London October 2012 Agenda Market Infrastructure in Poland About KDPWCCP OTC Clearing in KDPWCCP Market infrastructure in Poland Market Infrastructure in Poland KDPWCCP and KDPW ID: 467098
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Slide1
OTC Clearing in KDPW_CCP
London, October 2012Slide2
Agenda
Market Infrastructure in Poland
About KDPW_CCP
OTC Clearing in KDPW_CCPSlide3
Market infrastructure in PolandSlide4
Market
Infrastructure
in
Poland
KDPW_CCP and KDPWSlide5
Market
Infrastructure
in
Poland
Clearing and Settlement
Warsaw Stock Exchange
BondSpot
OTC
Trading
Settlement
KDPW_CCP
Settlement
Clearing
CSD
Risk Management System
National
Bank of Poland
Clearing
KDPW
Trade RepositorySlide6
About KDPW_CCPSlide7
About
KDPW_CCP
Ownership
Structure
100 %
History of KDPW (the CSD)
1991 - 1994
Integral part of the Warsaw Stock Exchange
1994 - present
Independent institution, joint stock company Current shareholders (since 1999)
State Treasury 1/3 of sharesWSE 1/3 of sharesNational Bank of Poland 1/3 of shares
KDPW_CCP (July 2011)
KDPW 100% of shares
33%
33%
33%KDPW_CCP own capital: PLN 200 M (ca. EUR 50 M) Slide8
About
KDPW_CCP
International
CooperationKDPW_CCP: Membership of international organisations and working groupsEACH – European Association of Central Counterparties Clearing Houses
EACH Risk Management Committee
EACH Derivatives Working Group
CCP12
– Global Association of Central Counterparties
CCP12 Working Group 2 – Review of CPSS-IOSCO Standards and key recent regulatory publications CCP12 Working Group 3 – Default Contact List and Information SharingSlide9
4 August 2012 – entry into force of new provisions of the Act on Trading in Financial Instruments, which introduce the concept of
clearing
novation
to the Polish legal system.Thanks to novation, KDPW_CCP becomes the central counterparty, i.e. the buyer for every seller and the seller for every buyer, taking over the mutual rights and obligations of the original parties to a trade. This applies to all trades cleared by KDPW_CCP, including OTC.
SELLER
KDPW_CCP
as
a BUYER
KDPW_CCP
as
a SELLER
BUYER
About
KDPW_CCP
NovationSlide10
About
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
- BondSpotshares, 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-bondsSlide11
About
KDPW_CCP
Risk
Management
SPAN® Methodology –
regulated market & ATS
Value at Risk –
OTC market
Slide12
About KDPW_CCP
Basic Statistics*
Number of KDPW_CCP’s Participants:
39
Number of cleared transactions –
cash market:
9 944 174
Value of cleared transactions –
cash market:
EUR 36 206 826 079 (PLN 152 039 788 310)
Number of cleared transactions –
derivatives market:
2 650 286 Value of cleared transactions – derivatives market: EUR 41 433 470 415 (PLN 174 370 104 624)
* From January 2012 till nowSlide13
OTC Clearing
in KDPW_CCPSlide14
19 November 2012 – KDPW_CCP is preparing to launch the clearing & guarantee of OTC trades in derivatives & repos
The new service is a response to market demand and to EU regulations (EMIR) which require clearing of standardised derivative products on the interbank market via CCP clearing houses
Higher standards of safety for clearing of trades executed outside the organised market following the implementation of OTC derivatives trade clearing and guarantee functionality
Guaranteed reporting of trade data by KDPW_CCP to KDPW’s Trade Repository (non mandatory)
OTC Clearing
in
KDPW_CCPSlide15
Access to the Polish market
Liquidity in PLN
(i
n central bank
money; National Bank of Poland)Collateral in Polish Treasury Bills, Bonds, local
currency
and
WIG20 sharesEffective collateral management
Stable banking system
Effective and efficient clearing systemHigh risk management standards
Reduced risk for cash, derivatives and OTC tradesStandard default procedures
OTC Clearing in KDPW_CCP
Why KDPW_CCP?Slide16
List of instruments cleared in KDPW_CCP:
Phase 1:
November 19, 2012
Forward Rate Agreements
Interest Rate Swaps
Overnight Index Swaps Basis SwapsREPOPhase 2: January 2014
(in line with market demand)
FX Swaps
FX Options
Interest Rate Options
Cross-Currency Interest Rate SwapsOTC Clearing in KDPW_CCP
Cleared instruments
PLN
PLN and other currencies Slide17
KDPW_CCP operates an OTC derivatives clearing system, including a transaction clearing liquidity guarantee system.
Main functions of the OTC trade clearing system:
central counterparty (CCP) functionality through
novation
clearing
trades accepted to the OTC clearing system and intermediation in settlement arising from clearingclearing risk managementcollateral management
reporting to a trade repository (service offered by KDPW, non mandatory)
OTC Clearing in KDPW_CCP
System
Functions (1)Slide18
Markit
Wire
OTC Clearing in KDPW_CCP
Confirmation
Platforms
K
DPW_CCP clears trades on the basis of clearing instructions delivered by an electronic platform operator (
Markit
Wire
, SWIFT Accord or proprietary matching solution for REPO).
