Thoughts on determining central clearing eligibility for OTC derivatives
OTC Derivatives Clearing in KDPW CCP 10 14... · 2014-10-14 · OTC Derivatives Clearing in...
Transcript of OTC Derivatives Clearing in KDPW CCP 10 14... · 2014-10-14 · OTC Derivatives Clearing in...
OTC Derivatives Clearing in KDPW_CCP
Ph.D. Iwona Sroka, President & CEO, KDPW and KDPW_CCP FOW Derivatives World CEE Warsaw, 14 October 2014
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join the celebrations of the 25th anniversary of economic freedom in Poland
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was established in 1991
was separated in 1994, as an independent, join stock company
was created in 2011
KDPW and KDPW_CCP
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• Stable and credible shareholders • Main objective: safety and stability of financial system • Low risk profile - not-for-profit infrastructure
institution • Supervision by Polish FSA (KNF) and ESMA, oversight
by Polish central bank (NBP)
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• EU registration of KDPW Trade Repository – one of 4 first TRs registered in Europe
• LEI assigning (KDPW_LEI) • Services for energy market (KDPW_GIR) • Planned CSDR authorisation of KDPW
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100 %
NBP
Treasury
WSE
33%
33%
33%
KDPW_LEI
• EMIR authorisation of KDPW_CCP (3rd in Europe) • KDPW_CCP own capital: EUR 54 M (USD 70 M) • Central counterparty functionality through novation • Reporting to KDPW_TR (non mandatory)
KDPW_CCP Milestones
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2009 • New Development Strategy of KDPW
2010 • Creation of KDPW_CLEARPOOL Clearing Guarantor – first step to CCP
2011
•Establishing of KDPW_CCP clearing house:
• Separate legal entity
• New clearing guarantee system
• SPAN
• CCP’s own capital
2012
• Introducing novation to the Polish legal system
• Introduction of OTC clearing service
2013 • Application for authorisation
2014 • EU Authorisation of KDPW_CCP
July 2011
Nov. 2012
8.04.2014
CSD Services
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Numbering Agency (LEI, ISIN, FISIN)
Key functionalities:
Omnibus accounts for foreign investors
Collective securities accounts on the CSD level, with option to segregate by investor/group of investors
Hold/Release mechanism (optional)
Cash settlement in central bank money – PLN in Polish Central Bank, EUR in TARGET2
Agent for Securities lending & borrowing - automatic and negotiated
Settlement and collateral management for repo (Tri-party Repo Agent)
Partial settlement
CA: information, distribution of proceedings, tax services
GIR - clearing and settlement of energy market transactions
T+2 settlement cycle regarding to CSDR requirements
Ancilliary Services
Core Services
Commercial Services
Initial recording of securities in a book-entry system
Maintaining securities accounts at the top-tier level
Regulated market
Alternative Trading System
OTC cash market
Central Depository of Securities
Corporate Actions processing
Operational links to foreign CSDs
Trade Repository
Commodities Clearing House (GIR KDPW)
Securities settlement system
CSD authorisation process planned for 2015/2016
Tri-Party Repo
Maintaining securities accounts at the top-tier level
Initial recording of securities in a book-entry system
Regulated market ATS OTC
derivatives
Clearing of trades
Clearing risk management
Collateral management
SPAN VaR
T-bonds T-bills PLN WIG20 shares
Bank guarantees
OTC REPO
CCP Services
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Authorised in April 2014
Key functionalities:
Central counterparty functionality through novation
Netting in cash (obligatory) and securities (optional)
