Pioneering Solution â Collateral Management - Clearstream
Pioneering Solution â Collateral Management - Clearstream
Pioneering Solution â Collateral Management - Clearstream
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15º GSF Summit<br />
OTC Derivatives –Quo vadis<br />
Luis Fernando Fleury<br />
CETIP – OTC Clearing House, CEO
Agenda<br />
1. OTC Derivatives market in Brazil<br />
2. Central Trade Repository – for many<br />
years....<br />
3. <strong>Pioneering</strong> solution – <strong>Collateral</strong><br />
<strong>Management</strong><br />
4. Partnership with <strong>Clearstream</strong><br />
5. Even more transparency<br />
6. Contacts
OTC Derivatives market in Brazil
Derivatives Market<br />
GLOBAL MARKET<br />
(U$ trillion)<br />
Source: Bank for International Settlements<br />
Source: CETIP and BM&FBOVESPA<br />
BRAZIL<br />
(U$ billion)<br />
BRAZIL<br />
(U$ billion)<br />
Date OTC ETD<br />
October 2010 328 3.625<br />
Source: CETIP and BM&FBOVESPA<br />
OTC Derivatives – Quo vadis<br />
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OTC Derivatives Market in Brazil<br />
CETIP HISTORICAL DATA OF OTC DERIVATIVES MARKET – Notional Outstanding Amounts - U$ Billion<br />
Brazilian FX Crises<br />
U$/R$ - 1,68; Inflation – 0,3%<br />
p.m.; 3,66% p.a.; Interest<br />
Rate – 27,21% p.a.<br />
Lula’s First Government<br />
U$/R$ - 3,59; Inflation –<br />
1,52% p.m.; 20,56% p.a.;<br />
Interest Rate – 25,85% p.a.<br />
Global Credit Crises<br />
U$/R$ - 1,619<br />
OTC Derivatives – Quo vadis<br />
4
1. OTC Derivatives market in Brazil<br />
2. Central Trade Repository –<br />
Brazilian model for many years<br />
3. <strong>Pioneering</strong> solution – <strong>Collateral</strong><br />
<strong>Management</strong><br />
4. Partnership with <strong>Clearstream</strong><br />
5. Even more transparency<br />
6. Contacts<br />
Agenda
Central Trade Repository<br />
Brazilian model for many years<br />
1. OTC Derivatives market in Brazil<br />
2. Central Trade Repository –<br />
Brazilian model for many years<br />
3.<br />
4.<br />
5.<br />
6.<br />
Agenda
Increase of transparency<br />
First regulation issued in 1994<br />
OTC Derivatives – Quo vadis<br />
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Increase of transparency<br />
First regulation issued in 1994<br />
OTC transactions must be registered in a<br />
centralised system approved by the Brazilian<br />
Securities Commission and the Central Bank of<br />
Brazil<br />
Mandatory identification of the beneficiary owner<br />
Registration through a centralised electronic<br />
system by the authorised participants<br />
The OTC Clearinghouse are responsible for<br />
analysing and approving of the transactions<br />
submitted to registration and trading<br />
OTC Derivatives – Quo vadis<br />
8
1. OTC Derivatives market in Brazil<br />
2. Central Trade Repository – Brazilian<br />
model for many years<br />
3. <strong>Pioneering</strong> solution – <strong>Collateral</strong><br />
<strong>Management</strong><br />
4. Partnership with <strong>Clearstream</strong><br />
5. Even more transparency<br />
6. Contacts<br />
Agenda
Pioneer solution<br />
<strong>Collateral</strong> <strong>Management</strong>
<strong>Pioneering</strong> <strong>Solution</strong> – <strong>Collateral</strong> <strong>Management</strong><br />
Drivers<br />
Market demand for risk mitigation<br />
with no CCP<br />
Bilateral risk management with no<br />
CCP<br />
Need of banks to reduce their capital<br />
requirements<br />
Demand for third party calculation<br />
agent<br />
Independent <strong>Collateral</strong> <strong>Management</strong><br />
agent<br />
OTC Derivatives – Quo vadis<br />
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1. OTC Derivatives market in Brazil<br />
2. Central Trade Repository – Brazilian<br />
model for many years<br />
3. <strong>Pioneering</strong> solution – <strong>Collateral</strong><br />
<strong>Management</strong><br />
4. Partnership with <strong>Clearstream</strong><br />
5. Even more transparency<br />
6. Contacts<br />
Agenda
<strong>Pioneering</strong> solution – <strong>Collateral</strong> <strong>Management</strong><br />
Partnership with Cleastream
<strong>Pioneering</strong> <strong>Solution</strong> – <strong>Collateral</strong> <strong>Management</strong><br />
CETIP and <strong>Clearstream</strong> signed a Master<br />
Agreement to initially cover <strong>Collateral</strong><br />
<strong>Management</strong><br />
CETIP hired Algorithmics to support their MtM<br />
calculation<br />
