dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Introducing dbClear
dbClearDeutsche Bank
Introducing dbClear
Contents
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29/03/2011 2010 DB Blue template
Section SlidesIntroduction 2 - 5Overview of Central Clearing 6 - 12Deutsche Bank’s Offering 13 - 24Mitigating the Cost of Compliance with Regulation 26 - 28Client Clearing product offering 29 - 62 OTC Rates Derivatives 29 - 34 OTC Credit Derivatives 35 - 42 Global Foreign Exchange 43 - 49 Listed Derivatives 50 - 62
Risk Waterfalls 63 - 87Key Risk Management 88 - 97dbClear TradeFinder 98 - 116dbCross-Product Margin 117 - 119Technology and Market Initiatives 120 - 121Transition Management and Client Service 122 - 124Communication and Contacts 125 - 126Appendices 127 - 155 Appendix A - Product eligibility: Clearing and Intermediation 127 - 132 Appendix B - CCP eligible collateral and Collateral process timeline 133 - 136 Appendix C - End-to-end clearing workflow 137 - 150 Appendix D - Listed Derivatives: Key Exchange memberships, Electronic execution 151 - 155
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Introduction
dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank <NYSE: DB> is a leading global investment bank with a strong and profitable private clients franchise. A leader inGermany and Europe, the bank is continuously growing in North America, Asia and key emerging markets. With 77,053 employees in 72 countries, Deutsche Bank competes to be the leading global provider of financial solutions for demanding clients creating exceptional value for its shareholders and people.
Within Deutsche Bank, the Global Markets Division is responsible for the origination, sale, structuring and trading of fixed income, equity, commodity, foreign exchange, derivative and money market products.
Global Markets has established itself as a global leader in these products by combining its unique distribution franchise with its pricing, structuring and execution expertise.
Global Markets is dedicated to delivering exceptional capital raising, risk management and investment solutions that meet the precise needs of its clients.
The Global Markets Division employs approximately 6,000 professionals in 39 trading rooms around the world.
Deutsche Bank is one of the only institutions in the world able to address the diverse asset gathering and liability management needs of corporations, governments, institutional investors, hedge funds and financial institutions on a truly global basis.
Deutsche Bank Securities Inc., member NYSE, FINRA and SIPC, is the investment banking and securities arm of Deutsche Bank AG in the United States.
About Deutsche Bank
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dbClearDeutsche Bank
Introducing dbClear 4
Deutsche Bank AG (DBAG) is a banking institution incorporated under the laws of Germany. It is a publicly traded company that islisted on both New York (NYSE) and Frankfurt (FWB) stock exchanges. DBAG is regulated by Germany’s Federal Financial Supervisory Authority (BAFIN), and operates under the Basel 2 regime advanced approach. As of 30th September 2010, DBAG has shareholder equity of €38.5 billion, total assets of €1.958 billion, a Tier 1 capital ratio of 11.5%.
Deutsche Bank Securities Inc. (DBSI) is a wholly owned indirect subsidiary of Deutsche Bank AG. As a broker dealer, DBSI is subject to the SEC net capital rules rather than the Basel capital regime (Tier 1 capital rules do not apply). DBSI is required to file regulatory reports with the SEC which provide financial information on DBSI. As of 30th September 2010, DBSI had shareholder equity of $11.429 billion, total capital of $18.153 billion and net capital of $6.838 billion. DBAG is DBSI’s parent entity.
Please refer to the below tables for DBAG and DBSI credit ratings.
Deutsche Bank’s Credit Ratings and Capital Structure
DBAG Ratings as of January 2011
Short-term rating Long-term rating
Moody's Investors Service
P-1 Aa3
Standard & Poor’s A-1 A+
Fitch Ratings F1+ AA-
DBSI Ratings as of January 2011
Short-term rating Long-term rating
Standard & Poor's A-1 A+
Fitch Ratings F1+ AA-
dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank’s Clearing Legal Entities
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US OTC Rates and Credit Derivatives Clearing
ICE Trust CME LCH US IDCG* Futures Commission Merchant
(FCM) model - Projected July 2011 Client faces Deutsche Bank
Securities Inc. (DBSI)
Futures Commission Merchant (FCM) model Client faces Deutsche Bank
Securities Inc. (DBSI)
Futures Commission Merchant (FCM) model - Projected July 2011 Client faces Deutsche Bank
Securities Inc. (DBSI)
Futures Commission Merchant (FCM) model Client faces Deutsche Bank
Securities Inc. (DBSI)
Non-US OTC Rates and Credit Derivatives Clearing
ICE Clear LCHSwaps Clearing Merchant (SCM) modelClient faces Deutsche Bank AG (DBAG)
Swaps Clearing Merchant (SCM) modelClient faces Deutsche Bank AG (DBAG)
Listed Derivatives Clearing FX ClearingEuropean Clients would typically document with DBAG London Branch
Limited. The Legal structure for FX Clearing is yet to be defined.
* Please note that Deutsche Bank is currently in the process of testing with IDCG (since May 2010) as no client has yet requested to put live trades through this CCP for Rates clearing.
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Overview of Central Clearing
dbClearDeutsche Bank
Introducing dbClear
Operational efficiency Portfolio credit risk only to Clearing House Reduction of systemic risk
Benefits
Avoids requirement to replace hedges that were facing a defaulted bank
Insulates collateral in the Clearing House
Bilateral model: Client executes Over The Counter Derivative with Dealer and faces Dealer as counterparty
ClientCoupons
Variation Margin
Trade Counterparty
Dealer
Agent Model of Client Clearing: Client faces Clearing House as counterparty on their cleared transaction
Principal Model of Client Clearing: Client faces Clearing Member as counterparty on their cleared transaction
Clearing House
Initial Margin Initial Margin
DealerClient
Initial Margin
Coupons Coupons Coupons
Variation Margin Variation Margin Variation Margin
Trade Counterparty Trade Counterparty Trade Counterparty
Clearing Member
Clearing House
Initial Margin Initial Margin
DealerClient
Initial Margin
Coupons Coupons Coupons
Variation Margin Variation Margin Variation Margin
Trade Counterparty
Clearing Member
Trade Counterparty
The mechanics of Central Clearing
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dbClearDeutsche Bank
Introducing dbClear
Market implications US and Europe
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F&O
USDodd-Frank Act
FCM model
EuropeEMIR, MiFID
Matched-Principle (non-FCM) model
CME ICE Trust
LCH (FCM)
ISDA (/Rahmenvertrag)
ICE Clear
LCH (SCM) CMEIDCG Eurex
CLS
Tran
spar
ency
on
exec
utio
nRi
sk /
Clea
ring
Major Swap Participants (MSPs):
Bilateral OTC Broker-Dealer 1
Bilateral OTC Broker-Dealer 4
Assets and Liabilities Manager 1
Bank n
Swap Execution Facility (SEF)
Bilateral OTC Broker-Dealer 6
Bilateral OTC Broker-Dealer 5
Bilateral OTC Broker-Dealer 2
Bilateral OTC Broker-Dealer 3
Assets and Liabilities Manager 2
Financial Corporation n
Assets and Liabilities Manager 3
Major Swap Participants (MSPs):
Bilateral OTC Broker-Dealer 1
Bilateral OTC Broker-Dealer 4
Assets and Liabilities Manager 1
Bank n
Organised Trading Facility (OTF)
Bilateral OTC Broker-Dealer 6
Bilateral OTC Broker-Dealer 5
Bilateral OTC Broker-Dealer 2
Bilateral OTC Broker-Dealer 3
Assets and Liabilities Manager 2
Financial Corporation n
Assets and Liabilities Manager 3
Post - trade reportingAll swaps (cleared and non-cleared) must be real-time and regulatory reported prior to clearing
dbClearDeutsche Bank
Introducing dbClear
Swap Execution FacilitiesHow might the market work?
F&O Block style Commission basis for execution services, Principal
basis, as counterparty to client trade in limited RFQ environment
Voice market access provided by DB execution sales desk (reactive' trades)
DMA style Electronic market access provided and sponsored by DB ('proactive' trades)
Commissions, smart order routing, algo enhanced execution services, bundled with clearing, prime?
F&O style Execution Voice market access provided by DB execution sales desk( 'proactive' trades) Voice execution desk commissions
TradeWeb style Client has direct access to trading venue and self executes for own account ('reactive' trades)
As risk principal, as counterparty to client trade in limited RFQ environment
‘Proactive’ ‘Reactive’ Continuous streamed markets into a central
limit order book for 'on the run' type liquid contracts, e.g. index CDS, benchmark IRS
Respond to client price enquiries for non standard, but non complex, structures and sizes, RFQ style
Trading style divided into two major categories ...1
How will Clients Execute ? How will DB get Paid ?2 3
How will Clients select an Execution Partner ?4
Quality of Electronic Executionquality of smart order router,
execution algorithms Quality of Pricing Quality of Voice Execution
Services & Market Coverage
Research LedAs per Equities model, DB paid
under a Commission Sharing Agreement
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dbClearDeutsche Bank
Introducing dbClear
Regulatory impactStandardisation of OTC Derivatives
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Few
OTC Derivatives Listed DerivativesMany (bespoke) products / varieties Few products - highly standardised
Many
Client Dealer
ISDA
Client DealerISDA
Client Dealer
ISDA
Client
CB 1
CCP1 CCP2 CCP3
CB 2 CB 3
Standardisation of OTC products
(becoming Futures like)
Post-trade reporting (EOD)
Real-time trade reporting and SDR requirements (cleared and non-cleared swaps)
EB 1 EB 2 EB 3
dbClearDeutsche Bank
Introducing dbClear
Regulatory impact (contd.)Many end states
Exc
hang
e
Process
Cle
arin
g Br
oker
RatesCredit
FXEquities
Commodities
Rates
Process Process Process Process
CreditFX
EquitiesCommodities
Rates
Standardised Complex
Central Intermediation Bilateral
Voice A
PI
CFTCF&O SEC
ISDACSA Anx. PBA MNA/GMRA
SM
A Vo
ice
EFP
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dbClearDeutsche Bank
Introducing dbClear
The reconstructed OTC and ETD model
Clearing and Asset Servicing(Credit)
(Process)
Liquidity and Execution(Price)
SEFETF
OTCExchange
Dark Pool
BrokerAPI
DMA
ICELCH
CME IDCG
FCM
SMA
BANKPB
Custody
Client
Price
Process
Credit
ClientDeutsche Bank
SEFETF
OTCExchange
Dark Pool
BrokerAPI
DMA
ICELCH
CME IDCG
FCM
SMA
BANKPB
Custody
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dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Deutsche Bank’s OfferingdbClear
dbClearDeutsche Bank
Introducing dbClear
The Financial Reform AgendaDeutsche Bank’s commitment
AFME Board M. Faissola Global Rates Board M. Faissola Credit Board A. Diplas Equities Board K. Derhalli FX Board (chair) Z. Amrolia FXPB/ Clearing J.Vitale Prime Brokerage Comte. A. Byrne Securitisation (ESF) M. Ruggieri Lev. Fin Board H. Johnsson ECM Board J. Farry
GFMA (AFME/SIFMA/ASIFMA) Committees
Other key CIB
Other Major Banking
ISDA Board M. Faissola (vice-chair)Industry Gov Comte. Faissola, Diplas, Eilbeck Rates SteerCo. J. Eilbeck (chair) Credit SteerCo. A. Diplas (co-chair) Equity SteerCo. P. Maley Commods SteerCo T. Martin AsiaPac SteerCo. A. Mohapatra Ops SteerCo. S. McClymont Regulatory Comte. D. Trinder (chair)
ISDA Committees
FIA Board D. Bradford FOA Board BoE FX JSC Z. Amrolia Fed FXC J. Vitale
ICMA Board C. Grassie BBA Board C. Grassie EBF Board
– Derivs WG. S. Wolff City of London C. Grassie BdB Board J. Ackermann IIF Board J. Ackermann (chair) Fin. Serv. Forum J. Ackermann CEBS Panel H. Banziger (chair)
US CFTC Richard Shilts (Market Oversight Director) A. Diplas
Ananda Radhakrishnan (DCIO Director) A. Diplas SEC Robert Cook (Trading & Markets Director) Fields / Riffaud Fed Stacy Coleman (VP - OTC Derivs) A. Diplas
Europe FSA Alexander Justham (Director of Markets) D. Trinder BoE Paul Chilcott (Payments & Infrastructure) D. Trinder HM Treasury Hannah Gurga (Securities and Markets) D. Trinder BdF Peter Görß (Stock Markets & Securities) K. Deutsch BaFin Gunter Birnbaum (Securities Director) A. Procter ECB D.a Russo (DDG Payments & Mkt Infra) A. Diplas ESMA To Be Announced Commission Patrick Pearson D. Trinder Euro P’ment Werner Langen (EMIL Rapporteur) A. Tietmeyer
Sharon Bowles (ECON Chair) D. TrinderKay Swinburne (ECON) A. Tietmeyer
Regulatory / Legislative
SIFMA Board J. Mayer Equity SteerCo J. Fields Prime Brokerage Comte. M. Riffaud Capital Markets Comte. S. Bhandari MBS & Securitiztn ExCo T. Dixon Rulemaking Oversight M. Riffaud Financial Reform WG F. KellyASIFMA Board D. Lynne (chair)
Key vendor board seats
Tradeweb S. Wolff Markit S. Wolff LCH Clearnet L. Shaw DTCC DTCC/DerivServ S. McClymont CLS P. Connor BATS J. Marques ELX G. Rafferty Deutsche Börse H. Lamberti EuroCCP M. Bradbury Euroclear M. Slumbers SWIFT W. Gaertner
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dbClearDeutsche Bank
Introducing dbClear
Clearing Governance at Deutsche Bank
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CIB Platforms GroupAlan CloeteGovernance
FX
Jason Vitale
Credit
Hester Serafini
Rates
Joe Cassidy
Listed Derivatives
Drew Bradford
Commodities
Joe Cassidy
GTB
Werner Steinmueller
E Platforms
Rhom RamDaniel Marovitz
Equity Derivatives
Anthony ByrneClearing
Specialists
Distribution
Onboarding and Transition
dbClear
Operations
Client Service
dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank's approach to clearing
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Prime Brokerage
Listed Derivatives
OTC Clearing and
Intermediation
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dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank Client solutionsRange of solutions to maximise benefit to the client
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Clearing
Prime Brokerage
Portfolio Compression
Service incubation team
Margin financing / Collateral flexibility
Pre- and post-trade portfolio analysis tools
Cross Asset / Product margining
Margin segregation
dbRiskClear and dbReset
Listed Products
dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank works with a number of key fund administrators as part of it’s overall commitment to providing a Global Listed Derivatives clearing infrastructure.
