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Strategy for Market Standards
Paul Landless and Emir Nurmansyah
22 November 2011
Indonesian GMRA Annex
2
Introduction
• Overview of Market Standards in Repo markets
• Case Studies / Issues in Other Jurisdictions
Strategy for Market Standards 22 November 2011
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Overview of Market Standards in Repo markets
Strategy for Market Standards 22 November 2011
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Overview of Market Standards in Repo markets
General standards observed in repo markets Issues relevant for participants in repo markets Agency transactions Central counterparty clearing Margin Custody Default and close-out Repo confirmation
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General standards observed in repo markets
As a general matter, repo market participants should:
act with due skill, care and diligence
comply with relevant regulatory requirements
ensure fair treatment for and between clients
keep client information confidential
monitor / ensure their activities do not cause market disruption
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Issues relevant for participants in repo markets (1)
Participants should ensure that:
there are no legal obstacles to entering into the repo
all relevant internal authorisations or regulatory approvals etc. have been obtained
all necessary authority has been obtained from the client
adequate systems and controls are in place
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Issues relevant for participants in repo markets (2)
tax positions have been considered credit assessment against counterparties have
been conducted
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Agency transactions
Capacity Acting as agent on behalf of a principal Acting as agent on behalf of more than one
principal Approvals obtained from beneficial owners of:
Cash Bonds/securities
Regular reports and updates on repo
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Central counterparty clearing
Central counterparty clearing Counterparty to repos Means of risk management against:
Credit risk Market risk
Initial margin from both parties Daily exposure calculations on a MTM basis Maintenance of margin calls
CCP - now a recently discussed hot topic, forming part of the package of global financial reforms
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Margin (1)
Initial margin Marked-to-market on a daily basis Delivery
Securities Cash
Valuations to cover: Interest accrued on the cash Interest accrued on securities outstanding Coupon payable to the collateral holder
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Margin (2)
Standard Margin Threshold?
Material exposures
Monitoring of net exposures
Integration of exposures
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Default and close-out
Participants in repos should ensure:
adequate systems in relation to EODs
they handle EOD scenarios carefully
default market values used in close-out calculations are fair
not to disrupt or adversely affect the markets
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Repo confirmation
Date of issue Form of confirmation Document main terms Document any material changes during the
life of a repo
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Case Studies / Issues in Other Jurisdictions
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Australia
Basel III – Global liquidity rules Nov 2011: Australian regulators to set bank liquidity
fee Increase of repo margins
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China
NAFMII’s Chinese Master Repo Agreements (CMRA)
ASIFMA and various PRC authorities and organisations aim to finalise and approve NAFMII’s CMRA in late November 2011
16 November 2011
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South Korea
Tax Impact November 2010: Withholding tax on Korean
bonds held by foreigners Regulatory Impact
April 2011: Investment bank reprimanded by Korean regulators
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South Africa
Repo Rate Nov 2011: Rate to remain unchanged
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Thailand
Regulatory impact Investment bank’s repo permit suspended due
to regulatory investigation
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Reference materials
Reference materials
• Various market standard documents and guidance materials prepared by:
• International Capital Market Association• European Repo Committee• Securities Industry and Financial Markets Association• Securities Lending and Repo Committee• Sterling Money Markets Liaison Group
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Questions?
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Your Contacts
Paget Dare BryanPartner28th FloorJardine HouseOne Connaught PlaceCentralHong Kong SAR
T +852 2826 2459
F +852 2825 8800
Paul LandlessConsultantClifford ChanceOne George Street19th FloorSingapore 049145Singapore
T + 65 6661 2029
F + 65 6410 2288
Terry YangSenior Associate28th FloorJardine HouseOne Connaught PlaceCentralHong Kong SAR
T +852 2825 8863
F +852 2825 8800
Strategy for Market Standards 22 November 2011
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Philip Payne Foreign Of CounselGraha CIMB Niaga 24th FloorJl. Jend. Sudirman Kav. 58Jakarta 12190
T +62 21 2505125
F +62 21 2505001, 5121, 5122,5392
Emir NurmansyahPartnerGraha CIMB Niaga 24th FloorJl. Jend. Sudirman Kav. 58Jakarta 12190
T +62 21 2505125
F +62 21 2505001, 5121, 5122,5392
Your Contacts
22 November 2011Strategy for Market Standards
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22 November 2011
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Strategy for Market Standards