Segregation of accounts (individual and aggregated accounts)
OTC derivatives:
• Currently - PLN (FRA, IRS, OIS, Basis Swap, REPO)
• Planned - EUR (FRA, IRS, OIS, Basis Swap, FX instruments)
OTC clearing based on MarkitWire and SWIFT Accord instructions
Guarantee system for negotiated securities lending transactions
Margins calculated on intra-day and daily basis
STP with WSE trading system (UTP - NYSE Euronext)
Default waterfall and procedures compliant with EMIR
KDPW_CCP own capital: EUR 54 M (USD 70 M)
Derivatives trade reporting to KDPW_TR
Supplementary Services
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KDPW_CCP - Markets & Products
CASH MARKET DERIVATIVES MARKET
Regulated ATS OTC Regulated
- Warsaw Stock
Exchange (WSE)
- BondSpot
shares, bonds,
subscription rights,
allotment certificates,
investment &
structured certificates,
index participation
units, mortgage
bonds, warrants,
ETFs
- NewConnect
- Catalyst
- BondSpot
shares,
allotment
certificates,
bonds,
mortgage bonds
- Warsaw Stock
Exchange (WSE)
futures contracts,
options, index
participation units
Forward Rate
Agreements,
Interest Rate
Swaps,
Overnight Index
Swaps, Basis
Swaps
- OTC
(MarkitWire,
SWIFTAccord)
OTC
- Matching
Engine
for REPO
T-bonds
At-a-Glance Statistics: September 2014
KDPW participants – 65 KDPW_CCP participants – 38 Number of KDPW_CCP’s Participants in OTC clearing – 14
Issuers – 1152 (of which 77 are foreign) Deposited equities issues – 1102 Deposited debt instrument issues – 1645 Capitalisation of equities in KDPW – PLN 611 billion (EUR 146 billion) Capitalisation of debt instruments in KDPW – PLN 588 billion (EUR 141 billion)
Number of cleared transactions – cash market: 11,91 million Value of cleared transactions – cash market: PLN 8 595 billion (EUR 2 058) billion
Number of cleared transactions – derivatives market: 2,28 million Value of cleared transactions – derivatives market: PLN 168 billion (EUR 40 billion)
Value of all operations cleared and settled in 2013: PLN 12 trillion (EUR 2.9 trillion)
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KDPW_CCP Participants Organised Market
General Clearing Members
BANK BPH S.A.
BANK HANDLOWY W WARSZAWIE S.A.
BANK POLSKA KASA OPIEKI S.A.
BANK ZACHODNI WBK S.A.
BNP PARIBAS SECURITIES SERVICES S.K.A ODDZIAŁ W POLSCE
DEUTSCHE BANK POLSKA S.A
ERSTE SECURITIES POLSKA S.A.
ING BANK ŚLASKI S.A.
RAIFFEISEN BANK POLSKA S.A.
SOCIETE GENERALE S.A. ODDZIAŁ W POLSCE
Ordinary Clearing Members
BANCO ESPIRITO SANTO DE INVESTIMENTO S.A. ODDZIAŁ W POLSCE
BANK MILLENNIUM S.A.
BIURO MAKLERSKIE ALIOR BANK S.A.
BIURO MAKLERSKIE BANKU BGŻ S.A.
BIURO MAKLERSKIE BANKU BPH S.A.
CENTRALNY DOM MAKLERSKI PEKAO S.A.
COPERNICUS SECURITIES S.A.
DB SECURITIES S.A.
DOM INWESTYCYJNY XELION SP. Z O.O.
DOM INWESTYCYJNY XELION SP. Z O.O.
DOM MAKLERSKI BANKU BPS SPÓLKA AKCYJNA
DOM MAKLERSKI BANKU HANDLOWEGO S.A.
DOM MAKLERSKI BANKU OCHRONY ŚRODOWISKA S.A.
DOM MAKLERSKI BDM S.A.
DOM MAKLERSKI BZ WBK S.A.
DOM MAKLERSKI mBANKU S.A.
DOM MAKLERSKI PEKAO S.A.
DOM MAKLERSKI PKO BP S.A.
DOM MAKLERSKI RAIFFEISEN BANK POLSKA S.A.
ING SECURITIES S.A.
IPOPEMA SECURITIES S.A.
KBC SECURITIES N.V. ODDZIAŁ W POLSCE
MILLENNIUM DOM MAKLERSKI S.A.
NOBLE SECURITIES DOM MAKLERSKI S.A.
OPERA DOM MAKLERSKI SP. Z O.O.
PGE DOM MAKLERSKI S.A.
TRIGON DOM MAKLERSKI S.A.
UNICREDIT CAIB POLAND S.A.
X-TRADE BROKERS DOM MAKLERSKI S.A.
RAIFFEISEN BANK POLSKA S.A.
MBANK S.A.
BANK GOSPODARKI ŻYWNOŚCIOWEJ S.A.
BANK GOSPODARSTWA KRAJOWEGO S.A.
BANK HANDLOWY W WARSZAWIE S.A.
BANK MILLENNIUM S.A.
BANK OCHRONY ŚRODOWISKA S.A.
BANK PEKAO S.A.
BZ WBK S.A.
CREDIT AGRICOLE BANK POLSKA S.A.
DEUTSCHE BANK POLSKA S.A.
GETIN NOBLE BANK S.A.
ING BANK ŚLĄSKI S.A.