BNP Paribas Asset Services
JPM Investor Services
CITCO Financial Services
IFS Dublin
BONY Treasury Services
GLOBEOP Financial
State Street
Northern Trust Fund Services
Providing some of the following range of services:
Listed DerivativesClient distribution and Fund Administrators
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Trade & Position Management / Reporting
• Defined trade delivery using a specific custom
• Customised position information
• Portfolio analysis facilitating cross-product margining
Static Data Information Portal
• Including position expiration data
• VAR analysis where required
• Corporate actions data where appropriate
Management Reporting & Information
• Dynamic & Customised Reporting
• Focus on flexible information formats
• Interfacing directly into internal systems
Margin Payments & Transfers
• Link into DB Payments infrastructure if required (described later in this
presentation)
• Automated margin transfers and payments into internal
infrastructure
750 Global
Customers
127Use a Fund
Administrator
Exchange2010 Ranking (Cleared Volumes)
2010 Market Share (Cleared Volumes)
Eurex, Frankfurt 2 3.87%
Euronext Liffe, London 4 5.10%
CME, Chicago Not provided by Exchange 2.14%
CBOT, Chicago Not provided by Exchange 1.71%
SFE, Sydney 4 10.96%
SGX, Singapore 13 2.89%
TSE, Tokyo Not provided by Exchange 2.77%
TFX, Tokyo Not provided by Exchange 3.53%
OSE, Osaka Not provided by Exchange 1.50%
HKEx, Hong Kong 9 3.13%
MDEX, Malaysia Not provided by Exchange 16.54%
dbClearDeutsche Bank
Introducing dbClear
Key Considerations Agreed trade between client and dealer should be a legally binding bilateral trade until cleared (potentially only for minutes but that state should exist) If trades are not accepted for clearing then fallback to being bilateral If a trade is not affirmed then it cannot process through to clearing but is still legally binding between client and dealer based on execution Trades submitted on individual (gross) basis, netting/compression process to be completed separately from clearing submission Strategic goal of affirmation = confirmation within middleware
Not complete for illustrative purposes only
Operational excellence
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dbClearDeutsche Bank
Introducing dbClear
Bank of the Year 2010Derivatives House of the Year 2010-IFR Review of the Year 2010, January 2011
Derivatives House of the YearBank Risk Manager of the Year-Risk Awards, January 2011
No. 1 in Derivatives- Risk Interdealer, September 2010
No. 1 in Global Fixed IncomeDB is “meaningfully ahead” of the next placed banks-Greenwich Associates, March 2011
Best Global Risk Management HouseBest Risk Management House in North AmericaBest Global Investment BankBest Global Credit Derivatives House-Euromoney, Awards for Excellence, July 2010#1 FX provider with 21% market share for 5 consecutive years#1 FX Prime Broker
Most Innovative Team of the Year (FX)Most Innovative in FXMost Innovative in Retail Structured Products- The Banker, The Banker Awards, September 2010
No. 1 Top Rated Global Prime BrokerNo. 1 Global Overall Prime BrokerNo. 1 Multi-Strategy Provider- Global Custodian, Prime Brokerage Survey, June 2010
Overall, Top Investment Bank-Life & Pensions , L&P Rankings , August 2009
Derivatives House of the Year Bank Risk Manager of the YearDerivatives Research House of the YearHedge Fund Derivatives House of the Year Inflation Derivatives House of the YearRisk Magazine, January 2011
Headlines for dbClear
“Deutsche handles seamless OTC interest rate swap”http://www.ft.com/cms/s/0/fc89d3f0-3d87-11df-bdbb-00144feabdc0,s01=1.html
“Deutsche Bank Electronically Executes and Clears First OTC Interest Rate Derivative Transaction Via Autobahn”http://www.advancedtrading.com/infrastructure/showArticle.jhtml;jsessionid=IHEZMQSA2ZWRJQE1GHRSKH4ATMY32JVN?articleID=224201007&_requestid=26779
“Deutsche Bank Clears First Interest Rate Swap on Behalf of Citadel”http://www.cnbc.com/id/39724462/Deutsche_Bank_Clears_First_Interest_Rate_Swap_on_Behalf_of_Citadel_LLC_on_CME_Group_s_IRS_Platform
“First Fully-Electronic Interest Rate Swap Trade Executed and Cleared in U.S.”http://www.tradeweb.com/news/press_releases/2010/20101118
“Deutsche Bank Sets New Industry Benchmark with ISAE 3000 Certification for Rates Client Clearing”http://www.db.com/medien/en/content/press_releases_2010_3228.htm
"CDS traded and cleared under anticipated Dodd-Frank rules"http://www.ft.com/cms/s/0/cfdf6ea6-355b-11e0-aa6c-00144feabdc0.html#axzz1G1f7JcHP
“First Fully-Electronic CDS Trades Executed and Cleared in U.S.”http://www/tradeweb.com/news/press_releases/2010/20110210
Deutsche Bank is the Ideal Partner
Award winning services
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dbClearDeutsche Bank
Introducing dbClear
Trading information provided to Prime Brokerage is kept separate from Deutsche Bank trading desks through information barriers in place within Deutsche Bank systems
Deutsche Bank’s trading desk does not have access to client clearing positions Clearing Front Office and Middle Office are dedicated teams that are not part of our trading desk's respective
teams ISAE 3000 (International Standard on Assurance Engagements) is a new industry standard that supersedes
the SAS 70 (Statement on Auditing Standards) ISAE 3000 audits the design of internal controls and assesses the completeness, accuracy and transparency
of controls based on Management’s assessment criteria Deutsche Bank engaged PWC (PriceWaterhouseCoopers) to audit the LCH client clearing workflow, to assess our current
process and where applicable suggest improvements
November 2010 Deutsche Bank receives ISAE 3000 accreditation on its LCH Swapclear Client Clearing process Deutsche Bank becomes first to gain ISAE 3000 accreditation for the LCH Swapclear client clearing process
Passes audit without limitations or disclaimers
Audit scope incorporates the complete life cycle of a client cleared trade Assessment of 9 management assessment criteria
The ISAE 3000 opinion confirms Deutsche Bank has designed and implemented effective internal controls to ensure the transparency and accuracy of the LCH Swapclear client clearing process Demonstrates Deutsche Bank is operating within a market leading control framework which is highly responsive to
regulatory changes
Information barriers and ISAE 3000 accreditation
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dbClearDeutsche Bank
Introducing dbClear
dbClear Client Service“Follow the Sun” Global Support model
Dedicated Single Point of Contact Teams in every major centre at Deutsche Bank
Relationship manager and back up contact allocated to each client
Client confidentiality is strongly enforced Client Service Teams are in separate locations from trading and sales teams
Client Service Team operates under separate reporting lines from front office personnel to avoid conflicts of interest
Confidentiality is policed and enforced by senior management at Deutsche Bank
Industry recognition – 09/10 ZYen survey 1st Global Derivatives for Client Management overall
1st Cross Product Services for Client Onboarding
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dbClearDeutsche Bank
Introducing dbClear
dbClear Onboarding
RFI Legal Negotiations
Technical Transition
SupportMigration
ClientService
New AccountOpening
23
dbClearDeutsche Bank
Introducing dbClear
dbClear TradeFinder
24
dbClearDeutsche Bank
Introducing dbClear
The dbClear principles of Client Clearing
Information barriers
List
ed
Credit
FX
Equities
Commodities
Rates
Business Cycle Support (RM/SRM)
Full CCP access
Targeted Offering
Operational Intelligence (Market Initiatives Group)
Regulatory Edge
Cost certainty and mitigation
Operating and Business Model Enabling
Rep
ortin
g an
d R
isk
Onb
oard
ing
& T
rans
ition
Clie
nt S
ervi
ce
Clie
nt
Additive Platform Advisory and Services
Ope
ratio
nal E
xcel
lenc
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dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Mitigating the cost of compliance with Regulation
dbClearDeutsche Bank
Introducing dbClear
Cost of compliance with Regulation
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Business Impact
Initial MarginVariation Margin (Cash)
CCP ChargesAsset Transformation Charges
New Fund Costs
Operational CostsOperational Risks
IT CostsRegulatory Reporting Costs
Infrastructure Costs
Lobby RestructureDevelop Capital
Efficiencies
dbClearDeutsche Bank
Introducing dbClear
Cost of Client Clearing for End Users
Commercial terms agreed on bespoke basis between Client and Clearing Broker. Central Clearing of End User transactions will generate costs that must be passed through to End User or subsidized by Clearing Broker
Clearing House Initial Margin requirements are non-zero and conservative
Methodologies are generally VaR based and Initial Margin calculated at portfolio level
Interest rate paid on cash posted may be less than Fed Funds/OIS
Custodial charges may apply to securities posted
Client Clearing Transaction and Facility Fees
Transaction fees are the most common charges and originate from both Clearing House and Clearing Broker
Clearing Broker fee typically waived by Clearing Broker if trade execution occurs in-house
Fees generally applied upfront once transaction has been registered at Clearing House, and billed on monthly basis
Fees may be fixed per transaction or based on product, market, notional, tenor and/or risk level
Volume discounts may apply for both Clearing House and Clearing Broker fees
Clearing Broker may set minimum monthly fee level and/or warehouse fee for providing the Client Clearing facility
Onboarding logistics to connect to Clearing Brokers and Clearing Houses
Process Reengineering: Resource allocation to ensure client systems, custodians, administrators and vendors are fully integrated and prepared for Client Clearing flows
Legal and Compliance: Resource allocation to negotiate Legal agreements with each Clearing Broker and Clearing House, as well as ensure proper compliance with legislative and regulatory directives
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dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
OTC Rates DerivativesClient Clearing offering
dbClearDeutsche Bank
Introducing dbClear
Summary of Clearing House Status
CME OTC Rates platform is live as of October 2010, and CDS platform launched in December 2009 Based in the United States and Regulated as a Derivatives Clearing Organization by the CFTC Trades and collateral are segregated from house account of Clearing Broker and are portable Product and market scope for first phase limited to vanilla USD swaps.
IDCG IDCG Client Clearing service is live as of December 2008 Based in the United States and Regulated as a Derivatives Clearing Organization by the CFTC Recently announced development of OTC Account Class offering, a hybrid agent clearing model
More stringent membership criteria to be introduced to support new OTC Asset Class. Market scope limited to USD
Limited flexibility on reset/payment frequencies and other trade terms
LCH SwapClear (SCM)
SwapClear Client Clearing service is live as of December 2009 Participation from all major Dealers with well established connectivity Tried and tested Default Management process <Lehman Brothers default> Individual Segregated Account for each client; trades and collateral fully segregated and portable Product, currency and tenor eligibility is broadest among the Clearing Houses
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LCH FCM LCH is launching FCM model to provide US-based collateral protection. Currently engaging buy and sell side participants to seek input into proposed model Regulated as a Derivatives Clearing Organization by the CFTC
Summary of Clearing House statusOTC Rates Derivatives
dbClearDeutsche Bank
Introducing dbClear
Rates Clearing Houses: Key Differences in StructureOTC Rates Derivatives
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Clearing House Membership Criteria to Become a Clearing BrokerCME IRS LCH.Clearnet (SwapClear) IDCG
Guaranty Fund Contribution
Min USD 50m. Then weighted 85% on margin, 15% on gross notional.
£125m required in total from all SwapClear CBs. Each CB’s contribution share
proportional to its Initial Margin (avg. over past 3 months), and subject to min £2m.
(However Default Fund available is £591m as of Mar-10, as it combines other
products.)
Min USD 2.5mRisk based according to stress tests
designed to respond tomarket conditions and profile
Capitalization$1bn adjusted net capital2
plus sufficient excess to cover CB’s pro-rata share of largest IRS CB’s default.
Net Capital of USD 5bnAs set by the Risk Committee from time to time. Currently $300m;; with CB’s trading limit at 1/3 of capitalisation.
Ability & Commitment to Participate in Default Management Process
Required to bid on portfolios auctioned(and have expertise to hedge, liquidate and
facilitate process).
Required to bid on portfolios auctioned.New CBs must demonstrate ability to
participate before commencing clearing.Outstanding IRS portfolio of $1tr notional.
No requirement for all CBs to bid on auctioned portfolios.
Risk Management / Operational Capabilities
Must stress test exposures, monitor risk and screen clients’ credit & suitability.
Must demonstrate ability to act as a CB.
Regular partial and front-to-back fire drills test both SwapClear and the CBs’ ability to
implement the process.Adequate back-office.
Must demonstrate ability to act as a CB. Also competent back-office
personnel required (or outsourced)
Approvals Required Include…
Must be registered with the CFTC as a FCM
Local regulator authorizations for bank CBs.
FCM registration, if conducting client clearing
1
dbClearDeutsche Bank
Introducing dbClear
Default protection and Margin segregationOTC Rates Derivatives
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29/03/2011 2010 DB Blue template
Protective FeaturesCME IRS LCH.Clearnet (SwapClear) IDCG
Initial Margin (IM) Methodology
Principal Component Analysis based on 10yr historic data & stresses
VaR (7day, 99.7%, 5y)Daily back-testing
VaR (1day, 99.7%, 6m)IM relief uses a SPAN compliant process
Variation Margin (VM)Valuation based on closing curve published by CME (based on 3pm EST snapshot)
In respective currency, using LCH’s yield curve
Valuation based on IDCG discount Curve, updated constantly through the day.
Margin Collection Frequency
Once daily; reserve the right to call more frequently in extreme cases.
Collected Intra-day, multiple times (currently 4x)
Twice daily, and more frequently if necessary
Margin Segregation
CFTC governed segregated funds treatment for client margin in new “OTC Derivative Sequestered Account Class”
CB must charge full margin from each client, and post full margin to the CME.
Gross Method: Client accounts fully segregated from each other at the LCHNet Omnibus Method: Lower IM required due to netting (across clients in the same omnibus account), but all clients in the account must use same back-up CB.Additional IM (if any): can be stored at the LCH, to augment the Gross method only.
CFTC governed Segregated Funds treatment (i.e. any client margin retained at the CB must be kept in segregated client accounts per CFTC Rule 1.25.)
CB must charge full margin from eachclient, but posts net (with offset benefits across its clients) to the clearing house.
Loss mutualisation (i.e. impact of default of other clients of the same CB)
Yes, if CB defaults due to a client of the CB defaulting, then (after utilizing all IM and Guaranty Fund contributions of the defaulted CB) CME may access the margin of all remaining clients (on a pro-rata basis) of the defaulted CB.
None, except within the Net Omnibus account (if Net Omnibus Margin Method is used)
Yes, if CB defaults and a client defaults, then clearing house may access the margin of all remaining clients (on a pro-rata basis) of the defaulted CB.
dbClearDeutsche Bank
Introducing dbClear
Client Clearing overviewOTC Rates Derivatives
33
Bilateral: Client executes array of Over The Counter Rates Derivatives with many Dealers
Intermediation: Prime Broker steps in to Client trades and faces Dealers
OTC Counterparty Evolution: From Bilateral to Intermediation to Client Clearing
“Prime Broker”
Fixed
LiborPrime BrokerClient Dealer A
Fixed
Libor
Short Option
Long OptionPrime BrokerClient Dealer B
Short Option
Long Option
Fixed
Libor
Dealer AClient
Short Option
Long Option
Dealer BClient
Client Clearing: Clearing Broker registers Eligible Client trades at the Clearing House
Fixed
LiborClearing House
Clearing Broker
Fixed
Libor
Initial Margin Initial Margin
Fixed
LiborDealer AClient
Initial Margin
Credit Protection
dbClearDeutsche Bank
Introducing dbClear
Client Clearing overviewOTC Rates Derivatives
34
Gap Risk Issue: Greater Counterparty Risk From Ineligible Trades
Clearing House
Δ = -100kIRS
Clearing House IM = 1m
Swaptions Δ = +80k
FRAs Δ = +30k
Δ = -100kIRS
Clearing House
Δ = -100kCleared
Bilateral Δ = +110k
Δ = -100kCleared
Credit Protection on IRS Δ = -100k
Client
Credit Protection on IRS Δ = -100k
Client
Clearing House IM = 1m
Detail
Summary
Net Gap Risk Clearing HouseNet Gap Risk Δ = +110k
Δ = -100kCleared
Credit Protection on IRS Δ = -100k
Client
Clearing House IM = 1m
Client Portfolio only has 10k of gap risk, but bilateral gap risk has increased to 110k due to limited Clearing House product eligibility
Eligible transactions registered at the Clearing House, ineligible transactions remain bilateral
Transactions between Client and Clearing Broker result from direct execution and/or Intermediation
Assume Initial Margin Requirement = [ Delta x 10 ]
Client Net Portfolio Δ = +10k
Clearing Broker
Clearing Broker
Clearing Broker
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
OTC Credit DerivativesClient Clearing offering
dbClearDeutsche Bank
Introducing dbClear
Summary of Clearing House statusOTC Credit Derivatives
36
29/03/2011 2010 DB Blue template
CME Dealer clearing “live” on 12/15/09
Client clearing “live” on 12/15/09
CME has indicated the intention to develop European offering
ICE Clear Dealer clearing since July 2009
Client clearing target go live Summer 2011
Eurex Dealer clearing live since July 2009, little volume
Eurex is still interested in developing Client clearing but has abandoned dealer to dealer clearing
ICE Trust Dealer clearing since March 2009, 95+% of new eligible trades cleared
Client clearing “live” on 12/14/09, but in process of converting to FCM model, which is expected to go live July 2011
LCH Clearnet Dealer clearing live since March 2010 with four French dealers
Working on expanding dealer participation
Intention to build client clearing platform as well
dbClearDeutsche Bank
Introducing dbClear
ICE vs. CME: Differences in Structure*OTC Credit Derivatives
37
29/03/2011 2010 DB Blue template
* Subject to Change – Offerings would need to be changed to comply with rule-making under Dodd-Frank Act.
