The Stockholm Stock Exchange is the central marketplace for trading in shares and derivatives in Sweden. It is therefore important as part of the financial infrastructure.
However, it is primarily in its function as central counterparty and clearing organisation for derivatives that the Stockholm Stock Exchange has significance for the stability of the financial system.
Buyers of derivatives are dependent on the seller being able to supply the underlying security, or the equivalent amount, when the derivative matures. The longer the time to maturity for the derivative instrument, the longer the buyer will be exposed to the seller. This entails significant risks for the participants. A clearing organisation therefore usually goes in as intermediary, or central counterparty. This means that the clearing organisation becomes the legal seller vis-à-vis all buyers and the legal buyer vis-à-vis all sellers. A buyer of a derivative instrument thus has no credit risk with regard to the original seller, only with regard to the clearing organisation. Participants therefore do not need to assess all of the other participants' creditworthiness; it is sufficient to closely follow the clearing organisation’s management of its financial risks and its financial resources. The risks are concentrated to the clearing organisation.
In other words, as central counterparty the Stockholm Stock Exchange takes on risks. If one counterparty in a transaction is unable to meet its commitments, the Stockholm Stock Exchange must still deliver. The Exchange limits its risks in several ways. For instance, it never takes any positions of its own, acting only as legal counterparty when there are both buyers and sellers. Financial risks for the Exchange only actually arise if a member is unable to meet its obligations. However, customers trading in derivatives must pledge collateral, which reduces the risks even more. In addition, a central counterparty also has its own financial assets and insurances to cover potential losses.
The Riksbank oversees the Stockholm Stock Exchange in its role as central counterparty and clearing organisation for trade in derivatives. As part of this oversight the Riksbank assesses the Stockholm Stock Exchange's activities as central counterparty according to international standards. The Bank for International Settlements (BIS), through its Committee on Payment and Settlement Systems (CPSS), and the International Organisation of Securities Commissions (IOSCO), have jointly produced a report entitled "Recommendations for central counterparties", see the external link below.
The Riksbank has assessed the Stockholm Stock Exchange in accordance with these standards. The results of the assessment were published, see the document below.
For further information, see the link to the Stockholm Stock Exchange's website below.