Cash Equity CCP Oslo Clearing Oslo Clearing Agenda Agenda Value - - PowerPoint PPT Presentation

Cash Equity CCP Oslo Clearing Oslo Clearing

Agenda Agenda

• Value proposition
• Participants and roles
• Account structure

P t t d i

• Post trade processing
• Risk management
• Time schedule and communication
• Time schedule and communication

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Value proposition

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Oslo Clearing – Value Proposition Oslo Clearing Value Proposition

• Efficient integration with existing infrastructure
• Optimal netting and settlement efficiency

p g y

• Efficient integration and utilisation of existing infrastructure
• High degree of standardisation / harmonisation
• Flexible account structure
• Oslo Clearing CCP offer includes
• All stocks, equity certificates and ETFs quoted on Oslo Børs
• Voluntary clearing of all off‐exchange matched trades in order to
• btain higher degree of netting and reduced counterpart risk
• btain higher degree of netting and reduced counterpart risk
• Competitive pricing
• Customer choice “Price model”
• Price model(s) adapted to new trading patterns

( ) p g p

• No hidden cost for collateral management
• Lending schemes ,penalties etc. priced on “at cost basis”
• Lean and flexible organisation structure allows low cost base

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Oslo Clearing – Value Proposition Oslo Clearing Value Proposition

• Margining model
• VaR portfolio model – taking both volatility and correlation

p g y into account

• Netting between underlying collateral and Equity

transactions

• “Real time” Risk management
• “Real time” web‐solution for clearing members
• Risk management feed to proprietary systems
• A state of the art collateral management solution
• Several cash collateral agents
• Tri‐party ICSD collateral management services for

international fixed income instruments

• Norwegian equities, primary capital certificates, ETFs and

fixed income instrument held on pledged VPS accounts

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Participants and roles

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Markets and instruments Markets and instruments

Oslo A ess

Market place member Market place member

Oslo Børs Oslo Axess

Oslo Clearing

• Oslo Børs and Oslo Axess (Exchanges) are the primary markets for securities cleared

through Oslo Clearing. Instruments eligible for clearing:

• cash equities
• Primary capital certificates
• Exchange traded funds
• Pursuant to the exchanges rules clearing will be mandatory for all trades matched in the

Pursuant to the exchanges rules clearing will be mandatory for all trades matched in the trading systems of the exchanges

• Trades concluded outside the trading system of the exchanges may be cleared upon request

by both parties of the initial trade.

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Clearing participants

Oslo Axess

Market place member Market place member

Oslo Børs Oslo Clearing

Clearing member Clearing member

• A market place member of Oslo Børs must either be a direct member of Oslo Clearing or

appoint a general clearer which will be responsible of clearing of trades on behalf of the market place member p

• Institutions that fulfils the membership criteria’s of Oslo Clearing may become either;
• Direct Clearing Member (DCM) ‐ responsible of all trades concluded by him selves on

house or client accounts, or;

• General Clearing Member (GCM) responsible of all trades concluded by him selves
• General Clearing Member (GCM) ‐ responsible of all trades concluded by him selves
• n house or client accounts and trades concluded by other market place members on

house or client accounts. The latter referred to as Non Clearing Member (NCM)

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Settlement participants Settlement participants

Oslo Axess Market place member Market place member Oslo Børs

Oslo Clearing

Clearing member Clearing member Norges Bank

VPO

Settlement member Liquidity provider Settlement member Liquidity provider

• All securities listed on the Exchanges and cleared through Oslo Clearing are settled

through the central securities settlement system (VPO)

Central bank of Norway

Liquidity provider Liquidity provider

• A clearing member may either be a settlement member of VPO itself or appoint one or

several settlement agents willing to perform the settlement of all cleared trades on behalf

• f the clearing member.

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Liquidity providers Liquidity providers

Oslo Axess Market place member Market place member Oslo Børs Oslo Clearing Clearing member Clearing member

Norges Bank

C l b k f N

VPO

Settlement member Liquidity provider Settlement member Liquidity provider

• All settlement members must have access to a cash settlement account for VPO cash

settlements taking place in the central bank of Norway (Norges Bank)

• A settlement member may either:

Central bank of Norway

q y p q y p

• A settlement member may either:

If the settlement member is a bank, set up a cash settlement account in Norges Bank and provide the liquidity required for VPO cash settlements him selves, or; Appoint a liquidity provider willing to settle on behalf of the Settlement member through h li idi id l i N B k the liquidity providers settlement account in Norges Bank.

