KDPW_CCP has cleared the first inter-bank market (OTC) trades denominated in PLN between Citi Handlowy and mBank. Trade on the inter-bank market is processed and guaranteed in the dedicated module, otc_clearing, developed by KDPW_CCP in co-operation with Poland’s biggest banks operating on the inter-bank market.
“The main advantage of clearing OTC derivatives in a CCP clearing house is the safety and guarantee of clearing supported by the functionalities of the clearing house where the CCP takes over the role of each counterparty through novation and relies on a multi-tier clearing guarantee system and risk management systems,” said Iwona Sroka, CEO and President of KDPW_CCP and KDPW.
The launch of the OTC derivatives and repo clearing service was required under EMIR, whereby all OTC trade in derivatives of classes indicated by ESMA must be cleared in an authorised CCP. KDPW_CCP was authorised by the EU authorities on 8 April 2014.
“KDPW_CCP has 14 participants of OTC clearing including the largest and most active banks on the Polish market. It should be noted that the banks use the otc_clearing system even before the start date of the clearing obligation,” said Iwona Sroka, CEO and President of KDPW_CCP and KDPW.
The banks which clear OTC trade in KDPW_CCP understand the benefits of CCP clearing:
Hans-Dieter Kemler, Vice-President of the Management Board for Financial Markets, mBank:
“Clearing of liquid OTC derivative trades, important to the financial markets, in a central counterparty clearing house is a key pillar of the financial market reform and will soon be mandatory in the EU member states. As one of the most active Polish banks trading in derivatives, mBank has always supported the concept of creating a local clearing house focusing on the clearing of instruments relevant to the local market and developing its service in close co-operation with the market. In view of the coming supervisory recommendation on central clearing of PLN interest rate derivatives, we believe that KDPW_CCP can handle the vast majority of such trade between Polish banks and in the future add active foreign banks to its pool of participants.”
Maciej Kropidlowski, Vice-President of the Management Board, Head of the Financial Markets Sub-Sector, Citi Handlowy:
“I’m glad that Citi Handlowy participates in historical developments: the first trades on the inter-bank market cleared by KDPW_CCP. We have successfully developed and tested the state-of-the-art solution which can contribute to a significant growth in the number and value of OTC trades in Poland. The trade clearing model supports the transparency of trade and thus bolsters confidence on the inter-bank market. Citi Handlowy has for many years been a leader of derivatives trade. We believe that market development will step up with the growing role of KDPW_CCP in the processing of such trade to the advantage of corporate clients, the Warsaw Stock Exchange and, last but not least, the Polish economy.”
The trades were confirmed on MarkitWire and then submitted for clearing to KDPW_CCP. “MarkitSERV is a provider of confirmation, clearing and other intermediary solutions in the financial chain. Based on its solution, MarkitWire provides KDPW_CCP with confirmed trades between banks,” said Alex Paidas, Director of Corporate Communications, Markit.
KDPW_CCP clears trade in the following PLN-denominated OTC derivatives:
• Forward Rate Agreement
• Interest Rate Swap
• Overnight Index Swap
• Basis Swap
• REPO and sell/buy-back (in Polish Treasury bonds)
Once KDPW_CCP is authorised for EUR trade, derivatives including FRA, IRS, and OIS on EURIBOR/EONIA will also be cleared in EUR. With the authorisation, financial derivatives which are transferrable securities will be added to the basket of financial instruments cleared by KDPW_CCP.
The recent financial crisis eroded confidence in the inter-bank market, resulting among others in a sharp decrease in the number and value of OTC trades. Financial institutions as well as regulators began to identify solutions which could make the market stable and safe. The G-20 summit in September 2009 decided to introduce legal regulations requiring standardisation of OTC products and their clearing in CCP (central counterparty) clearing houses. Under the standards followed by clearing houses, risks can be transferred from many counterparties to a single counterparty: the clearing house which also manages the risks of transactions.