Key Difference ICE Trust ICE Clear CME
Model Structure
Agency ModelCM guarantees performance of, and acts as agent for ClientClient has a trade facing ICE Trust via its agent
PB Intermediation ModelClient has a legally binding trade facing DB and DB has a legally binding trade facing ICE Clear as a principal (DCM)
Agency ModelCM guarantees performance of, and acts as agent for ClientClient has a trade facing the CME via its agent
Membership Requirements
Min. Adjusted Net Capital of $1 bn. $5Bn of Tier 1 capitalA rating 1. Non-bank – Min. Adjusted Net Capital of
$500 mm2. Bank – Tier1 Capital of $5 bn
Client Margin Segregation
Partial mutualization:Client losses may only be mutualized across the Net Account which is the client margin calculated across all client positions.Any margin in excess of this amount cannot be used to mutualize losses.
Partial mutualization:Client losses may only be mutualized across the Net Account which is the client margin calculated across all client positions.Any margin in excess of this amount cannot be used to mutualize losses.
Full mutualization:Client losses may be mutualized across the full amount of client initial margin.
Margin Methodology
Stress based approach Factors considered are Spread Dynamics, Liquidity Charges, Concentration Charges, Basis Risk, Jump to Default and IR Risk.
Same as ICE Trust Stress based approachFactors considered are Systematic Risk, Curve Risk, Spread Convergence/Divergence Risk, Sector, Idiosyncratic and Liquidity Risk.
Documentation Documentation for ICE Trust FCM Model has not been finalized.
• ISDA Master / CSA• ICE Clear Standard Terms Annex to ISDA & Schedule• ICE Clear DCM Standard Terms Annex & Addendum/Side Agreement
• Futures & Options Agreement• Addendum to F&O Agreement & Schedule• Give-up Agreement
DB Legal Entity Deutsche Bank Securities Inc. (DBSI) as FCM
Deutsche Bank AG (DBAG) as DCM Deutsche Bank Securities Inc. (DBSI) as FCM
dbClearDeutsche Bank
Introducing dbClear
ICE vs. CME: Differences in Operational Process*OTC Credit Derivatives
38
29/03/2011 2010 DB Blue template
* Subject to Change – Offerings would need to be changed to comply with rule-making under Dodd-Frank Act.
Key Difference ICE Trust ICE Clear CME
Confirmation Trade is confirmed on ICE PlatformTrades are submitted to DTCC as Gold-like records for reporting and Credit Event processing purposes
Trade is confirmed on ICE PlatformAll trades are confirmed in the DTCC Confirmation Warehouse
Trade is confirmed on CME PlatformTrades are submitted to DTCC as copper records
Settlements Daily CDS Settlements• Upfront Fee settles T + 1• Daily coupon settlements with VM• Monthly Fee Billings settle separately from Margin
Standard CDS Settlements• Upfront Fee settles T + 3• Standard quarterly coupon• Monthly Fee Billings settle separately from Margin
Daily CDS Settlements• Upfront Fee settles T + 1• Daily coupon settlements with VM• Monthly Fee Billings settle separately from Margin
Affirmation ICE LinkVCONMarkitWire
ICE LinkVCONMarkitWire
ClearportVCONMarkitWire
Compression Optional Netting/ Compression
Clients will have the ability to have all or no trades compressed at the end of the day
Custom Netting/ Compression
Clients will have the ability to select specific trades to compress or have all trades compress at scheduled time interval
Automatic Netting
All trades are automatically netted at the end of the day
Collateral All Collateral (IM and VM) in segregated accountNetted margin call - Coupon accrual/payment included in VM
Only IM is segregatedNon-netted margin call - Coupon accrual/ payment handled outside of margin
All Collateral (IM and VM) in segregated accountNetted margin call – Coupon accrual/payment included in VM
Reporting Clients can access reports directly on ICE Link Platform• Clearing Activities Report• Cleared Positions Report• Gross Margin Report
Clients can access reports directly on ICE Link Platform• Clearing Activities Report• Cleared Positions Report• Gross Margin Report
Clients cannot access report on the CME Platform• Clients receive reports directly from CM and not from the CME platform• Reports display Total Netted Position and Daily Trade Activities
dbClearDeutsche Bank
Introducing dbClear
Protective FeaturesICE CME
Margin Segregation CFTC governed segregated funds treatment for client margin in new “OTC Derivative” 4d Account Class Only IM is segregated, IM is held in an omnibus
account across all clients of the Clearing Member (CM)
CFTC governed segregated funds treatment for client margin in new “OTC Derivative” 4d Account Class Both IM and VM are segregated
Loss mutualisation (i.e. impact of default of other clients of the same CM)
Client margin is fully protected in the event of a CM default due to a house position Client margin is fully protected in the event of another Client’s default, that does not cause the CM to default Client margin is only at risk if another Client at the Client’s CM defaults AND causes the CM to default In that event, only the portion of the Client’s initial
margin that is Net Margin is at risk, the remainder of the Client’s margin (called Custodial margin) is protected. Net Margin is equal to the margin computed across all positions of CM’s clients, with credits for offsetting trades.
Client margin is fully protected in the event of a CM default due to a house position Client margin is fully protected in the event of another Client’s default, that does not cause the CM to default Client margin is only at risk if another Client at the Client’s
CM defaults AND causes the CM to default In that event, unlike in the ICE model, all of the Client’s
initial margin is potentially at risk
Default protection and Margin segregationOTC Credit Derivatives
39
dbClearDeutsche Bank
Introducing dbClear
Prime Brokerage exampleOTC Credit Derivatives
40
Step 1: Client executes with many dealers
Client
Step 2: Client gives up trade to a Prime Broker (PB)
1.00%
Client Sells Prot on CDX IG
Client Buys Prot on CDX HY
5.00%
Client
Dealer A
Dealer B
Operational efficiency Portfolio credit risk to one high quality Dealer Net margining on positions Ability to margin cross products
Benefits
1.00%
Client Sells Prot on CDX IGPrime BrokerClient Dealer
A1.00%
PB Sells Prot on CDX IG
Client Buys Prot on CDX HY
5.00%
Prime BrokerClient Dealer
B
PB Buys Prot on CDX HY
5.00%
dbClearDeutsche Bank
Introducing dbClear
Client Clearing exampleOTC Credit Derivatives
41
Step 1: Client executes with many dealers
Client
Step 2: Client gives up trade to a central clearing broker (CB)
1.00%
Client Sells Prot on CDX IG
5.00%
Client Buys Prot on CDX HY
Client
Dealer A
Dealer B
Operational efficiency Reduction of systemic risk Avoids requirement to replace trades that
were facing a defaulted bank Insulates collateral in the Clearing House Enables client positions and collateral
portability in case of a clearing broker default
Benefits
Client 1.00%
Client Sells Prot on CDX IG
5.00%
Client Buys Prot on CDX HY
Client
CB
CB
CCP 1.00%
CCP Sells Prot on CDX IG
5.00%
CCP Buys Prot on CDX HY
CCP
Dealer A
Dealer B
1.00%
CB Sells Prot on CDX IG
5.00%
CB Buys Prot on CDX HY
dbClearDeutsche Bank
Introducing dbClear
CDS Client Clearing mechanicsICE / CME (Credit): how it works
42
Step 1: Client executes with Dealer A
Client
Step 2: Client gives up trade to Clearing Broker for Clearing on ICE / CME
1.00%
Client Sells Prot on CDX IGDealer
A
Client 1.00%
Client Sells Prot on CDX IG
CB ICE / CME 1.00%
ICE / CME Sells Prot on CDX IG
Dealer A1.00%
CB Sells Prot on CDX IG
Initial MarginInitial Margin
Client has credit risk to Clearing House but Clearing Broker has full risk to Client
Client IM is held in a segregated Client account at ICE/ CME. This is separate from Clearing Broker X’s House account.
Initial Margin
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Global Foreign ExchangeClient Clearing and Prime Brokerage offering
dbClearDeutsche Bank
Introducing dbClear
In development / Not live
LCH Deutsche Bank participating member of “ForexClear” project
European FX Options with hedging via swaps, forwards, and spot
Membership requirements: TBD
SGX Deutsche Bank participating founding member
Currently clears spot, swaps and forwards in 8 currency pairs with more products and currencies to be added in the future
Phase One: Asian FX Forwards (KRW, CNY, TWD, MYR, INR, IDR, PHP) up to 1 yr
Phase Two: Expanded currency and tenors
Membership requirements: TBD
CME Clearport Deutsche Bank participating on the Founding Member board
Product coverage planned: FX Spot, Forwards, Swaps, NDFs & Options
Phase One: Spot, Fwds, Swaps to 5 yrs; current CLS currencies initial scope
Phase Two: FX Options, expand currency pairs
Membership requirements: TBD
Summary of Clearing House statusForeign Exchange
**Additional CCPs in Development**
44
dbClearDeutsche Bank
Introducing dbClear
IntroductionFX Clearing and Prime Brokerage
45
Global Leader in Foreign Exchange
FX clearing experience dates back to 1993
Ranked globally as #1 FX provider with 21% market share for 5 consecutive years by EuroMoney
Ranked as #1 FX Prime Broker by EuroMoney and FX Week
Consistent market making, 24 hours a day, executing an average of over 1 million trades globally each day and clearing over 200 thousand tickets
Access to broadest set of FX products and currency pairs
FX Clearing Coverage through 4 global centers from Sydney’s open to New York’s close
dbClearDeutsche Bank
Introducing dbClear
Proposed market structureFX Clearing and Prime Brokerage
46
ClientFX
Liquidity Trade Execution
dbC
lear
FX
•Trade Matching• Allocations
•Limit Monitoring• Client Service
•Single Credit Line• Single Collateral
Relationship• Single Reconciliation
• Consolidated Reporting• Single Cash Account
•Bank to CCP Settlements•Global Trade Repository•Trade Flow Manager•Trade Aggregation
CCP CCPCCP
dbClearDeutsche Bank
Introducing dbClear
FX execution: Bilateral tradingFX Clearing and Prime Brokerage
47
Client executes and clears with many dealers
Initial Margin
Currency 2
Currency 1
Initial Margin
Currency 2
Currency 1
Dealer AClient
Dealer BClient
Trading occurs with multiple counterparties
Reconciliation done with each individual dealer
Gross open positions across dealers
Multiple collateral placements
Multiple points of failure possible
dbClearDeutsche Bank
Introducing dbClear
FX execution: Prime Brokerage structureFX Clearing and Prime Brokerage
48
CCP CP
Step 1: Client executes with many dealers
Client
Step 2: Client gives up trade to a prime broker
Initial Margin
Client
Prime Broker
Currency 2
Currency 1
Currency 2
Currency 1
Currency 2
Currency 1
Currency 2
Currency 1
Initial Margin
Prime BrokerCurrency 2
Currency 1
Currency 2
Currency 1
Trading occurs with multiple counterparties
Reconciliation with the prime broker
Netted open positions and
collateral requirements
Reduced points of failure
Client
Client
Dealer A
Dealer B
Dealer A
Dealer B
dbClearDeutsche Bank
Introducing dbClear
FX Intermediation: Central Clearing exampleFX Clearing and Prime Brokerage
49
Step 1: Client executes with many dealers
Client
Step 2: Client gives up trade to clearing member for clearing through CCP
Currency 2
Currency 1
Currency 2
Currency 1
CCPClearing Member
Initial Margin
DealerClient
Initial Margin
Currency 2
Currency 1
Currency 2
Currency 1
Currency 2
Currency 1
Trading occurs with multiple counterparties
Reconciliation with the CCP
Collateral posted to clearing member only
Portfolio credit risk to central counterparty
Single point of contactClient
Dealer A
Dealer B
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Listed DerivativesClient Clearing
dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank Listed DerivativesProduct overview
51
Deutsche Bank’s Global Markets Listed Derivatives business provides exchange traded derivatives execution, clearing and related services for its customers. The group provides access to over 70 Global Listed Derivatives exchanges, consistently ranking Deutsche Bank in the top Global Clearers, and is structured around the following core competencies:
Global Clearing Services
Ecommerce Trading & Clearing Connectivity
Risk, Liquidity and Collateral
Global Prime Brokerage
Voice Execution, Trade Ideas &
Research
Single Global Clearing Infrastructure
Key processing centres in London, Frankfurt, Sydney,
New York and London
Consolidated structure around OTC (CDS, Rates
& FX) and Exchange Listed Clearing
Continued investment in technology and
infrastructure, ensuring scalable clearing services
autobahn completes the DB electronic execution
offering
Single screen access to more than 25 Global Listed
Exchanges
Enhanced trade order functionality including key exchange order types and
trade algorithms
DB’s Fast FIX facility offers the lowest possible latency
metrics
DB proprietary and risk management systems
Real-time customisable risk infrastructure
monitoring customer and market risk management
Flexible and real-time reconciliation services providing customised
reporting and resolution
Efficient Liquidity management services
Integrated Prime Services offering incorporating Equity Finance, Listed
Derivatives, FX and Fixed Income Prime Brokerage
Market leading web-based reporting infrastructure,
Global Prime gives customers real-time access to trade and position information
Margin consolidation and financing, improving pricing opportunities
Global cross asset-class coverage teams
Generating trade flows and trade ideas for customers
Managed flow facilities benefit customers trading
on risk
Access to liquidity, Options coverage and block / basis trading facilities
dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank Listed DerivativesGlobal Clearing Services
52
dbClear provides clients comprehensive clearing services through a consolidated global processing environment and exchange membership structure offering a wide range of benefits including our value added services such as dbClear reporting for file/statement delivery, dbClear matching and dbClear allocations
The dbClear Listed Derivatives suite includes dynamic access to data and reports, secure FTP, FIX and email deliveries plus complete flexibility to customize reports. Our allocations and matching solutions are market leading products that enable our clients to follow the complete life cycle of a trade in real time, cutting operation risk to the absolute minimum
With our Local branches throughout Asia we can provided superior custody and clearing services into exchanges such as KRX, TAIFEX and NSE in countries with restricted currencies.
Our international Futures & Options clearing has client facing staff in Sydney, Singapore, Tokyo, London, Frankfurt and New York. Our consolidated global processing environment and exchange membership structure offers the following: Automated trade management
Timely and accurate electronic reporting
Dedicated client service staff
Consolidated margining
Position maintenance including first notice days, last trading days and delivery monitoring
Innovative technology solutions
Extensive exchange memberships
dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank Listed DerivativesRe-defining Futures & Options and moving to the real-time model
53
dbClear Listed Derivatives provides customers with an innovative solution, re-defining the Futures & Options clearing process.
Clients have access to a consolidated view of Execution and Clearing Broker trade status information in real time. Trades arematched, allocated and exceptions identified intraday instead of next day reducing Operational Risk
dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank has a number of facilities enabled to accept orders electronically, including:
FIX DMA and Care Orders through AutobahnFO and DB Proprietary FIX engines
FIX DMA flow from Customer Order Management / Trading system
FIX Care Order flow from Customer Order Management / Trading system
Care Order flow from Bloomberg EMSX
Care Order flow from vendor Portfolio Management systems, including:
– Trading Screen
– Charles River
– Portware
– Bloomberg EMSX
The process for FIX order management, both DMA and Care Orders, is documented to a great level of detail to ensure that the process is completely automated with the appropriate controls and automated acknowledgements.
