Workshop EMIR and the new challengesView from a clearing house and exchangeDr. Thomas Siegl | 13.12.2012
About ECC                     International network of partners and productsBelgian Power Futures                         ...
ECC Overview                      Network of Partners and Clearing Member                                                 ...
EMIR implementation - High degree of uncertainty             Common position with market participantsCurrently it is still...
EMIR preparations – maximize customer benefits              via focusing on energy/power marketsEfficient margining saves ...
EMIR preparations – maximize customer benefits             via state-of-the-art CCP functionsEfficient interfaces•   EEX: ...
OTC Clearing implementations                       Product design considerations:                       Standardization of...
OTC Clearing implementations by the exchange          Consequences of standardizations    Exchange traded and  exchange lo...
OTC Clearing implementation by the exchange               Expansion of product list to allow improved Cross-Margin and    ...
Preparations of market infrastructure              Straight-Through-Process for Broker OTC Registration                   ...
ConclusionMarket participants and CCPs operate under a high degree of uncertaintyregarding the upcoming rules•   Early pre...
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Thomas Siegl ECC, the view from a clearing house

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Thomas Siegl ECC, the view from a clearing house

  1. 1. Workshop EMIR and the new challengesView from a clearing house and exchangeDr. Thomas Siegl | 13.12.2012
  2. 2. About ECC International network of partners and productsBelgian Power Futures Phelix Futures & OptionsDutch Power Futures French Financial Power FuturesDutch (TTF) Natural Gas Futures German Natural Gas FuturesUK Power Futures EUA , CER, EUAA & ERU Futures Coal Futures API 2 (ARA)2 Coal Futures API 4 (Richards Bay)2French Natural Gas SpotFrench Natural Gas Derivatives German Natural Gas Spot Dutch Natural Gas Spot UK Natural Gas for OTC Clearing Emission Spot Contracts (EUA, EUAA)German Power SpotFrench Power SpotAustrian Power Spot Hungarian Power SpotSwiss Power Spot Trilateral Hungarian Power FuturesMarket Coupling EMCC, CWE Austrian Natural Gas Spot Austrian Natural Gas Derivatives) 2API 2 and API 4 are used under license from Argus Media Limited/The McCloskey Group Limited. Coal Futures All copyrights and database rights in the API 2 and API 4 indices belong exclusively to Argus Media API 4 (RB, South Africa)2 Limited/The McCloskey Group Limited. All rights reserved. 2
  3. 3. ECC Overview Network of Partners and Clearing Member ECC’s Network of Partners 6 Parnter Exchanges 15 Clearing Members 306 Non Clearing Members 24 Countries and Customers 18 TSOsPer 16 October 2012 3
  4. 4. EMIR implementation - High degree of uncertainty Common position with market participantsCurrently it is still unclear how ESMA will determine the contracts falling under themandatory clearing obligation:• How will classes of financial derivatives be concretely defined? ESMA information requests are very detailed, however the relevant attributes already differ significantly between different maturities of a product• Classification of financial instruments with physical delivery? Non-EU CPPs? The definition is not final in MiFiD/R II and EMIR.• The level of standardization can easily be influenced in practice. With minor changes of contract specifications, the clearing obligation can potentially be avoided.• Consideration of proportionality of margin obligation to risk avoided? How will EMSA apply this consideration?Further uncertainty concerning the national implementation of the EU rules:• e.g. German „Nachteilsausgleichspflicht“ in the EMIR Implementation Law 4
  5. 5. EMIR preparations – maximize customer benefits via focusing on energy/power marketsEfficient margining saves capital costs• ECC optimized the margin methods in 2011, offering optimal cross commodity margin credits; further improvements will be implemented on an ongoing basis; significant enhancements are in preparation for 2014.• ECC is preparing the acceptance of EUA collateral; ECC has petitioned for improvements of EUA within the EMIR implementation laws.Unification of today‘s distributed power clearing environment• Already today ECC widely covers the European map with exchange partnerships.• ECC is „interoperable“ with certain CCPs: Keler CCP and EUREX Clearing• EEX/ECC expand clearing offering with an extensive OTC clearing product set• Cost savings through unified clearing conditions (legal cost), cross margining and netting (collateral and liquidity cost), simplified operations, …Joint clearing for derivatives and spot markets incl. 24/7 intraday• Offsetting effects and use of spot-market know-how for derivatives markets e.g. optional change from financial to physical fulfillment. 5
