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Introduction to € GCPlus

€ GCPlus Taking secured financing to the next level Olivier de Schaetzen – Alexandre Gautier – Nicolas Vincent Euroclear Collateral Conference Tuesday, 13 May 2014. Introduction to € GCPlus. The partners and the product The post trade partners . An innovative solution.

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Introduction to € GCPlus

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  1. €GCPlusTaking secured financing to the next levelOlivier de Schaetzen – Alexandre Gautier – Nicolas VincentEuroclear Collateral ConferenceTuesday, 13 May 2014 Introduction to €GCPlus

  2. The partners and the productThe post trade partners

  3. An innovative solution • Secured euro cash funding with standardized baskets of collateral • Anonymous trading with netting exposure by LCH.Clearnet SA, offering robust risk and default management • Embedded within a fully interoperable collateral system between Euroclear Bank and Euroclear France / ESES giving you access to a large counterparty base • Full re-use possible in triparty collateral management with market counterparties and Eurosystem • Optimum liquidity management • DVP settlement throughout the chain

  4. The value chain €GCPlus Clearing participants Electronic platforms ICAP, MTS, TulletPrebon Trading • Anonymous cash-driven trading via e-platforms • Trading of two baskets covering a large set of ECB-eligible securities LCH.Clearnet Clearing • Intermediation of the CCP reducing the regulatory capital cost • Exposure netting at clearing level Collateral Management / Settlement custody • Automated collateral management provided by Euroclear in a truly interoperable collateral management environment • Full possibility of collateral re-use • Optimum liquidity management: DVP settlementthroughout the chain Euroclear AutoSelect EuroclearBank/ESES National Banks (Banque de France...) Central Bank • Refinancing with Eurosystemand, initially, with Banque de France • Expansion to other central banks is ongoing

  5. Product features

  6. Trading platforms Access to €GCPlusTrading platforms offer treasurers and repo desks • Anonymous trading • Open architecture • Order-driven marketplace with price transparency • Deep liquidity pool • Fully automated end-to-end post trade processing • Daily web reports (public & private) of trading data

  7. LCH.Clearnet brings: LCH.Clearnet SA • Register trades upon confirmation by the platform • Novation of trades and calculation of a Net position exposure per basket • Live reportingthrough the wholeprocess • Robustrisk management and lowregulatory capital cost LCH.Clearnet SA guarantees • The return of the collateral to the cash borrower • The reimbursement of the cash to the cash lender • The payment of the Triparty Repo Interest based upon the nominal value of the repo to the cash lender

  8. Euroclear brings:Triparty interoperability 4 scenarios for net settlement across the two platforms LCH.Clearnet SA Collateral Management System (CMS) Euroclear Bank ESES Scenario 3 CG LCH C CT Scenario 1 CT LCH C CG Scenario 2 Scenario 4 8 Cash borrowers will settle against LCH.Clearnet using their main collateral account, irrespective of the location of the counterparty’s collateral account All transactions settle DVP Substitutions are executed across the two settlement platforms

  9. €GCPlustradingday Central European Time (CET) < 6:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 18:30 End of Day CCP Start of Day CCP Trading platforms Trading Trade collection LCH.Clearnet Same Day net positions Next day net position Euroclear collateral Management 2:00 3:15 4:30 6:00 7:00 8:00 9:00 10:00 11:00 12:00 12:45 13:30 14:25 15:30 16:30 17:45 18:20 Euroclear Bank Settlement Settlement (DVP) - Target2 FoP Euroclear France Daily Margin Payment Intraday Margin Payment LCH.Clearnet

  10. Triparty intra-operabilityESES foreigndebt extension of scope Collateraleligibility • Assets are ECB-eligible • Held by Euroclear Bank through ECB-eligible links • Relayed link between ESES and Euroclear Bank is ECB-eligible • Today • Belgium (NBB-SSS) • Euroclear Bank (XS) • France (EF) • Germany (CBF) • Italy (Monte Titoli) • The Netherlands (EN) • In 2014 • Austria (OeKB) • Greece (BoG) • Ireland • Further • Finland (EFI) • Portugal (Interbolsa) • Spain (Iberclear)

