Central Counterparty Clearing

Day One

09.00 - 09.15 Welcome

09.15 - 12.30

Introduction

  • Early trading and clearing platforms
  • The ETD and OTC derivative markets
  • How does a CCP work?
    • Direct clearing, client clearing and indirect clearing
    • Complete and incomplete clearing
    • Margining
    • Default management process
    • Loss mutualisation
  • The 2008 crisis
  • Political and regulatory responses, IOSCO and the G20 Clearing Mandate, Dodd Frank, EMIR, OTC regulation, Basel III, IFRS13

Overview of Counterparty Risk

  • The nature of Counterparty risk
  • Mitigation methods
  • How does a CCP help?
    • Netting
    • Trade Compression
    • Margining/default Funds
    • Standards for clearing members
    • Legal certainty
    • Default Management Procedure

12.30 - 13.30 Lunch

13.30 - 17.00

A closer look at Margining

  • Variation Margin
    • Obtaining prices for OTC products
  • Initial Margin
    • SPAN
    • VaR and Expected Shortfall
    • Stressed Loss Add-Ons
    • SIMM
  • Segregation of collateral

A closer look at Default Funds

  • Sizing the default fund
  • Allocating the default fund to clearing members
  • Default Fund versus margining

A closer look at The Default Management Process

  • Declaring a default
  • Macro Hedging
  • The Auction Process
  • Client Portability

Case Studies

  • LCH
  • ICE
  • EUREX
  • CME

Day Two

09.00 - 12.30

Loss Allocation

  • The CCP waterfall and the "defaulter pays principle"
  • Loss allocation methods
    • Powers of Assessment
    • Default Fund tranches
    • Variation Margin Gains Haircutting
    • Trade tear-up
    • Forced Allocation
    • IM haircutting, novation to other CCPs, reversion to bilateral trades, CCP wind-up

Client Clearing

  • The client clearing models - clearer or client?
  • Portability
  • Segregation of collateral - Omnibus or ISA accounts - LSOC and EMIR

Capital Requirements for exposures to a CCP

  • Earlier regulatory proposals
  • BCBS 282
    • Trade exposures
    • Default fund contribution capital requirements
  • CCP Basis Risk
  • Calculating EAD for regulatory capital
    • CEM
    • Standardised Approach for Counterparty Credit Risk (SA-CCR)
    • IMM

12.30 - 13.30 Lunch

13.30 - 17.00

Can a CCP fail?

  • Some historical examples - including Nasdaq's Nordic power market
  • Extreme tail risk and systemic risk - Brexit example
  • Fire Drills
  • Stress Testing a CCP
    • Some thoughts from LCH
  • Recovery and Resolution of a CCP
  • Risk Transformation, the effects a CCP has on the risk landscape
    • Moral Hazard
    • Wrong-Way Risk
    • Operational Risk
    • Liquidity Risk
    • Interoperability and Systemic Risk
    • Multiple clearing member defaults across multiple CCPs
    • Stress testing CCPs simultaneously
  • Some interesting findings from CPMI/FSB/IOSCO/BCBS/ESMA/ISDA

xVAs

  • CVA: Credit Valuation Adjustments
  • DVA: Debit Valuation Adjustments
  • BCVA: Bilateral CVA
  • FVA: Funding Valuation Adjustments
  • MVA: Margin Valuation Adjustments
  • KVA: Capital Valuation Adjustments
  • ColVA
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