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€GCPlus Taking secured financing to the next level Olivier de Schaetzen – Alexandre Gautier – Nicolas Vincent Euroclear Collateral Conference Tuesday,

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Presentation on theme: "€GCPlus Taking secured financing to the next level Olivier de Schaetzen – Alexandre Gautier – Nicolas Vincent Euroclear Collateral Conference Tuesday,"— Presentation transcript:

1 €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

2 2 The partners and the product The post trade partners Banque de France As initial sponsor of the product LCH.Clearnet Is the largest clearing house for fixed income trades and repos in Europe. More than €280 Bn of transactions managed on a daily basis on those transactions Over 80 participants Euroclear Is the largest collateral house in Europe with over €850bn collateral managed daily for commercial banks, investment banks, central banks, corporate and asset managers Over 250 participants

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 3

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

5 Product features €GCPlus Repo rateFixed Maximum term367 days Minimum termSame day Maximum forward start10 days Repo rate accrual conventionExact/360 Repo interest paidReturn date Minimum contract size€1 million Order booksBrokerTec MTS Tullett Prebon 5

6 Trading platforms Access to €GCPlus Trading 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 6

7 LCH.Clearnet brings: 7 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 Register trades upon confirmation by the platform Novation of trades and calculation of a Net position exposure per basket Live reporting through the whole process Robust risk management and low regulatory capital cost LCH.Clearnet SA LCH.Clearnet SA guarantees

8 Euroclear brings: Triparty interoperability 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 8 Collateral Management System (CMS) LCH.Clearnet SA Euroclear BankESES Scenario 1 Scenario 3 Scenario 4 Scenario 2 LCH C CT LCH C CT CG 4 scenarios for net settlement across the two platforms

9 €GCPlus trading day 9 Start of Day CCP End of Day CCP 8:0018:309:00< 6:0014:0013:00 4:306:007:008:009:0010:0011:0012:0012:4513:3014:2515:3016:3017:45 Euroclear Bank Euroclear France Euroclear collateral Management 12:00 Same Day net positions Next day net position Settlement Trade collection Settlement (DVP) - Target2 16:00 Trading platforms Trading 10:0011:0015:00 LCH.Clearnet 2:003:15 Daily Margin Payment Intraday Margin Payment FoP Central European Time (CET) 18:20 LCH.Clearnet

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

11 Two liquid collateral baskets Baskets based on liquid income instruments eligible for Eurosystem’s monetary operations 11 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- Basket 1 – LCHC EURO-GCPLUS LCR EQUIVALENT XS Basket 2 – LCHC EURO-GCPLUS ECB RESTRICTED XS Eligibility criteria be managed by Euroclear to ensure liquidity Concentration limits for optimum diversification LCH.Clearnet Risk Management using purpose-built credit scoring tools

12 100 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, debit Total Margin requirement 9,298, 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, debit Total Margin requirement 9,298, debit Collateral Taker Margining Simulation of margin calculation 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, debit Total Margin Requirement 44, debit 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, debit Total Margin Requirement 44, debit Collateral Giver 12

13 Default Management Overview 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 ) Up to 25% of EMIR/EBA minimum LCH.C SA Net Capital Requirement shared across all services (amount & allocation methodology to be confirmed ) €GC+ Clearing Service Non-defaulters mutualised €GC+ contribution Default Fund Replenishment/Assessment of €GC+ Default Fund Service Continuity Assessment Loss distribution & close-out€ GC+ services Defaulter Margin Funded Capital LCH. Clearnet SA Capital Assessment/Service Continuity/Close-out Other Clearing Services 13

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

15 How to get started? Membership Criteria Fixed Income membership criteria for LCH.Clearnet SA (e.g. Equity capital of €100mn for ICM) Key Clearing Member requirements (LCH.Clearnet SA) Contribution to the segregated default fund (EUR: 2.5mn min., depending on the size of activity) Extension of existing membership Triparty agreement with Euroclear and the selection of a reference CSD Collateral management instructions processed under POA granted to LCH.Clearnet SA End-to-end scripted testing Register with one of the electronic trading platforms (MTS, ICAP, Tullet Prebon) 15

16 Account structure Euroclear AutoSelect Participants account setup Taker and Giver accounts in Euroclear Bank or ESES, with pledge facility to BDF (ESES only) ‘Cross Taker’ dedicated account for Euroclear Bank participants to allow cross border instructions LCH.Clearnet SA account setup in Euroclear Bank and in ESES Taker, Giver, Cross Taker (EB only) accounts Margin account in Target2 or a cash clearer Default accounts and liquidation accounts 16 How to get started?

17 Onboarding 17 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 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 LCH.Clearnet SA process Euroclear process * 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 18

19 Contacts 19 CompanyContact details LCH.Clearnet Nicolas Vincent, Head of Fixed Income +33 (0) Nigel de Jong, Group Head of Fixed Income Client Management, Marketing & Sales +44 (0) Philippe Scavizzi, Head of Business Development +33 (0) Euroclear Bank Olivier de Schaetzen, Product Sales Specialist Your Relationship Manager, Commercial Division MTS Amanda Butavand Gabriele Frediani BrokerTec Europe Dermot Doherty Tullet Prebon Graham Martin

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