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WG Consulting & ZE PowerGroup Lunch and Learn: Presenting a Dodd-Frank Software Solution
 

WG Consulting & ZE PowerGroup Lunch and Learn: Presenting a Dodd-Frank Software Solution

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During a Lunch and Learn held with one of our esteemed Partners, ZE PowerGroup, our panel of experts discussed the challenges corporations find with Dodd-Frank and presented the software that WG ...

During a Lunch and Learn held with one of our esteemed Partners, ZE PowerGroup, our panel of experts discussed the challenges corporations find with Dodd-Frank and presented the software that WG Consulting and ZE PowerGroup built as an answer to those challenges.

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    WG Consulting & ZE PowerGroup Lunch and Learn: Presenting a Dodd-Frank Software Solution WG Consulting & ZE PowerGroup Lunch and Learn: Presenting a Dodd-Frank Software Solution Presentation Transcript

    • WG Consulting & ZE PowerGroup Dodd-Frank Reporting Solution www.wgconsulting.com
    • Table of Contents Introduction Landscape of Dodd-Frank Legislation Our Dodd-Frank Solution Panel Session ZEMA Demo Page 2
    • Panelist Bios Craig Enochs, Partner Jackson Walker, L.L.P. As an expert in deregulated energy transactions, including asset-based structured transactions, transactions for the purchase and sale of energyrelated commodities, transmission arrangements and transportation for these commodities, and commoditybased financial derivative transactions, Craig will share his insights into Dodd-Frank’s impacts. Erin Hunzeker, Vice President DTCC Erin is responsible for industry outreach and relationship management for the commodity business unit. He is a subject matter expert in energy trading having served as an energy trader in the power, natural gas, and oil space for Mirant for almost 10 years. He managed operations and hedging for a 2,500 megawatt portfolio. He has hedge fund trading experience and previously worked in both the back and front offices of Salomon Brothers Michael Prokop, Director Committee of Chief Risk Officers James Yu, Partner WG Consulting Michael began his career in New York, where he became a partner in the Merrill Lynch Energy Group. He then became a Managing Director of Energy Products at CME Group. Mr. Prokop continues to play a leading role in the development of industry initatives. James is currently working with financial and energy clients to assist them in understanding the practical implications of the Dodd-Frank regulations and its impacts on their systems and business processes. James will share his insights into the Dodd-Frank technical impact and applicable solutions for your business. Page 3
    • Introduction WG Consulting and ZE Power Group have formed an exclusive partnership to build a DoddFrank solution to provide client answers to their current challenges. WG Consulting WG Consulting (WG) utilizes world-class methodologies to deliver value-creating solutions based on each client’s unique operating needs. Our team’s thorough understanding of operational and regulatory risk is the key to competitive results that mitigate such risks for our valued clients. ZE PowerGroup ZE PowerGroup Inc. (ZE) is a software development company with extensive energy experience. ZE is the developer of the award winning ZEMA Suite an end to end data management system that focuses on data aggregation, data presentation and analysis, distribution and systems integration. ZE was founded in 1995 and has been providing services to market participants for 17 years. Page 4
    • CFTC Enforcement Recent examples of the CFTC levying fines on organizations that have violated terms of compliance: • June 7, 2012 - CFTC Orders Futures Commission Merchant Open E Cry, LLC to Pay $250,000 to Settle Failure to Supervise Charges • June 5, 2012 - CFTC Orders Morgan Stanley & Co. LLC to Pay $5 Million Civil Monetary Penalty for Unlawful Noncompetitive Trades • April 19, 2012 - Federal Court Orders $14 Million in Fines and Disgorgement Stemming from CFTC Charges against Optiver and Others for Manipulation of NYMEX Crude Oil, Heating Oil, and Gasoline Futures Contracts and Making False Statements • April 4, 2012 - CFTC Orders JPMorgan Chase Bank, N.A. to Pay a $20 Million Civil Monetary Penalty to Settle CFTC Charges of Unlawfully Handling Customer Segregated Funds As of August 2012 Page 5
