On 19 November 2012, as previously announced, the clearing house KDPW_CCP made available for testing the kdpw_otc system which supports the clearing of OTC trade.
The production roll-out of the service will take place following the publication and entry into force of the Transaction Clearing Rules for non-organised trading drafted by KDPW_CCP.
This ends the two-year period of preparations for the implementation of the inter-bank market derivatives clearing service in KDPW_CCP in co-operation with experts from the biggest Polish banks. The solution will be available on the entry into force of the Transaction Clearing Rules and the conclusion of agreements with clearing members. "Our service is mainly addressed to Polish banks which trade in OTC derivatives and repos, but we also wish to attract London-based institutions trading in instruments denominated in the Polish zloty," said KDPW_CCP President and CEO Iwona Sroka.
Clearing of OTC derivatives through CCP clearing houses is mainly aimed at mitigating the risk of default of trading counterparties.
In the first step, in 2012, the clearing house KDPW_CCP will offer the clearing of trade denominated in the Polish zloty in forward rate agreements, interest rate swaps, overnight index swaps, basis swaps, and repos (in Polish Treasury bonds). As of 2014, the clearing house will also offer the clearing of derivatives denominated in other currencies.
Counterparties trading in derivative instruments on the OTC market confirm trade on one of two confirmation platforms (MarkitWire or SWIFT Accord), which subsequently send clearing instructions to the clearing house. KDPW_CCP performs novation and clearing of trade using the kdpw_otc system. "Sending a trade for clearing in KDPW_CCP means that the trade is covered by a multi-tier clearing guarantee system which ensures safety of payment by the counterparties," said Iwona Sroka.
Clearing of OTC trade comes in response to post-crisis regulations aiming to rebuild trust on the inter-bank market and improve its liquidity which was strongly affected in connection with turbulences on the financial markets in the past years. In particular, this area is governed by the EU regulation EMIR. By 2014, clearing of specific classes of OTC derivatives will be mandatory. The directory of such instruments will be maintained by ESMA (European Securities and Markets Authority). Such instruments will be cleared by professional clearing houses. Thus, KDPW_CCP will initiate the procedure of authorisation by the Polish Financial Institution Authority under EMIR in Q1 2013.
The services offered by the KDPW Group now include the derivatives trade repository opened by the National Depository for Securities on 2 November 2012. It is yet another requirement of EMIR which is likely to take effect in mid-2013.