Differences Between an Individually Segregated Account & Omnibus Account at a Central Clearing House
Individually Segregated Account (ISA)
Your collateral assets are totally segregated from the clearing house (and clearing member’s) proprietary assets, and from the assets of any fellow customers. Therefore there is no fellow customer risk nor clearing house / clearing member risk.
Both the collateral assets themselves, as well as the value of those assets, are protected (i.e. you get the actual asset back which you posted, not just the economic value).
The right to port collateral and positions to a backup clearing member in the event of a clearing member default is simple and possible, thus avoiding the need to close-out those transactions upon clearing member default.
2. Omnibus Account (OA)
A position account is where derivative transactions are located, and it determines where the default occurs and how porting works. If the position account is disclosed to the clearing member and clearing house, then you can port transactions booked in that account. If not, there is likely to be difficulty porting transactions.
An omnibus account generally means that all account holders (or all entities who contribute collateral into that account) share in the risk of the clearing member defaulting. However, there are different types of omnibus account (e.g. gross / net omnibus accounts which may differ in this regard).
Customers only receive value protection on the assets they post as collateral. This means that in the event of a default only the equivalent value of the assets is returned to you.
A margin surplus may arise if you pre-fund margin with the clearing member in anticipation of entering into certain trades, but some or all of that margin is not required to be passed to a clearing house (e.g. because you do not enter into the relevant trades). Any surplus margin in relation to your cleared positions over and above the clearing houses’ margin requirements, is held by the clearing member rather than with a clearing house and is referred to as ‘gross excess margin’. This gross excess margin is at risk of loss and is subject to risk mutualisation if the clearing member defaults. If you provide margin on a title transfer basis, you will need to claim for the gross excess margin as an unsecured creditor in the event of the clearing member’s insolvency.