    • Industry Viewpoints “Has anybody done a comprehensive analysis of the impact on – on credit? I can’t pretend that anybody really has,” Bernanke said. “You know, it’s – it’s just too complicated. We don’t really have the quantitative tools to do that.” - Ben Bernanke, Chairman of the Federal Reserve “While Dodd-Frank harms our economy, it unfortunately fails to even address the biggest cause of the financial crisis: the governmentsponsored enterprises, Fannie Mae and Freddie Mac that fueled the riot of imprudent lending that knocked our economy down to its knees.” - Rep. Spencer Bachus (R-Ala), Chairman of the House Financial Services Committee As of August 2012 “Most of the bad actors are gone,” “off-balancesheet businesses are virtually obliterated,” “money market funds are far more transparent” and “most very exotic derivative are gone,” he said. - Jamie Dimon, President and CEO of JPMorgan Chase “There is still a great deal of work to do to repair the damage caused by the crisis, and to implement the full framework of reforms. Ultimately, success will depend on making sure that we can write sensible rules that promote the health of the broader economy instead of the interests of individual firms—and that those charged with enforcing these rules have the resources and the talented people they need to do their job.” - Timothy Geithner, U.S. Secretary of Treasury Page 6
    • Estimated Annual Costs of Dodd-Frank Below are estimated annual costs for SD/MSP’s and Non-SD/MSP’s that will clear all of their trades on a DCO*. These costs are in addition to upfront costs that could reach as high as $2.5M. Costs will vary greatly from company to company depending on the volume and complexity of an organization’s swap business. Clearing & Membership Reporting Recordkeeping ICE TV Fee Per Asset Class Total Cost SD/MSP $500,000$1,000,000+ $250,000$400,00 $250,000$500,000 $10,000$500,000 $750,000$2,500,000+ NonSD/MSP $125,000$500,000 $150,000$250,000 $80,000$100,000 $10,000$500,000 $350,000$1,500,000+ *Cost estimates are based on numbers provided by the CFTC and ICE. The clearing and membership costs are specific only to ICE, as they are the only confirmed DCO that will also act as a SDR. CME has also applied to act as a SDR. As of August 2012 Page 7
    • SD/MSP vs Non-SD/MSP Requirements Matrix SD/MSP Non-SD / non-MSP Capital Must maintain new equity of $20 million plus amount for market and credit risk N/A Reporting Must submit PET of trade to a SDR within 30 minutes after execution in the first year and within 15 minutes after execution thereafter If trade is not cleared and both parties are Non-SD/MSP the parties must together determine the party responsible for reporting. Responsible reporting party must then report PET of trade within 4 hours after execution in the first year, within 2 hours of execution in the second year, and within 1 hour of execution thereafter Recordkeeping Records must be retained for the life of the swap plus 5 years. SD/MSP’s must also be able to retrieve records for the life of the swap plus 2 years within 3 business days if requested by the CFTC. Records must be retained for the life of the swap plus 5 years. SD/MSP’s must also be able to retrieve records within 5 business days if requested by the CFTC. Clearing SD/MSP’s are required to clear Non-SD/MSP can invoke end-user exception from clearing As of August 2012 Page 8
    • SD/MSP vs Non-SD/MSP Requirements Matrix SD/MSP Non-SD / non-MSP Position Limits Position Limits must be reported for 28 core referenced future contracts and any swap that is deemed “economically equivalent” to a CRFC. Position Limit monitoring goes into effect 60 days after the CFTC’s final definition of “Swap”. Position Limits must be reported for 28 core referenced future contracts and any swap that is deemed “economically equivalent” to a CRFC. Position Limit monitoring goes into effect 60 days after the CFTC’s final definition of “Swap”. Compliance Office Responsible for informing counterparty of risk of entering into trade. SD/MSP’s must also designate a CCO, file an annual compliance report with the CFTC, and establish a compliance program that incudes new processes and procedures directly related to the Dodd-Frank Act. Provisions for anti-fraud Registration & Membership Must register with NFA and subject to application fees and annual membership fees. N/A As of August 2012 Page 9
    • CFTC Timeline – Decision Points (Non-SD) Potential finalized projected compliance dates for non-Swap Dealers April 2012 June 2012 August 2012 November 2012 February 2013 Swap entity definitions finalized Swap product definition anticipated to be finalized Spot month position limits Real Time reporting and record-keeping/reporting for interest rate and credit swaps Real time reporting and record-keeping/reporting for equitites and other commodities (effective: July 23, 2012) Assessment Q2 2012 1 Q3 2012 Selection 8/16 2 10/15 3 1/14 Q4 2012 4 Q1 2013 Implementation 1 – Possible Swap Definition published to Federal Registry 2 – Initial Compliance Date Implement Selection Assess 3 – SD/MSP Compliance 4 – Non-SD / Non-MSP Compliance 4/18/12 Swap entity definitions finalized by CFTC/SEC (rule effective July 23, 2012) 6/30/12 Swap product definitions anticipated to be finalized, per Commioner O’Malia’s proposed schedule as published on CFTC website 8/29/12 Spot month position limits in effect (60 days after publication of product definitions) 11/27/12 2/25/13 As of August 2012 Real time reporting and recordkeeping/reporting for non-Swap Dealers – Interest Rates and Credit (150 days after publication of product definitions) Real time reporting and recordkeeping/reporting for non-Swap Dealers – Equities, FX and other commodities (240 days after publication of product definitions) Page 10 4/15
