KDPW_CCP

OTC Derivatives Clearing in KDPW_CCP
Ph.D. Iwona Sroka, President & CEO, KDPW and KDPW_CCP
FOW Derivatives World CEE
Warsaw, 14 October 2014
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
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KDPW and KDPW_CCP
33%
33%
WSE
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NBP
Treasury
KDPW_LEI
33%
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 %
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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)
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KDPW_CCP Milestones
2009
2010
• New Development Strategy of KDPW
• Creation of KDPW_CLEARPOOL Clearing Guarantor – first step to CCP
•Establishing of KDPW_CCP clearing house:
• Separate legal entity
2011
July 2011
• New clearing guarantee system
• SPAN
• CCP’s own capital
2012
2013
2014
• Introducing novation to the Polish legal system
• Introduction of OTC clearing service
Nov. 2012
• Application for authorisation
• EU Authorisation of KDPW_CCP
8.04.2014
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CSD Services
Core Services
Key functionalities:
Securities settlement system
Regulated
market
Alternative Trading
System
OTC cash
market
Central Depository of Securities
Maintaining
Maintaining
securities
securities
accounts
accounts at
at the
the top-tier
top-tier level
level
Initialrecording
recordingof
ofsecurities
securities
Initial
in
a
book-entry
system
in a book-entry system
Ancilliary Services
Corporate Actions processing
Operational links to foreign CSDs
Commercial Services
Trade Repository
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Omnibus accounts for foreign investors
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Collective securities accounts on the CSD level, with
option to segregate by investor/group of investors
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Hold/Release mechanism (optional)
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Cash settlement in central bank money – PLN in Polish
Central Bank, EUR in TARGET2
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Agent for Securities lending & borrowing - automatic
and negotiated
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Settlement and collateral management for repo (Triparty Repo Agent)
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Partial settlement
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CA: information, distribution of proceedings, tax
services
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GIR - clearing and settlement of energy market
transactions
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T+2 settlement cycle regarding to CSDR requirements
Numbering Agency (LEI, ISIN, FISIN)
Commodities Clearing House (GIR KDPW)
Tri-Party Repo
CSD authorisation process planned for 2015/2016
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CCP Services
Key functionalities:
Clearing of trades
Regulated market
ATS
OTC
derivatives
OTC
REPO
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Central counterparty functionality through novation
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Netting in cash (obligatory) and securities (optional)
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Segregation of accounts (individual and aggregated
accounts)
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OTC derivatives:
Clearing risk management
SPAN
VaR
Collateral management
PLN
T-bonds
T-bills
WIG20
shares
Bank
guarantees
Supplementary Services
Derivatives trade reporting to KDPW_TR
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Currently - PLN (FRA, IRS, OIS, Basis Swap,
REPO)
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Planned - EUR (FRA, IRS, OIS, Basis Swap, FX
instruments)
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OTC clearing based on MarkitWire and SWIFT
Accord instructions
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Guarantee system for negotiated securities lending
transactions
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Margins calculated on intra-day and daily basis
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STP with WSE trading system (UTP - NYSE Euronext)
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Default waterfall and procedures compliant with
EMIR
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KDPW_CCP own capital: EUR 54 M (USD 70 M)
Authorised in April 2014
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KDPW_CCP - Markets & Products
CASH MARKET
Regulated
- Warsaw Stock
Exchange (WSE)
- BondSpot
shares, bonds,
subscription rights,
allotment certificates,
investment &
structured certificates,
index participation
units, mortgage
bonds, warrants,
ETFs
ATS
- NewConnect
- Catalyst
- BondSpot
shares,
allotment
certificates,
bonds,
mortgage bonds
DERIVATIVES MARKET
OTC
Regulated
- Matching
Engine
for REPO
- Warsaw Stock
Exchange (WSE)
T-bonds
futures contracts,
options, index
participation units
OTC
- OTC
(MarkitWire,
SWIFTAccord)
Forward Rate
Agreements,
Interest Rate
Swaps,
Overnight Index
Swaps, Basis
Swaps
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At-a-Glance Statistics: September 2014
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KDPW participants – 65
KDPW_CCP participants – 38
Number of KDPW_CCP’s Participants in OTC clearing – 14
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Issuers
– 1152
Deposited equities issues
– 1102
Deposited debt instrument issues – 1645
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Capitalisation of equities in KDPW – PLN 611 billion (EUR 146 billion)
Capitalisation of debt instruments in KDPW – PLN 588 billion (EUR 141 billion)
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Number of cleared transactions – cash market: 11,91 million
Value of cleared transactions – cash market: PLN 8 595 billion (EUR 2 058) billion
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Number of cleared transactions – derivatives market: 2,28 million
Value of cleared transactions – derivatives market: PLN 168 billion (EUR 40 billion)
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Value of all operations cleared and settled in 2013: PLN 12 trillion (EUR 2.9 trillion)
(of which 77 are foreign)
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KDPW_CCP Participants
Organised Market
General Clearing Members
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BANK BPH S.A.
