CC&G. Your global Post Trade partner

Transcription

1 CC&G Your global Post Trade partner

2 CC&G prides itself on the robustness of its clearing platform, enabling our clients to conduct their business safely, securely and with confidence in our full service offering. P. Cittadini, CEO of CC&G

3 CC&G Many asset classes. One solution. Overview A subsidiary of London Stock Exchange Group, CC&G (Cassa di Compensazione e Garanzia) provides central counterparty services to multiple trading venues for a broad range of asset classes including equities, ETFs, equity, energy and agricultural derivatives, closed-end funds, investment companies, government, corporate and convertible bonds. Government bonds are cleared through interoperability by virtue of an innovative dual counterparty agreement, the first of its kind. At CC&G we also provide a guarantee service on the NewMic Interbank collateralised market. SECTIONS Equities Equity derivatives Energy derivatives Agricultural commodity derivatives Bonds Interbank deposits MTA MIV ETF Plus IDEM Equity IDEX AGREX EuroMTS MOT e-mid Markets LSE Derivatives* MTS ICAP EuroTLX Hi-mtf e-mid Products guaranteed by CC&G Shares Warrants Convertible bonds Closed-end funds Investment companies REIC ETF ETC Index futures Index options Single stock futures Single stock options Index dividend futures Energy futures Durum wheat futures Government and corporate bonds NewMIC interbank collateralised deposits CC&G Settlement Monte Titoli Clearstream Euroclear * Clearing system provider, not legal CCP Compulsory CC&G membership Optional CC&G membership 01 CC&G / Your global Post Trade partner

4 An offering that keeps on growing Since 2012, CC&G has broadened its service range to include a number of new products and venues. Less risk. Lower costs. Agricultural derivatives section In January 2013 CC&G has been appointed as CCP on the wheat futures traded on the AGREX section of the IDEM market. A new agricultural derivatives section has been created to guarantee such products, including a sophisticated margin methodology and a dedicated default fund guarantee. FTSE 100 In September 2012 CC&G extended the central counterparty guarantee service for the mini-futures on FTSE 100 index contract, traded on the IDEM market. 2new areas of activity CC&G is continuously expanding its clearing offer towards innovative trading venues CC&G / Your global Post Trade partner

5 A comprehensive approach to risk management In order to manage counterparty and market risks effectively, CC&G adopts an optimal financial safeguarding system based on multiple levels of protection: 1. Clearing membership screening 2. Margin system 3. Additional resources Final settlement guaranteed 1. Clearing membership screening CC&G carries out the central counterparty function by taking on the counterparty risk from the execution of the contracts, acting as a buyer towards each seller and as seller towards each buyer, and becoming the guarantor of the final settlement of the contracts, ensuring delivery/ receipt of securities versus cash, also in case of default of the trading counterparty. CC&G novation Trading Trading member A Trading member B CC&G assumes the counterparty risk Trading member A CC&G Trading member B Trading member A (NCM) GCM of A CC&G Trading member B (ICM) Clearing membership screening Trade capture Protection in the event of default Settlement netting Novation Margin system Default fund safeguarding system Advantages 1 Trading anonymity 2 CC&G assumes the counterparty risk from trade execution 3 Lower tied-up capital required by the regulatory authority 4 Reduction of systemic risk CC&G / Your global Post Trade partner

6 i Multiple levels of protection 3categories of membership Clients may subscribe to CC&G as: General Clearing Member: GCMs become counterparties to CC&G for proprietary and client transactions; they can also clear contracts on behalf of their Non-Clearing Members. Individual Clearing Member: ICMs become counterparties of CC&G for proprietary and client transactions. Non-Clearing Member: NCMs are not counterparties to CC&G. They must be market members and must sign an agreement with a General Clearing Member for the provision of GCM services. Who is eligible for membership? Banks and investment firms authorised to provide investment services in Italy Those authorised to provide such services subject to mutual recognition Other members of the markets guaranteed by CC&G who have signed the agreement with a GCM to become an NCM. How to become a member The entire membership process for CC&G, Borsa Italiana and Monte Titoli is managed online via the BIt Club website, a simple, fast and efficient communication tool. CC&G members must meet supervisory capital, organisational and technical requirements. Membership requirements GCM ICM NCM Supervisory capital ( ) N. of Non-Clearing Members Supervisory capital ( ) Market REQUIREMENTS Supervisory capital 25m Up to 1 30m From 2 to 5 35m From 6 to 10 40m Above 10 If the supervisory capital is lower, but at least equals 15m, CC&G accepts a guarantee issued by a bank for the difference between the supervisory capital requirement and the supervisory capital held. 3m 10m 10m 10m Equities Derivates Bonds More than 1 market If the supervisory capital is lower, but at least equals 3m, CC&G accepts a guarantee issued by a bank for the difference between the supervisory capital requirement and the supervisory capital held. Technical and organisational Organisational structure, technological and information technology systems Two referees for each section Hold a central cash account in Target 2 Join the central depository service (CDS) Join the settlement services Directly or through a settlement agent CC&G / Your global Post Trade partner