    • CFTC Timeline – Decision Points (Swap Dealers) Potential finalized projected compliance dates for Swap Dealers April 2012 June 2012 August 2012 Swap entity definitions finalized Swap product definition anticipated to be finalized • Spot month position limits • Real time reporting for Interest Rates and Credit • Internal Business Conduct (effective: July 23, 2012) Assessment Q2 2012 Q3 2012 1 8/16 2 November 2012 February 2013 • Real Time reporting and record-keeping/reporting for equities, FX and other comm. • Real Time reporting and record-keeping/reporting for equities, FX and other comm. • Large Trader reporting for cleared swaps • Large Trader reporting for cleared swaps 10/15 Q4 2012 Selection 3 1/14 Q1 2013 4 Implementation Selection August 2012 October 2012 1 – Possible Swap Definition published to Federal Registry Large Trader Reporting Assess July 2012 Provisional registration for SDs External Business Conduct 2 – Initial Compliance Date 3 – SD/MSP Compliance 4 – Non-SD / Non-MSP Compliance 4/18/12 Swap entity definitions finalized by CFTC/SEC (rule effective July 23, 2012) 6/30/12 Swap product definitions anticipated to be finalized, per Commioner O’Malia’s proposed schedule as published on CFTC website 8/29/12 11/27/12 As of August 2012 - Spot month position limits in effect (60 days after publication of product definitions) - Real time reporting and recordkeeping/reporting for Swap Dealers – Interest Rates and Credit (60 days after publication of product definitions) - Internal Business Conduct (except for Business Continuity & Disaster Recovery Plan) Real time reporting and recordkeeping/reporting for non-Swap Dealers – Interest Rates and Credit (150 days after publication of product definitions) Page 11 4/15
    • Dodd-Frank Issues The Dodd-Frank regulations create a unique system and business issue for organizations that will require a system with capabilities around: Collection & Centralization • • Multiple sources: Ability to pull from multiple ETRM systems and spreadsheets Customization: Ever changing regulations require new fields and reports to be created Reporting & Mapping • • Normalization of data: Transformation of each data source to go into single datawarehouse Publication • Communication with the following entities: • • ICE Trade Vault • Create report Formats: CSV, FpML, XML, FIXML CFTC DTCC Error Handling: Ability to perform action based on data translation issues • Scheduling: Action set to occur based on specific time • • • Internal Reports: Viewable screen to show history of reports submitted • Error Handling: Ability to perform action based on communication issues Datawarehouse: Stored data in a standard database As of August 2012 Page 12
    • Our Dodd-Frank Solution WG Services • Dodd-Frank Impact Assessment • Updates on latest regulatory changes and impacts to your business • Recommend and build reports • Identify fields and setup reports • Position Limits • Systems Assessment • Trade reporting data verification • Custom Dodd-Frank Development ZEMA System • Extract, Transform, Load and Publish (ETLP) Platform • Customizable Solution for New and Changing Regulations • Scalable for Growing Business and Multiple Source Systems • Flexible templates based solution offering low turnaround time • Data mapping interfaces between source and sink systems As of August 2012 Page 13
    • Checklist Comparison The Dodd-Frank solution will require a combination of SME consultants and a proven systems solution that WGC and ZE can provide. Standard Solution Features ZEMA Regulatory Reporting (LTR, Real-Time, Recordkeeping) Data warehouse (Schemas for Counterparty, Static and Transactional Data) Connectivity to all Swap Data Repositories Connectivity to CFTC Connectivity to Swap Execution Facilities Form Reporting (102S, 404A/S) Internal Reporting (Audit, compliance and IT) Validation (Rules and Notification capabilities) Monitoring Ongoing Support As of August 2012 Page 14
    • Benefits Overview The WG and ZE Dodd-Frank solution provide the following key benefits that we believe set us apart. Benefits • The Dodd-Frank rules and regulations are constantly evolving. WG and ZE are committed to updating the tool as updates are published • Low delivery risk. Our solution is built on award-winning ZEMA platform • The ZEMA Dodd-Frank Solution can be implemented in a relatively short timeframe, ensuring your organization meets the compliance deadlines of the CFTC • Cost certainty with fixed software costs allowing for better budgeting • Left with a scalable and expandable software system that can be used for other Interface (ETL) projects, Market Pricing and Publishing Curve Prices As of August 2012 Page 15
