Upload
kai-soles
View
223
Download
3
Embed Size (px)
Citation preview
BM&FBOVESPA Integration Projects
CLASSIFICATION OF INFORMATION:
CONFIDENTIAL RESTRICTED CONFIDENTIAL INTERNAL USE PUBLICXX
Integration Projects
Main characteristics of Project Management
New Multi-Asset Trading System: Derivatives (online in Oct´11), Equities (1H12) and Fixed
income (2012)
Clearing Integration: ongoing delivery of some integration basics and project planning for 2013
new clearing infrastructure
AgendaAgenda
Integration Projects
- Scope of the Project
- Chronogram of the Project
- Budget of the Project
- Risk Analysis of the Project
- Planning of the Resources of the Project – Teams and Main Acquisitions
- Development of the Teams of the Project – Training
- Analysis and Control of the evolution of the Project
- Control of the Project Changes
- Analysis of the Legal Environment
- Control of the Results of the Project
Main characteristics of Project ManagementMain characteristics of Project Management
Integration Projects
New Multi-Asset Trading System: Derivatives (online in Aug´11), Equities (1H12) and Fixed income (2012)
Main characteristics:The objective was to jointly develop with CME a new multi-asset eletronic plataform that will be
used by BVMF´s markets such as derivatives, equities, FX and fixed income. This new trading system will substitute the current plataforms (GTS, Megabolsa, SISBEX and BolsaFIX).
The main drivers of the projetc are: Low Total Cost of the Ownership Knowledge Transfer Time to maket Tecnology
New Multi-Asset Trading SystemNew Multi-Asset Trading System
Integration Projects
Project Work streams
Program initiatives
Business Streams
Cross- Program
Technology
Steering Committee
Knowledge Transfer
Change Management
New Multi-Asset Trading SystemNew Multi-Asset Trading System
Integration Projects
Project Work streams
1. Program Iniciatives
2. Business Streams
The sub-streams are:
1. Operations
2. External Transition
3. Marketing and Communication
4. Legal and Regulatory
5. Accounting
New Multi-Asset Trading SystemNew Multi-Asset Trading System
Integration Projects
Project Sub-Stream
1. Operations
Market Operations
Disaster Recovery
New Multi-Asset Trading SystemNew Multi-Asset Trading System
Integration Projects
Project Sub-Stream
2. External Transition
Certification
Forums
Mock Trading
Market Data
New Multi-Asset Trading SystemNew Multi-Asset Trading System
Integration Projects
Project Sub-Streams
3.Marketing/Communication
4. Legal and Regulatory
5. Accounting
Additional work-streams:
Cross- Program
Technology
Steering Committee
Knowledge Transfer
Change Management
New Multi-Asset Trading SystemNew Multi-Asset Trading System
Integration Projects
Main Characteristics
Full DVP and netting
State-of-the-art risk management
Financial safeguards and sound collateralization
Settlement on Central Bank reserve account
Central securities depository
Clearinghouses as CCP of every trades
Model recognized by the IMF and recommended by G-20
Segregation by final beneficial owner
Collateral
Margining
Positions
Segregation by final beneficial owner
Collateral
Margining
Positions
Clearing IntegrationClearing Integration
Integration Projects
Equities, Equity Derivatives,
Corporate Bonds
Financial & Commodity Derivatives
Government Bonds Foreign Exchange
Equity cash market Options, futures,
forwards Securities lending –
BTC Corporate bond cash
market
Options, futures, forwards
OTC derivatives Gold spot market
Cash market & forward market for gvt. bonds
Repos Securities lending –
SET
FX spot market (BRL vs. USD)
Clearing Structures (Markets)
Products
CCPSSSCSD
CCPSSS
CCPSSS
CCPSSSServices
Clearing IntegrationClearing Integration
Integration Projects
New Post-Trade Model-Equities, equity derivatives, corporate bonds
Financial & commodity derivatives
Government bonds
Foreign exchange
Review of business model for post-trade activities and proposed creation of integrated structure
Integrated Structure
• Equities, equity derivatives, corporate bonds
• Financial & commodity derivatives
• Gvt. bonds
• FX
Clearing IntegrationClearing Integration
Integration Projects
FINANCIAL DERIVATIVES AND COMMODITIES
EQUITIES, DERIVATIVES ON SINGLE STOCKS
SEC. LENDING
FIXED INCOME
SPOT FX
OPERATIONAL EFFICIENCY
INTEGRATED SYSTEMS
CLEARING EFFICIENCY
NETTING POSITIONS
RISK MANAGEMENT EFFICIENCY
CAPITAL ALLOCATION REDUCTION
Clearing IntegrationClearing Integration
Integration Projects
Unified Clearing Structure
Unified Clearing Structure
Pillars:Pillars:
Foundations:Foundations:
Single Netting and Consolidated Settlement
Single Netting and Consolidated Settlement New Risk Model
New Risk Model Versatile Safeguard Structure
Versatile Safeguard Structure
Participant StructureParticipant Structure
Allocation and Give-upAllocation and Give-up
Position ControlPosition Control
Account StructureAccount Structure
Collateral Management Collateral Management
Clearing IntegrationClearing Integration
• New safeguard structure will be based on classic layers: Defaulter Pays, Survivors Pay, and CCP Capital
• Criteria for sizing layers will be unified for all markets• Survivors Pay layer: Collateral and fund deposit requirements based on participant’s risk profile
