View
1
Download
0
Category
Preview:
Citation preview
KDPW_CLEARPOOLSettlement Guarantor
Leszek Kołakowski – Deputy Director, Strategy and Business Development Department
Marcin Truchanowicz – Director, Clearing House
Żaneta Skorupska-Świrska – Head of Securities Settlement Division Team
Warsaw, 18 May 2010
2
Examples of Guarantee Solutions on European Markets
Leszek Kołakowski Deputy DirectorStrategy and Business Development Department
3
Agenda
1. Counterparty Credit Risk
2. Central Counterparty (CCP)
3. CCP Attributes
4. Alternative Guarantee Solutions
4
Counterparty Credit Risk
Risk of the counterparty’s default under the terms of a transaction dueto the inability to pay financial liabilities.
Two types of potential losses generated by the counterparty’scontractual default:
Principal Loss: loss of securities or cash if only one counterpartydelivers required assets; Principal Loss risk is eliminated by DVP (delivery versus payment) mechanism;
Consequential Loss: loss generated by lack of settlement due to a counterparty’s insolvency (illiquidity, loss of corporate action rights/benefits, lost profits from the sale of assets, costs incurredto acquire missing assets, etc.).
Controlling counterparty risk exposure much more important sinceLehman Brothers.
5
Central Counterparty (CCP)
The Central Counterparty (CCP) is: “an entity that interposes itself between counterparties to contracts in one or more financial markets, becoming the seller to the buyer and the buyer to the seller”
CPSS/ IOSCO
Recommendations for Central Counterparties
November 2004
The CCP operates under legal and contractual obligations arising fromsettled transactions. It usually becomes a party to a transaction under legal mechanisms including novation and open offer.
The CCP eventually takes over counterparty credit risk, unlike inmutualisation (sharing) of risk exposure by participants.
6
CCP Attributes
Legal mechanism: novation or open offer
Risk centralisation
Technical novation or open offer
Anonymous clearing
Clearing members
Monitoring participants’ positions
Calculating and collecting margins
Risk mutualisation
Multilateral netting
Guarantee fund
Managing cases of participants defaulting under settlement liabilities
7
Alternative Guarantee Solutions
CC
P
Fun
ctio
nal
CC
P
Cle
arin
g h
ou
se
Sett
lem
ent
guar
ante
e
Legal mechanism: novation or open offer v
Risk centralisation v
Technical novation or open offer v v
Anonymous clearing v v
Clearing members v v v
Monitoring participants’ positions v v v
Calculating and collecting margins v v v
Risk mutualisation v v v v
Multilateral netting v v v v
Guarantee fund v v v v
Managing cases of participants’ default v v v v
8
Alternative Guarantee Solutions
CCP – USA, Euronext (France, Netherlands, Belgium, Portugal – LCH
Clearnet SA), Germany (Eurex Clearing), UK (LCH Clearnet Ltd), Italy
(CC&G), Switzerland (SIS x-clear), Japan, Hungary (KELER CCP*), pan-
European CCP: EMCF, EuroCCP
Functional CCP – Poland (KDPW), Austria (CCP.A), Canada
Clearing house – Russia, Turkey, Korea
Settlement guarantee – Greece, Cyprus, Spain, South Africa
* Central counterparty without clearing house functions
9
Scope of Changes to
the KDPW Settlement Guarantee System
Marcin Truchanowicz
Director, Clearing House
Status Quo
1. Clearing members’ assets:
guarantee fund made up of contributions to individual segments of the regulated market
participants’ contributions calculated by an algorithm
obligatory revision of contributions
obligatory recovery contributions if a payment is made from the fund
obligatory additional contributions to the extent that the assets of the fund areinsufficient to cover
guaranteed liabilities (no cap on additional contributions)
margins to secure the closing of positions in derivative instruments
initial margin
maintenance margin
2. Mechanisms used by the National Depository as a clearing house:
securities lending system (automatic lending);
buy-in transactions made by KDPW;
payment of the liabilities of an insolvent participant out of the participant’s
receivables as a KDPW participant (excluding receivables of the participant’s
clients)
current settlements on the futures market
10
KDPW_CLEARPOOL: Changes to the
Settlement Guarantee System
11
A new component: KDPW assets; once KDPW and KDPW_CLEARPOOL have
signed an agreement:
KDPW_CLEARPOOL assets will be available to pay liabilities under
transactions concluded on the regulated market;
participants’ additional contributions to the guarantee fund will be
capped at 110% of the total contributions of each participant to each part
of the fund.