    • Collection and Centralization Collection and Centralization • Source Data • • 1a. Allegro (MS SQL) 1b. Endur (Oracle) Ability to pull information from multiple ETRM systems (ex. Endur, Allegro, etc) • Screen shot Ability to pull data from spreadsheets or other electronic sources Data Warehouse • Dodd-Frank data warehouse solution covers the following table structures: Reports, Party, Static, and ETL connections • 2. Data Warehouse Data warehouse here is flexible and scalable for new regulations and will fulfill future compliance needs and organizational needs As of August 2012 Page 16
    • Centralization – Cont. Centralization • Validation • • Screen shot 1. Easily transform data values Ability to validate and transform data before inserting into the data warehouse Buy = ‘BUY’ Pay = ‘PAY’ Simple ability to create standard validation rules (ex. count, correctness, etc.) • Viewable screen to track submitted records and their validation status • Simple screen to manually enter changes • Setup Email notifications on validation errors 2. Create new Validation conditions As of August 2012 3. Validation Report Page 17
    • Mapping - Classification Mapping • Classification of data • Customer data mapping is automatically generated when pulling data from source system (ex. LEI Code, 102S ID, Market Designation) 1. Static data mapping Static data mapping is automatically generated when pulling data from source system (ex. Underlying Commodity Code (UCC), Commodity Reference Price (CRP)) • Screen shot • 2. Customer data mapping Easy to setup mappings for Dodd-Frank rules As of August 2012 Page 18
    • Reporting - Scalability Screen shot Reporting • View and visualization data • Ability to setup new data sources to allow business growth and expansion • Ability to add new fields to reports based on new or changes to the requirements • Ability to add new observations around pulling data from sources • Reporting on data Dedicated team of software developers and Dodd-Frank consultants, which will update software based on new and changing regulations As of August 2012 Page 19
    • Publication - Monitoring Monitoring • Monitoring (Internal) • Listeners can be configured to operate at various time intervals • • 1. Screen to Monitor Status of listeners Ability to setup listeners that will monitor changes to a source system and automatically move data to the data warehouse • Screen shot 2. Ability to schedule and create Email Notifications when monitor fails For Real-time reports, the listeners can be configured to gather, transform and submit data to the proper entities near real-time Monitoring (External) • Ability to monitor responses from external entities As of August 2012 Page 20
    • Publication Messaging • Messaging • Tasks are easily configured to create FpML messages and store data into a appropriate directories • Viewable screen to show when messages were sent, status and history • 1. Easy setup of credentials between databases and external entities Workflows can be scheduled to work in during various times • Screen shot Simple Screens that will allow user to setup communication credentials between entities (ex. sFTP, ICE Trade Vault, and MQ Gateway) 2. Files sent to CFTC via sFTP FpML test file loaded up to CFTC As of August 2012 Page 21
    • ZEMA – High Level End to End Workflow Data is automatically imported from Allegro and Endur. DF Database Data is centrally stored into the ZEMA DF database. Centralization Data stored in the database can be reported on, visualized and manipulated. Transformed data issued back to the system. Receipt confirmations are sent back to the system. As of August 2012 Collection Data is mapped to target destinations. Reporting Mapping Fixed format files are issues to CFTC secured locations. Publication Page 22
    • Demo Workflow Manually executing an event driven process Import Openlink table from one database to another As of August 2012 Transform Openlink table to FPML Post to secure FTP Write values back to database and to file store Page 23
    • Let’s Stay In Touch David Stephan Managing Director, Risk, Systems & Compliance DStephan@wgconsulting.com O: 832.581.4971 C: 832.863.6659 Dan Masch Director, Regulatory Compliance DMasch@wgconsulting.com C: 832.863.6659 James Yu Managing Director, Trading & Risk Management JYu@wgconsulting.com C: 832.603.1572 Waleed El-Ramly Waleed@ze.com O: 604-306-4393 Baljeet Dhaliwal Baljeet.dhaliwal@ze.com O: 604-244-1469 ext 297 Bruce Colquhoun Bruce.c@ze.com O: 604-244-1469 ext 210 For more information, email letstalk@wgconsulting.com www.wgconsulting.com WG Consulting, LLC @thewgcpromise WG Consulting WG Consulting 1415 Louisiana, Suite 3450 Houston, TX 77002 Page 24