  6. 6. EMIR preparations – maximize customer benefits via state-of-the-art CCP functionsEfficient interfaces• EEX: access via EUREX (+connected ISVs) and Trayport as standard systems, ComXerv as a specialized spot market system• ECC: EUREX-Clearing, EFET.net eXRP, Trayport ClearingHub, Trade RepositoriesNetwork: client membership, clearing member• Already today ECC widely covers the European map for power, gas and CO2• Clearing members are the main specialized clearing banks; further clearing members in the pipeline for approval• Extension of the membership base is also driven by the widened product offering of power for EuropeRisk Management also in the context of the increased concentration to CCPs• Individual portability and segregation already available today using back-up clearing members and collateral path-through concepts• Market participation in risk governance by establishment of a risk committee: independent supervisory board members, clearer and client representatives. 6
  7. 7. OTC Clearing implementations Product design considerations: Standardization of product specifications OTC derivatives Clearing Non Clearing Exchange traded* No similarity to exchange look-alike derivatives derivatives Requirements for cleared Requirements for cleared Requirements for bilateral exchange derivatives OTC derivatives OTC derivatives Clearing obligation and standardization are influencing the risk management for OTC derivatives. Different risk management requirements are set for OTC and exchange derivatives by the ESMA technical standards (ETS) with a material impact for collateral requirements. OTC derivatives with a high degree of standardization leading to risk characteristics similar to exchange traded derivatives are treated as exchange derivatives.*exchange traded refers to Art. 1 No. 14 MiFiD and includes trading on regulated markets in third countries 7
  8. 8. OTC Clearing implementations by the exchange Consequences of standardizations Exchange traded and exchange look-alike OTC Other OTC derivatives derivatives• confidence level 99% • confidence level 99,5%• holding period 2 days • Holding period 5 daysThe degree of standardization (comparability of risk characteristics toexchange traded products) has direct implications to risk managementand therefore to the level of CCP required collateral. Standardizationtherefore to be preferred from the CCP and market point-of-view.Holding period of 2 days is a new standard => lower holding periodparameters of other clearing houses no longer permissible => levelplaying field. 8
  9. 9. OTC Clearing implementation by the exchange Expansion of product list to allow improved Cross-Margin and simplification of clearing processes Nordic Power Cleared Power today Futures (System price) Cleared Power tomorrowPXE - New Partner Exchange Polish Power FuturesSpanish Power Futures Romanian Power FuturesPortuguese Power EUR-Coal forFutures dark spreads Italian Power/Gas Futures 9
  10. 10. Preparations of market infrastructure Straight-Through-Process for Broker OTC Registration Order Order Member A Broker Member B Trade OTC Clearing STP Interface Permission for Permission for Auto-Take-up EFET. Tray Auto-Take-up net• Always port • Always• AutomaticExecution eXRP • AutomaticExecution• ManuallyConfirmed • ManuallyConfirmed Auto- Auto Auto- Portfolio A Portfolio B Take Up Reg.&Give-up Take Up Accept Accept Clearing Clearing Member Member 10
  11. 11. ConclusionMarket participants and CCPs operate under a high degree of uncertaintyregarding the upcoming rules• Early preparation for upcoming rules: optimize cross margining, European coverage by introducing OTC product bundles and new partner exchanges• Importance of a CCP industry/regional footprint: both counterparts of a to-be- cleared trade must have access to the same CCPAwareness for margin efficiency as an important customer value• Prerequisite: methodology and coverage of the required product set• Importance of the acceptable collateral, e.g. EUA as collateral• ESMA Technical Standards achieve a level playing field by setting minimum parametersProtection of cleared customer positions is essential• Usage of segregation and portability of customer positions• Unified rules improve operational setup: one central counterparty serving multiple exchanges 11

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