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Account structure

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Flexible Account Structure Flexible Account Structure

VPO

house settlement account

Trade account-1 Clearing account-1 Margin account-1 Collateral account-1

VPO

house settlement account

Trade account-2 Trade account-3 Clearing account-2

Service account-2

Margin

Service account-3

Margin

Trade account-4

Margin

VPO

house settlement account

Clearing account-4 Margin account-4 Collateral account-4

Clearing members will be given the option to setup its own distinct system of accounts, for the purpose of generating settlement instructions, margin requirements and reporting as preferred by the clearing member and in accordance with the clearing member’s business model. This includes the option to setup includes the option to setup:

• Segregate house and client accounts
• Segregate NCM chart of accounts
• Separate Service accounts for reporting purposes only

p p g p p y

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Post trade processing

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Transaction Processing Transaction Processing

Market place Market place

Oslo Børs

Order Order

Oslo Axess

p member p member execution execution Trade Capture Trade validation

Oslo Clearing

Clearing member Clearing member

Clearing confirm ation Clearing confirm ation Netting

VPO

Settlement member Settlement member

Netting Settlem ent I nstruction Settlem ent I nstruction Settlem ent I nstruction

Norges Bank

Central bank of Norway

Liquidity provider Liquidity provider 14

Transaction processing Transaction processing

Trade capture

All trades matched within the trading system of Oslo Stock Exchange or Oslo Axess will be reported to the clearing system real time by the exchange trading system.

Trade validation

All trades received by Oslo Clearing will be subject to a validation procedure prior to registration in the clearing system. The validation procedure verify:

• If both deal counterparties have a valid clearing membership

p g p

• If the financial instrument is approved by Oslo clearing
• If the required fundamental trade data is in place

Each trade rejected by the validation procedure will be reported immediately to the exchange. The report will include any discrepancies being the reason for rejection. y p g j

Trade & clearing confirmation

• Oslo Clearing will distribute a clearing confirmation for all trades registered in the clearing system on

gross basis. Th l i fi ti b di t ib t d t b th

• The clearing confirmation may be distributed to both:

– Direct clearing members, – General clearing members and; – Non clearing members and/or settlement agents t b GCM DCM

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upon request by a GCM or DCM.

Generation of settlement instruction Generation of settlement instruction

Netting

• Oslo Clearing will aggregate and net all trades registered in the clearing system each day by ISIN,

S ttl t D t d S ttl t A t i d ith th t f t ifi d b th Settlement Date and Settlement Account in accordance with the system of accounts specified by the individual clearing member.

• If the netting procedure results in a ”strange net” (transfer of securities and cash in the same direction or

cash settlement only), Oslo Clearing will aggregate sell and buy side separately and generate two net settlement transactions (”clean net”) settlement transactions ( clean net )

• DvP and RvP settlement instructions due to aggregation of buy and sell side separately will be linked

together when transmitted to the central securities settlement system by Oslo Clearing.

Settlement Instructions

• Net settlement instruction will be sent VPO within CET 19:00 at the end of each day
• Net settlement instruction will be sent VPO within CET 19:00 at the end of each day
• Settlement instructions transmitted and matched on at the end of each day (registration day) will not be
• pened and/or changed during the settlement period
• Cancelations, corrections or new transactions in the same ISIN on the same Settlement Account with same

settlement date will lead to the creation of new settlement instructions (contra trades) settlement date will lead to the creation of new settlement instructions (contra trades)

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Matching of Settlement Instructions Matching of Settlement Instructions

Oslo Clearing will grant its clearing members, or Settlement Agents on behalf of the clearing b h i h h l i i i h VPO members, the opportunity to match the settlement instructions in the VPO.

• As a result clearing members may either;
• Allow Oslo Clearing to send pre‐matched settlement instructions based on PoAs

Or; Or;

• Match settlement instructions initiated by Oslo Clearing themselves or appoint

Settlement agent to do so on behalf of the clearing member All ttl t i t ti h ll b t h d b th l i b th ttl t

• All open settlement instructions shall be matched by the clearing member or the settlement

agent appointed by the clearing member within 20:00 p.m. at trade date.

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Securities lending Securities lending

VPO has established an automated securities lending facility for the second settlement cycle. The lending scheme is available for all Settlement members on a voluntary basis. The CCP itself will be a member of the lending facility a member of the lending facility. Thus:

• Pool members
• If a participant which is a member of the lending pool is short of securities in the second

settlement cycle, a loan will be created provided that securities are available in the securities lending pool

• Non members

Non members

• If the participant is not a member of the lending pool, Oslo Clearing will obtain a loan on

behalf of the clearing member responsible for the delivery

• All expenses charged Oslo Clearing as a result of utilisation of lending facilities will be

d t th f ili l i b lti passed on to the failing clearing member as penalties.

