Transcript Russian Trading System (RTS) ORC [Date] Presentation

ACI Russia General Assembly
29 May 2014
CME GROUP – FX Futures
Danny Corrigan
CEO, CME European Trade Repository
CME FX Futures Average Daily Volume and Notional Value
with 1 year moving average
1,300,000
160.0
1,200,000
140.0
Average Daily Volume (in contracts)
1,000,000
120.0
900,000
100.0
800,000
700,000
80.0
600,000
500,000
60.0
400,000
40.0
300,000
Notional Value (in billions of dollars)
1,100,000
200,000
20.0
100,000
0
0.0
Foreign Exchange
2
OTC derivatives are going through a global regulatory filter
1
2
3
4
Basel III
BCBS/ IOSCO
CPSS/ IOSCO
EMIR
(Dodd-Frank in the US)
Improved coverage of
counterparty credit risk
(CCR)
Margin requirements for
non-centrally cleared
OTC derivatives
Common principles for
CCPs
Mandatory central clearing
for standardized OTC
derivatives
• Introduction of CVA
• Refined treatment of
CCP exposures
• More stringent rules for
margin calculation and
segregation
• Introduction of guiding
principles to structure
CCP risk management
• Reporting of all derivatives
to trade
repositories
• Introduction of leverage
ratio
• Subject to an exposure
threshold
• Stress-test (Cover 1/2)
to size default fund
• Improved risk
management
Drives capital
requirements
Drives initial margin
requirements
Drives default fund
requirements
Drives central clearing
requirements
Source: Council of the EU, ESMA, BCBS, IOSCO, Oliver Wyman analysis
3
Costs
Exposure
Margin
requirement
Cost drivers vary significantly across FX models
Cost driver
Bilateral OTC FX
derivatives, no initial
margin
Bilateral OTC FX
derivatives, with
initial margin
Centrally cleared
OTC FX derivatives
Exchange-traded FX
derivatives
Variation margin




Initial margin




Margin period of risk
(MPOR) for initial margin
n/a
10 days
~ 5 days, CCP
dependent
1–2+ days, depending
on exchange
Bilateral exposure




CCP exposure




MPOR for capital
10+ days
10+ days
5 days
5 days
CVA VaR




Default fund contribution




Capital costs
High
Low
Low
Low
Funding costs
Low
High
Medium
Low - Medium
CVA
High
Medium
No
No
Relatively high costs
Relatively low costs
No/low costs
4
Drilldown: Mixed FX portfolio
Current Regulations: Multilateral netting benefits increase cost
efficiency of futures and cleared OTC models
Annualized cost of €10 BN notional
€ MM
Perspectives
Bilateral
no IM
Bilateral
with IM
OTC
cleared
Exchange
traded
Trade exposure capital
7.4
1.7
0.2
0.2
Default fund capital
0.0
0.0
1.2
0.5
CVA VaR capital
0.7
0.2
0.0
0.0
Total capital requirement
8.1
1.8
1.4
0.7
Funding
Initial margin posted
0.0
456.6
156.0
65.9
Default fund
0.0
0.0
7.8
3.3
Total funding requirement
0.0
456.6
163.8
69.2
Costs
(annualized)
Capital costs
0.9
0.2
0.2
0.1
Funding costs
0.0
5.5
2.0
0.8
CVA
2.4
0.5
0.0
0.0
3.3
6.2
2.1
0.9
100%
190%
65%
28%
Capital
Total costs (annualized) € MM
Cost in % of bilateral with no initial margin
•
A central counterparty model may
result in significant multilateral netting
benefits for portfolios of trades1
•
Risk exposure reduced and capital
requirements lowered
•
Multilateral netting results in lower initial
margin requirements
•
Benefits of using counterparty
highlighted when considering a trading
portfolio rather than a single directional
trade
•
Cost benefits clearest for ETD model
where initial margin requirements and
therefore funding costs are decreased
Source: Datastream, Bloomberg, CME, Oliver Wyman analysis
1. Depends on overall risk offsets; assumed 60% IM and exposure netting benefit for CCP models vs. 20% for bilateral trades
Key assumptions underlying analysis: Initial margin calculated using 99% VaR methodology; assumed 5% DF/IM with 10% c-factor; EPE FX
and IR methodology used for proxy factors in capital and CVA exposure calculation; 30% bilateral risk weight; 2% CCP risk weight; proxy
multiplier used for CVA VaR calculation;12.5% bank capital ratio; 11% cost of capital; 1.2% funding costs; 1.2% annualised CVA
5
CME Europe Ltd
• Launched April 2014
• London-based, FCA supervised RIE positioning it in Europe’s most important financial
centre
• Wholly owned subsidiary of CME Group with a dedicated Board of Directors
and Management Team
• Initially launching with 30 FX futures including USD/RUB and will
become a multi-asset class exchange phased in over time
• Guided by the strategic imperatives of efficiency & simplicity
• Using CME Globex, the world’s leading electronic trading system, as its trading
platform
• CME ClearPort will be used to enter block & EFP trades, amongst others, to bring
them under the rules of the exchange and for clearing
• Clearing services are provided by CME Clearing Europe, a Bank of England
recognised and supervised London-based clearing house
6
[email protected]
Will Patrick – CME group