Order of Use of Settlement Guarantee System Assets
1. Cash receivables of an insolvent participant / securities lending or acquisition on BISO market
2. Margins – for futures transactions
3. Contribution of an insolvent participant to the relevant part of the fund (covering the relevant market segment)
4. Insolvent participant’s contribution to other parts of the guarantee fund to the extent it does not guarantee liabilitiescovered by those parts of the fund
if KDPW and KDPW_CLEARPOOL have signed an agreement, and within its term
5. first tranche of additional contributions to the relevant part of the fund, up to 50% of the cap;
6. KDPW_CLEARPOOL assets up to PLN 20 million;
7. second tranche of additional contributions (possibly in combination with KDPW_CLEARPOOL assets)
8. Other KDPW_CLEARPOOL assets – in special justified cases
if KDPW and KDPW_CLEARPOOL have not signed an agreement, or after termination of the agreement
5. Unlimited additional contributions of participants to the relevant part of the guarantee fund
12
13
Towards a CCP
Marcin Truchanowicz
Director, Clearing House
What Are We Planning To Do?
We are implementing a New Settlement Risk Management System
in KDPW
Risk management system: a set of interconnected elements to
assess, predict, and actively manage settlement risk
– guarantee system methodology
• two-tier system (margins + fund)
• SPAN®
– proprietary software
– SPAN® -RM-Clearing application
– technical infrastructure
New Risk Management System: Why?
To achieve more precise risk measurement;
To unify the guarantee system structure;
To implement the global standard SPAN®;
To comply with the requirement of transparency of methods used;
To ensure flexibility of solutions;
To identify ready-to-use IT products for investors and brokerage
houses supporting the methodology
Implementation Timeline
December 2010
Roll-out
October 2010
Participant tests start
August/September 2010
System simulation
Netting
Discontinue the process of generating separate settlementinstructions
(currently each exchange transaction requires separate instructions for the clearing system)
With netting, transactions will be grouped in aggregate instructions for the clearing system.
System Development
Cross-margining between the cash and the futures marketmargin requirements will be reduced for positions recorded in the same entity account
Introduce aggregate accountsaccounts configured by participants, used to calculate net margins
Support securities lending, repo and reverse repo transactionsSPAN® methodology
Add on-line monitoring of margins also on the cash market
Enter new markets
19
KDPW_CLEARPOOL Implementation:
Benefits to the Market
Żaneta Skorupska-Świrska
Head of Securities Settlement Division Team
Features of a Depository-Settlement System
Safety
Correct clearing and settlement
Stability
Trust
20
Implications of Creating a Settlement
Guarantor
First stage of creating a CCP Clearing House
Capping additional contributions to the Guarantee Fund
Additional assets available in the Settlement Guarantee System
No material amendment to KDPW regulations
21
First stage of creating a CCP Clearing House
Start operations using techniques on the basis of guarantee liability.
Message to investors: The Polish settlement guarantee system has
started to evolve.
22
Capped additional contributions to the
Guarantee Fund
Capped additional contributions of clearing members to
the guarantee fund.
Possibility to assess the risk of participation in the
Settlement Guarantee System.
23
Additional assets available in the Settlement
Guarantee System
Settlement guarantor, later CCP clearing house,
operating as a separate legal entity.
Assets of the settlement guarantor available to the
Settlement Guarantee System.
24
No material amendment to KDPW regulations
Amendment to regulations approved by PFSA.
No material change to clearing members’ systems and
regulations.
25
www.kdpw.pl
National Depository for Securities
Krajowy Depozyt Papierów Wartościowych
4, Książęca St., 00-498 Warsaw
kdpw@kdpw.pl
Recommended