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BANK HANDLOWY W WARSZAWIE S.A.
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BANK POLSKA KASA OPIEKI S.A.
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BANK ZACHODNI WBK S.A.
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BNP PARIBAS SECURITIES SERVICES S.K.A ODDZIAŁ W POLSCE
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DEUTSCHE BANK POLSKA S.A
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ERSTE SECURITIES POLSKA S.A.
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ING BANK ŚLASKI S.A.
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RAIFFEISEN BANK POLSKA S.A.
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SOCIETE GENERALE S.A. ODDZIAŁ W POLSCE
Ordinary Clearing Members
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BANCO ESPIRITO SANTO DE INVESTIMENTO S.A. ODDZIAŁ W POLSCE
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BANK MILLENNIUM S.A.
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BIURO MAKLERSKIE ALIOR BANK S.A.
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BIURO MAKLERSKIE BANKU BGŻ S.A.
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BIURO MAKLERSKIE BANKU BPH S.A.
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CENTRALNY DOM MAKLERSKI PEKAO S.A.
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COPERNICUS SECURITIES S.A.
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DB SECURITIES S.A.
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DOM INWESTYCYJNY XELION SP. Z O.O.
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DOM INWESTYCYJNY XELION SP. Z O.O.
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DOM MAKLERSKI BANKU BPS SPÓLKA AKCYJNA
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DOM MAKLERSKI BANKU HANDLOWEGO S.A.
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DOM MAKLERSKI BANKU OCHRONY ŚRODOWISKA S.A.
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DOM MAKLERSKI BDM S.A.
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DOM MAKLERSKI BZ WBK S.A.
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DOM MAKLERSKI mBANKU S.A.
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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.
OTCMarket
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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.
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KDPW_CCP Clearing House
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.
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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
11
Registered TRs in UE (as of 10.10.2014)
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
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OTC Clearing in KDPW_CCP
KDPW_CCP operates an OTC derivatives trade clearing system including a clearing liquidity guarantee system.
Main functionalities of the OTC trade clearing system:
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clearing of trades accepted to the OTC clearing system and intermediation in settlement arising from clearing
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risk management
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collateral management
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function of central counterparty (CCP) through novation
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reporting to the Trade Repository (service offered by KDPW)
EMIR
compliant
Bank A
Confirmation
platforms*
Communication
SWIFT
National Bank of
Poland (NBP)
Trade Repository
(KDPW)
Bank B
SWI
CSD (KDPW)
• repo settlement
• safekeeping
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OTC Clearing: Cleared Instruments
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FRA
IRS
OIS
Basis Swaps
REPO
PLN
KDPW_CCP has focused on OTC
derivatives denominated in PLN
 Nov. 2014: KNF (Polish FSA) application for instruments denominated in EUR
 Other currencies – with regard to market demand
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Acceptable Collateral
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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
Participant financial and prudential
requirements
Margins
OTC Default Fund
KDPW_CCP own capital
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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
EMIR
compliant
(not more than 50% of the last existing contributions according to the lates update)
Remaining own funds of KDPW_CCP
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KDPW_CCP Participants
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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:
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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.
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Capital Requirements for Clearing Members
Organised Trading:
 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;
OTC Market:
 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).
 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).
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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
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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
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Gross securities settlement – settlement instructions are generated for each transaction (clearing
instruction).
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Securities netting – for all guaranteed transactions for a clearing account indicated by the
Participant. One settlement instruction is generated for each clearing position.
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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.
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Future Developments
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
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Integration of transaction clearing from diverse financial markets in Poland: regulated,
interbank and commodity
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OTC multicurrency instruments
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Extending eligible collateral (EURO, EURO BONDS, according to the market demand)
KDPW
 Strengthening the position of the Trade Repository
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Further development of securities lending and Tri-Party Repo services
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Creation of securities central valuation service
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Introducing ISO20022 messaging with participants
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Enhanced operational co-operation with other markets in the area of clearing and
settlement
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www.kdpwccp.eu