7 Members of both the cash equity and equity derivatives sections of CC&G benefit from a significant decrease in initial margin requirements thanks to our unique crossmargining function. Advantages Rome 1 Full flexibility in the choice of membership type per market cleared 2 International CC&G client base of more than 160 clearing members 3 Over 70 direct members, including major international players as GCMs 5 proven systems for calculating margins 2. Margin system The margin system is CC&G s fundamental risk management tool. Our risk management approach is fully compliant with international recommendations (CPSSIOSCO) and ESCBCESR, and is in line with the current draft of the new EU Regulation on CCPs with reference to risk management. Margins are calculated using sophisticated, proven systems: a methodology based on the Theoretical Intermarket Margins System (TIMS) for equity derivatives products; the Equity Risk Management (ERM) methodology for cash equity products; methodology for agricultural derivatives (MMeG) and the method for portfolio valuation (MVP) methodology for Italian government bonds. Equity derivatives and cash equity margin calculation The methodologies used for equities and equity derivatives are integrated and correlated, and are therefore capable of recognising the overall risk in a portfolio. This allows the offsetting of risk between closely correlated products, as well as cross-margining between derivatives CC&G / Your global Post Trade partner and equity cash products in the portfolio. The overall risk exposure for integrated portfolios with significant price correlation is determined by: Product Group: an integrated portfolio of underlying assets with statistically significant price trend correlation Class Group: an integrated portfolio of cash and derivatives instruments related to the same underlying stock. Energy derivatives margin calculation Derivatives contracts traded on IDEX form an integrated portfolio considered as a whole for the purpose of Initial Margins calculation. The MMeL margining methodology has a structure of classes which recognises contracts tradable on the market. Each class includes all the contracts of the same type (futures or options), with the same underlying security (PUN) and the same characteristics (delivery period and type of supply: baseload, peakload or off-peak).

8 Multiple levels of protection 1 collateral pool for all asset classes Bonds margin calculation MVP determines the overall risk exposure for integrated portfolios by grouping classes of bonds with statistically significant correlation in their sensitivity to interest rate variations, measured by duration. A single net position is calculated independently from the market origin of the contracts MTS, EuroMTS, BrokerTec, MOT or EuroTLX and risk management is accordingly performed on the net positions. Agricultural derivatives margin calculation Derivative contracts traded on AGREX are aggregated in integrated portfolios, evaluated unitarily and consequently subjected to an aggregated calculation of initial margins. The MMeG margining methodology foresees a class structure capable of classifying the contracts which are actually traded on the market plus additional classes for managing delivery positions covered and uncovered and matched positions. Initial margin Initial margin is called on a daily basis to cover the theoretical costs of liquidation, which CC&G would incur in the event of a member s default, in order to close the open positions in the worst possible market scenario within a maximum price variation range called Margin Interval. The specific Margin Interval for each financial instrument is periodically reviewed on the basis of statistical analysis. Margins are evaluated according to cutting-edge risk management practices, in order to ensure the highest levels of protection with the minimum collateral requirement. Advantages 1 Cross-margining between cash equity and equity derivatives significantly reduces margins, with optional separate calculation reporting to satisfy customers cost allocation needs 2 One collateral pool: guarantees in place cover the cash call on all asset classes 3 Members trading the same asset classes on multiple trading venues cleared by CC&G can take advantage of full netting for settlement and margining purposes 4 Customer can choose the number of accounts/ sub-accounts on derivatives and net/gross margining between main and sub-accounts. Intraday margin Intraday margins are called by CC&G in case of sudden sharp price variations or an excessive increase in a member s overall risk exposure. Intraday margin is calculated with the same methodologies as the initial margin. Collateral Initial margin can be placed in cash (Euro) or in Euro denominated securities: Italian, French and German government bonds traded on MTS and EuroMTS. Government bonds are marked to market daily at the weighted average price recorded on the MTS market. The bonds deposited as collateral are grouped in classes of haircut based on their duration, for Italian government bonds, and on their time to maturity, for French and German government bonds. Intraday margins must be deposited in cash (Euro). 2 options for placing initial margins CC&G / Your global Post Trade partner