Co-location and Proximity Hosting solutions are also enabled ensuring the lowest level of latency when accessing exchanges:
CME proximity hosting via UK5 data centre
Euronext LIFFE proximity hosting via UK5 data centre
Eurex proximity hosting via UK5 data centre
NSE and Korea co-location
Listed Derivatives: Electronic executionFIX Connectivity for DMA and Care Orders
54
dbClearDeutsche Bank
Introducing dbClear
Fast and flexible access to more than 25 major global electronic exchanges, AutoBahnFO forms a strategic part of Deutsche Bank’s market leading franchise
Complete exchange flexibility including tradable market depth views
Seamless provision of services across regions and asset classes
24-7 Global eSupport teams to implement key solutions
Single sign-on process, linking all Deutsche Bank autobahn products
Compliments Deutsche Bank’s real-time straight through processing capabilities
Supports all major order types covered on exchange
Key algorithmic trading and synthetic orders types include
Volume Weighted Average Price
Time Weighted Average price
Iceberg style orders, both automated and manual
Volume Participation
Arrival Price
Listed Derivatives: Electronic execution AutoBahnFO GUI
55
dbClearDeutsche Bank
Introducing dbClear
dbClear Listed Derivatives Matching : Benefits for Clients Manages the entire trade lifecycle from Execution to Settlement
Connects the Client, Clearing Broker and Executing Brokers in real-time via Traiana© Harmony Network
Single Client interface for all execution and clearing relationships
Improves T+0 Transparency for Client and Clearing Brokers in respect to Third Party Broker Executions/Give Ins
Reduces T+1 breaks and Operational Risk due to increased STP and T+0 Exception Management
Support for client allocation and average pricing self servicing via Client Portal
dbClear Listed Derivatives Matching : Client Features Complete Trade Lifecycle event status via Client Portal (Executed, Affirmed, Allocated, Matched, Cleared, Given-Up)
Consolidated multibroker execution reports, trade reconciliations and allocations
Real-time low latency trade notifications and matching
Automated Allocations/Average pricing via GUI, File or FIX message
Multiple average pricing and allocation methods supported
GUI and/or alert based T+0 exception management supported by dedicated Operational team
Efficient client integration using industry standard or proprietary formats
Listed Derivatives: Matching
56
dbClearDeutsche Bank
Introducing dbClear
dbClear Listed Derivatives Allocations: Benefits for Clients Top-day management of trade allocations increases STP and reduces T+1 breaks and Operational risk
Automates the Allocation and Give-Out process on an intraday and end of day basis
Enables a more efficient operational model reducing cost and maximising resources.
Flexible solutions tailored to the clients optimal Risk management and Operational model.
Support for FIX, CSV file, GUI and Rules based solutions
dbClear Listed Derivatives Allocations: Client Features GUI based Allocations integrated to Deutsche Bank’s core Order Management, eTrading and Post Trade portals
Allocations can be processed in multiple formats (FIX & CSV file)
Straight allocation, best-fit average pricing and real average price methodologies supported, enabling equal distribution of trades across all accounts
Rules-based allocation methods available
Market standard instrument identifiers (Bloomberg, RIC and Exchange tickers) supported along with client specific identifiers
Client Allocation solutions managed by dedicated IT and Operational Integration teams
GUI and/or alert based T+0 Exception Management supported by dedicated Operational team
Listed Derivatives: Allocations
57
dbClearDeutsche Bank
Introducing dbClear
Listed Derivatives workflowsAgency and Principal relationships in F&O
58
Deutsche Bank Securities Inc (US Broker Dealer) - acting as Agent in the US
“Customer agrees that this Agreement shall govern all dealings between Customer and DBSI relating to transactions that DBSI may execute, clear and/or carry on Customer's behalf for the purchase or sale of futures contracts including foreign futures contracts or options thereon”
Deutsche Bank AG - acting as Principle
“In respect of every Transaction made between us subject to the Rules of an Exchange, we shall, unless otherwise agreed in writing in relation to a particular Exchange, act as principal in any Transaction with you, and we shall have made (or arranged to have made through an intermediate broker who may be an Associated Company) on a principal-to-principal basis a matching transaction on themarket”
DBSI Clearing House DealerClient
Variation Margin Variation Margin
Initial Margin Initial Margin
Variation Margin
Initial Margin
Future/Option Transaction (on behalf of the Client) Future/Option Transaction
Client Credit Exposure
DB Credit Exposure
DBAG Clearing House DealerClient
Variation Margin Variation Margin
Initial Margin Initial Margin
Variation Margin
Initial Margin
Future/Option Transaction (in Clearing Member Name)
Matching Transaction Future/Option Transaction
dbClearDeutsche Bank
Introducing dbClear
Listed Derivatives workflowsDetailed flow for clients contracting to DBSI
59
DBSI F&O Clearing Model (acting as Agent) Margin Flows
“Customer agrees that this Agreement shall govern all dealings between Customer and DBSI relating to transactions that DBSI may execute, clear and/or carry on Customer's behalf for the purchase or sale of futures contracts including foreign futures contracts or options thereon”
DBSI CMEClientInitial Margin
Initial Margin
DBAG LDN
Eurex or LCH
Secured
Segregated (US Clearing Houses only)
Initial Margin
Initial Margin
DSI TSE
Initial Margin
Initial Margin
Client Credit Exposure
Secured Account
DB Credit Exposure
dbClearDeutsche Bank
Introducing dbClear
Listed Derivatives workflowsDetailed flow for clients contracting to DBAG London
60
DBAG F&O Clearing Model (acting as Principle) Margin Flows
“In respect of every Transaction made between us subject to the Rules of an Exchange, we shall, unless otherwise agreed in writing in relation to a particular Exchange, act as principal in any Transaction with you, and we shall have made (or arranged to have made through an intermediate broker who may be an Associated Company) on a principal-to-principal basis a matching transaction on the market”
DBAG Eurex or LCHClient
Initial Margin
DBSI CME
Initial Margin
Initial Margin
DSI TSEInitial Margin
Initial Margin
Initial Margin
Client Credit Exposures
DB Credit Exposure
dbClearDeutsche Bank
Introducing dbClear
Deutsche Bank's solution to Margin protection Listed Derivatives
61
DB AG London - Segregation through DBAG FFT Custody account:
Under German law non-cash collateral is protected in the event of a DB default.
Securities are held in a DB FFT custody account opened in the name of the underlying customer.
Collateral is reflected in client’s Listed Derivatives account.
Clients need to sign a pledge agreement in a addition to a standard Futures and Options agreement.
This is a live solution with customers.
DB AG London - Segregation through Bank of New York Mellon (BNYM):
DBAG London can also provide Listed Derivatives customers with a 3rd Party margin segregation solution through Bank of New York Mellon (BNYM). Only collateral to cover Initial Margin balances only can be held in the segregated BNYM.
A DB account will be opened in the name of each client separately with BNYM.
Additional margin (Variation margin plus any interest, commissions etc), will be settled directly with and held at DB – as per the current standard margining process.
Excess Initial Margin can only be withdrawn from BNYM account on DB’s instruction, except in the event of a DB default.
Standard margin cut-off times are still applicable.
Client needs to sign amended Listed Derivatives Clearing agreement and a 3-way Segregated Account Control Agreement.
dbClearDeutsche Bank
Introducing dbClear
BONY Margin segregation workflow Listed Derivatives
62
1. DB settles client omnibus margin call with exchange.2. BNYM send DB Balance Data for each client account it holds.3. Any outstanding margin call is then communicated to client.4. Client confirms Margin settlement details with DB.5. Client settles Initial Margin Requirement with BNYM.6. BNYM confirms Initial Margin Coverage to DB.7. Only DB can request a return of collateral from BNYM to Client (unless DB becomes insolvent).
Clearing House
DBAG LDN
Client
BNYM3.
Mar
gin
Cal
l
4.S
ettle
men
t C
onfir
mat
ion
1. Margin Settlement 2. Balance data
Collateral Returned
Request to return collateralR
eque
st fo
r BN
YM c
olla
tera
l
6. IM Confirmation
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Risk WaterfallsOTC Rates and Credit Derivatives, Listed Derivatives
dbClearDeutsche Bank
Introducing dbClear
Default protectionOTC Rates Derivatives: LCH
64
125m required in total from all SwapClear CBs. Each CB’s contribution share proportional to its Initial Margin (avg. over past 3 months), and subject to min £2m. (However Default Fund available is £591m as of Mar-10, as it combines other products.)
Portion of LCH’s own capital is £20m
Level stress tested daily to cover at least a default of the single largest CB.
Guaranty Fund size was an estimated total of £591m as of March –2010
LCH can call up to £50m from each remaining CB for mandatory additional contributions
Remaining Capital of LCH totalled EUR 305m as of December –2009
Membership Criteria
Variation Margin
Initial Margin
Defaulter’s Default Fund Contribution
LCH.Clearnet’s capital & reserves to £20mm
Remaining Default Fund
SwapClear Undertaking (£50mm per SwapClear Member)
Replenishment of LCH.Clearnet’s Capital
dbClearDeutsche Bank
Introducing dbClear
Default protectionOTC Rates Derivatives: CME
65
Sized to cover 4 largest defaults Funded portion sized to cover 1st and 2nd largest theoretical
losses
Unfunded portion sized to cover 3rd and 4th largest theoretical losses
Stress Testing Stress test covers 99.9% 7-day P/L moves over 5 year back
testing period
7 standard deviation shocks to the PCA factors needed to reach 99.9% 7-day coverage
Limited Recourse The IRS financial safeguards will operate in a limited
recourse model
The portfolios are broken apart in order to margin Futures and IRS separately
a The actual amounts will be based on the four largest net debtor profiles
CME Group
General Assessment Powers for IRS
IRS Non-Defaulting CMs Guaranty Fund
CME Contributed Capital $100M
Defaulting MemberIRS Guaranty Fund
Defaulting MemberIRS Overnight / Initial Margin
a
Fund
edU
nfun
ded
dbClearDeutsche Bank
Introducing dbClear
Default waterfall structureOTC Rates Derivatives: CME
66
Risk of Loss Mutualisation If a Clearing Member defaults in the
House account (Lehman), the collateral of non-defaulted clients of the defaulted Clearing Member can NOT be used to cover losses
If a Clearing Member defaults in the Client Omnibus, due to the large default of a client (LTCM), the collateral of non-defaulted clients of the defaulted Clearing Member CAN BE USED to cover losses
dbClearDeutsche Bank
Introducing dbClear
Each Clearing Member must maintain at least $2.5 million in Guaranty Fund plus Initial Margin based on portfolio Risk
The order of liquidity default has multiple levels of protection:
1st Protection: The defaulting member’s Initial Margin plus Member’s Guaranty Fund contribution. Liquidity supported by a committed line of credit with current balance of $125 million.
2nd Protection: IDCG’s $50 million Surplus Capital
3rd Protection: Guaranty fund contributions of non-defaulting clearing members’ (pro-rata based on member’s required contribution to Guaranty Fund)
4th Protection: Final backstop is the clearing house’s assessment powers requiring a clearing member capital all to fund any possible residual loss.
Default protectionOTC Rates Derivatives: IDCG
67
3/29/2011 2010 DB Blue template
dbClearDeutsche Bank
Introducing dbClear
Key Principles Hybrid of traditional net and gross margin models
Best of both: (i) only net margin is at risk and (ii) full amount of gross margin is held at clearing house
Client margin is fully protected in the event of a FCM default due to a house position
Client margin is fully protected in the event of another Client’s default, that does not cause the FCM to default
Client margin is only at risk if another Client at the Client’s FCM defaults AND causes the FCM to default
In that event, only the portion of the Client’s initial margin that is Net Margin is at risk, the remainder of the Client’s margin (called Custodial margin) is protected
Default protectionOTC Credit Derivatives: ICE
Risk Waterfall – FCM default due to Client Positions1. Defaulting Client’s ICE Minimum Margin (Net and Custodial Margin) & excess margin*
2. Defaulting FCM’s Excess Margin in the House Account
3. Defaulting FCM’s Excess Guaranty Fund Contribution
4. Defaulting FCM’s Client Omnibus (limited to the Net Client Omnibus requirement)
5. ICE’s Priority Guaranty Fund Contribution
6. Non-Defaulting CPs’ Guaranty Fund Contribution and ICE’s Pro Rata Guaranty Fund Contribution
* In the event that ICE cannot identify the defaulting Client, ICE will proceed to the next step(s) in the waterfall as necessary to cover ICE obligations to non-defaulting members. After a defaulting Client is identified, ICE will work with the defaulting CP to identify if any house and/or client omnibus funds should be recouped from any remaining defaulting Client funds held at ICE
68
dbClearDeutsche Bank
Introducing dbClear
Client Margin Protection - ExampleOTC Credit Derivatives: ICE
69
Snapshot (pre-default): FCM-A is clearing for Client-A and Client-B
ICE Minimum Margin Requirement:
Client-A: $1MM
Client-B: $2MM
The Net Margin requirement is $300K
Margin Held at ICENet Margin $ 300K
Gross Margin $ 3MM
FCM-A House Margin $ 500K
FCM-A Guaranty Fund $ 500K
Defaults: Client-B defaults and FCM-A is unable to cover the losses
ICE declares FCM-A in default in their Client Account
Total Losses are $ 4MM
Net Margin to Gross Margin ratio is 10%
Client-A’s funds in Net Margin is $ 100K, Custodial Margin is $ 900K
Risk Waterfall
1. Client-B margin (Net & Custodial) $ 2.0MM
2. FCM-A House Margin $ 500K
3. FCM-A Guaranty Fund $ 500K
4. FCM-A Net Client Omnibus $ 100K
5. ICE Priority Guaranty Fund $ 900K
6. Non-Defaulting FCMs GF / ICE Remaining GF $ 0