POWSZECHNA KASA OSZCZĘDNOŚCI BANK POLSKI S.A.
OTCMarket
KDPW_CCP is a modern clearing house, which clears transactions using a range of mechanisms ensuring systemic mitigation of counterparty default risk. It was separated from KDPW structure as of July 1, 2011.
CHARACTERISTICS: Separate legal entity In line with international standards, due to the different risks of CCP clearing house services and risks of the core business of the central securities depository (KDPW), a separate legal entity had to be set up to provide clearing house services: KDPW_CCP. Guarantee of the clearing of trade based on CCP capital An important feature of KDPW_CCP is that its capital can be used in the clearing guarantee system, which improves the safety of clearing. KDPW_CCP has a capital of PLN 223 million (ca. EUR 54 million), which can be used in the clearing guarantee system as one of its resources.
KDPW_CCP Clearing House
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KDPW_CCP operates as a CCP (central counterparty) within the meaning of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, performing the clearing of transactions executed in the cash and derivatives markets, both in on-exchange and off-exchange (OTC) markets.
In accordance with KDPW_CCP regulations (the Rules of Transaction Clearing (Organised Trading) and the Rules of Transaction Clearing (Non-Organised Trading)) KDPW_CCP becomes the counterparty for all transactions accepted for clearing.
This is performed using the mechanism of clearing novation, introduced on the basis of the Law on Trading in Financial Instruments.
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Authorised CCPs in UE (as of 10.10.2014)
No. CCP Country Date
1 Nasdaq OMX Clearing AB Sweden 18.03.2014
2 European Central Counterparty N.V. Netherlands 1.04.2014
3 KDPW_CCP Poland 8.04.2014
4 Eurex Clearing AG Germany 10.04.2014
5 Cassa di Compensazione e Garanzia S.p.A. Italy 20.05.2014
6 LCH.Clearnet SA France 22.05.2014
7 European Commodity Clearing Germany 11.06.2014
8 LCH.Clearnet Ltd United Kingdom 12.06.2014
9 Keler CCP Hungary 4.07.2014
10 CME Clearing Europe Ltd United Kingdom 4.08.2014
11 CCP Austria, Abwicklungsstelle für Börsengeschäfte GmbH
Austria 14.08.2014
12 LME Clear Ltd United Kingdom 3.09.2014
13 BME Clearing Spain 16.09.2014
Registered TRs in UE (as of 10.10.2014)
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1. DTCC Derivatives Repository Ltd. (DDRL) 14 November 2013
1. Krajowy Depozyt Papierów Wartościowych S.A. (KDPW)
14 November 2013
1. Regis-TR S.A. 14 November 2013
1. UnaVista Limited 14 November 2013
2. CME Trade Repository Ltd. (CME TR) 5 December 2013
2. ICE Trade Vault Europe Ltd. (ICE TVEL) 5 December 2013
KDPW_CCP operates an OTC derivatives trade clearing system including a clearing liquidity guarantee system.
Main functionalities of the OTC trade clearing system:
clearing of trades accepted to the OTC clearing system and intermediation in settlement arising from clearing
risk management
collateral management
function of central counterparty (CCP) through novation
reporting to the Trade Repository (service offered by KDPW)
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OTC Clearing in KDPW_CCP
Bank A
Bank B
Trade Repository
(KDPW)
National Bank of
Poland (NBP) Confirmation
platforms* Communication
SWIFT
CSD (KDPW)
• repo settlement
• safekeeping
SWI
EMIR
compliant
FRA
IRS
OIS
Basis Swaps
REPO
Nov. 2014: KNF (Polish FSA) application for instruments denominated in EUR
Other currencies – with regard to market demand
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PLN
OTC Clearing: Cleared Instruments
KDPW_CCP has focused on OTC
derivatives denominated in PLN
Acceptable Collateral
Accepted assets: – cash – the only currency accepted as collateral – PLN, – Polish Treasury Bills and Bonds, – shares of companies participating in WIG20 WSE index.
Shares issued by the clearing member or a member of its group are not accepted from this clearing member.
Review of assets accepted as collateral is performed once per year. Valuation is performed on an on-going basis and based on the current closing
price and the current haircut rate. Monitoring of prices and turnover of securities accepted as collateral The following risks are captured in haircut calculations:
– market risk, – liquidity risk, – wrong way risk, – credit risk of the issuer.
