OTC Clearing in KDPW_CCP
London, October 2012
Agenda
 Market Infrastructure in Poland
 About KDPW_CCP
 OTC Clearing in KDPW_CCP
Market infrastructure in Poland
Market Infrastructure in Poland
KDPW_CCP and KDPW
Market Infrastructure in Poland
Clearing and Settlement
Trading
Warsaw Stock
Exchange
BondSpot
OTC
KDPW_CCP
Clearing
Clearing
Risk Management System
KDPW
Settlement
Settlement
CSD
Trade Repository
National
Bank of Poland
About KDPW_CCP
About KDPW_CCP
Ownership Structure
History of KDPW (the CSD)
33%
33%
WSE
NBP

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 shares
WSE
1/3 of shares
National Bank of Poland
1/3 of shares
ST
33%

100 %
KDPW_CCP (July 2011)
KDPW
100% of shares
KDPW_CCP own capital: PLN 200 M (ca. EUR 50 M)
About KDPW_CCP
International Cooperation
KDPW_CCP:
Membership of international organisations and working groups

EACH – 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 Sharing
About KDPW_CCP
Novation
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
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
About KDPW_CCP
Risk Management
 SPAN® Methodology – regulated market & ATS
 Value at Risk – OTC market
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 now
OTC Clearing in KDPW_CCP
OTC Clearing in KDPW_CCP
 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_CCP
Why KDPW_CCP?
 Access to the Polish market
 Liquidity in PLN (in central bank money; National Bank of Poland)
 Collateral in Polish Treasury Bills, Bonds, local currency and WIG20 shares
 Effective collateral management
 Stable banking system
 Effective and efficient clearing system
 High risk management standards
 Reduced risk for cash, derivatives and OTC trades
 Standard default procedures
OTC Clearing in KDPW_CCP
Cleared instruments
List of instruments cleared in KDPW_CCP:
Phase 1: November 19, 2012





Forward Rate Agreements
Interest Rate Swaps
Overnight Index Swaps
Basis Swaps
REPO
PLN
Phase 2: January 2014 (in line with market demand)




FX Swaps
FX Options
Interest Rate Options
Cross-Currency Interest Rate Swaps
PLN and other currencies
OTC Clearing in KDPW_CCP
System Functions (1)
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 clearing
clearing risk management
collateral management
reporting to a trade repository (service offered by KDPW, non
mandatory)
OTC Clearing in KDPW_CCP
Confirmation Platforms
KDPW_CCP clears trades on the basis of clearing instructions delivered
by an electronic platform operator (MarkitWire, SWIFT Accord or
proprietary matching solution for REPO).
 MarkitWire
 SWIFT Accord
OTC Clearing in KDPW_CCP
System Functions (2)

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 (3)
Bank A
Confirmation
platforms*
National Bank
of Poland
Communication
Trade repository
(KDPW or other)
SWIFT or SWI
Bank B
* Repo transactions – confirmation in KDPW_CCP
CSD (KDPW)
• settlement for repo
• collateral safekeeping
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+0

17:15 – netting session - calculating debits and credits for each clearing
member
Day 2:
 08:00-08:45 – transfers to and from clearing members as a result of the
calculations from the preceding day
OTC Clearing in KDPW_CCP
Instruments Valuation Rules

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
KDPW_CCP Clearing Guarantee System
Participant financial and
prudential requirements
Margins
OTC Default Fund
KDPW_CCP own capital
OTC Clearing in KDPW_CCP
Margins



Historical simulation model
5-day 99,5% VaR
500 days observation window
OTC Clearing in KDPW_CCP
OTC Default Fund Contribution Calculations


Mutual default fund
Covers highest risk not covered by initial margin (highest uncovered risk).

Uncovered risk (UR) = IM Stress – IM Normal
CM 1
CM 2
IM Stress
IM Normal
IM Stress
IM Normal
IM Stress
IM Normal
• IM Stress – stress-test initial margin
• IM Normal – normal conditions initial margin
CM 3
UR 1
UR 2
UR 3
DF=UR2
OTC Clearing in KDPW_CCP
Acceptable Collateral
 Polish Treasury Bonds
 Polish Treasury Bills
 Cash PLN
 Shares (WIG20)
Planned:
 Eurozone Treasury Bonds
 Cash EUR
OTC Clearing in KDPW_CCP
Default Waterfall
Individual margins of the defaulting entity
OTC Default fund contributions of the defaulting entity
KDPW_CCP own capital
(proportionate part of 25% of the min. required capital*)
OTC Default fund contributions of the non-defaulting members
Remaining KDPW_CCP own capital
* According to EMIR Regulation
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 MarkitSERV)
After signing membership agreement
 Contributing to OTC Default Fund
 Paying initial margin
 Opening clearing account in OTC clearing system
OTC Clearing in KDPW_CCP
Types of Participation
The following types of participation status are admitted:
1.
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;
2.
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;
3.
clearing house
4.
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
Conditions and Capital Requirements
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
Next steps
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
Contact:
Marcin Truchanowicz
Żaneta Skorupska-Świrska
Managing Director
Deputy Managing Director
E: marcin.truchanowicz@kdpw.pl
E: zaneta.skorupska-swirska@kdpw.pl
T: +48 22 537 95 64
T: +48 22 537 93 25
All information, documents, regulations you can
easily find on our website:
www.kdpwccp.eu
HelpDesk: ccp@kdpw.pl