The role of OMIClear as CCP in the Iberian gas hub-Pablo Villaplana

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Institutional and Organizational Designs of Natural Gas Hubs: An Introduction to the Iberian Gas Hub

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The role of OMIClear as CCP in the Iberian gas hub-Pablo Villaplana

  1. 1. The role of OMIClear as CCP in the iberian gas hub P bl Vill l COOPablo Villaplana, COO OMIClear “Institutional and organizational designs of the gas hubs in Europe: an introduction to the iberian gas hub” 1 Bilbao, 24 June 2014
  2. 2. Index 1. OMIClear: who we are? 2. OMIClear as CCP. What we do? 3. Work in progress 2
  3. 3. IntroductionIntroduction: OMIClear: OMIClearIntroductionIntroduction: OMIClear.: OMIClear. WhoWho wewe areare 3 WhoWho wewe areare
  4. 4. OMI institutional organization OMI  Operador Mercado IbéricoOMI: Operador Mercado Ibérico Portugal Spain OMELOMIP SGPS Holding (Portugal) OMEL Holding (Spain) 10% 10% 50% 50% 50%50% CommonOMIP Exchange (Portugal) OMIE Exchange (Spain) Common Board 50% 50% O B dOMIClear Clearing House (Portugal) Own Board 4 OMIClear: regulated CCP under Portuguese financial legislation, “recognized “ (international agreement) under spanish and portuguese energy regulation. EMIR authorization in process.
  5. 5. Global Business Model (CCP – power and natural gas)g ) Clients Mandatory flow of exchange trades Buyers Non mandatory flow of OTC transactions (Buyers) Trading Buyers O C C Members Clearing HouseClearing House OTC Contracts ExchangesExchanges Clearing Members Brokers Trading Members OTC Contracts Clients (Sellers) Sellers Over-The-Counter TradesOrganized/Regulated Markets
  6. 6. Participants (CM & TM) LocationTM – 1 TM – 1 TM – 1; CM - 1 TM – 12; CM - 3 TM - 4; CM - 3; FSA - 3; PSA - 2 Rascasse Energy Europe TM – 3; CM – 2; FSA - 2 TM – 1 PSA – 1 Europe Limited TM – 1 The Liverpool Limited Updated 31 May 2014 TM – 29; CM – 7; FSA – 2; PSA - 14 ExchangeExchange Clearing HouseClearing House PSA – 1TM – 2; Limited PartnershipTotal: 55 Total: 17Kyonynsys Century, S.L.U.
  7. 7. OMICl    CCP  OMICl    CCP  OMIClear as CCP. OMIClear as CCP.  WhatWhat wewe dodoWhatWhat wewe dodo
  8. 8. OMIClearOMIClear as a Central Counterpartyas a Central Counterparty - OMIClear’s activity is devoted to the role of Clearing House and Central Counterparty (CCP) in trades made on several derivatives products: Power & Gas, energy and capacity, through ETD (Exchange Trading Derivatives) or OTC. - As CCP, OMIClear becomes the buyer counterpart to every seller’s Clearing Member and the seller counterpart to every buyer’s Clearing Member, as soon as a trade is registered in OMIClear. - As CCP, OMIClear performs the netting of positions - As CCP, OMIClear register and manages the positions, performs risk management and settlements (physical and financial) that arise from the trades Buy Position: + 15MW Clearing Member Sell Position: - 10 MW Reduction of M b ’ Ri k Margin Less collateral 8 C ea g e be Account Net Position = +5 MW Member’s Risk Exposure g Reduction collateral required
  9. 9. Risk MinimizationRisk Minimization The CCP ensures the multilateral Clearing of positions reducing risks such as: Counterparty Risk Guarateeing the fulfilment of contract’s obligations of both counterparties Cash Settlement Risk both counterparties Operational Risk Debits & Credits are settled multilaterally G Reliable clearing system that calculates and provides on real time basis i & l iin TARGET2 payment system gains & losses, margins, collateral movements, operational limits, statistics Systemic Risk If M b d f lt lIf a Member defaults only affects the CCP instead the market as a whole 9 OMIClear is at the final phase of the EMIR re‐authorization process
  10. 10. Systemic Risk reduced  Systemic Risk reduced   Systemic Risk without CCP Systemic Risk with CCP Default Member Default Member Member Member Member A Member Member Member A F B F B Member C Member E Member C Member E Member D Member D 10Entities affected by the Default
  11. 11. OMIClear’sOMIClear’s Risk ManagementRisk Management A Multilayered SolutionA Multilayered Solution Clearing Members Risk Margins based on Positions Assessment Exposure P&L Daily Settlements Clearing Fund 11
  12. 12. Clearing Clearing MembersMembers Clearing Members (CM) are the counterparties of OMIClear in the clearing and settlement activities regarding the CCP To manage the Guarantees with CCP (own / client /client Participates (directly / indirectly) (own / client, /client with segreg.&portab.) To become the Buy or Sell (directly / indirectly) in the Positions cash settlement CM Counterparty when the Positions are registered in CCP (Open Offer Model) CM Functions & Obligations Provide relevant Information to CCP When acting for clients’ account, must replicate obligations 12 whenever requested replicate obligations required by CCP to the clients