7. One Time Assessment $ 0
Net margin is at risk in the event of a Client default
Client-A’s Custodial Margin ($900K) is not available for use in the event of a default
FCM-A House Margin and Guaranty Fund are available to the extent that the margin was not needed to cover losses in its own House account
dbClearDeutsche Bank
Introducing dbClear
Key Principles CME has changed their waterfalls to be separate waterfalls for each product (one CDS waterfall, one rates waterfall, one futures
waterfall) rather than the commingled waterfall originally proposed
Client margin is fully protected in the event of a FCM default due to a house position
Client margin is fully protected in the event of another Client’s default, that does not cause the FCM to default
Client margin is only at risk if another Client at the Client’s FCM defaults AND causes the FCM to default
In that event, unlike in the ICE model, all of the Client’s initial margin is potentially at risk
Default protectionOTC Credit Derivatives: CME
Risk Waterfall – FCM default due to Client Positions1. Defaulting Client’s CME Minimum Margin & excess margin
2. Defaulting FCM’s Excess Margin in the House Account
3. Defaulting FCM’s Excess Guaranty Fund Contribution
4. Defaulting FCM’s Client Omnibus (Pro-Rata based on Client’s Contribution to Margin Pool)
5. CME’s Guaranty Fund Contribution
6. Non-Defaulting FCMs’ Guaranty Fund Contribution or Assessment Powers
70
dbClearDeutsche Bank
Introducing dbClear
Client Margin Protection – Example 1 OTC Credit Derivatives: CME
71
29/03/2011 2010 DB Blue template
Scenario:
FCM-X is clearing for Client-A, Client-B and Client-C
Clients A, B and C trade CDS and have posted margins as follows:
Client-A Client-B Client-C Total$3 MM $2 MM $6 MM $11MM
Client A defaults and FCM-X is unable to cover the losses
CME declares FCM-X in default in its Client Account and liquidates its House positions
Losses associated with liquidation of House positions are less than the sum of FCM-X margin and FCM-X Guaranty Fund contribution and there is excess collateral of $3 MM
Total losses due to Client – A default are $5 MM
Loss Allocation: Excess collateral of $3 MM is available to absorb losses
due to liquidation of Client-A’s positions
Client-B and Client-C margins are not impacted by looses due to Client-A positions
Risk Waterfall
Waterfall Margin Remaining loss/excess
1. Client-A $ 3.0 MM -$ 2.0MM
2. Excess Collateral in House Account $ 3.0 MM +$ 1.0MM
3. Client-B Margin $ 2.0MM No impact
4. Client-C Margin $ 6.0MM No impact
CME Clearing
Client-A
House Account
FCM-X
Client-B
Client-C
In default
Aggregated Customer Account
dbClearDeutsche Bank
Introducing dbClear
Client Margin Protection – Example 2OTC Credit Derivatives: CME
72
29/03/2011 2010 DB Blue template
Scenario:
FCM-X is clearing for Client-A, Client-B and Client-C
Clients A, B and C trade CDS and have posted margins as follows:
Client-A Client-B Client-C Total
$3 MM $2 MM $6 MM $11MM
Client A defaults and FCM-X is unable to cover the losses
CME declares FCM-X in default in its Client Account and liquidates its House positions
Losses associated with liquidation of House positions are less than the sum of FCM-X margin and FCM-X Guaranty Fund contribution and there is excess collateral of $1 MM
Total losses due to Client –A default are $5 MM
Loss Allocation: Excess collateral of $1 MM is available to absorb losses
due to liquidation of Client-A’s positions
Client-B and Client-C margins are mutualised across Client-B and Client-C margins, with Client B and Client-C absorbing $0.25 MM and $0.75 MM of losses respectively
Risk Waterfall
Waterfall Margin Remaining loss/excess
1. Client-A $ 3.0 MM -$ 2.0MM
2. Excess Collateral in House Account $ 1.0 MM -$1.0MM
3. Client-B Margin $ 2.0MM $1.75MM
4. Client-C Margin $ 6.0MM $5.25MM
CME Clearing
Client-A
House Account
FCM-X
Client-B
Client-C
In default
Aggregated Customer Account
dbClearDeutsche Bank
Introducing dbClear
Client Margin Protection – Example 3OTC Credit Derivatives: CME
73
29/03/2011 2010 DB Blue template
Scenario:
FCM-X is clearing for Client-A, Client-B and Client-C
Clients A, B and C trade CDS and have posted margins as follows:
Client-A Client-B Client-C Total
$3 MM $2 MM $6 MM $11MM
Client A defaults and FCM-X is unable to cover the losses
CME declares FCM-X in default in its Client Account and liquidates its House positions
Losses associated with liquidation of House positions are greater than the sum of FCM-X margin and FCM-X Guaranty Fund contribution and there is no excess collateral
Total losses due to Client –A default are $5 MM
Loss Allocation: Excess collateral is not available to absorb losses due to
liquidation of Client-A’s positions
Losses associated with Client-A positions are mutualisedacross Client-B and Client-C margins, with Client B and Client-C absorbing $0.5 MM and $1.5 MM of losses respectively
Risk Waterfall
Waterfall Margin Remaining loss/excess
1. Client-A $ 3.0 MM -$ 2.0MM
2. Excess Collateral in House Account $ 0.0 MM -$ 2.0 MM
3. Client-B Margin $ 2.0MM $1.5 MM
4. Client-C Margin $ 6.0MM $4.5 MM
CME Clearing
Client-A
House Account
FCM-X
Client-B
Client-C
In default
Aggregated Customer Account
dbClearDeutsche Bank
Introducing dbClear
Client Margin Protection – Example 3OTC Credit Derivatives: CME
74
29/03/2011 2010 DB Blue template
Scenario:
FCM-X is clearing for Client-A, Client-B and Client-C
Clients A, B and C trade CDS and have posted margins as follows:
Client-A Client-B Client-C Total
$3 MM $2 MM $6 MM $11MM
Client A defaults and FCM-X is unable to cover the losses
CME declares FCM-X in default in its Client Account and liquidates its House positions
Losses associated with liquidation of House positions are greater than the sum of FCM-X margin and FCM-X Guaranty Fund contribution and there is no excess collateral
Total losses due to Client –A default are $5 MM
Loss Allocation: Excess collateral is not available to absorb losses due to
liquidation of Client-A’s positions
Losses associated with Client-A positions are mutualised across Client-B and Client-C margins, with Client B and Client-C absorbing $0.5 MM and $1.5 MM of losses respectively
Risk Waterfall
Waterfall Margin Remaining loss/excess
1. Client-A $ 3.0 MM -$ 2.0MM
2. Excess Collateral in House Account $ 0.0 MM -$ 2.0 MM
3. Client-B Margin $ 2.0MM $1.5 MM
4. Client-C Margin $ 6.0MM $4.5 MM
CME Clearing
Client-A
House Account
FCM-X
Client-B
Client-C
In default
Aggregated Customer Account
dbClearDeutsche Bank
Introducing dbClear
Default Protection Listed Derivatives: TSE
75
29/03/2011 2010 DB Blue template
Key Principles FCM Client Account separate from FCM House Account
Client Account margined Net across all clients (i.e. DB receive in gross from clients and pay net to the clearing house)
Client margin in the Client Account is fully protected in the event of a FCM default due to a house position
Client margin is fully protected in the event of another Client’s default, that does not cause the FCM to default
Client margin is only at risk if another Client at the Client’s FCM defaults AND causes the FCM to default
In that event, only the portion of the Client’s initial margin that is Net Margin is at risk, the remainder of the Client’s margin will be moved on to another FCM.
Risk Waterfall – FCM default due to Client Positions1. Defaulting Client’s Minimum Margin & excess margin
2. Defaulting FCM’s Excess Margin in the House Account
3. Defaulting FCM’s Excess Default Fund Contribution
4. Defaulting FCM’s Client Omnibus (limited to the Net Client Omnibus requirement)
5. TSE’s Default Fund Contribution
6. Non-Defaulting Members’ Default Fund Contribution
dbClearDeutsche Bank
Introducing dbClear
Default Protection Listed Derivatives: LCH
76
29/03/2011 2010 DB Blue template
Key Principles FCM Client Account separate from FCM House Account
Client Account margined Net across all clients (i.e. DB receive in gross from clients and pay net to the clearing house)
Client margin in the Client Account is fully protected in the event of a FCM default due to a house position
Client margin is fully protected in the event of another Client’s default, that does not cause the FCM to default
Client margin is only at risk if another Client at the Client’s FCM defaults AND causes the FCM to default
In that event, only the portion of the Client’s initial margin that is above Net Margin is at risk, the remainder of the Client’s margin will be moved on to another FCM.
Risk Waterfall – FCM default due to Client Positions1. Defaulting Client’s Minimum Margin & excess margin
2. Defaulting FCM’s Excess Margin in the House Account
3. Defaulting FCM’s Excess Default Fund Contribution
4. Defaulting FCM’s Client Omnibus (limited to the Net Client Omnibus requirement)
5. LCH’s Default Fund Contribution
6. Non-Defaulting Members’ Default Fund Contribution
7. Voluntary re-contribution to the Default Fund from members
dbClearDeutsche Bank
Introducing dbClear
Default Protection Listed Derivatives: Eurex
77
29/03/2011 2010 DB Blue template
Key Principles FCM Client Account commingled with FCM House Account in one account
Account margined net.
Client margin is not protected in the event of a FCM default due to a house position
Client margin is fully protected in the event of another Client’s default, that does not cause the FCM to default
Client margin is at risk if another Client at the Client’s FCM defaults AND causes the FCM to default
June 2011: Eurex plan to offer variety of client margin segregation solutions
Risk Waterfall – Member Default1. Defaulting Members Margin
2. Defaulting Members Clearing Fund Contribution
3. Reserve Fund of Eurex Clearing AG
4. Clearing Fund Contribution of other members
5. Liable Equity of Eurex Clearing AG
6. Non-Defaulting Members’ Default Fund Contribution
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Risk Waterfalls comparisonCurrent CME FCM and LCH SCM models, proposed CFTC collateral models
dbClearDeutsche Bank
Introducing dbClear
Collateral Segregation – “Omnibus Account” FCM model (Based on current CME FCM model)
Market Omnibus AccountClient collateral co-mingled in omnibus account segregated from FCM accounts.
Risk: Client funds at risk of being used in event of default of FCM.
Characteristics:- Shared omnibus structure- No segregation from other counterparties- Segregated / bankruptcy remote from CCP and FCM- Sequestered account held physically at third party custodian (e.g. BONY for Deutsche Bank)
Key Considerations:- Maximal margin compression for OTC Rates or Credit (compared to individually segregated accounts for a
single asset class)
79
dbClearDeutsche Bank
Introducing dbClear
1) Membership criteria and Assessment risk / Limited liability (FCM)- CME to potentially reduce from USD 1bn capital to USD 50mn capital
- CME can call members for mandatory additional contributions of a total of 250% of the combined Guaranty Fund.2) Collateral Segregation(CCP)- As per existing current account structure, client funds at risk of being used in event of default of FCM
3) Eligible collateral and haircuts (CCP)- Risks on the collateral pool:
1. haircuts are inside the market should be assessed daily
e.g. defaulting Government bonds: applied haircut is 10%, but the market implies 30%
2. wrong-way risk / speed of burn
e.g. a Fund Manager puts up its own paper as collateral. However, Clearing Members would prefer collateral that is diversified, e.g. unrelated to the Fund Manager.
Key RisksFCM model (Based on current CME FCM model)
FM
Client F
Client E
Client D
Client C
Client B
Client A
Total collateral for Clearing Member acting as FCM: FCM only accepts 50% of FM’s collateral obligations as FM paper risk limited to 50%
N.B.: CCP applies a 50% limit on FM’s paper posted as collateral (overall)risk becomes much broader
accelerated SPEED OF BURN!
Collateral held in Sequestered Account
Excess margin
Default Guaranty fundCME Contributed CapitalSegregated / bankruptcy remote barrier for OTC Rates
Speed of burn
80
dbClearDeutsche Bank
Introducing dbClear
Account structureSCM model (Based on current LCH SCM model)
Option 1: Individual Segregated Account (ISA)Client collateral is segregated and margined separately from other clients of SCM.Full protection in the event of the default of SCM and/or clients of SCM
Option 2: Omnibus Net Segregated Accounts – affiliates (OSA)Clients have option to set up an OSA dedicated to multiple funds at the Fund Managers discretion. All clients of OSA must appoint same back-up SCM to ensure portability of collateral in the event of a default of SCM.Risk: Additional margin called by SCM but not lodged at LCH, not protected by LCH Clearnet rules.
Option 3: Omnibus Net Segregated Accounts – non affiliated clientsClient can opt to be have an OSA where accounts are co-mingled with accounts of other clients of the SCM, who controls participation in OSA. Risk: Additional margin called by SCM but not lodged at LCH, not protected by LCH Clearnet rules.
Additional Collateral Account: Additional margin posted by a client can be lodged separately at the LCH. Clearing member will provide a breakdown by assets lodged in this account by client and this will be used by
the LCH to identify client collateral in the event of a SCM default. Collateral held in this account is fully protected in the event of the default of the SCM. Additional margin called by SCM, but not posted in the Additional Collateral Account would not be protected by
LCH rules in the event of the default of the SCM.
More
Risk to client
Less
81
dbClearDeutsche Bank
Introducing dbClear
1) Loss Mutualisation (in event of SCM default)- Loss mutualisation does not occur between individual or omnibus net segregated client accounts. However loss
mutualisation can occur between all clients in a single omnibus net segregated account in the event of a SCM default.
2) Clearing House declared insolvent- In the event the LCH default waterfall has been exhausted following the default of clearing member(s) and is
insufficient to meet the obligations of the clearing house, they would then be declared insolvent and at that point client collateral is at risk as the Clearing Member would be classed as an unsecured creditor of the clearing house.
- It should be noted that when Lehman’s defaulted only 35% of Lehman’s initial margin was utilised across all products cleared at the LCH.
