What are the Credit rules under the BSC?
Under the BSC arrangements, Trading Charges for a given Settlement Day are, on average, due to be paid 29 days later. This means that Parties will always have approximately 29 days of accrued Trading Charges which are yet to be paid.
The purpose of Credit Cover is to ensure that, should a Trading Party default, sufficient collateral is available to pay these debts.
The BSC does not stipulate the amount of Credit Cover that is required, instead Trading Parties decide on the level of Credit Cover that they wish to provide. Credit checking is done to ensure that a Trading Party cannot accumulate a debt over the twenty-nine day period that in total exceeds the amount of Credit Cover provided.
If a Party’s yet-to-be-paid charges exceed 80% of its Credit Cover it will enter Credit Default.