and on specific market involved• Defaulter Pays layer: Flexibility in responsibility for pledging collateral (investor, broker or clearing
member),
Collateral
Sequ
ence
of u
tiliz
ation
CCP
Clearing member
Clearing member
Investor
Trading participant / Direct participant
CCP Capital
Collateral
Mutual funds
CCP CapitalSurvivors payDefaulter pays
Key:
Integration Projects
Safeguard StructureSafeguard Structure
• Increase in capital efficiency for market participants– Offsetting across positions and collateral portfolio
• Adherence to single netting model, maintaining alignment with interests of participants in various markets
Main benefitsMain benefits
Integration Projects
NettingNetting
Settlement cycle
Settlement cycle Composição
ComposiçãoFrequência
Frequência
NettingNetting
Settlement cycle
Settlement cycle Composição
ComposiçãoFrequência
Frequência
NettingNetting
Settlement cycle
Settlement cycle Composição
ComposiçãoFrequência
Frequência
NettingNetting
Settlement cycle
Settlement cycle Composition
CompositionFrequency
Frequency
In the new model, the three elements that determine netting have the following characteristics:
– Settlement cycle: Maintenance of settlement cycles in each market and of the sequence of events that alter the calculation of rights and obligations
– Netting composition: Unification of clearing members’ financial obligations, resulting in more efficient use of intraday liquidity
– Frequency of calculation of rights and obligations: Event-driven clearing enables real-time delivery of information
In the new model, the three elements that determine netting have the following characteristics:
– Settlement cycle: Maintenance of settlement cycles in each market and of the sequence of events that alter the calculation of rights and obligations
– Netting composition: Unification of clearing members’ financial obligations, resulting in more efficient use of intraday liquidity
– Frequency of calculation of rights and obligations: Event-driven clearing enables real-time delivery of information
Single nettingSingle netting
Settlement cycle
Settlement cycle Composition
CompositionFrequency
Frequency
Current model: Future model:
Integration Projects
Single NettingSingle Netting
• Reduction in number and value of payments required to settle trades:– Less intraday liquidity required from participants– Enhanced trading efficiency for participants– Enhanced operating efficiency for BM&FBOVESPA
• Combined products can easily be created – e.g. settlement of loans and cash trades can be offset
Integration Projects
Main benefitsMain benefits
Integration Projects
• Risk assessment consolidating multiple assets and markets:– Transactions not settled in cash market– Derivatives– Assets pledged to CCP as collateral
• Use of closeout concept to calculate participant’s margin requirement• Possibility of risk offsetting across markets and asset classes• Balancing of risk between participant’s portfolio and collateral
New Risk ModelNew Risk Model
• Fragmentation of methodologies;
• Low offsets between different assets
and markets;
• Collateral portfolio is poorly factored
into the model;
• Difficulty in introducing new products
and services.
Deficiencies Challenges
• Increasing sophistication in the local
market;
• Increased portfolio complexity;
• Participants’ capital needs to be
allocated more efficiently;
• Growing investor base;
• Higher volume of trades and High
Frequency Traders (HFTs)
Integration Projects
• Fixed margin values by contract;• Compensation between opposing
positions on an ad hoc basis
1st GENERATION 2nd GENERATION 3rd GENERATION
• Use of tools for quantitative analysis;
• Portfolio risk concept (MtM).
DEFICIENCY
• Unintuitive;• Difficulty in the treatment of
complex products.
DEFICIENCY
• Does not consider adequately the issue CCP risk
• Overly optimistic or pessimistic depending on the case
• Adequate representation of the CCP risk problem;
• Risk closeout concept.
CHALLENGE
• Increased complexity of the model;• More computationally intensive.
CCPs risk system evolution BM&FBOVESPA future state
Integration Projects
• Risk model deals with the risk that a counterparty will not settle its obligations for full value at any time (i.e., will default on a contract).
• Moving to the future state will involve migrating from the current segregated model towards an integrated approach.
• Increased capacity to clear diversified portfolios and potential reduction in collateral required
• Consolidation of assets pledged as collateral when assessing portfolio closeout risk, making risk allocation more robust and efficient
• Flexibility to create new services, assets and markets, assuring agility in delivery of new functionalities (time to market)
Main benefitsMain benefits
Integration Projects
Clearing IntegrationClearing Integration
Integration Projects
Clearing Integration: ongoing delivery of some integration basics and project planning for 2013 new clearing infrastructure
Work streams:1. Program Iniciatives: white-paper
2. Business Model
3. Regulatory
4. Process Review
5. External Transition
6. Internal Transition
7. Technology
1. Development
2. Architecture
8. Communication
9. Interfaces
10.Knowledge Transfer
11.Change Management
www.bmfbovespa.com.br