regulatory update – clearing update for end users · 2012-08-03 · regulatory update –...
TRANSCRIPT
Regulatory Update – Clearing update for End
Users
August 2012
CONFIDENTIAL
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Agenda
Regulatory Update – Clearing Update for End Users Allison Kelrick \ Assistant Vice President, Regulatory Affairs \ Markit Client Clearing: MarkitSERV Trade Manager (MTM) Jason Mileberg \ Vice President, Training \ MarkitSERV MarkitSERV Clearing Initiatives Ted Brooks \ Director, Product Management \ MarkitSERV
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Implementation of OTC derivatives related requirements
CFTC
SEC
EMIR
MiFID
2012 2013 2014
Legislation
Rules Proposed Rules Finalized Implementation
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CFTC Proposed Swaps Clearing Determinations
Interest rate swaps and CDS must be guaranteed by clearinghouses starting this fall Four types of interest rate swaps required to be settled at
clearinghouses: US dollars; Euros; British pounds and Japanese yen CFTC has 90 days to complete proposed determinations Only applies to swaps entered into post-Dodd-Frank enactment
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CFTC Swap Transaction Implementation
Rules establish a schedule to phase in compliance with new clearing requirements based on type of market participant Phase I: SDs, SB-SDs, MSPs, Major SB-MSPs, active funds
– 90 days after the CFTC issues any clearing requirement Phase II: commodity pools, private funds, other active funds
– 180 days after the CFTC issues any clearing requirement Phase III: third-party sub-accounts, ERISA plans
– 270 days after the CFTC issues a clearing requirement
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CFTC & SEC Final Product Definitions Rule
Rules defining: swap, security-based swap, mixed swaps, narrow- and broad-based security index, etc.
– FX forwards and FX swaps are “swaps” unless specifically exempted – Foreign currency options are considered swaps – Non-Deliverable forward is not a swap
Swap exclusions: – Insurance products – Forward contract exclusions – Consumer and commercial agreement, contracts and transactions
Starts the countdown for many Dodd-Frank requirements: – Real-time reporting – Reporting to swap data repositories (SDRs) – Business conduct requirements
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Comments due: August 5, 2012 ESMA required to deliver the final technical standards to the
Commission by the end of September Timing: First clearing requirements to become effective July 2013 Clearing threshold:
– Clearing threshold should be set at a low level and be simple to implement by non-financials
– Phased-in approach with initial clearing thresholds that can be further tailored once more information is available
– Credit and Equity: EUR 1 billion – IRS, FX, and Commodity: EUR 3 billion
ESMA EMIR Technical Standards CP: Draft technical standards for the regulation on OTC Derivatives, CCPs, and Trade Repositories
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Canadian Securities Administrators: OTC Central Counterparty Clearing
Comments due September 21, 2012 CCPs to submit derivatives or categories of derivatives for
regulatory review to determine whether the instrument is relevant for CCP clearing CSA members will need to develop coordinated procedures to
determine which OTC contracts are required to be centrally cleared Canadian regulators to adopt a “bottom up” approach where
OTC derivatives are submitted by a CCP to a market regulator
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Asia – Overview of Clearing Rules
Japan – Implementation November 8, 2012 – OTC derivatives that are systemically risky to be subject to mandatory clearing
within domestic CCPs Australia – Implementation end-2012
– Consultation on types of products to be cleared, which firms should be required to be cleared, and client clearing
South Korea – Implementation end-2012 – Korean won swaps will be first to be cleared, potentially followed by non-
deliverable forwards and CDSs at a later date Hong Kong – Implementation mid-2013
– Clearing to begin with IRS and non-deliverable forwards and expand to other asset classes
– Minimum threshold before firms need to clear Singapore – Implementation not yet announced
– Enhanced default management framework for Singapore Exchange Derivatives Clearing
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MARKITSERV TRADE MANAGER (MTM) Client Clearing
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Agenda
MarkitSERV Client Clearing Overview & Benefits MarkitSERV Trade Processing Solutions Affirmation/Matching options
Client Clearing Workflow
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Overview & Benefits
