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OTC Clearing

Implementation central clearing system

Under the new European Market Infrastructure Regulation (EMIR), from the end of 2014 banks will be obliged to channel all standardised OTC derivatives through a central clearing system. This regulation is consistent with other regulatory initiatives (e.g. Basel III and the new MiFID) and with comparable regulation outside Europe (e.g. the Dodd-Frank Act). In fact, we are already seeing the first signs of a new market situation for trading in OTC derivatives.

 

The central clearing process involves a central counterparty (CCP), whose role is to act as the counterparty for both sides of a bilateral transaction. The CCP has a number of important functions, including those of managing counterparty risk and settling payments. Market participants can access the services of a CCP either as direct members or as clients of a clearing broker. 

The introduction of central clearing has a major impact on on the entire process chain for capital market transactions. The main areas affected are:

  • The transaction life cycle
  • Collateral management and margin calculation
  • Implementation of processes on the IT side
  • Modelling impacts on RWA through netting and new Basel III rules
  • Default management

Our experts are on hand to help you work out the best solution for central clearing, from establishing your bank's position as a client, direct member or clearing broker through to implementation of the corresponding processes in your IT systems. Faced with this complex regulatory environment, we can help you to lay the right foundations for your capital market operations in good time and with due regard for the rules imposed by EMIR.

Some of our ongoing projects involve advising banks with different market positions on how best to implement a system of central clearing. d-fine's consulting teams have all the experience needed to support your organisation at every stage of the implementation process. You can take advantage of:

  • The expertise we have built up over the course of numerous successful central clearing projects for clients, direct members and clearing brokers, covering every aspect of the process from asset class differentiation through to obtaining a transaction register listing.
  • Our lengthy experience of IT systems and processes in the area of capital markets.
  • Our detailed knowledge of the regulatory environment and the present clearing market.

Clients

Clients obtain access to a CCP through the services of a clearing broker. d-fine is currently working on several projects to help clients implement the new regulations imposed by EMIR. The main issues that need to be addressed in terms of implementation as a client are collateral management, the transaction life cycle, adaptation of the processes involved in settling capital market transactions and the selection of one or more clearing brokers.

Direct members

Direct members meet the criteria for direct access to a CCP. d-fine can help its customers to implement the processes required as a direct member. The main issues here are process design and margining methodology, the automated import of transactions from MarkitWire and the automated processing of CCP reports.

Clearing brokers

The role of clearing brokers is to provide clients with access to a CCP. d-fine can help its customers to qualify as a clearing broker, e.g. by designing the collateral platform, analysing the impact of equity backing, automating collateral management processes and implementing a system of client reports.