Key RisksSCM model
82
dbClearDeutsche Bank
Introducing dbClear
CFTC has proposed an Advanced Notice of Proposed Rulemaking (“ANPR”) where it has asked market participants to comment on the following 4 kinds of collateral models for protection of client margins for OTC derivatives
Collateral models proposed by the CFTCSummary
Baseline Waterfall Method Legal Segregation with Commingling (“LSOC”)
Individual Segregation
Client Account Structure
Client collateral held at the CCP* on an omnibus level i.e., client margin is commingled with margins posted by other customers of the FCM
Same as Baseline Same as Baseline All collateral is kept separate for and on behalf of the cleared swap client at the CCP
CCP Recourse and Loss Mutualization
CCP has recourse to collateral posted by non-defaulting clients in the event of FCM default due to default of one of its customer
Same as Baseline Collateral of non-defaulting clients is NOT available to the CCP in the event of FCM default due to default of one of its customers
Same as LSOC
Position in the Risk Waterfall
Collateral of non-defaulting customers available for recourse BEFORE CCP Capital and Guaranty Fund contributions
Collateral of non-defaulting customers available for recourse AFTER CCP Capital and Guaranty Fund contributions
Collateral of non-defaulting clients is not in the Risk Waterfall
Same as LSOC
Operational and compliance costs
Low Low Low High
Initial Margin Low High Highest Highest
83
dbClearDeutsche Bank
Introducing dbClear
Collateral models proposed by the CFTC (contd.)Summary or risk waterfalls
Baseline Model - FCM default due to Client Positions
1. Defaulting Client’s minimum margin & excess margin
2. Defaulting FCM’s excess margin in the House Account
3. Defaulting FCM’s Excess Guaranty Fund Contribution
4. Defaulting FCM’s Client Omnibus (Pro-Rata based on Client’s Contribution to Margin Pool)
5. CCP’s Capital Contribution
6. Non-Defaulting FCM’s funded Guaranty Fund Contribution or Assessment Powers (unfunded )
Waterfall Model - FCM default due to Client Positions
1. Defaulting Client’s minimum margin & excess margin
2. Defaulting FCM’s excess Margin in the House Account
3. Defaulting FCM’s Excess Guaranty Fund Contribution
4. CCP’s Capital Contribution
5. Non-Defaulting FCM’s funded Guaranty Fund Contribution or Assessment Powers (unfunded) *
6. Defaulting FCM’s Client Omnibus (Pro-Rata based on Client’s Contribution to Margin Pool)
LSOC & Individual Segregation Models - FCM default due to Client Positions
1. Defaulting Client’s minimum margin & excess margin
2. Defaulting FCM’s excess Margin in the House Account
3. Defaulting FCM’s Excess Guaranty Fund Contribution
4. CCP’s Capital Contribution
5. Non-Defaulting FCM’s funded Guaranty Fund Contribution or Assessment Powers (unfunded)
* It is unclear whether the CCP will have recourse to Defaulting FCM client omnibus before or after exhausting the unfunded portion of the Guaranty Fund contribution
84
dbClearDeutsche Bank
Introducing dbClear
Collateral models proposed by the CFTC (contd.)Baseline model example
29/03/2011 2010 DB Blue template
Scenario:
FCM-X is clearing for Client-A, Client-B and Client-C
Clients A, B and C trade CDS and have posted margins as follows (for illustration purposes only):
Client-A Client-B Client-C Total$30 MM $20 MM $50 MM $100 MM
Client A defaults and FCM-X is unable to cover the losses
CCP declares FCM-X in default in its Client Account and liquidates its House positions
Total losses associated with liquidation of House positions are less than the sum of FCM-X margin and FCM-X Guaranty Fund contribution and there is excess collateral of $1 MM
Total losses due to Client-A default are $22 MM, after Initial Margin of $30 MM is fully exhausted
CCP capital of $4 MM
CCP Guaranty Fund contribution of $20 MM (excluding Guaranty Fund contribution of FCM-X)
Loss Allocation:
Losses associated with liquidation of Client-A are first offset against excess collateral of $1 MM available from liquidation of House positions of FCM-X
Remaining loss of $21 MM is mutualised across Client-B and Client-C margins, with Client B and Client-C absorbing $6 MM and $15 MM of losses respectively
Risk Waterfall
Waterfall Margin Remaining loss/excess
1. Client-A $ 30 MM ($ 22 MM)
2. Excess Collateral in House Account $ 1 MM ($ 21 MM)
3. Client-B Margin $ 20 MM $14 MM
4. Client-C Margin $ 50 MM $35 MM
CCP
Client-A
House Account
FCM-X
Client-B
Client-C
In default
Aggregated Customer Account
85
dbClearDeutsche Bank
Introducing dbClear
Collateral models proposed by the CFTC (contd.)Waterfall model example
29/03/2011 2010 DB Blue template
Scenario:
FCM-X is clearing for Client-A, Client-B and Client-C
Clients A, B and C trade CDS and have posted margins as follows (for illustration purposes only):
Client-A Client-B Client-C Total$40 MM $30 MM $70 MM $140 MM
Client A defaults and FCM-X is unable to cover the losses
CCP declares FCM-X in default in its Client Account and liquidates its House positions
Total losses associated with liquidation of House positions are less than the sum of FCM-X margin and FCM-X Guaranty Fund contribution and there is excess collateral of $1 MM
Total losses due to Client-A default are $12 MM, after Initial Margin of $40 MM is fully exhausted
CCP capital of $4 MM
CCP Guaranty Fund contribution of $20 MM (excluding Guaranty Fund contribution of FCM-X)
Loss Allocation:
Losses associated with liquidation of Client-A are first offset against excess collateral of $1 MM available from liquidation of House positions of FCM-X
Remaining loss of $11 MM is offset against the CCP contributed capital of $4 MM, leaving a loss balance of $7 MM
Balance is offset against CCP Guaranty Fund contribution
Risk Waterfall
Waterfall Margin Remaining loss/excess
1. Client-A $ 40 MM ($ 12 MM)
2. Excess Collateral in House Account $ 1 MM ($ 11 MM)
3. CCP Capital $ 4 MM ($ 7 MM)
4. CCP Guaranty Fund contribution $20 MM $13 MM
5. Client-B Margin $30 MM No impact
6. Client-C Margin $70 MM No impact
CCP
Client-A
House Account
FCM-X
Client-B
Client-C
In default
Aggregated Customer Account
86
dbClearDeutsche Bank
Introducing dbClear
Collateral models proposed by the CFTC (contd.)LSOC / Individual segregation model example
29/03/2011 2010 DB Blue template
Scenario:
FCM-X is clearing for Client-A, Client-B and Client-C
Clients A, B and C trade CDS and have posted margins as follows (for illustration purposes only):
Client-A Client-B Client-C Total$45 MM $35 MM $80 MM $160 MM
Client A defaults and FCM-X is unable to cover the losses
CCP declares FCM-X in default in its Client Account and liquidates its House positions
Total losses associated with liquidation of House positions are less than the sum of FCM-X margin and FCM-X Guaranty Fund contribution and there is excess collateral of $1 MM
Total losses due to Client-A default are $7 MM, after Initial Margin of $45 MM is fully exhausted
CCP capital of $4 MM
CCP Guaranty Fund contribution of $20 MM (excluding Guaranty Fund contribution of FCM-X)
Loss Allocation:
Losses associated with liquidation of Client-A are first offset against excess collateral of $1 MM available from liquidation of House positions of FCM-X
Remaining loss of $6 MM is offset against the CCP contributed capital of $4 MM, leaving a loss balance of $2 MM
Balance is offset against CCP Guaranty Fund contribution
Risk Waterfall
Waterfall Margin Remaining loss/excess
1. Client-A $ 45 MM ($7 MM)
2. Excess Collateral in House Account $ 1 MM ($ 6 MM)
3. CCP Capital $ 4 MM ($2 MM)
4. CCP Guaranty Fund contribution $20 MM $18 MM
CCP
Client-A
House Account
FCM-X
Client-B
Client-C
In default
Aggregated Customer Account
** CCP cannot use the collateral attributable to the non-defaulting customers of the defaulting FCM and such collateral is not available as a default resource in the Risk Waterfall
87
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Key Risk Management
dbClearDeutsche Bank
Introducing dbClearDeutsche Bank
Deutsche Bank Legal, Risk & Capital (LRC)A global Organisation
NorthAmerica15.2%
621
16South
America0.4%
50Pacific1.2%
75Asia
11.1%
456UK
15.6%
638Cont.
Europe17.4%
715
GER36.8%
1,508
4,098 employees (FTE) worldwide
Japan1.8%
8Sub-Sahara
Africa0.2%
11MENA0.3%
FTE, January 2011
89
dbClearDeutsche Bank
Introducing dbClearDeutsche Bank
Legal, Risk & Capital Principles
Our Management Board provides overall risk & capital management supervision for our consolidated Groupas a whole. Our Supervisory Board regularly monitors our risk and capital profile
We manage credit, market, liquidity, operational, business, legal and reputational risks as well as our capitalin a coordinated manner at all relevant levels within our organization
The structure of our function is closely aligned with the structure of our Group Divisions
The Legal, Risk & Capital function is independent of our Group Divisions
90
dbClearDeutsche Bank
Introducing dbClearDeutsche Bank
Legal, Risk & Capital (contd.)Tasks at Deutsche Bank
Research
To research and develop better risk
methodologies
Independence
To exercise independent
monitoring of all risks
Limits
To set appropriate limits for risk taking across
the firm
Communication with regulators
To dialogue with regulators, rating
agencies and external equity
analysts to improve external
perception
Standards
To set standards for
risk information
and reporting
Training
To develop and
implement internal &
compliance risk training
Policies
To establish a coherent
framework of relevant policies
Organisation&
Process
People &
Culture
Methodology&
Tools
Systems&
Infrastructure
Task
sBu
ildin
g Bl
ocks
TrustInnovationPerformance Customer Focus Teamwork
Valu
es
91
dbClearDeutsche Bank
Introducing dbClear
Legal, Risk & Capital (contd.) Integrated Risk Management
MARKET RISKArises from the uncertainty concerning changes in market prices
and rates.
LIQUIDITY RISKThe risk from a potential inability
of DB to meet all payment obligations when they come due
Additional responsibility: Capital & Funding Management
REPUTATIONAL RISKThe threat that publicity concerning a transaction,
counterpartyor business practice involving a client will negatively impact
the public’s trust in DB
OPERATIONAL RISKThe loss potential in
relation to employees, infrastructure failure, documentation etc.
CREDIT RISKArises from all transactions that give rise to
actual, contingent or potential claims against any counterparty.
We split into:Default risk, Country risk and Settlement risk
Legal, Risk & Capital strives to enhance shareholder value and protect Deutsche Bank's capital, integrity, and reputation byproviding our business partners with innovative solutions.
Deutsche Bank is exposed to a wide range of risks, such as credit losses, volatility due to variation in market prices and rates,operational failures, liquidity shortages and regulatory & legal matters. LRC manages all aspects of these risks from the analysis ofcounterparty credit risk and the stress-testing of market movements to the protection of the Bank's infrastructure and information.
C R E D I T R I S K M A N A G E M E N T
M A R K E T R I S K M A N A G E M E N T
T R E A S U R YO P E R A T I O N A L
R I S K M A N A G E M E N T
L E G A L & C O M P L I A N C E
92
dbClearDeutsche Bank
Introducing dbClearDeutsche Bank
Legal, Risk & Capital (contd.) Risk Management Tools
Expected Loss…
is the loss we can expect on a one year time frame based on historical experience
Economic Capital…
is the capital we need to absorb very severe unexpected losses arising from our exposures
Value-at-risk...
is the potential future loss that, under normal market conditions, will not be exceeded on a 99% confidence interval for one (internal) and ten (regulatory) days
Stress Testing…
determines the effect of potentially extreme circumstances
Regulatory Risk Reporting
93
dbClearDeutsche Bank
Introducing dbClear
CRM’s Organisational set upKey Credit processes
― Each borrower must be rated― Basis for correct risk appetite determination― Methodology is stipulated by Credit Rating Policy
― Bank may set portfolio risk appetites for specific business divisions, industries, countries, specific products and individual counterparties to ensure diversification and avoid concentration
― Divisional Risk units are responsible for analysis, structuring, approval and ongoing monitoring of individual exposures or transactions
― Divisional Credit Strategies are reviewed closely with the front office
― Credit decisions generally made by Credit Authority Holders― Authorities assigned based on qualification, experience and training & reviewed periodically by GCPC― Credit approval required for material change to credit facility― Large/Complex transactions referred to underwriting committee― Exposure consolidated under one obligor principle
― Special de-risking units are key part of Bank’s overall risk management process― Risk transfer executed in various forms (outright sales, single/portfolio hedging, securitisations etc.)― De-risking conducted by the respective business units (e.g. LEMG) in accordance with GCPC
approved mandates
― Active monitoring and management is an integral part of Credit Risk Management― Performed by CRM risk units in cooperation with Portfolio Management― Interaction with other functions e.g. LEMG, CPM, TCP etc.
RATING
APPETITE
STRUCTURING/ORIGINATION
APPROVAL/AUTHORITY
DISTRIBUTION
MONITORING
94
dbClearDeutsche Bank
Introducing dbClear
As the replacement values of derivatives portfolios fluctuate with movements in market rates and withchanges in the transactions in the portfolios, we also estimate the potential future replacement costs of theportfolios over their lifetimes or, in case of collateralized portfolios, over appropriate unwind periods. Wemeasure the potential future exposure against separate limits.
The potential future exposure measure which we use is generally given by a time profile of simulated positivemarket values of each counterparty’s derivatives portfolio, for which netting and collateralization areconsidered. For limit monitoring we employ the 95th quantile of the resulting distribution of market values,internally referred to as potential future exposure (“PFE”).
For credit risk management purposes, we perform stress tests to assess the impact of changes in generaleconomic conditions or specific parameters on our credit exposures or parts thereof as well as the impact onthe creditworthiness of our portfolio.
Assessing potential future exposure of derivatives
95
dbClearDeutsche Bank
Introducing dbClear
Problem Loans: Credit Risk Management regularly assesses whether there is objective evidence that a loanor group of loans is impaired. A loan or group of loans is impaired and impairment losses are incurred if− there is objective evidence of impairment as a result of a loss event that occurred after the initial
recognition of the asset and up to the balance sheet date (a “loss event”),− the loss event had an impact on the estimated future cash flows of the financial asset or the group of
financial assets, and− a reliable estimate of the loss amount can be made.− Credit Risk Management’s loss assessments are subject to regular review in collaboration with Group
Finance
Derivatives – Credit Value Adjustments:− We establish a counterparty credit valuation adjustment for OTC derivative transactions to cover
expected credit losses. The adjustment amount is determined by assessing the potential credit exposureto all counterparties, taking into account any collateral held, the effect of netting under a masteragreement, expected loss given default and the credit risk for each counterparty.
− When the decision to terminate derivative transactions or the related master agreement results in aresidual net obligation owed by the counterparty, we restructure the obligation into a non-derivative claimand manage it through our regular work-out process.
Management of adverse development of credit risk
96
dbClearDeutsche Bank
Introducing dbClearDeutsche Bank
A comprehensive description of Risk Management within Deutsche Bank is given in the SEC Form 20-F, Item 11, which can be found on the Investor
Relations’ homepage:
http://www.deutsche-bank.de/ir/index_e.htm
Deutsche Bank Risk ManagementAdditional information
97
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
dbClear TradeFinderReporting, Margining and Risk analysis
dbClearDeutsche Bank
Introducing dbClear
TradeFinder dbClearThe future in cost and risk efficient clearing management
99
TradeFinder is a cutting-edge suite of tools for portfolio, risk and operational managers. Delivered via a well established technology platform it provides wide ranging functionality at all stages of the trade lifecycle.
It offers comprehensive portfolio analysis and history with pre and post trade analytics and modelling capabilities for risk, capital and cash; and full support for all centrally cleared and intermediated trade flows and positions, including LCH, CME, IDCG, ICE.
With multi-product support across Rates, Credit, FX, Listed Derivatives, including multiple variants of swaps and swaptions, and high speed navigation and drill down for multiple portfolio perspectives, it offers users the potential for smarter, faster, improved decision-making.
Data export is versatile, fast and efficient; facilities include FTPS, Excel, flat files and automatic e-mail production and notification.
Main features
Comprehensive portfolio analysis with pre and post trade analytics and modelling Historical, daily and intraday portfolio position tracking Initial and variation margin call explanation for multi-asset portfolios Historical and daily fee and billing reports Portfolio risk and future cash flow analysis CFaR ™ Portfolio risk and clearing management dbRiskClear ™
dbClearDeutsche Bank
Introducing dbClear
TradeFinder dbClearNavigation and general functionality
tradefinder.db.com
100
dbClearDeutsche Bank
Introducing dbClear
TradeFinder dbClearNavigation and general functionality (contd.)
101
Details for selected portfolio
Date selection field forhistorical browsing
Portfolio Selection in thesummary section.
Navigation bar Show table in popup
window
Excel export
Fast navigation iconsleading to detailed reports
Reports and analytics are accessed via the navigation bar or the fast navigation icon. The summary sectionlists all available portfolios and reports on aggregate portfolio level. A detailed analysis is obtained byselecting a portfolio. All displayed tables can be exported to an Excel sheet or an additional browser popupwindow. For historical browsing of reports the date selection field is used.
dbClearDeutsche Bank
Introducing dbClear
Overview
Portfolio Position Tracking
102
Daily, updated reports show trade details, pricing and clearing information across all major Clearing Houses and enable managers to track portfolio performance accurately and efficiently. Key functionality includes:
End-of-day full reporting of position details
Intraday reporting on the status of trades clearing status changes
Portfolio change history tracks trade additions, unwinds and amendments
Multi-product capabilities and product specific reports (Swaps, Swaptions, Interest Rate Futures and Options, Bonds, Bond Futures and Options, FX Options) with expanding product range
Historical portfolio position tracking via archiving functionality
dbClearDeutsche Bank
Introducing dbClear
Portfolio Position Tracking (contd.)
103
Press to display selected product specific report only
Sub-producttype filter foreach productspecific table
Date Selection for historical browsing Excel export with all productspecific end-of-day reports andan overall report including alltrade detail columns availableacross product types
Beyond trade details, the Excelsheet shows trade MTMs,coupons, accruals, fees andcash settlements, variation, pai.
Show expanded trade detailview
Product specific excel exportwith trade MTM, coupon,accruals and other cashsettlement related information
End of Day report shows all open positions as of close of business for the selected date. Portfolio positions are displayed in product-specific reports with sub-product type filtering functionality. Excel export provides additional trade details and cash settlement related information (trade MTMs, coupons, accruals, fees, cash settlements, variation, PAI). An expanded trade detail view is available for each product-specific report.
dbClearDeutsche Bank
Introducing dbClear
Portfolio Position Tracking (contd.)
104
Trade Additions, Terminations and Amendments
Timestamp of intraday request
Intraday clearing status
Filter
Amended notional amount
The clearing status of each trade in the portfolio and newly added trades to the portfolio can be checked in the intraday report. The portfolio position composition over time is recorded in the change history showingtrade additions, amendments with the corresponding amended notional amount and trade terminations.
dbClearDeutsche Bank
Introducing dbClear
Overview
Margin Call and Fee Transparency
105
TradeFinder dbClear provides the client full historical and intraday transparency of the trade clearing process through clearing houses and the ability to analyze and manage cross-product initial and variation margin on individual trade level. Key features are
Daily updated initial margin and variation margin reporting
Trade pricing and mark-to-market change reporting
Variation Margin Explanation and PnL Attribution
Initial Margin Explanation based on trades’ Greeks
Margin Call component reporting: collateral and settlement related cash flows
Daily updated Fee and Billing section
Historical archiving functionality and flexible historical period reporting
Drill-down functionality: clearing houses, currency, product class, interest rate bucket and security level
dbClearDeutsche Bank
Introducing dbClear
Margin Call and Fee Transparency (contd.)