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Partial delivery procedures Partial delivery procedures

Partial delivery will be fully automated procedure performed by VPO in both settlement cycles if shortage of either instruments or cash. P d id d i l d Procedures considered include: Partials:

• A partial delivery of the initial transaction performed by VPO,

Which; Perform and confirm a partial settlement Which; Perform and confirm a partial settlement

• The settlement of the residual will be deferred to

the next settlement cycle

• Neither Oslo Clearing nor the members will have the

ability to block any partial deliveries

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Optimising Settlement Optimising Settlement

Members own securities

• r
• r

Securities lending facilities Automated Security lending Partial delivery

Deferred settlement & penalty

Clearing cycle and communication

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Clearing cycle

GCM/ NCM MT5 1 8 End of Day: MT 5 3 6 MT 5 3 7 MT5 0 3 MT 5 0 6 E M M

CCP

M M 1 Booked conciliation nd ant liation – 1 8 :2 0 Capture 2 Booked day liation – 2 0 :0 0 ral intraday lement inst. te action VPS/ VPO 0 6 :0 0 VPO - 1 0 7 :0 0 ISIN re OSE 0 7 :0 0 ISIN an Particip reconcil 0 9 :0 0 Trade C VPS/ VPO 1 2 :2 0 VPO – 2 OSE 1 8 :3 0 End of d reconcil VPS/ VPO 0 8 :0 0 – Collater 1 8 :3 0 Net Settl 2 2 :0 0 Corporat

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Messages Messages

Intra day

• MT 518 Gross transactions
• MT 503 “

i i t”

• MT 503 “margin requirement”
• MT 506 “Margin calculations”

End of Day MT536 St t t f T ti (EOD G T ti (MT518)

• MT536 Statement of Transaction (EOD Gross Transaction (MT518)
• Will include all exchange trades except for cancelled trades.
• MT536 Statement of Transactions (EOD Settled Transactions)
• Will include all net settlement transactions settled in VPS this day either in the first settlement cycle

c ude a e se e e a sac o s se ed S s day e e e s se e e cyc e in the morning or in the second one mid‐day.

• MT537 Statement of Pending Transactions (EOD Net Transactions)
• Will include all net settlement transaction sent from Oslo Clearing to VPS this day (at end of day).

MT537 S f P di T i (EOD O P i i )

• MT537 Statement of Pending Transactions (EOD Open Positions)
• Will include all open positions, that is unsettled settlement transactions including those sent to VPS

this evening..

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Risk management

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Risk model Risk model

• Member credit assessment

— “first line” of defense

• Margin Requirements

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— second line of defense — based on the clearing members distinct system of accounts — real time calculation based on a VaR model and a 99 % confidence level — full offset between settlement transactions and collateral positions in the same underlying ISIN ff b l d ll l d ff d l ’ —

• ffset between settlement transactions and collateral positions in different underlying ISIN’s
• Default Fund

— joint and several liable default fund contribution requirements — based on the clearing members average exposure/ margin requirement — the contribution of the clearing member in default will be the third line of defense — non defaulted members contributions will be the fifth line of defense protected behind — non defaulting members potential loss will be limited to their default fund contribution.

Oslo Clearing own capital

— liable for a limited amount exceeding the funds made available by the clearing member in default and, — any loss exceeding all other resources available in a default situation 25

Defence Lines Defence Lines

The margin collateral of the member in default

The defaulting member’s contribution to the default fund

Oslo Clearing ASA Regulatory Capital The aggregate of the default fund contributions Oslo Clearing Regulatory Capital

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Margin procedure Margin procedure

Margin calculations will be run continuously during the opening hours of the markets cleared by Oslo Clearing. Ordinary margin requirements will be issued and settled minimum once a day. Oslo Clearing shall have the right to issue additional intra day or extraordinary margin calls with immediate effect.

• 1. Ordinary margin requirements will be announced via reports available in Oslo

Clearing web application after the first VPO settlement cycle has taken place, 06:00 am CET.

• 2. Margin requirements notified clearing members via Oslo Clearing web

application 06:00, shall be settled and confirmed by the collateral agent within the latest of; a) 11:00 am CET

• r:

b) 1 hour subsequent to the margin requirement announcement

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Clearing fund contributions Clearing fund contributions

• Each Clearing Member’s contribution to the clearing fund will be recalculated and

settled at least once per month, with the amount of the member’s contribution to the fund being the larger of:

• A fixed percentage of the Clearing Member’s average exposure in respect of open

positions registered on the member’s Margin Account over the previous month, and

• NOK 8 million for each DCM and NOK 15 million for each GCM.

