Introduction to €GCPlus
€GCPlus
Taking secured financing to the next level
Olivier de Schaetzen – Alexandre Gautier – Nicolas Vincent
Euroclear Collateral Conference
Tuesday, 13 May 2014
The partners and the product
The post trade partners
Banque de France
• As initial sponsor of
the product
LCH.Clearnet
Euroclear
• Is the largest clearing
house for fixed
income trades and
repos in Europe.
• More than €280 Bn of
transactions
managed on a daily
basis on those
transactions
• Over 80 participants
• Is the largest
collateral house in
Europe with over
€850bn collateral
managed daily for
commercial banks,
investment banks,
central banks,
corporate and asset
managers
• Over 250 participants
2
An innovative solution
• Secured euro cash funding with standardized baskets of collateral
• Anonymous trading with netting exposure by LCH.Clearnet SA, offering
robust risk and default management
• Embedded within a fully interoperable collateral system between
Euroclear Bank and Euroclear France / ESES giving you access to a
large counterparty base
• Full re-use possible in triparty collateral management with market
counterparties and Eurosystem
• Optimum liquidity management
► DVP settlement throughout the chain
3
The value chain
€GCPlus Clearing participants
Trading
Electronic platforms
ICAP, MTS, Tullet Prebon
LCH.Clearnet
Euroclear
AutoSelect
Clearing
• Intermediation of the CCP reducing
the regulatory capital cost
• Exposure netting at clearing level
Collateral Management /
Settlement custody
• Automated collateral management
provided by Euroclear in a truly
interoperable collateral management
environment
• Full possibility of collateral re-use
• Optimum liquidity management:
DVP settlement throughout the chain
Central Bank
• Refinancing with Eurosystem and,
initially, with Banque de France
• Expansion to other central banks
is ongoing
Euroclear Bank/ESES
National Banks
(Banque de France...)
• Anonymous cash-driven trading
via e-platforms
• Trading of two baskets covering a
large set of ECB-eligible securities
4
Product features
€GCPlus
Repo rate
Fixed
Maximum term
367 days
Minimum term
Same day
Maximum forward start
10 days
Repo rate accrual convention
Exact/360
Repo interest paid
Return date
Minimum contract size
€1 million
Order books
BrokerTec
MTS
Tullett Prebon
5
Trading platforms
Access to €GCPlus
Trading platforms offer treasurers and repo desks
•Anonymous trading
•Open architecture
•Order-driven marketplace with price transparency
•Deep liquidity pool
•Fully automated end-to-end post trade processing
•Daily web reports (public & private) of trading data
6
LCH.Clearnet brings:
LCH.Clearnet SA
•
•
•
•
Register trades upon confirmation by the platform
Novation of trades and calculation of a Net position exposure per basket
Live reporting through the whole process
Robust risk management and low regulatory capital cost
LCH.Clearnet SA guarantees
• The return of the collateral to the cash borrower
• The reimbursement of the cash to the cash lender
• The payment of the Triparty Repo Interest based upon the nominal value of the
repo to the cash lender
7
Euroclear brings:
Triparty interoperability
• Cash borrowers will settle against
LCH.Clearnet using their main collateral
account, irrespective of the location of
the counterparty’s collateral account
• All transactions settle DVP
• Substitutions are executed across the
two settlement platforms
LCH.Clearnet SA
Collateral Management System
(CMS)
Euroclear Bank
ESES
Scenario 3
CG
LCH C
LCH C
CG
CT
4 scenarios for net
settlement across
the two platforms
Scenario 1
CT
Scenario 2
Scenario 4
8
€GCPlus trading day
Central European Time (CET)
< 6:00
8:00
9:00
10:00 11:00
12:00
13:00
14:00
15:00
16:00
18:30
End of Day CCP
Start of Day CCP
Trading platforms
Trading
Trade collection
LCH.Clearnet
Same Day
net positions
Euroclear
collateral
Management
2:00 3:15
4:30
6:00
7:00
8:00
9:00
10:00
11:00
12:00
Euroclear
Bank
12:45
13:30
Next day
net position
14:25
15:30
16:30
17:45
18:20
Settlement
Euroclear France
Settlement (DVP) - Target2
LCH.Clearnet
Daily Margin
Payment
FoP
Intraday Margin
Payment
9
Triparty intra-operability
ESES foreign debt extension of scope
Collateral eligibility
• Assets are ECB-eligible
• Held by Euroclear Bank through ECB-eligible links
• Relayed link between ESES and Euroclear Bank is ECB-eligible
Today
• Belgium (NBB-SSS)
• Euroclear Bank (XS)
• France (EF)
• Germany (CBF)
• Italy (Monte Titoli)
• The Netherlands (EN)
In 2014
• Austria (OeKB)
• Greece (BoG)
• Ireland
Further
• Finland (EFI)
• Portugal (Interbolsa)
• Spain (Iberclear)
10
Two liquid collateral baskets
Baskets based on liquid income instruments
eligible for Eurosystem’s monetary operations
Basket 1 – LCHC EURO-GCPLUS
LCR EQUIVALENT XS0708254148
• High Quality Liquid Assets
• ECB liquidity classes L1A, L1B, L1C
• Issuance rating higher than A(govies) AA- (other)
Eligibility criteria be
managed by Euroclear
to ensure liquidity
Basket 2 – LCHC EURO-GCPLUS
ECB RESTRICTED XS0708254817
• Larger spectrum of ECB eligible assets
• ECB liquidity classes L1A, L1B, L1C, L1D
• Issuance rating higher than BBB-
Concentration limits
for optimum
diversification
LCH.Clearnet Risk
Management using
purpose-built credit
scoring tools
11
Margining
Simulation of margin calculation
Collateral Giver
Collateral Taker
100 million cash
105 million collateral
(5% Haircut)
Initial Margin:
Max (IM – HC,0)
HC: 5,025,662
IM calculation : 4,156,642
ACM + CPC+TRI
44,444.44 debit
100 million cash
105 million collateral
(5% Haircut)
Initial Margin
HC + IM
5,025,662 debit (HC)
4,156,642 debit (Vol.)