MarkitSERV users include: 2000+ buy-side clients 70+ dealers 70+ brokers
MarkitSERV offers a versatile solution for OTC trade processing. The solution supports both affirmation and matching processes across a wide range of asset classes including Credit, Rates, Equity, Commodity and FX. MarkitSERV is connected to 8 CCPs for clearing eligible trades. We also support STP-eligible trades (non-clearing) and “Paper” trades. MarkitSERV facilitates adherence to the Dodd-Frank Act (H.R. 4173). Trade submission for clearing is free to MarkitSERV buy-side clients
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MarkitSERV Affirmation/Matching options
Affirmation and Matching Processes – Affirmation option (MarkitWire)
Buy-side reviews alleged trade on-screen and affirms Buy-side can amend trade and submit change electronically back to
counterparty Online dispute resolution – no need to make phone calls MarkitWire is covered in separate webinar sessions
– Matching option: MarkitSERV Trade Manager (MTM)
Buy-side submits (via CSV or Fpml) their own version of trade MarkitSERV matching engine automatically identifies break – no need for
manual review Online dispute resolution – no need to make phone calls
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CCP
Clie
nt
Dea
ler
Matching
matching engine
MarkitSERV Client Clearing Workflow In the matching workflow model, both the Dealer (Executing Broker) and Client submit their trade version to MarkitSERV. MarkitSERV's matching engine links the trades and can automatically identify disputes.
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MarkitSERV Trade Manager Login and access MTM from: https://mtp.markit.com
Clients can view submitted trades with real-time confirmation and clearing status. Real-time confirmation and clearing status with the intended CCP
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MarkitSERV Trade Manager Clearing Status
MTM Status Clearing Status
Definition
Alleged IFC Trade Intended for Clearing. MTM is either processing the matching of the trades, or waiting for the EB trade to be submitted.
Disputed IFC Trade details in Dispute, still ‘IFC’. Trade requires modification and resubmission.
Affirmed IFC Trade details Affirmed with the Executing Broker, status remains ‘IFC’. MTM waiting for Clearing Broker to affirm the trade in MarkitWire.
Awaiting Clearing RDY Trade Affirmed with the Executing Broker.
Awaiting Clearing PND Trade sent to the CCP.
Awaiting Clearing or Confirmed
RJT The affirmed trade is rejected for clearing by the CCP.
Cleared CLR The CCP has registered the trade.
Clients can view the clearing status from Tie-Outs (New) / Buy-side Dealer
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High Level Process Overview
1. Dealer (Executing Broker) enters clearing eligible trade to MWIRE vs. the Buy-side
2. Buy-side submits the corresponding trade details to MTM via CSV file / Fpml (Client API)
3. Trade matches 4. Trade details submitted to CCP 5. CB takes up the trade 6. CCP clears the trade (at split level if allocated) 7. Clearing status updated real-time in MTM
Notes on Allocations MTM updates clearing status at the Allocation level MTM block level status remains at PND until all allocations have been cleared MTM block level status moves to CLR when all allocations are cleared MTM block level status will show RJT if any allocation was rejected for clearing Certain CCPs (eg. OCC) have CB take-up prior to CCP submission
MarkitSERV
Executing Broker
Buyside Client
CCP
Clearing Broker
MarkitWire 3
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MTM
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CLEARING INITIATIVES MarkitSERV
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Agenda
Upcoming CCP highlights Post Clearing Allocations Netting Synchronization update Clearing take up platform – scope and timing
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Clearing – Upcoming CCP Highlights
Clearinghouse highlights: – Rates
CME - Release 6: UAT/NR 15-Aug, Prod 10-Sep CME Clearing Europe: UAT 15-Aug, Prod 29-Sep HKEx – Member clearing only: UAT13-Aug; Prod 26-Oct JSCC – Member clearing only: UAT 4-Jul; Prod 9-Oct
– Credit ICE Clear Credit – Upgrading APIs and workflows: 1-Oct ICE Clear Europe – Member to Non Member ~Q4 LCH SA– Member clearing only: UAT live, Prod 9-Jul
– FX LCH, SGX,CME – current support of Non-Deliverable Forwards (NDFs) HKEx – NDFs in pipeline
– Equity OCC – Member and Non-Member clearing: pending application SEC
submission
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Post Clearing Allocations
Post allocation clearing - the execution and timely clearing of a bunched or block order with a “Standby Clearing Broker” with later allocation to a group of individual accounts (funds) and respective ultimate clearing brokers.