NOK 8 million for each DCM and NOK 15 million for each GCM.

• Oslo Clearing will accept contributions to the Clearing Fund in the form of:
• Bonds and short‐term interest‐bearing instruments
• On demand Guarantees
• Cash deposits
• The Clearing Fund Contributions of non‐defaulting Clearing Members may only

The Clearing Fund Contributions of non defaulting Clearing Members may only be applied to cover losses incurred by Oslo Clearing due to Default by a Clearing Member after Oslo Clearing has:

• realised the Collateral pledged by the defaulting Clearing Member

l d h d f l l b ' l d

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• realised the defaulting Clearing Member's Clearing Fund
• applied the available equity in Oslo Clearing subject to a maximum limit of NOK 30 million

Collateral management Collateral management

• Margin Collaterals accepted by Oslo Clearing
• Equities, primary capital certificates and Exchange Traded Funds
• Interest rate instruments (Bills, Bonds, etc.)
• Guarantees
• Cash
• Accepted contributions to the Default Fund
• Interest rate instruments
• Guarantees
• Cash
• Securities (Financial instruments)
• i t

d i VPS t l d d t O l Cl i d b th l i b

• registered in a VPS account pledged to Oslo Clearing, managed by the clearing member or

a custodian

• registered in an ICSD account pledged to Oslo Clearing
• Cash
• held in custody in an independent bank approved by Oslo Clearing pledged to Oslo Clearing
• held in custody in an independent bank, approved by Oslo Clearing, pledged to Oslo Clearing

and with entitlement

• Guarantees
• issued by a financial institution approved by Oslo Clearing

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Time schedule and communication

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Time schedule Time schedule

2009‐Q1 2009‐Q2 2009‐Q3 2009‐Q4 2010‐Q1

S ttl l h l Specification of model and functionality Rulebook consultation Market consultation on model and functionality Settle launch plan

Bilateral m eetings

Rulebook consultation

Reference group m eetings

Rulebook hearing due 1st Sept Independent System Vendor test 15.10-30.11

Com m on inform ation m eetings

Information and education ... Rulebook hearing due 1st Sept.

System specification, development, configuration & testing

Market Wide test 1.12-15.12 15.1-29.1

Launch 12.03 !

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Time schedule – subject to client readiness Time schedule subject to client readiness

Period Activities

29.05 Belay the projects time schedule and launch plan 01.03 – 29.06.2009 Complete business model and functionality 15.03 – 01.06.2009 System specification and development 30.06.2009 Publication of Service description 20.08.2009 Publication of user and interface documentation 30.06 – 01.09.2009 Rulebook hearing round 15.10 -30.11 ISV testing 20.11 Publication of end user documentation 20.11 Publication of rulebook and agreements 01.12-15.12.2009 Member test 1 15.01-29.01.2010 Member test 2 01.02-14.03.2010 Launch preparations 15.03.2010 Launch 32

Communication Communication

Bilateral meetings Agenda F db k d di i b f h k d l f i li ‐ Feedback and discussions about consequences of the market model, functionality etc. ‐ Assist each market participant in the preparation for the implementation of a CCP Participants ‐ Local and remote market participants, Local and remote market participants, ‐ Trade organisations such as NSDA, SSDA, LIBA ‐ Third parties such as ISV’s involved in the securities market

Reference group meetings

Agenda ‐ Discussions about impact and consequences of the implementation of a CCP in the local market. ‐ Obtain constructive input and professional advices related to the market model, functionality, legal issues etc. Participants ‐ Committee of representatives of the different participants in the local market Committee of representatives of the different participants in the local market

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Communication Communication

Common information meetings

Agenda ‐ Ensure full transparency and market wide distribution of all information needed for the market participants preparing for the launch of a central counterparty in the local market Participants ll l ‐ All potential participants Further information, including service description, technical information, rulebook etc. will be made publicly available on “Delta” accessible via both Oslo Clearing and Oslo Stock Exchange made publicly available on Delta accessible via both Oslo Clearing and Oslo Stock Exchange website.

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Further information Further information

OSLO CLEARING ASA WWWOSLOCLEARING NO WWW.OSLOCLEARING.NO

For further information please contact: Torkil Lehn Christian Sjöberg j g Vice President Sales & Client Relations Chief Executive Officer + (47) 23179617 + (47) 23179609 Torkil.lehn@osloclearing.no christian.sjoberg@osloclearing.no

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