  11. Two liquid collateral basketsBaskets based on liquid income instruments eligible for Eurosystem’s monetary operations Basket 1 – LCHC EURO-GCPLUS LCR EQUIVALENT XS0708254148 Basket 2 – LCHC EURO-GCPLUS ECB RESTRICTED XS0708254817 • High Quality Liquid Assets • ECB liquidity classes L1A, L1B, L1C • Issuance rating higher than A- (govies) AA- (other) • Larger spectrum of ECB eligible assets • ECB liquidity classes L1A, L1B, L1C, L1D • Issuance rating higher than BBB- Eligibility criteria be managed by Euroclear to ensure liquidity LCH.ClearnetRisk Management using purpose-built credit scoring tools Concentration limits for optimum diversification

  12. Margining Simulation of margincalculation CollateralGiver CollateralTaker 100 million cash 105 million collateral (5% Haircut) Initial Margin: Max (IM – HC,0) HC: 5,025,662 IM calculation : 4,156,642 ACM + CPC+TRI 44,444.44 debit Total MarginRequirement 44,444.44 debit 100 million cash 105 million collateral (5% Haircut) Initial Margin HC + IM 5,025,662 debit (HC) 4,156,642 debit (Vol.) ACM + CPC+TRI 116,303.88 debit Total Margin requirement 9,298,609.06 debit

  13. Default Management Overview Other Clearing Services €GC+ Clearing Service Minimum Deposit + Defaulter Margin (Total Initial Margin + Triparty Interest Repo Margin + Concentration Risk Margin +Sovereign Risk Margin + Wrong Way Risk Margin) Defaulter’s Mutualised Default Fund contribution Up to 25% of EMIR/EBA minimum LCH.C SA Net Capital Requirement shared across all services (amount & allocation methodology to be confirmed) Non-defaulters mutualised €GC+ contribution Defaulter Margin Default Fund Replenishment/Assessment of €GC+ Default Fund Funded Capital LCH. Clearnet SA Capital Assessment/Service Continuity/Close-out Service Continuity Assessment Loss distribution & close-out€ GC+ services

  14. Integrationwithin standard TripartyCollateral Management LCH.Clearnet SA Collateral Management System (CMS) Euroclear Bank ESES Scenario 3 CG LCH C CT CP BdF Scenario 1 CP CT LCH C CG Scenario 2 Scenario 4 • All operations managed by AutoSelect • Collateral selection • Collateral movements • Margin management • Collateral optimisation • Optimum liquidity management • Access to all re-use functionalities

  15. How to get started?

  16. How to get started?

  17. Onboarding LCH.Clearnet SA process Euroclear process • Initiate the triparty €GCPlus subscription: contact your account manager • Complete €GCPlus testing forms: triparty testing account, connectivity forms • Sign the €GCPlus subscription form • Complete the collateral profile form (annexes) for EB or ESES and interoperability • Complete Italian tax certification documentation • Testing • Go Live • Initiate the membership process • Complete Main Application* file • Complete €GCPlus Configuration form • Submission by Credit Risk Management Committee (CRMC) • Testing • Approval by Credit Risk Management Committee (CRMC) • Sign and return all Membership Agreements and other required documentation • Go Live * Main Application file is not applicable for existing clearing members

  18. Why trading €GCPlus?Key benefits • Available through leading trading platforms • Robust CCP services and risk management by LCH.Clearnet SA • Fully embedded in Euroclear collateral management system • Full re-use capacity in triparty collateral management, including refinancing with Banque de France • Fully interoperable model between Euroclear Bank and Euroclear France giving you access to ALL Euroclear Bank and Euroclear France (ESES) counterparties • DVP settlement with real transfer of collateral • Optimum liquidity management

  19. Contacts

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