Depositories Association Tangiers - Thursday 5 th May 2016at the - - PowerPoint PPT Presentation

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Depositories Association Tangiers - Thursday 5 th May 2016at the - - PowerPoint PPT Presentation

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CCP National or Regional Risk Management Presented by Terry Gibson, Vice President, MillenniumIT at the 23 rd Meeting of the Africa & Middle East Depositories Association Tangiers - Thursday 5 th May 2016at the Innovation is Power

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Innovation is Power

CCP – National or Regional Risk Management

Presented by

Terry Gibson, Vice President, MillenniumIT

at the

23rd Meeting of the Africa & Middle East Depositories Association

Tangiers - Thursday 5th May 2016at the

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Innovation is Power

  • Pre- to post-trade, multi-asset, ultra-low latency, agile capital

market solutions

  • Powers trading venues, banks, broker dealers, CSD’s, CCP’s,

and industry regulators

  • 800+ professionals specialising in state-of-the-art capital

market technology

  • Long-term partner for more than 40 financial institutions and

financial services clients across the Americas, Europe, APAC and Africa

  • Founded (1996) and head-quartered in Sri Lanka, acquired by

London Stock Exchange Group in 2009

MillenniumIT Overview

MillenniumIT - The Capital Markets Technology Partner

Pag e 2

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Innovation is Power

The London Stock Exchange Group

Vision

The most trusted expert in global financial markets

MillenniumIT is part of the London Stock Exchange Group

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Innovation is Power

Clearing Houses

The management (risk management, transaction monitoring, netting) of a transaction after the matching of a buy and sale trade and prior to the legal fulfillment of the respective

  • bligation.

It exists in two forms, either as a Central Counterparty (CCP), in which case the CCP becomes the counterparty of the original buyer and seller, or as a facilitator, in which case the original buyer and seller remain legal counterparties to each other.

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Innovation is Power

Moving to a CCP

Bank B Bank C Bank D Bank E Bank A CCP Bank B Bank C Bank D Bank E Bank A

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Innovation is Power

Netting Efficiencies

Bank A Bank C Bank B

$6m $10m $8m

Bank A Bank C Bank B

$6m $10m $8m

CCP

$6m $10m $8m

Bank A Bank C Bank B

$4m $2m

CCP

$2m

Gross Exposure Net Exposure Bilateral Exposure

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Innovation is Power

Benefits of Clearing / CCP

  • Standardises and automates

trade capture

  • Maintains full post trade

anonymity

  • Provides a golden record of

each trade

  • Netting payments and

settlements

  • Reduces operational risk
  • Standardises and automates

post trade processing

  • Novation - mitigates

counterparty risk

  • Reduces risk by netting

exposures

  • Increases certainty / builds

confidence

  • Reduces impact of default
  • Reduces balance sheet usage
  • Increases capacity

Clearing House CCP

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Innovation is Power

World Federation of Exchanges

“We believe that the expansion of clearing should be driven by the goal of financial stability and the necessity for improved risk management of an asset class.” “Our view is that the CCPs are the experts in managing the risks of their markets and CCPs should retain the flexibility to design and augment risk management tools to manage the risks brought by their participants“ CCP risk management tools have been repeatedly tested in a range of significant market stress events and despite their impressive track record, CCPs continue to refine and improve their resilience and ability to manage future market crises as the core function of their offering.

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Innovation is Power

Market Structures Stock Exchanges Clearing Houses Central Securities Depositories

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Innovation is Power

Multiple Market Structures (Examples)

United States

– NSCC

Europe

– LCH Clearnet – Six x-clear – CCP-A / CEE

Asia

– HKEx – SGX

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Innovation is Power

Consolidation

Exchange A Exchange C Exchange B CCP Central Securities Depository

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Innovation is Power

UK CCPs (supervised by the Bank of England)

Clearing house Main products cleared Number of members European Central

  • Counterparty. (EuroCCP) Ltd

European equities 24 CME Clearing Europe Ltd OTC commodity derivatives and interest rate swaps 18 ICE Clear Europe Ltd Energy and commodity contracts and European credit default swap transactions 69 LCH.Clearnet Ltd Clears a range of asset classes including interest rate swaps, repos, equities and commodities 170 LIFFE Administration and Management

(Outsourced)

Exchange-traded interest rate products, equities, index and commodities derivatives 46

Source: Bank of England (2013)

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Innovation is Power

Interoperability

Exchange A CCP CCP Central Securities Depository

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Innovation is Power

Outsourcing

Exchange A CCP (Legal) Central Securities Depository CCP (Operational) Risk Management

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Innovation is Power

Single Market

Exchange A CCP Central Securities Depository

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Innovation is Power

What are your options?

What are the key drivers?

– Market – Regulatory – Participant

Requirement - CCP Infrastructure to support Exchange and OTC Markets

– Single platform – Potential for multiple legal entities – Risk management to match legal framework – Single regulatory framework

Implementation Model

– Consolidation – Interoperability – Outsourcing – Single Market

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Innovation is Power

CCP – National or Regional Risk Management

Presented by

Terry Gibson, Vice President, MillenniumIT

at the

23rd Meeting of the Africa & Middle East Depositories Association

Tangiers - Thursday 5th May 2016at the