  13. 13. Clearing Clearing Member TypesMember Types A. General Clearing Members (GCM)  Own & Clients trades clearing OWN CLIENTS B. Direct Clearing Members (DCM)  Own trades clearing  Clearing for dominated companies (>90% share capital) OWN can be considered as Own Clearing 13
  14. 14. Initial MarginInitial Margin Purpose: Minimize the Risk of having to close out positions, in a short time period, belonging to a Clearing Member that enters into default Applies when there is a “Potential Risk E ” Always a Responsibility of a Member Exposure” Covered with Guarantees (Cash / Bank with open positions IM Guarantees / Securities) IM Applies to both Trading & Based on a concept of Porfolio Other complementary Delivery Period of contracts Porfolio (SPAN based model)Based on the max price elements of the margin model are “Variation Margin” and “Mark to 14 max. price varation within “X” days Market”
  15. 15. One Single Collateral Pool to Cover Multiple  OMIClear Services With OMIClear, Participants can pledge 1 single collateral (e.g. cash and/or bank guarantee) to cover responsibilities arising from their participation in multiple productsg ) p g p p p p or services: Example: 40%1 single collateral pool ( G / To cover positions i f tly 40% (Bank Guarantee and/or cash) => margins of Spanish Power futures contracts 20% To cover positions => margins of Gas Capacity Rights Accepted Collateral: 15% 25% T iti i Cash Bank Guar. Gov. BondsTo cover positions => margins of Spanish 15 To cover positions => margins Financial Power Transmission Rights (PT-SP & SP-PT) margins of Spanish Gas spot and forwards contracts
  16. 16. OMIClear’sOMIClear’s Default Waterfall Default Waterfall  Collateralised C ll t li d Additional Guarantee (if applicable) of default CM Margins of defaulting CM (IM, VM, BM, SM, NRPLM) Collateralised Default CM Collateralised Clearing Fund (CF) contribution of default CM OMICl D di t d F d CF Autonomous Reserve CM CF contributions of non- defaulting CM OMIClear Dedicated Funds SIG - Skin in the Game g CF Additional Responsibilities of non-defaultingNon Defaulting non-defaulting CM Non-Defaulting CMs 16 Last Update: 28.Feb.2014
  17. 17. Specific advantages of OMIClear as a CCP in the Iberian gas hub  Reduction of counterparty risk – OMIClear as CCP minimizes default probability OMIClear have default g Mitigation of credit minimizes default probability. OMIClear have default procedures in place already tested and approved by the regulators (CMVM and finalizing EMIR process) g risk (counterparty)  Most players in the gas hub are already members of OMIClear as CCP in the power market Broad participation (iberian non iberian; utilities Market participants both at the Iberian power and gas  Broad participation (iberian, non-iberian; utilities, financial players,…) power and gas market  Market participants may use one collateral pool to cover their market risk exposure both for power and natural gas Possibility of using one collateral pool for both power and NG gasp  OMIClear has a portfolio margin based on SPAN model 17 ‘Portfolio Margin’ for multiple products  OMIClear has a portfolio margin based on SPAN model that could allow for inter-commodity spreads
  18. 18. Work in progressWork in progress 18 p gp g
  19. 19. Development of a Gas Hub in Iberia and OMIClear • OMIClear is already working with BOTH trading platform initiatives (OMIE  gas and IBGH) to clear and settle natural gas physical products with delivery in g ) g p y p y the virtual point (AOC). – Short term and forward market: daily, weekly, BoM, monthly, year products … – Physical contracts. – Possible expansion to the Portuguese hub or joint virtual point (regulation) – Physical regulation (TSOs role) matter: OMIClear is following the discussions that y g ( ) g trading venues are maintaining with the TSO (Enagas – GTS) in order to define the  general framework and the relationship between “trades” and physical nominations  and balancing mechanisms  • OMIClear is working to identify those changes (instructions, IT systems, risk  management models,…)  that would be needed to be developed or modified in  order to be able to clear and settle natural gas productsorder to be able to clear and settle natural gas products. – OMIE gas – adapting the model to a short‐term organized market (energy regulation) – IBGH  ‐ main architecture will be applicable (EMIR) and  more work is needed on the  i   t  (li idit  &  l tilit   d l  l d  t  i d &  i   i ti   19 margin system (liquidity & volatility model – closed out period & price variation  (EbMPS))
  20. 20. Gracias! Obrigado! Thanks!Thanks! Pablo Villaplana +351 21 000 60 05 pablo.villaplana@omiclear.pt 20 p p @ p

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