OTC Derivatives – Quo vadis<br />
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<strong>Pioneering</strong> <strong>Solution</strong> – <strong>Collateral</strong> <strong>Management</strong><br />
ParticipantA<br />
(CETIP)<br />
•EligibilityCheck<br />
•Securities Valuation<br />
•Automatic Allocation<br />
Exposure<br />
Notification<br />
Triparty<strong>Collateral</strong> <strong>Management</strong><br />
•Automatic Margin Calls<br />
•Substitution Process<br />
•Reporting<br />
OTC Derivatives Trades<br />
Exposure<br />
Notification<br />
CETIP & SELIC<br />
ParticipantB<br />
(CETIP)<br />
•Immobilization of Domestic Assets<br />
Assets stay in the local environment /<br />
legal regime – Phase1.<br />
Inclusion of international assets<br />
(phase 2) to create virtual global<br />
collateral pool.<br />
CETIP is the face to the customers.<br />
Independent and neutral collateral<br />
management agent.<br />
Enable new business opportunities<br />
(e.g. Repo and Securities Lending)<br />
Quick time-to-market as opposed to<br />
own development<br />
CETIP automatically benefits from all<br />
enhancements / service elements of<br />
the Global Liquidity Hub<br />
OTC Derivatives – Quo vadis<br />
15
1. OTC Derivatives market in Brazil<br />
2. Central Trade Repository – Brazilian<br />
model for many years<br />
3. <strong>Pioneering</strong> solution – <strong>Collateral</strong><br />
<strong>Management</strong><br />
4. Partnership with <strong>Clearstream</strong><br />
5. Even more transparency<br />
6. Contacts<br />
Agenda
Even more transparency
Increase of transparency – advances to the current model<br />
Mandatory registration of offshore derivative<br />
transactions carried out by the financial<br />
institutions authorised to operate in Brazil<br />
Currently CETIP is the only centralised system<br />
authorized by the Brazilian Regulators for the<br />
registration of offshore derivatives transactions.<br />
OTC Derivatives – Quo vadis<br />
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Increase of transparency – advances to the current model - CED<br />
Members:<br />
CED is an initiative of CETIP and BM&FBOVESPA<br />
Exchange and Banks Associations<br />
Regulation:<br />
Instruction CVM486, from the Securities Commission<br />
provided CED with the Legal framework. The Central<br />
Bank recognised CED by the Resolution 3.908.<br />
What is CED?<br />
CED provides information about exposures related to<br />
any derivatives contracts signed between financial<br />
institutions and, mainly, companies.<br />
Objective<br />
Reduction of uncertainties and increase of<br />
transparency.<br />
OTC Derivatives – Quo vadis<br />
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1. OTC Derivatives market in Brazil<br />
2. Central Trade Repository – Brazilian<br />
model for many years<br />
3. <strong>Pioneering</strong> solution – <strong>Collateral</strong><br />
<strong>Management</strong><br />
4. Partnership with <strong>Clearstream</strong><br />
5. Even more transparency<br />
6. Contacts<br />
Agenda
Contacts
Contacts<br />
Wagner Anacleto<br />
COO<br />
wagneranacleto@cetip.com.br<br />
Nelson Eduardo Pinto Pereira<br />
Head of Market Development<br />
nelson.pereira@cetip.com.br<br />
Gerd Hartung<br />
Senior Vice President<br />
gerd.hartung@clearstream.com<br />
Fabrice Tomenko<br />
Head of <strong>Collateral</strong> <strong>Management</strong><br />
fabrice.tomenko@clearstream.com<br />
OTC Derivatives – Quo vadis<br />
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Use of collateral – comparing Brazil to other markets<br />
Growth in collateralised exposures<br />
(As percent of total exposure)<br />
Source: ISDA , CETIP, Brazilian market interviews<br />
% of derivatives collateralised provides<br />
evidence of the extent to which market<br />
participants use collateral to manage<br />
their counterparty exposures<br />
Globally, there is evidence of increases<br />
in collateral use for most risks: OTC<br />
derivative coverage has increased to<br />
68% of credit exposure in 2008 from<br />
29% in 2003<br />
In Brazil, the level of collateralisation<br />
remained very low in 2010<br />
Most contracts are ‘clean’ and<br />
not collateralised at all<br />
When exposures become too<br />
large banks try to ‘reset’<br />
contracts<br />
The gap between Brazil and other<br />
markets is indicative of the potential for<br />
increased use of collateral in OTC<br />
markets<br />
OTC Derivatives – Quo vadis<br />
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