ACM + CPC+TRI
116,303.88 debit
Total Margin Requirement
Total Margin requirement
44,444.44 debit
9,298,609.06 debit
12
Default Management Overview
Other Clearing Services
€GC+ Clearing Service
Minimum Deposit + Defaulter Margin
(Total Initial Margin + Triparty Interest Repo Margin +
Concentration Risk Margin +Sovereign Risk Margin + Wrong Way
Risk Margin)
Defaulter’s Mutualised Default Fund contribution
Up to 25% of EMIR/EBA minimum LCH.C SA Net Capital
Requirement shared across all services
(amount & allocation methodology to be confirmed)
Non-defaulters mutualised €GC+
contribution
Default Fund
Replenishment/Assessment of €GC+
Default Fund
Service Continuity Assessment
Defaulter Margin
Funded Capital
LCH. Clearnet SA Capital
Assessment/Service
Continuity/Close-out
Loss distribution & close-out€ GC+
services
13
Integration within standard Triparty
Collateral Management
• All operations managed by AutoSelect
► Collateral selection
► Collateral movements
► Margin management
► Collateral optimisation
• Optimum liquidity management
• Access to all re-use functionalities
LCH.Clearnet SA
Collateral Management System
(CMS)
Euroclear Bank
ESES
Scenario 3
CP
CG
LCH C
CT
BdF
Scenario 1
CP
CT
LCH C
CG
Scenario 2
Scenario 4
14
How to get started?
Criteria
Fixed Income membership criteria for LCH.Clearnet SA
(e.g. Equity capital of €100mn for ICM)
Membership
Key Clearing Member requirements (LCH.Clearnet SA)
• Contribution to the segregated default fund
(EUR: 2.5mn min., depending on the size of activity)
• Extension of existing membership
• Triparty agreement with Euroclear and the selection of
a reference CSD
• Collateral management instructions processed under
POA granted to LCH.Clearnet SA
• End-to-end scripted testing
• Register with one of the electronic trading platforms
(MTS, ICAP, Tullet Prebon)
15
How to get started?
Euroclear AutoSelect Participants account setup
Account
structure
• Taker and Giver accounts in Euroclear Bank or ESES,
with pledge facility to BDF (ESES only)
• ‘Cross Taker’ dedicated account for Euroclear Bank
participants to allow cross border instructions
LCH.Clearnet SA account setup in Euroclear Bank and in ESES
•Taker, Giver, Cross Taker (EB only) accounts
•Margin account in Target2 or a cash clearer
•Default accounts and liquidation accounts
16
Onboarding
LCH.Clearnet SA process
•
•
•
•
•
•
•
•
Initiate the membership process
Complete Main Application* file
Complete €GCPlus Configuration form
Submission by Credit Risk
Management Committee (CRMC)
Testing
Approval by Credit Risk Management
Committee (CRMC)
Sign and return all Membership
Agreements and other required
documentation
Go Live
Euroclear process
• Initiate the triparty €GCPlus
subscription: contact your account
manager
• Complete €GCPlus testing forms:
triparty testing account, connectivity
forms
• Sign the €GCPlus subscription form
• Complete the collateral profile form
(annexes) for EB or ESES and
interoperability
• Complete Italian tax certification
documentation
• Testing
• Go Live
* Main Application file is not applicable for existing clearing members
17
Why trading €GCPlus?
Key benefits
• Available through leading trading platforms
• Robust CCP services and risk management by LCH.Clearnet SA
• Fully embedded in Euroclear collateral management system
• Full re-use capacity in triparty collateral management, including
refinancing with Banque de France
• Fully interoperable model between Euroclear Bank and Euroclear
France giving you access to ALL Euroclear Bank and Euroclear
France (ESES) counterparties
• DVP settlement with real transfer of collateral
• Optimum liquidity management
18
Contacts
Company
Contact details
LCH.Clearnet
•Nicolas Vincent, Head of Fixed Income
+33 (0) 1 70 37 6709
nicolas.vincent@lchclearnet.com
•Nigel de Jong, Group Head of Fixed Income Client Management, Marketing & Sales
+44 (0) 20 7426 7273
nigel.dejong@lchclearnet.com
•Philippe Scavizzi, Head of Business Development
+33 (0) 1 70 37 6721
philippe.scavizzi@lchclearnet.com
Euroclear Bank
•Olivier de Schaetzen, Product Sales Specialist
+32 2 326 28 84
olivier.deschaetzen@euroclear.com
•Your Relationship Manager, Commercial Division
MTS
•Amanda Butavand
+44 207 7974 246
amanda.butavand@mtsmarkets.com
•Gabriele Frediani
+44 207 7971 170
gabriele.frediani@mtsmarkets.com
BrokerTec Europe
•Dermot Doherty
+44 207 0005 805
Dermot.Doherty@icap.com
Tullet Prebon
•Graham Martin
+44 207 200 7308
GrMartin@tullettprebon.com
19