Central Clearing of OTC derivatives - OTC clearing from a Norwegian - - PowerPoint PPT Presentation

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Central Clearing of OTC derivatives - OTC clearing from a Norwegian - - PowerPoint PPT Presentation

Jul 31, 2023 30 likes •264 views

Central Clearing of OTC derivatives - OTC clearing from a Norwegian perspective Johan Christian Kongsli Introduction EMIR Implementation in Norway Comparison with current Norwegian regulation Some Norwegian perspectives on

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SLIDE 1

Central Clearing of OTC derivatives

  • OTC clearing from a Norwegian

perspective

Johan Christian Kongsli

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SLIDE 2

Introduction

  • EMIR – Implementation in Norway
  • Comparison with current Norwegian regulation
  • Some Norwegian perspectives on EMIR

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SLIDE 3

EMIR – Implementation in Norway

  • Implementation procedure in Norway
  • Status update from the Norwegian FSA
  • ESMA working committees still operating from a end

2012 deadline...

  • …but meeting such a deadline becoming increasingly

difficult

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SLIDE 4

Comparison

  • EMIR
  • Norwegian Securities Trading Act
  • Norwegian CCP practice

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SLIDE 5

Clearing obligation – Scope

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SLIDE 6

Clearing obligation – Who?

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SLIDE 7

CCP Ownership

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SLIDE 8

Cross border activities

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SLIDE 9

Risk managment

Margins Default fund (Defaulting member) CCP Resources Default fund (non-defaulting members)

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EMIR proposal (September 2011) Current Norwegian law

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SLIDE 10

Margin

EMIR proposal (September 2011)

  • Sufficient to cover losses

that result from at least 99 % of the exposures movements over an appropriate time frame Current Norwegian law

  • Sufficient to fulfill

contractual obligations or

  • ther guarantees

(STA Section 13-4(1))

  • NOS and OSLO follow

international recommendations. Calculation of margins on 99.0%/99.8 % of movements

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SLIDE 11

Default fund

EMIR proposal (September 2011)

  • Default fund – sufficient

to withstand default of a) the largest CM, or b) the second and third largest CM’s combined Current Norwegian law

  • No requirements
  • NOS/OSLO default funds

established or under establishment

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SLIDE 12

CCP Contribution

EMIR proposal (November 2011)

  • CCP “skin in the game”
  • Default fund and CCP

contribution combined sufficient to withstand default of two largest CMs Current Norwegian law

  • CCP first to absorb losses

if margin collateral proves insufficient

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SLIDE 13

Capital Requirements

EMIR proposal (September 2011)

  • Min EUR 5 million
  • Proportional to risk
  • Sufficient to ensure
  • rderly winding down

Current Norwegian law

  • Min NOK 50 million (ca

EUR 6.4 million) (STA Section 13-2)

  • Adequate compared to

level of activity

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SLIDE 14

Client Segregation

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SLIDE 15

Client segregation

EMIR proposal (September 2011)

  • CCP must be able to

segregate its own assets from CM assets

  • CCP and CM must be able

to segregate CM assets from CM client assets

  • CCP must offer Individual

Client Segregation Current Norwegian law

  • No requirements
  • NOS/OSLO segregate CM

assets from CM client assets.

  • OSLO uses Individual

Client Segregation

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SLIDE 16

Client segregation

  • UK/European standard

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  • US/Dodd-Frank Act standard
  • Oslo Clearing - OTC
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SLIDE 17

Challenges related to client segregation

  • Mandatory pooling in the event of insolvency

– MIFID Client money rules

  • Transfer of title vs. Security interest

– Collateral usually taken by title transfer – Raises problems compared to segregation requirement – Security interest collateral arrangements more suitable but problematic compared to implementation of Collateral Directive in some jurisdictions

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SLIDE 18

Norwegian perspective – Central Counter Parties

  • Norwegian CCPs see opportunities as well as challenges

– Opportunities

  • Greatly expanded market
  • Innovative technology solutions
  • Expertise in niche products
  • Room for a nordic CCP

– Challenges

  • Economies of scale and scope will lead to consolidation

– What is the relevant scale?

  • Interoperability

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SLIDE 19

Norwegian perspective – Financial Industry

– Risk management – adequate controls for client trading – Funding - How much will interoperability lead to increased collateral requirements for default funds – Current Norwegian derivatives market relatively underdeveloped - standardization and new knowledge may bring new customers

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SLIDE 20

Norwegian perspective – Financial Industry

– Clearing obligation can lead to tighter margins compared to current bilateral arrangements

  • Increased costs for clearing and reportingv
  • Transparency of costs
  • Transparency of pricing

– DNB holds position as ”the Norwegian kroner” bank in FX and interest derivatives market

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SLIDE 21

Norwegian perspective

  • Buy side

– Reduced counterparty risk – Standardization and increased knowledge leading to increased use – Increased costs for infrastructure and collateral… – …but tighter margins and less differentiation of customers

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Cleared OTC derivatives a competitive alternative for smaller companies?

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Summary

  • Norwegian FSA Status update - officially no delays expected…
  • Stricter requirements for CCPs and risk management
  • Norwegian CCPs have made good start in preparing for EMIR
  • Opportunities for Nordic CCPs vs. Economies of scale
  • A lot to be learned for a lot of affected parties, but

standardization and new knowledge may develop Norwegian derivatives market

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SLIDE 23

Advokatfirmaet Grette

Johan Christian Kongsli joko@grette.no (47) 92441935 Filipstad Brygge 2 Postadresse: Postboks 1397 Vika 0114 Oslo Tlf.: 22 34 00 00 Faks: 22 34 00 01 www.grette.no

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