9 4 separate default funds 3. Lines of defence CC&G manages four separate default funds: one for equity and equity derivatives, one for energy derivatives, one for fixed income and one for agricultural derivatives. These default funds fulfil an essential role as additional protection to cover any risks associated with sharp price/ interest rate movements. Initial default fund contributions are calculated based on the results of periodic stress tests. Default fund contributions are re calculated on a monthly basis based on the previous month s activity. CC&G s own outstanding assets Outstanding default fund CC&G s own assets up to 5 million Defaulting member s default fund Multilevel financial safeguarding system In the event of default by a clearing member, CC&G protects market integrity by using a set of financial resources derived from the following: Defaulting member s initial margin the defaulting member s initial margin the defaulting member s contribution to the relevant default fund CC&G shareholders equity up to 5 million the remaining default fund on a loss sharing basis CC&G shareholders remaining equity. Default funds are established to ensure the stability of the system in the event of members simultaneous defaults under extreme but plausible conditions. Periodic stress test are performed to evaluate the Exposure of Participants in different historical and hypothetical scenario, in order to gauge the required amount of Default Funds. In case of default of a participant, market integrity is preserved by a multi tiered financial safeguard system. Advantages 1 Optimal protection for members in times of stressed markets 2 In case of default by a clearing member, the maximum exposure of each clearing member is limited to his contribution to the relevant default fund CC&G / Your global Post Trade partner sources of finance to protect market integrity

10 CC&G and settlement All trades settled on a net basis CC&G has a direct account in the Express II settlement system managed by Monte Titoli. All trades cleared by CC&G are settled on a net basis. Net balances against CC&G can be split into partials in the net settlement cycles, and are subject to being parcelled into smaller lots prior to being submitted to the gross settlement cycle. CC&G automatically manages buy-ins and sell-outs according to published rules. We have introduced additional reporting to highlight the separate margining of fails and partials, and to report the buy-in and sell-out process. Advantages 1 Settlement of net balances against CC&G is prioritised over non-ccp guaranteed and off-exchange trades 2 For settlement purposes, one single balance per security and account is created for Italian government bonds independently of the trading venue: MTS, EuroMTS, BrokerTec, MOT, EuroTLX and Hi-mtf. Real-time post-trade management made easy For accessing the clearing system, CC&G offers a range of flexible connectivity solutions to suit the needs of all clearing members. 1. Derivatives clearing BCS, the user interface, integrates all derivatives clearing functionalities such as early exercise, international give-up combined with the splitting facility, position transfer and related enquires into a single technical infrastructure. It also enables the download of clearing reports and data files used to support clearing on the derivatives market. BCS, fully integrated with the IDEM market infrastructure, is available in the following versions: BCS-WS: a stand-alone windows workstation BCS-API: an Application Program Interface to automate the end-to-end processing of transactions BCS PLUS, both WS and API, allows the automation of the international give-up. International give-up business model Contracts executed on the IDEM market can be transferred on trade date at the execution price. This functionality, combined with the trade splitting facility, fully complies with the international uniform give-up agreement and allows STP into the middle and back office systems. 2. Reporting A wide range of reports and data files is available to allow for quick reconciliation of transactions, positions and margins. ICWS enables the download of clearing reports, fails reporting and data files to support clearing on all markets. FTP, FTPS and SFTP are available for all markets to download batch files, with different levels of security. Advantages 1 General Clearing Members benefit from a complete Non-Clearing Member post-trading report for reconciliation purposes 2 BCS PLUS automates international give-up management 3 General Clearing Members can monitor the trading activity of their NCMs throughout the business day. General Clearing Members benefit from a complete Non-Clearing member post-trading report for reconciliation purposes. 3versions of the user interface available 08 CC&G / Your global Post Trade partner

11 Give-up functionality combined with trade splitting is available as a complete STP model.

12 Contacts CC&G Cassa di Compensazione e Garanzia Piazza degli Affari, Milano Italia Via Tomacelli, Roma Italia Telephone pt.sales@lseg.com This publication contains text, data, graphics, photographs, illustrations, artwork, names, logos, trade marks, service marks and information ( Information ) connected with CC&G S.p.A. ( CC&G ). CC&G attempts to ensure Information is accurate, however Information is provided AS IS and on an AS AVAILABLE basis and may not be accurate or up to date. Information in this publication may or may not have been prepared by CC&G but is made available without responsibility on the part of CC&G. CC&G does not guarantee the accuracy, timeliness, completeness, performance or fitness for a particular purpose of the publication or any of the Information. No responsibility is accepted by or on behalf of CC&G for any errors, omissions, or inaccurate Information in this publication. This publication does not represent solicitation, by CC&G, of public saving and is not to be considered as a recommendation by CC&G as to the suitability of the investment, if any, herein described. No action should be taken or omitted to be taken in reliance upon Information in this publication. We accept no liability for the results of any action taken on the basis of the Information. January 2014 CC&G S.p.A. London Stock Exchange Group All rights reserved. CC&G S.p.A. Via Tomacelli, Roma (Italy)