidity risks and other material risks that APEX Clear may face including its margining systems and stress testing frameworks, on a periodic basis. The Chief Risk Officer is responsible for overseeing the risk management function of the Clearing House, to ensure that the clearing activities are conducted in a safe and prudent manner. APEX Clear also has in place an organisation structure that supports a “3 lines of defence” model. Reporting to the Chief Risk Officer, the Risk Management Department performs the second line of defence through the setting of risk frameworks, risk policies, risk appetites and risk limits within which every business function must operate. This department is also responsible for the independent review and monitoring of APEX Clear’s risk profile on a periodic basis and reporting any significant vulnerabilities and risk issues to Management and the Board.
3.2	An FMI should provide incentives to participants and, where relevant, their customers to manage and contain the risks they pose to the FMI.
Clearing Members and their customers are incentivised to manage and contain the risks that they bring to APEX Clear via the following ways: (i) The membership admission requirements require members to have, among other criteria, robust and adequate risk management processes in place and this will be monitored for continued compliance with the Clearing Rules of APEX Clear throughout the lifecycle of the membership. Non-compliance with these rules may subject the member to disciplinary actions such as warnings, fines and even expulsion from membership. (ii) The Clearing Rules provide APEX Clear the right to impose additional risk management measures, such as closing out of open positions and imposing additional Special Margins, on members that create additional risk concerns arising