SWIFT
AccordSlide19
Communication with KDPW_CCP will be possible through the information exchange system (SWI) operated by KDPW based on proprietary or SWIFT solutions.
KDPW_CCP clears trades in central bank money.
Trades cleared by KDPW_CCP can be reported on behalf of a clearing member to the trade repository operated by KDPW or another registered trade repository.
Daily reporting to KDPW_CCP participants
OTC Clearing in KDPW_CCP
System
Functions
(2)Slide20
OTC Clearing in KDPW_CCP
System
Functions
(3)
Bank A
Bank B
Trade repository
(KDPW or other)
National Bank of Poland
Confirmation platforms
*
Communication
SWIFT or SWI
CSD (KDPW)
settlement for repo
collateral safekeeping
* Repo transactions – confirmation in KDPW_CCPSlide21
OTC Clearing in KDPW_CCP
Clearing Day Timetable (CET)
Day 1:
09:00-17:00
– input of derivative and repo trades for clearing; - risk monitoring
9.00-15.30
- input of repo
trades
for clearing – settlement in T+017:15 – netting session - calculating debits and credits for each clearing
memberDay 2:08:00-08:45 – transfers to and from clearing members as a result of the calculations from the preceding daySlide22
Methods broadly used by market participants
4 separate forecasting curves which correspond to instrument tenor
OIS curve (OIS contracts)
1M curve (FRA, IRS, Basis Swap)
3M curve (FRA, IRS, Basis Swap)
6M curve (FRA, IRS, Basis Swap)
Master curve 3M - for discounting future
cashflows
Fixed leg bootstrapping
The final fixed coupon is derived from all the previous known fixed coupons for the swap
Forward rates source – fixing to be performed by ACI Polska* (the Polish Financial Markets Association)
* ACI Polska is an organization of people with a
professional interest in the international and domestic monetary-currency.OTC Clearing in KDPW_CCP Instruments Valuation RulesSlide23
OTC Clearing in KDPW_CCP
KDPW_CCP Clearing Guarantee System
Margins
OTC
Default
Fund
KDPW_CCP
own
capital
Participant
financial and
prudential
requirementsSlide24
OTC Clearing in KDPW_CCP
Margins
Historical simulation model
5-day 99,5% VaR
500 days observation windowSlide25
OTC Clearing in KDPW_CCP
OTC Default Fund Contribution Calculations
IM
Stress
IM
Normal
CM
1
IM
Stress
IM
Normal
CM
2
IM
Stress
IM
Normal
CM
3
UR
1
UR
2
UR
3
DF=UR2
Mutual
default
fund
Covers highest risk not covered by
initial
margin (highest
uncovered risk
).
Uncovered risk (UR) =
IM
Stress –
IM
Normal
IM
Stress – stress-test
initial
margin
IM
Normal – normal conditions
initial
marginSlide26
OTC Clearing in KDPW_CCP
Acceptable Collateral
Polish Treasury Bonds
Polish Treasury Bills
Cash PLN
Shares
(WIG20)
Planned
:
Eurozone Treasury BondsCash EURSlide27
OTC Clearing in KDPW_CCP
Default Waterfall
*
According to EMIR RegulationSlide28
OTC Clearing in KDPW_CCP
How to Become a Clearing Member
Preliminary (test) phase
Possibility 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
Markit
SERV
) After signing membership agreementContributing to OTC Default FundPaying initial margin
Opening clearing account in OTC clearing systemSlide29
The following types of participation status are admitted:
general clearing member
– where the clearing member is responsible in the OTC clearing system for trades executed and confirmed:
a/ by itself on an electronic platform, on its own account or on its clients’ account, and
b/ by another entity, including another participant, on an electronic platform, on the own account of that entity or on its clients’ account;
individual clearing member – where the clearing member is liable in the OTC clearing system for trades executed or confirmed by itself on an electronic platform, on its own account or on its clients’ account;
clearing house
non-clearing member
- where the participant executes trades outside organised trading which are cleared in the OTC clearing system, while at the same time not being a clearing member acting with the participation type referred to in point 1, 2 or 3.
OTC Clearing in KDPW_CCP
Types of ParticipationSlide30
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.
Capital requirements for KDPW_CCP Participants in OTC clearing:
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 Clearing in KDPW_CCP
Conditions and Capital RequirementsSlide31
What’s next?:
First membership agreements – November 2012
Launch of trade repository by KDPW – 2nd November 2012
Launch of
kdpw_otc
production system – 19th November 2012 Application for registration of trade repository – January 2013
Application for authorisation of KDPW_CCP – January 2013
OTC Clearing in KDPW_CCP
Next stepsSlide32
Marcin Truchanowicz
Managing Director
E:
marcin.truchanowicz@kdpw.pl
T:
+48 22 537 95 64
HelpDesk
:
ccp@kdpw.pl
Contact:
Żaneta Skorupska-Świrska
Deputy Managing Director
E:
zaneta.skorupska-swirska@kdpw.pl
T:
+48 22 537 93 25
All
information
,
documents, regulations you
can easily find on our
website: www.kdpwccp.eu