106
Excel export ofMargin Call foreach clearinghouse
Fast navigationto MTM variation, pa, initial marginand collateralpage
The margin call explanation provides an insight into the components of variation and intial margin call. Fast navigation leads to MTM variation, initial margin, cash balance and settlement related cash flows. The margin call is sent automatically to the client and can be retrieved on TradeFinder dbClear via Excel export.
dbClearDeutsche Bank
Introducing dbClear
Margin Call and Fee Transparency (contd.)
107
Click row forbreadown tocurrency, productclass, risk bucketand security level
Click for initial marginexplanation
Initial Margin analysis compares the initial margin charged by each clearing house and portfolio’s delta exposure to each clearing house. The calculation of the initial margin is explained in detail in a popup providing an initial margin breakdown down to currency, product type, risk bucket and trade level.
dbClearDeutsche Bank
Introducing dbClear
Margin Call and Fee Transparency (contd.)
108
MTM variationattirubtion: couponpayment, newtrades, terminations, amendments, market PnL
MTM change on tradelevel
Daily MTM Variation as part of the daily (variation) margin call is the sum of trade additions, trade terminations, trade amendments, coupon payments and residual PnL due to market movement. The daily total MTM change is attributed to trade level MTM changes and coupon payments.
dbClearDeutsche Bank
Introducing dbClear
Overview
Portfolio and Trade Risk Analytics
109
TradeFinder’s risk and cash flow analysis functionality is designed to meet the challenges of an increasingly regulated OTC marketplace where the requirement to take and manage risk in a more capital-efficient manner demands access to the very best models and tools. TradeFinder delivers the wide-ranging functionality to achieve this, including:
Portfolio risk sensitivities change analysis: allows managers to stress test the portfolios using Deutsche Bank’s proven risk methodologies
Daily updated Greeks reports (Gamma, Vega, Delta, etc): allow managers to both manage the risk within their portfolio and identify new trading possibilities
Cash Flow at Risk ™ Analysis: provides access to Deutsche Bank’s market-leading suite of tools for one of the most precious resources our clients have – their cash collateral
Highly flexible risk margining engine including VaR, marginal VaR, Conditional VaR, expected positive/negative exposure (EPE / ENE) calculation
Portfolio risk and clearing management tool dbRiskClear ™
Drill-down functionality: by currency, product type, interest rate bucket and security level
dbClearDeutsche Bank
Introducing dbClear
Portfolio and Trade Risk Analytics (contd.)
110
Switch todelta
changereport (1d change, 5d
change)
Click for tradescontributing to thisdelta bucket
Portfolio, currency, producttype selection
Click Excel export of bucketeddelta on trade level
Aggregate Delta and Gamma are reported on portfolio, currency and product type level. By selecting a certain portfolio, currency or a product type the corresponding bucketed delta distribution is shown. 1 day and 5 day delta changes are analysed in the Delta Change Report. By clicking on a tenor bucket the contributing trades are listed in a popup. Bucketed delta per trade is exported via Excel.
dbClearDeutsche Bank
Introducing dbClear
Portfolio and Trade Risk Analytics (contd.)
111
Select deltachang
analysis
Click for tenor/expirybucket breakdown on trade level
Click Excel export of bucketeddelta on trade level
Portfolio, currency, product type filter
Vega is aggregated on portfolio, currency and product type level. Once a portfolio, currency or product type is selected, the bucketed delta for the selection is shown. For each vega bucket the contributing trades are reported. Bucketed vega per trade can be exported to an Excel sheet.
dbClearDeutsche Bank
Introducing dbClear
Portfolio and Trade Risk Analytics (contd.)
112
Colour Coding: VaR andcVaR compared to Initial
Margin
VaR and cVaR fordiffernt horizonts and
confidence levels
Colour Coding: VaRand cVaR compared to Initial Margin
Click on cell toupdate currency piecharts
Click pie chart fordetailed VaRanalysis on tradelevel (VaR popup)
Value at Risk engine updates portfolio Value at Risk and conditional Value at Risk for different confidence intervals and horizons on a daily basis. Selecting a confidence level/horizon combination updates the currency breakdown of VaR and cVaR. Clicking on the currency breakdown opens a VaR popup window with a detailed Value at Risk analysis on currency and trade level.
dbClearDeutsche Bank
Introducing dbClear
Portfolio and Trade Risk Analytics (contd.)
113
Click fortrade/currency NPV change histogram
Drill Down: Functionality
Portfolio Level, Currency Level , Security Level
VaR Excel export
Value at Risk popup reports different Value at Risk figures on portfolio, currency and trade level. For each level the corresponding historical NPV change histogram can be displayed. The VaR report is exported in an Excel sheet.
dbClearDeutsche Bank
Introducing dbClear
Portfolio and Trade Risk Analytics (contd.)
114
Click foridentification oftrade contribution
Click foridentification oftrade contribution
Future coupon analysis gives insight into future receivable and payable cash-flows. For both single and cumulated cash-flows the corresponding trade list is available in a popup.
dbClearDeutsche Bank
Introducing dbClear
Portfolio and Trade Risk Analytics (contd.)
115
Cash Flow At Risk Analysis
dbClearDeutsche Bank
Introducing dbClear
Report Archive
116
TradeFinder dbClear stores all automatically sent daily reports in its Report Archive.
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
dbCross-Product Margin
dbClearDeutsche Bank
Introducing dbClear
Cross-Product Margining
118
29/03/2011 2010 DB Blue template
dbCross-Product Margin across Rates and FX under a Master Netting Agreement
Capital efficiency Margin offsets across products and agreements provides capital efficiency
Operational efficiency Single margin call across master agreements
Transparency Rules based Portfolio Initial Margin calculations where clients get full transparency and can replicate the calculations as required
Commitment Margin parameters and offsets are documented in a Master Netting Agreement and subject to a notice period for change
Wide coverage Many FX and fixed income trade types within the portfolio margin calculation
dbClearDeutsche Bank
Introducing dbClear
Strategy Product Group Products Covered
dbCr
oss-
Prod
uct M
argi
n
Fixed Income Relative Value / Macro OTC Bilateral, Cleared and Intermediated
Cap, Floor, IR Swap, Swaption
Financing Gov and Gov Inflation Bond
Listed Derivatives IR Futures and Options, Bond Futures and Options
FX OTC Bilateral, Cleared and Intermediated
FX Spot, Forward and Option
Listed Derivatives Currency Futures and Options
Rul
es o
fthe
Roa
d Equity and Credit strategies OTC Bilateral, Cleared and Intermediated
Equity Swaps and Options, CDS
Financing Single Stock, Corporate Bonds
Listed Derivatives Index and Stock Futures and Options
Cross-Product MarginingCapabilities
119
29/03/2011 2010 DB Blue template
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Technology and Market Initiatives
dbClearDeutsche Bank
Introducing dbClear
Benefits: Compliance with regulatory
requirements for OTC position reporting
Increased market transparency
Impact: While legislation requirements
are still to be finalised and consequently vendor offerings to meet them the final impact on the end users is still unclear.
Trade repositories and transparencyIndustry status / plans
121
2nd June 2009 Fed letter - commitment to universal reporting of all trades not cleared through a CCP - phased deliveries by asset class through 2009/10
Reporting was not mandatory for buy side, but all market participants ‘strongly encouraged’ to comply within 60 days from implementation by the signatories to the letter
Asset class-aligned repositories, already covered by DB for cleared and non-cleared transactions:
DTCC TIW for credit derivatives
TriOptima for rates derivatives
DTCC/MarkitSERV for equity derivatives
The Dodd-Frank Act (DFA) signed into law July 21, 2010 will dramatically change the OTC derivatives environment. Proposed rules from SEC and CFTC outline:
− Reporting and publication of trade data will be required through Derivatives Clearing Organization (DCOs) or registered swap data repositories (SDRs)
− Multiple reporting requirements covering both Cleared or uncleared OTC Derivative transactions (Credit, Rates, Equity, Commodities and FX)
− Contents required:
Transaction and price data
Primary economic terms
Confirmation data
Including the use of Unique Counterparty Identifiers (UCIs), Unique Product Identification (UPI) and Unique Swap Identification (USI)
− Reporting timing requirements vary from Real time, 15 min, 30 min or 24hr
− Responsibility for reporting will be driven by requirement type and market participant type such as:
Swap Dealer (SD), Major Swap Participant (MSP), Unregistered End User
Swap Execution Facility (SEF), Designated Contract Market (DCM)
Derivatives Clearing Organization (DCO),
− Rules do allow participants to leverage Third-Party Service Provider where appropriate
Outside the US, requirements are less clear at this time however proposed EC regulations under MiFID is gaining momentum.
Industry is keen for the CFTC, the SEC, and overseas regulators to adopt consistent reporting requirements to remove inefficiencies, simplify compliance obligations and enhance regulatory agency capabilities
Under the ISDA and AFME frameworks industry is currently finalising RFPs to appoint vendors to develop SDRs to meeting the requirements for Commodities and FX. Additionally Rates are also RFP following a detailed review of the current repository found it unfit for purpose.
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Transition Management and Operational Client Service
dbClearDeutsche Bank
Introducing dbClear
Transition Management functions
presenter's details · date · page 123
On-boarding Pipeline Coordinate DocumentationThe Transition Management team has the responsibility of managing the onboarding pipeline ensuring a smooth transition of clients wishing to clear with DB
Transition Management coordinates Documentation with Client DB Credit Department DB Legal DB Ops areas
The Transition Management team communicates between areas on all aspects of the transition in order to onboard clients in a timely manner.
Obtain AML and KYC compliance as needed
Provide clear communication to Front Office and Client to manage expectations on turn around of documentation
Facilitate Clearing Agreements between DB and the Client
Facilitating Account Setup Client IntegrationTransition Management will facilitate the account setup with CMV, Legal and Credit
Coordinate Client portfolio testing
Ensure proper and timely client setup within DB systems Trade capture systems Static data Margin terms Monitor limit increases Confirm all trade currencies have initial margin
Education and Advisory Services and coordination of RFI
An internal end-to-end test will be conducted prior to client go-live to ensure systems connectivity is setup correctly
The transition management team together with relevant Ops areas will conduct an operational walkthrough prior to go-live and introduce Clients to necessary internal contacts
123
dbClearDeutsche Bank
Introducing dbClear
Operational Client Service functions
presenter's details · date · page 124
Trade Processing Client Service & Product KnowledgePrompt trade affirmation Single point of contact for Clearing Relationship Management
Portfolio back-loading assistance Dedicated Client Service Representatives for OTC and Listed Derivatives
Trade position management (Trade Offsets, Novations, etc.) Assistance with operational process implementation
Reconciliation between Books and Records vs. CCPs Initial Margin vs. CCPs Variation Margin vs. CCPs
Trade flow explanations and diagrams
Proactive trade break resolution Rates and Credit product clearing expertise
24-hour coverage located in London, New York & Singapore
Reporting Risk ManagementAgree on report type and delivery mechanism for client reports Monitor client credit/legal limits
Reports are generated and delivered Real Time Cross Product Canned or Ad-hoc
Review eligible traded products
End-of-day Client trade reconciliations Monitor exception process (including restricted currency processing)
Trade Activity and Position report
124
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Communication and Contacts
dbClearDeutsche Bank
Introducing dbClear
dbClear Contacts
126
3/29/2011 2010 DB Blue template
Global product Key contact Details
[email protected]+44 207 547 7465dbClear Chris Hansen
[email protected]+44 207 547 8645Rates/Commodities Joe Cassidy
[email protected]+1 212 250 4845Credit Hester Serafini
[email protected]+44 207 547 6358FX Jason Vitale
[email protected]+44 207 547 1881Listed Derivatives Drew Bradford
[email protected]+44 207 547 1025Equity Derivatives Anthony Byrne
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Appendix AProduct eligibility: Clearing and Intermediation
dbClearDeutsche Bank
Introducing dbClear
Clearing House eligibilityOTC Rates Derivatives
128
29/03/2011 2010 DB Blue template
Currencies Max Tenor Currencies Max Tenor Currencies Max TenorUSD, EUR 31 years DKK, HKD, NZD, NOK, PLN, ZAR 10 years USD 30 years
USD: 3M Index AUD, CAD, CHF, JPY, SEK 30 years 1M or 3M IndexEUR: 6M Index EUR, USD, GBP 50 years*EUR not in scope for initial offering. Broad range of Floating Rate Indices supported
Currencies Max Tenor Currencies Max Tenor Currencies Max TenorEUR, USD, GBP, CHF 2 years USD TBD
Currencies Max Tenor Currencies Max Tenor Currencies Max TenorUSD 30 years
1M or 3M Index
Not Supported
Not supported for initial offering Floating Leg spreads are supported Not Supported
Forward starting swaps are supported Forward starting swaps are supported Forward starting swaps are supported
Past effective dates are supported Past effective dates are supported Not Supported
FORWARD EFFECTIVE DATES
AMORTIZING NOTIONAL Not Supported Not SupportedNot Supported
Not Supported
Front or End stub with a minimum stub period of 1 day + Settlement Lag are supported. Swaps with both Front and End stub not supported. Settlement Lag is as follows:USD, EUR, GBP, CAD = 1 dayJPY, CHF, AUD, DKK, HKD, NZD, NZD, SEK, NOK, ZAR = 2 days
Supported with a minimum stub period of 1 week
PAST EFFECTIVE DATES
PR
OD
UC
TSC
HA
RA
CTE
RIS
TIC
S
Not Supported
Not Supported
SWAPTIONS
BASIS SWAPS
ZERO COUPON SWAPS
FLOATING LEG SPREADS
Not Supported
IDCGLCH.Clearnet (SwapClear)
Not Supported Not Supported
Single Currency Basis Swaps are supported
Supported
CME IRS
Not Supported
Not Supported
VANILLA SINGLE CURRENCY IRS
OVERNIGHT INDEX SWAPS
FORWARD RATE AGREEMENTS
Not Supported Not Supported
STUBS
DB expects to clear IRS products that CME, LCH and IDCG are offering for client clearing, as well as additional IRS products that become available for clearing.
dbClearDeutsche Bank
Introducing dbClear
Clearing House eligibilityOTC Credit Derivatives
129
29/03/2011 2010 DB Blue template
ICE Trust US ICE Clear Europe CME
Current offering under the DCM Model CDX IG - Series 8 through 10 with a tenor
of 5,7 or 10 years
CDX IG - Series 11 through 15 with a tenor of 5 or 10 years
CDX HY - Series 8, 12, 13,14 & 15 with a tenor of 5 years
CDX HY - Series 9, 10 & 11 with a tenor of 3 or 5 years
CDX HiVol - Series 8 through 15 with a tenor of 5 years
Scheduled to be launched Q3 2011 FCM Model
Indices listed above as well as the single name constituents of the indices under the FCM Model
Scheduled to be launched in 2011 Buy side clearing services for indices are
targeted for Q1 2011. Single names will be launched at a later date likely in Q2 2011
Itraxx Europe - Series 7 through 14 with a tenor of 5 or 10 years
Itraxx Europe Crossover - Series 9 through14 with a tenor of 5 years
Itraxx Europe HiVol - Series 7 through 14 with a tenor of 5 years
Current offering CDX IG - Series 12 through15 with a tenor
of 5 or 10 years
Scheduled to be launched Q1 2011 Remaining IG indices back to series 10
with tenors of 3,5,7 or 10 years
HY indices back to series 11 with tenors of 3,5,7 or 10 years
Single name constituents of the IG and HY indices to be launched sector by sector
Scheduled to be launched early 2011 CDX HVol with a tenor of 5 years only
DB expects to clear all CDS Index and Single Name contracts that ICE and CME are offering for client clearing, as well as any additional contracts that become available for clearing.
dbClearDeutsche Bank
Introducing dbClear
Product and Market coverageOTC Rates Derivatives Prime Brokerage
Rates Prime Broker Product Coverage– Interest Rate Swaps (Fixed/Float)– LIBOR Basis Swaps– Overnight Index Swaps– FRAs– Zero Coupon IRS– Cross Currency Swaps (Fixed/Float and Float/Float)– Caps / Floors– European Swaptions
Rates Prime Broker Currency Coverage– Developed Market Currencies including USD, EUR, GBP, JPY, CAD, CHF, AUD, DKK, NOK, NZD, SEK – Emerging Market Currencies including CNY, CZK, HKD, IDR, ILS, INR, KRW, MXN, MYR, PLN, SGD, THB, TRY, TWD, ZAR
– Restrictions apply based on product, tenor and reference rate combination
Margin Methodology– Portfolio-based and fully transparent
Expanding Platform– Prime Brokerage and Client Clearing offerings seamlessly integrated– Product and market coverage flexible per client preferences– Integration with other asset classes underway
130
dbClearDeutsche Bank
Introducing dbClear
Credit Prime Broker Intermediation Product Coverage DM Single Names
Index Products (CDX and Itraxx)
SNAC, STEC contracts
RED preferred ISIN; Daily marks in Markit
Max 10yr maturity
US and European (USD, EUR, GBP)
Credit PB gives access to major executing dealers without negotiating ISDAs, the Transition team will take care of sending out Designation Notices.
