The Post-Crisis Derivatives Regulation and Its Business Impacts

2 days
Prague, NH Hotel Prague
  • Interconnectedness in Derivatives Markets and Systemic Risks
  • Regulatory Initiatives: Dodd-Frank, Basel III, CRD IV and EMIR
  • The Move to CCP Clearing: Why, How and When?
  • Risk Mitigation of Non-Cleared Derivates
  • Reporting of Derivatives Transactions to Trade Repositories
  • Effective Collateral Management under the New regulation
  • Business Impacts and Possible Management Reponses
The purpose of this course is to give you a thorough review of the new derivatives regulation and good understanding of how these changes will impact derivatives markets and the businesses of banks and other institutions.

We start with a quick review of the events that lead to the realization of the need for wholesale changes to how OTC derivatives are settled, collateralized and reported. We also give an overview of the regulatory initiatives that were initiated at the Pittsburgh G20 meeting in 2009 and that have since lead to a raft of new regulation, including the Dodd-Frank Act in the U.S. and the EMIR in the EU.

We then look more in-depth into the key requirements of the different regulations, our main focus being on EMIR. We explain why, how and when OTC derivatives should be moved to centralized clearing, and we discuss the practical implications of this move: Standardization of derivatives transactions and posting of initial and variation margin. Further, we thoroughly explain and illustrate the requirements for risk mitigation of non-cleared derivatives and for reporting of all derivatives transactions. We also discuss how collateral management practices should be implemented or adapted to effectively meet these requirements.

Finally, we explain and discuss how the profound changes to the derivatives markets infrastructure will affect the way that derivative instruments are traded and used for risk management purposes in banks, insurance companies, pension funds and non-financial corporations. We also discuss possible changes to banks' and other institutions' business models and other strategic initiatives in response to the new regulation.

The course is highly relevant to everyone involved in derivatives trading, settlement and risk management.

09.15 - 12.00 Introduction and Overview

  • The Increased Interconnectedness of Financial Institutions
  • Regulator Initiatives after the Crises
  • An Overview of the New Derivatives Regulation
    • Dodd-Frank
    • Basel III and CRD IV
    • EMIR
    • Other relevant regulation (MiFID II etc.)

The European Market Infrastructure Regulation

  • Why EMIR?
  • Scope of EMIR
  • Implementation Timetable
  • Key requirements
    • Move to central clearing
    • Mitigation of counterparty risk
    • Reporting
  • Workshop:
    Identifying Business Lines and Transaction Items that Will Be Affected by EMIR Requirements at “OTC Bank”

12.00 - 13.00 Lunch

13.00 - 16.30 Moving to Central Clearing

  • What Is Central Clearing and How Does it Work?
  • Which Entities Are Required to Move to CCP Clearing?
  • Regulatory Requirements for CCPs
  • Overview of Clearing Service Providers
  • Which Products?
    • Bottom-up approach
    • Top-down approach
  • Criteria for classification as “clearable” contract
    • Degree of standardization
    • Volume of trading and liquidity
    • Availability of pricing information
  • Treatment of Intergroup Transactions
  • The Workflow for Central Clearing of OTC Derivatives
  • Case Study: OTC Derivatives Clearing Solution at “OTC Bank”
    • Creating a Single Consolidated Database for:
    • Automated workflow management
    • Collateral management
    • General reconciliation
    • Calculation of variation margins
    • Netting of payments

Day Two

09.00 - 09.15 Brief recap

09.15 - 12.00 Risk Mitigation for Non-Cleared Derivates

  • Collateral Management under the New Regulations
  • Capital Coverage
  • Timely Confirmation
  • Portfolio Compression
  • Daily Mark-to-Market
  • Case Study: Risk Mitigation of Non-Cleared Contracts at OTC Bank

Reporting of Trades to Trade Repository

  • What Are Trade Repositories, and How Do they Work?
  • Regulatory Requirements for Trade Repositories
  • Scope of Reporting
  • What Must Be Reported, and How?
    • Common data
    • Counterparty data
    • Information on collateral exchange
    • Mark-to-market valuations
  • TR Reporting – Key Practical Challenges and How to Overcome Them
  • Case Study: Derivatives TR Reporting at “OTC Bank”

12.00 - 13.00 Lunch

13.00 - 16.30 The Business Impacts of the New Derivatives Regulation

  • The Regulations and How they Interact
    • Basel III, EMIR, AIFMD, UCITS,…
  • A Holistic Regulatory Impact Assessment
    • New margin requirements
    • Increased demand ho highly liquid assets
    • No rehypothecation of collateral
    • Segregation requirements
    • Stress testing and haircuts
    • Strengthened risk management requirements
  • Three Key Implications of the Reforms
    • Bifurcated market model - greater operational complexity
    • Significant increase in the demand for collateral
    • Limited availability of highly liquid, high grade collateral
  • How The Regulation Will Affect Business Models
    • Collateral optimization as a strategic priority
    • Winners and losers in a complex, split-market model
    • How will the new regulation affect risk management practices?
  • Case Study: Adapting the Business Model at “OTC Bank” to meet the Challenges of the New Regulations

Evaluation and Termination of the Seminar

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