The initiative is spawned by CFTC’s final rules related to clearing timing: allocated trades ('bunched orders‘) should not be delayed in getting cleared due to the time needed to allocate.
MarkitSERV will provide a solution that sends the matched block trade for clearing while providing an electronic solution for End Users who subsequently submit the allocations to the respective CCP. The status of the trades is reflected back to the Users of the system as the risk transfers between the standby clearing broker and the ultimate clearing brokers.
It is expected that CCPs will offer allocating clients the ability to change the fund and/or CBs on a trade, and even re-allocate, unilaterally – once this functionality is in place (as the Executing Broker should only care about the bunched order trade).
While the rules state that CCPs and FCMs should be ready October1, 2012, timing for post allocation clearing is uncertain and will not be mandated before mandatory clearing is in place.
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Netting Synchronization Update
Netting Synchronization – CCPs net trades with like economics to create positions in one of two ways: 1) by
physically collapsing, or terminating, trades (e.g. CME, ICE, LCH), or 2) maintaining the offsetting trades and ‘effectively netting’ by calculating positions ‘on the fly’ (e.g. OCC).
– CCPs that physically terminate trades will publish termination messages (and new position messages for partial offsets). MarkitSERV intends to receive these cross-CCP messages and publish results to MarkitSERV dealer/client firms in a normalized manner.
– MarkitSERV will not implement netting logic on its own; we will always pass-through the results of the CCPs’ netting process.
– We are comparing netting models across CCPs to develop a cross-CCP solution Creating model that supports FCM take up, cross asset class and over all
known models Objectives are to support clearing broker transfer and default processing in
addition to netting
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Clearing Take Up Platform – Normalizing the Flow A platform for FCM/Clearing Broker consent (‘take up’) that is cross
CCP and asset class Features include:
– Normalizes the workflow for the FCMs across different functional models – bi/tri -lateral, consent pre/post delivery of the trade to the CCP
– Supports consent of trades regardless of whether EB and Client used MarkitWire to send the trade to clearing initially
– Allows FCM view of trade history – Includes clearing notifications and registration – Multi-clearing broker support for allocations
Live for LCH SwapClear, ICE Clear Credit Eurex expected August 2012 OCC TBD (dependant on OCC go live for D2C)
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Contact Information
Thank you for attending MarkitSERV Client Clearing Webcast For the related inquiry, please contact: Regulatory Update: [email protected] MTM functionality: [email protected]
Clearing initiatives: [email protected]
General questions: MarkitSERV Client Account Group at [email protected]
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Disclaimer
The content, information and any materials (“data”) provided by MarkitSERV and/or its group companies ("MarkitSERV") in this presentation is on an “as is” basis. MarkitSERV expressly disclaims all warranties, expressed or implied, as to the accuracy of any data provided, including, without limitation, liability for quality, performance and fitness for a particular purpose arising out of the use of the data. MarkitSERV shall not have any liability, duty or obligation for or relating to the data contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall MarkitSERV be liable for damages, including, without limitation, damages resulting from lost data or information or lost profits or revenue, the costs of recovering such data, the costs of substitute data, claims by third parties of for other similar costs, or any special, incidental, or consequential damages, arising out of the use of the data. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing may violate the intellectual property rights of MarkitSERV under any intellectual property laws such as copyright laws, trademark laws and communications, regulations and statutes. MarkitSERV Limited is authorised and regulated by the Financial Services Authority. This communication is directed only at persons who can be categorised as Eligible Counterparties or Professional Clients in accordance with COB 3.5 & 3.6 of the FSA Handbook, and the services described herein are available only to such persons. Any other persons should not rely on any information contained in this material.