The authorisation of the clearing house KDPW_CCP is yet another step in the harmonisation of the Polish financial market with the international standards and legal requirements. The preparations for the authorisation began at the time of the spin-off of KDPW_CCP from the structure of the Central Securities Depository of Poland (KDPW) according to the KDPW growth strategy adopted in 2009.
With this decision, KDPW separated two lines of business which were previously pursued by one company but generate different risks. The functions of central securities depository and the settlement of transactions remained within KDPW and by definition generate low risks. Clearing and guarantees of clearing are the responsibility of KDPW_CCP.
The first step towards a CCP clearing house was the formation of a clearing guarantor in 2010: the company KDPW_CLEARPOOL, which was equipped with a capital of PLN 60 million. The guarantor was independent subsidiary of KDPW and its capital could be used within the clearing guarantee system. The launch of the guarantor ensured that its own capital (PLN 60 million) could be used in the event of default of a KDPW participant.
KDPW_CCP milestones
A revolutionary step came with the decision, awaited by participants, which capped the amount of additional contributions to the clearing fund and, consequently, reduced the amount of potential additional payments of clearing members to the clearing fund. This was possible owing to additional resources: the capital of KDPW_Clearpool (other than resources of the participants) which could be used in the clearing guarantee system. The change was welcomed by foreign investors and financial institutions.
In 2011, the guarantor was transformed into KDPW_CCP, a company equipped with a state-of-the-art risk management system based on the SPAN methodology, a multi-tier clearing guarantee system (cash and derivatives market margins, clearing fund, own capital of the CCP), a modified default waterfall, and an increased own capital (to PLN 100 million; currently PLN 218 million). KDPW_CCP has become a modern clearing house which clears transactions using a range of mechanisms to systemically mitigate the risk of counterparty default under concluded transactions.
KDPW_CCP capital increase
The next step in the development of KDPW_CCP (2012-2013) brought a wide range of changes, regulatory harmonisation, modifications to systems and parameters necessary to ensure that KDPW_CCP is a full-fledged central counterparty (becoming the buyer to each seller and the seller to each buyer, which terminates the mutual rights and obligations of the original counterparties to a transaction) compliant with the requirements of the new EU regulations (EMIR). Consequently, it was necessary to introduce clearing novation into the Polish legal system, which took place in 2012 (in the provisions of the Act on Trading in Financial Instruments).
The spin-off of KDPW_CCP from within KDPW and the definition of its operating principles was designed to minimise the operating costs of the new entity (clearing house) while ensuring compliance with the top safety standards and international recommendations for clearing houses. As a result, multiple synergies between the central securities depository and the clearing house were unlocked without additional cost to the market.
A supplementary project defined in the Strategy, which is currently being finalised, is multilateral securities netting, where the CCP generates a single settlement instruction for all operations cleared in the CCP during a session for a registration account. In addition to greater safety of clearing, the tangible benefits for investors include mitigation of risks and reduced costs of clearing and settlement.
Harmonisation of KDPW_CCP’s capital, organisation and technology with the requirements of EMIR
Increase of the capital of the clearing house to PLN 218 million. |
Harmonisation of the risk management system. Risk management at multiple levels of the KDPW_CCP organisational structure in line with the applicable Risk Management Policy. Several lines of defence: requirements for the participants of the clearing house, margins, clearing fund, own capital of the clearing house. Risk management is based on the SPAN methodology for organised trading and the VaR (Value at Risk) methodology for OTC trade. |
Default waterfall – the sequence of using available resources in the event of participant default. |
Appointment of independent members of the Supervisory Board: currently 1/3 of all members of the KDPW_CCP Supervisory Board. |
Appointment of the Audit Committee and the Remuneration Committee within the Supervisory Board. |
Appointment of the Risk Committee which provides opinions and advice on all matters which may impact risk management, in particular change of a risk model, clearing member default procedures, criteria of granting clearing member status. The Risk Committee is comprised of independent members of the KDPW_CCP Supervisory Board and representatives of organisations of clearing members and their clients (in Poland in practice: IGTE, SII, ZBP, IDM, RBD at ZBP, IZFiA). |
Appointment of the KDPW_CCP CRO (Chief Risk Officer), CTO (Chief Technology Officer), CCO (Chief Compliance Officer). |
Other corporate modifications: Statute; Rules; compliance procedures relevant in view of high rigid standards and safety of clearing. |
Other modifications of systems: full segregation of clearing accounts (separate own accounts and client accounts); full segregation of collateral; porting – at the request of a non-clearing member, positions and collateral are transferred to another clearing member in the event of default of the existing clearing member; trade confirmation on MarkitServ and SWIFT Accord platforms; reporting to the trade repository. |