Clearing OTC Derivatives

Understanding today's and tomorrow's post trade environment

  2 days
Course objectives

  • Understanding regulatory and technical issues of new OTC derivatives clearing framework
  • Mastering how OTC derivatives CCPs work
  • Being aware of coming changes in post-trade landscape
Course content

The Central CounterParty ( CCP or Clearing house) : the basics

  • Notion of the underlying legal contract

The CCP for cash markets

  • Listed contracts (commodities, securities)
  • Supervision by an external regulator

The CCP for futures markets

  • Standardised, listed contracts for future delivery
  • Rapid anonymous trading
  • Reduction in payment flows
  • Bilateral counterparty risk elimination
  • Price quotes for mark-to-market
  • Chicago SPAN
  • Correlations: calendar spreads, cross-product spreads

Over-The-Counter (OTC) derivatives CCPs

  • OTC Interest Rate Swaps
  • IRS products: linear and non-linear
  • Credit Default Swaps
  • Market participants: market makers, flow traders, end-users
  • Swap products that can and cannot be cleared
  • Indices and price sources
  • Legal foundations; ISDA
  • Definitions; FpML

Clearing outside the CCP

  • Bilateral and multilateral cross border netting
  • Credit Support Agreements, bilateral collateralisation
  • Netting sets
  • Contract novation
  • Prime brokerage

OTC CCP basic functionality

  • Protecting the clearing house
  • Direct members of the CCP
  • CCP registration of a trade
  • Cleared swaps workflow; life of a trade
  • The client (end-user or buy-side) and his Clearing Broker
  • Portfolio revals
  • Mark-to-Market Variation Margin
  • Interest rate curves; standardised approach
  • Initial Margin: Filtered historical simulation, VAR
  • CCP risk management
  • Default management
  • The default waterfall

Client Clearing

  • FCM model in the US ; European model
  • Collateral transformation:- Client to Clearing Broker to CCP
  • Costs to the client

CCP systemic risk

Regulatory framework for CCPs and their users

  • Basel I, II and III
  • The Dodd Frank act; EMIR; G20 regulator group; The DCO, the ROCH and successors
  • US GAAP versus IFRS
  • The implications of recent and upcoming regulation for OTC derivatives

Case study:

* Counterparty risk reduction

* RWA and reg Cap requirement reductions

* STP improvements

* Operational risk

OTC CCPs today

  • Products and counterparties
  • The mechanics

Case study: Comparative analysis of the main OTC CCPs, Clearing broker offerings

Tomorrow's OTC CCP landscape

  • Global, regional, national CCPs
  • Inter-operability
  • Future cleared products : limitations
  • Clearing versus CSAs
  • G20 regulator group : expected development
  • Dodd Frank: right or wrong?



David Gardiner

David Gardiner

After 30 years of both operational and management experience within various brokers (Fulton Eurolink, Prebon Yamane, Euro Brokers) in different countries, David was Head of sales at SwapClear in LCH Clearnet for more than 10 years. This experience makes him one of the best experts in the clearing of OTC derivatives.

David Gardiner also teaches :