Next steps: – Eurozone Treasury Bonds – Cash EUR
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KDPW_CCP Clearing Guarantee System
Margins
OTC Default Fund
KDPW_CCP own capital
Participant financial and prudential requirements
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Clearing Guarantee System – Default Waterfall
Credits of the defaulting member
Margins:
initial deposit > initial margin > additional margin
Resources of the relevant default fund
Contributed by the defaulting member
Dedicated resources of KDPW_CCP
(in the amount corresponding to at least 25% of the capital requirements taking into account the allocation of the resources in relation to the size of the fund)
Contributions of other KDPW_CCP clearing members to the relevant default fund
Own funds of KDPW_CCP
(up to 110% of the capital requirements)
Additional contributions of other KDPW_CCP clearing members to the relevant default fund
(not more than 50% of the last existing contributions according to the lates update)
Remaining own funds of KDPW_CCP
EMIR
compliant
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KDPW_CCP Participants
Investment firms
Banks
Foreign investment firms
Other financial institutions
Entities established outside the Republic of Poland performing clearing of trades in financial instruments
Companies operating a clearing house
Main conditions for KDPW_CCP clearing members:
to hold a depository account or securities account with a settlement institution responsible for the settlement of transactions, or to have a settlement agent with the settlement institution (applicable to foreign financial institutions);
to hold a bank account with the relevant settlement bank in the currency of the planned clearing of transactions handled by KDPW_CCP or to have a payment agent holding such an account with the settlement bank.
General clearing member:
the amount of PLN 50 M (ca. EUR 12 M) and the sum of PLN 5 M (ca. EUR 1.2 M) for each entity represented by the clearing member in any scope for the clearing of transactions performed by KDPW_CCP – for banks;
the amount of PLN 15 M (ca. EUR 3.5 M) and the sum of PLN 2 M (ca. EUR 0.5 M) for each entity represented by the clearing member in any scope for the clearing of transactions performed by KDPW_CCP – for brokerage houses;
Ordinary (direct) clearing member:
PLN 25 M (ca. EUR 6 M) for banks;
PLN 4 M (ca. EUR 1 M) for brokerage houses;
Clearing house:
PLN 15 M (ca. EUR 3.5 M).
Capital Requirements for Clearing Members
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Organised Trading:
General clearing member:
PLN 100 M (ca. EUR 25 M);
Individual clearing member:
PLN 50 M (ca. EUR 12.5 M);
Clearing house:
PLN 100 M (ca. EUR 25 M).
OTC Market:
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OTC Clearing - How to Become a Clearing Member
Preliminary (test) phase Potentially to conduct tests before becoming participant Concluding membership agreement Membership application (with required documents enclosed) Meeting financial requirements (maintaining adequate levels of equity and
prudential requirements) Meeting technical requirements (e.g. setting up connection with
KDPW_CCP IT system used to clear OTC trades, signing contract with SWIFT or MarkitSERV)
After signing membership agreement Contributions to OTC Default Fund Payment of initial margin Opening clearing account in OTC clearing system
All information regarding membership you can find on our website: www.kdpwccp.eu Rules OTC trading
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Netting in KDPW_CCP
Optional securities netting
Choice of securities settlement methods for each clearing account:
- gross
-netting
-directional netting
All instructions from KDPW_CCP sent to KDPW to settlement sessions
Cash market netting of all trades on the market covered by settlement guarantees.
Introduction of the netting mechanism in co-ordination with the automatic partial settlement functionality.
ISO 20022 clearing reports
Gross securities settlement – settlement instructions are generated for each transaction (clearing
instruction).
Securities netting – for all guaranteed transactions for a clearing account indicated by the Participant. One settlement instruction is generated for each clearing position.
Directional netting – for all guaranteed transactions for a clearing account indicated by the Clearing Member. Settlement instructions are generated separately for the buy and the sell clearing position.
Future Developments
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The KDPW Group conducts its business operations on the basis of the Development Strategy for 2014-2016, reflecting international trends in financial markets. The strategy defines a diverse business model for the KDPW Group, while leveraging the specific strengths and potential of the Polish financial market.
Key Strategic Projects of the KDPW Group for the near future:
KDPW_CCP
Integration of transaction clearing from diverse financial markets in Poland: regulated, interbank and commodity
OTC multicurrency instruments
Extending eligible collateral (EURO, EURO BONDS, according to the market demand)
KDPW
Strengthening the position of the Trade Repository
Further development of securities lending and Tri-Party Repo services
Creation of securities central valuation service
Introducing ISO20022 messaging with participants
Enhanced operational co-operation with other markets in the area of clearing and settlement
www.kdpwccp.eu