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DIGITAL WEEK 

4th Edition Impact of CCP risk and Initial Margin on Counterparty Risk Management

29 June - 3 July 2020 / Live Streaming & On-Demand

How did clearing fare so far in the current COVID crisis?

CCPs are built for bad times. In normal times, a CCP will clear new transactions, collect margin, value positions and move variation margin around. Most of the work that goes into setting up the risk management framework of a CCP is spent on making the CCP resilient to shocks, like appropriately sizing margin requirements and the default fund, getting credit assessments of clearing members right or designing effective auctions and hedging strategies.
On the other hand, we are in the middle of the worst financial crisis is generations. When the lockdowns started, I did expect a few defaults of market participants. However, there have been only two publicly known events at CCPs – the close-out of Ronin Capital at CME and DTCC and a close-out at IRGiT, an energy CCP in Poland. Whilst the crisis is not over yet, clearing seems to have been very orderly over the past few months. We will find out more when the public quantitative disclosures by CCPs for the first quarter of 2020 come out.

There have, however, been large increases in margin requirements, and we expect that procyclicality will be an important topic in the future. 

Going forward, what should be the priority for CCPs?

CCPs focused on resilience before the crisis and will have kept their models under tight review during the stressful market conditions we are currently going through. Some CCPs will have experienced negative prices for the first time, others will look at procyclicality. Learning from the crisis, regardless of whether there have been defaults or not, will be important to make sure CCPs become even safer.

As an industry, we would also like to see the implementation of the CPMI/IOSCO report “Resilience of central counterparties (CCPs):Further guidance on the PFMI”, and for all CCPs around the globe to work towards global best practice in risk management (see ISDA’s paper “CCP Best Practices”). 

What is on the workplan of regulators?

You would think that eight years after the last crisis, most regulation would be completed. However, similar to other areas like market and counterparty risk, regulation is still evolving.

Recovery and resolution – what happens if a CCP gets into trouble – has been discussed for a long time. A few weeks ago, the FSB issued a consultation on CCP resources in resolution. We also hope the EU will finalise its regulation on this topic this year.

In relation to resilience, CPMI/IOSCO are still working on auction design and have started work on client clearing.

And finally, even though the EU EMIR2.2 regulation is in force, it is still open as to which CCPs will be deemed systemically important and how these CCPs will be supervised, especially if they are US CCPs. Likewise, the CFTC has issued proposed rule changes on how it would regulate foreign CCPs. And not to forget, there is a Brexit angle to CCP supervision too.
There is still much to do and very interesting discussions ahead.

What do you expect to gain attending this meeting?

As with all conferences, I was hoping for networking and meeting new people. With the conference now being online, this aspect will be less important. It will be my first virtual conference and I will be very interested how this goes.

An interview with:

Ulrich Karl, Head of Clearing Services
ISDA

Our Digital Week Format 

We recognise that in today’s worlds our clients need information delivered in a different way; one that recognises that fluid working hours and flexible working environments are the “new normal”. Our DIGITAL WEEK FORMAT is designed to compliment this new way of working by delivering three hours of highly focused, practitioner drive content per day, spread across your working week through our innovative Live+ platform online streaming platform.

With recent real-life examples of client defaults and displays of CCP weaknesses, it is paramount for those involved in the financial markets and clearing services to better understand banks’ exposure to CCP. In order to enable this firms, need greater transparency on CCP methodologies to lead to effective risk modelling and strategic management decisions for direct participants. Furthermore, increasing the resilience within the CCP landscape through higher governance, supervision and coordination is crucial to strengthen the industry. Heads of counterparty credit risk and OTC clearing will find beneficial to reflect on the present industry gaps and weaknesses in terms of default management processes, non-financial losses and concentration risk. On the other side, CCP risk management is also a regulation-driven world. Tightening rules on initial margin reforms and amendments in the benchmark rate require banks to understand the implications of such changes in order to ensure the most effective transition and application.

This marcus evans event will enable firms to gain an insight into how CCP risk and initial margin are impacting counterparty risk, to enable institutes to reflect these changes into their specific business models and hence maintain a competitive advantage in the market.

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About the Event

We would be delighted to provide you with more information on this event.  Please fill in your details below and we will be in touch.

Ulrich Karl is head of clearing services at the International Swaps and Derivatives Association (ISDA), with responsibility for leading ISDA’s global clearing strategy. This includes issues related to central counterparty (CCP) risk management (resilience, recovery and resolution), the impact of Brexit on the clearing landscape, as well as clearing mandates (for products and counterparties), clearing access, capital charges for CCP exposures and related topics. Before ISDA, Mr. Karl worked for HSBC, where he most recently served as co-head of CCP risk in the global markets division. While at HSBC, Mr. Karl served as the industry chair for ISDA’s clearing, risk and capital working group. Mr. Karl holds a MSc in Electrical Engineering from Technische Universität in Darmstadt.

To view the Digital Week Agenda, click HERE! 

For all enquiries regarding speaking, sponsoring and attending this conference contact:

Yiota Andreou
Email: Yiotaa@marcusevanscy.com
Telephone: +357 22849 404
Fax: +357 22 849 394