Intermediation is offered to key clients as a complement to the broader Prime Finance offering: Fees are charged per Intermediated trade
No DB Intermediation Fees are charged for trades executed with DB’s CDS desk
Fees are billed in arrears on a monthly basis
Credit Prime Broker Additional Product Coverage: Intermediated CDS are cross margined through GPF with physical securities (Bonds and Loans) under a Rules based margin
methodology or a Stress Tested based margining methodology for Credit focused portfolios
Product and Market coverageOTC Credit Derivatives Prime Brokerage
131
29/03/2011 2010 DB Blue template
dbClearDeutsche Bank
Introducing dbClear
FX Prime Broker Intermediation Product Coverage Swaps
Options
Spots
Forwards
NDFs
FX Prime Brokerage Currency Coverage* ARS, AUD, BRL, CAD, CHF, CLP, CNY, COP, CZK, DKK, EUR, GBP, HKD, HUF, IDR, ILS, INR, ISK, JPY, KRW, MXN, MYR,
NOK, NZD, PEN, PHP, PLN, RUB, SAR, SGD, SEK, SKK, THB, TRY, TWD, USD, VEB, ZAR* Restrictions apply based on product, tenor and reference rate combination
Intermediation is offered to key clients as a complement to the broader Prime Finance offering: Fees are charged based on trading style and volumes and can be charged per 1 million USD notional or per ticket
Pricing can be structured to include volume based discounts
No DB Intermediation Fees are charged for trades executed with Deutsche Bank
Fees are billed in arrears on a monthly basis or through trade pippage.
Product and Market coverageFX Prime Brokerage
132
29/03/2011 2010 DB Blue template
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Appendix BCollateral Management:CCP eligible collateral and Collateral process timelines
dbClearDeutsche Bank
Introducing dbClear
CCP Eligible collateral summaryOTC Rates Derivatives
134
Cash UST(US Treasuries)
USGA(US Govt Agencies)
MBS(Mortgage Backed Securities)
FSD(Foreign Sovereign Debt)
Other
CME
-GBP, CAD, EUR (5% HC)-US Dollar (No HC)
-UST-Bills (No HC)-UST-Bonds/Notes• 0-5 yrs (2% HC)• 5-10 yrs (3.5% HC)• 10-30 yrs (5% HC)• 0.5% added if security is off the run-UST-Strips (Principal & Coupon) 10% HC applied to market value of security ₁
-Discount notes issued by FFCB, FHLB, FHLMC and FNMA •RE 12 months or less [3% HC on market value (0.5% added if security is off the run)]-Callable and Non-callable FNMA Benchmark Bills, FHLMC Reference Bills , FHLB Bills , FFCB Bills(3% HC)
-FNMA, FHLMC, GNMA (10% HC on market value)
-Govt Securities issued by Canada, France, Germany, Sweden, UK -Discount bills (3% HC)-0-5 yrs (5.50% HC)-5-10 yrs (7.00% HC)-10-30 yrs (8.50% HC)-Greater than 30 yrs(10% HC)
-N/A
IDCG
-CAD, EUR, JPY, GBP,CHF (5% HC)-USD (No HC)Deposits.₁
-UST-Bills• 0-less than 9 months (0.50% HC)• 9-less than 12 months (1.% HC)-UST-Bonds/Notes• 1-less than 5 yrs (2% HC)• 5-less than 10 yrs (3.5% HC)
-Federal Agency Securities• 0-less than 9 months (0.50% HC)• 9-less than 12 months (1.% HC)•1-less than 5 yrs (2% HC)• 5-less than 10 yrs (3.5% HC)
-GNMA, FNMA, FHLMC (“Federal Agency”)•RE 10 yrs or less (10% HC)
-Bills, Notes and Bonds issued by Canada, France, Germany and Great Britain (5% HC)
-Non-Sovereign Debt Securities ₁
LCH₂
-GBP,EUR, USD, CHF, JPY, SEK, DKK, NOK (No HC)
-UST-Bills/UST-Bonds/Notes•2 working days-3 yrs (4.25% HC)•1-3 yrs (5.38% HC)•3-7 yrs (6.88% HC)•7-11 yrs (7.00% HC)•11+ yrs (9.00% HC)
-FNMA, FHLMC, FHLB•2 working days-3 yrs (4.38% HC)•1-3 yrs (5.50% HC)•3-7 yrs (7.50% HC)•7-11 yrs (7.63% HC)•11+ yrs (10.13% HC)
-N/A -Govt Securities issued by Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Spain, Sweden, UK ₁
-GovtGuaranteedCDs (Certificate of Deposits) -Govt ₁Guaranteed Bonds ₁
₁ Please refer to the clearing house -specific websites for more details and specific haircuts₂LCH haircuts are effective 03/07/2011*Variation Margin must be paid in cash in the currency of the contractDisclaimer - This is a summary for informational purposes only.
dbClearDeutsche Bank
Introducing dbClear
CCP Eligible collateral summaryOTC Credit Derivatives
135
Cash UST(US Treasuries)
USGA(US Govt Agencies)
MBS(Mortgage Backed Securities)
FSD(Foreign Sovereign Debt)
Other
CME
-GBP, CAD, EUR (5% HC)-US Dollar (No HC)
-UST-Bills (No HC)-UST-Bonds/Notes• 0-5 yrs (2% HC)• 5-10 yrs (3.5% HC)• 10-30 yrs (5% HC)• 0.5% added if security is off the run-UST-Strips (Principal & Coupon) 10% HC applied to market value of security ₁
-Discount notes issued by FFCB, FHLB, FHLMC and FNMA •RE 12 months or less [3% HC on market value (0.5% added if security is off the run)]-Callable and Non-callable FNMA Benchmark Bills, FHLMC Reference Bills , FHLB Bills , FFCB Bills(3% HC)
-FNMA, FHLMC, GNMA (10% HC on market value)
-Discount bills (3% HC)-0-5 yrs (5.50% HC)-5-10 yrs (7.00% HC)-10-30 yrs (8.50% HC)-Greater than 30 yrs(10% HC)
-N/A
ICE Clear Europe
-EUR (No HC)-GBP (No HC)-USD (No HC)
-UST-Bills• 0-less than 3 yrs (3% HC)-US-Bonds, Treasury Inflation Indexed Notes/Bonds• 0-less than 3 yrs (3% HC)• 3-less than 7 yrs (5% HC)• 7-less than or equal to 11 yrs (13% HC)•Greater than 11 yrs (17% HC)
-N/A -N/A -Govt Securities issued by Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Spain, UK ₁
-US Cash Management Treasury Bills•RE less than 3 yrs (3% HC)-Cross Currencies (6% -8% HC) ₁
ICE Trust US
-CAD (3.97% HC),-CHF (4.63% HC)-EUR (4.11% HC)-GBP (4.63% HC)-JPY (4.26% HC)-USD (No HC)
-UST-Bills/Notes/Bonds• Less than 1 yr (0.09% HC)• 1- 5 yrs (0.40% HC)• 5- 10 yrs (2.38% HC)•Greater than 10 yrs (12.63% HC)
-N/A -N/A -CAD Notes/Bonds-G7 Euro Zone and JP Bills/Notes/Bonds-UK Bonds/Gilts ₁
-N/A
₁ Please refer to the clearing house -specific websites for more details and specific haircuts*Variation Margin must be paid in cash in the currency of the contractDisclaimer - This is a summary for informational purposes only.
dbClearDeutsche Bank
Introducing dbClear
T+0 (Day 1) T+1 (Day 2)Trade affirmation deadline (SCM/FCM)CCP affirms/ accepts trades
SCM/FCM/ Dealer reports sent out by CCP
CCP sends out banking instruction to SCM/ FCM’s bank
CCP auto CR/DR IM and MTM for Client transactions from SCM/ FCM’s bank
Client Call issued Deadline for client to deliver collateral
LCH 23:00 CET 03:00 CET 04:00 – 05:00 CET 1st call at 9:00 CET 11:00 CET As agreed in client negotiations
ICE Clear 19:00 CET 22:00 CET (T0) 01:00 CET 09:00 CET 11:00 CET As agreed in client negotiations
ICE Trust 00:00 CET 03:00 CET 06:00 CET 14:00 CET 11:00 CET As agreed in client negotiations
CME (Credit) 01:00 CET(T+1) 05:30 CET 14:30 CET 15:30 CET 11:00 CET As agreed in client
negotiations
CME (Rates) 01:00 CET(T+1) 05:30 CET 14:30 CET 15:30 CET 11:00 CET As agreed in client
negotiations
IDCG 23:00 CET 23:30 CET (T0) 23:45 CET (T0) TBD 11:00 CET As agreed in client negotiations
Process repeats daily when positions are live
DB systems are integrated between trading and collateral data with CCP files
Process at DB can be coordinated with the ISDA CSA call notices if required by client
Collateral process timelineOTC Rates and Credit derivatives
136136
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Appendix CEnd-to-end clearing workflow
dbClearDeutsche Bank
Introducing dbClear
Trade Execution and Clearing process
138
29/03/2011 2010 DB Blue template
Client and Executing Dealer agree on trade details with client specifying “CME, ICE, LCH or IDCG” clearing trade. The client needs to notify the Executing Dealer what platform they choose to affirm on.
Executing Dealer designates the trade as “CME, ICE, LCH or IDCG” clearing trade and alleges on the affirmation platform as specified by the client.1. VCON (CME/ICE/IDCG)2. Markitwire (CME/ICE/LCH/IDCG)3. Clearport (CME Credit only)4. ICELink (ICE Trust)
Client accepts, allocates trade and designates Clearing Member(s) on affirmation platform and trade feeds to clearing platform.
Clearing Member affirms/rejects trade on clearing platform. Client can monitor status in real-time on affirmation platform.
Clearing House accepts/rejects trade. Client can monitor status in real-time on affirmation platform.
Trade is now cleared with the Clearing House as the counterparty.
1
2
3
4
5
6
1
2
4 5
6
3
dbClearDeutsche Bank
Introducing dbClear
If Clearing Broker (CB) or CCP rejects to clear a trade, client has the option to select another CB
If no CB accepts the trade, fallback is a bilateral trade with the Executing Dealer
Partial clearing is allowed
If one of the allocations does not clear, fallback process applies to the un-cleared allocation
Executing Dealer has the option to exercise fallback to a bilateral trade between client and Executing Dealer starting from 2 hours (4 hours for LCH) after the Executing Dealer alleged the trade to be cleared
Trade Fallback process
Client selects
CB
CB accepts
?
CCP accepts
?Fallback
Cleared trade with Clearing Broker
Bilateral trade with Executing Broker
Client
No
No
Yes
Yes
139
dbClearDeutsche Bank
Introducing dbClear
CCP timelinesOTC Rates Derivatives
140
29/03/2011 2010 DB Blue template
2:30am 7pm
LCH Open Point of Trade
Executing Dealer Alleges (30 mins)
Executing Dealer can exercise Fallback option at any time until Cut-Off
Fallback Election Start-Time (CME & IDCG)
Client time to find CB and get trade cleared
Executing Dealer Alleges + 2 hrs
CME Cut-Off
5pm
LCH & IDCG Cut-Off
Fallback Election Start-Time (LCH)
Executing Dealer Alleges + 4 hrs
IDCG & CME Open
8am
T+1Fallback Election End-Time (CME)
7pm
Executing Broker (EB) has 30 minutes after point of trade to send electronic notification to the Client
Client must find a Clearing Broker (CB) that will accept the trade and deliver the trade to LCH/CME/IDCG.
If a CB rejects a trade, client may continue resubmitting to other CBs as long as EB has not exercised Fallback
EB can exercise Fallback election at any time between Fallback Election Start-Time and End-Time
Fallback Election Start-Time is EB Allege Time + 2hrs (LCH is + 4hrs)
Trades not cleared on T will result in bilateral trade for LCH and IDCG cleared trades
Trades not cleared on T+1 will result in a bilateral trade for CME cleared trades
dbClearDeutsche Bank
Introducing dbClear
Executing Broker (EB) has 30 minutes after point of trade to send electronic notification to the Client
Client must find a Clearing Broker (CB) that will accept the trade
If a CB rejects a trade, the Client may resubmit to other CBs as long as EB has not exercised Fallback
EB can exercise Fallback at any time between Fallback Election Start-Time and End-Time
Fallback Election Start-Time is EB Allege Time + 2hrs
Trades not cleared on T0 will be automatically submitted for clearing on T+1 ,unless EB has exercised Fallback option
At 5pm (local time) on T+1 for ICE / 7pm for CME, EB must exercise its Fallback option
CCP timelinesOTC Credit Derivatives
141
Times are in EST for ICE Trust and CME, and GMT for ICE Clear Europe
8am 7pm
CCP Open Point of Trade
Executing Dealer Alleges (30 mins)
8am
CCP Open
CCP does not accept new trades for clearing
T+1
Executing Dealer can exercise Fallback option at any time
Fallback Election Start-Time
Client time to find CB and get trade cleared
Executing Dealer Alleges + 2 hrs
6pm
ICE Cut-Off
CME Cut-Off
7pm
ICE FallbackElection End-Time
5pm
CME Fallback Election End-Time
dbClearDeutsche Bank
Introducing dbClear
Credit / Succession events
142
29/03/2011 2010 DB Blue template
It is important to note that all Credit Event Processes are the same as with bilateral non-cleared trades.
ISDA Determinations Committee determines all Credit and Succession Events. CME also additionally issues an advisory notice that an event has occurred and which specific contracts are affected by it.
Clients will settle Credit Events with their CM as normal with price determined by industry wide auction.
ISDA Determinations Committee will determine the Event Determination Date of the Credit Event. An industry-wide auction will take place approximately 5 business days before Cash Settlement Date. Cash Settlement Date will be approximately 30 calendar days after Event Determination Date.
The buyer of protection will receive the notional of the contract minus the recovery as determined by auction and accrued interest from previous coupon through Event Determination Date.
For CME Succession Events are automatically updated with the new reference entity name, RED code and ISIN.
For ICE Succession Events will automatically be updated on DTCC.
dbClearDeutsche Bank
Introducing dbClear
Confirmation and SettlementsICE*
143
29/03/2011 2010 DB Blue template
Trade will be submitted to DTCC as a Gold Record with three parties on each trade. The three parties are: Client FCM (acting as agent) ICE Trust
ICE will submit all trades to DTCC on behalf of the Client and the FCM.
ICE cleared trades have upfront fees settle T+3 and coupons settle quarterly. This is the same as standard CDS contracts.
Trade settlement process will be the same as with bilateral trades. Client will retain the same dedicated representative that they interact with for non-cleared trades.
*Process for FCM model has not been finalised by ICE. Above is subject to change.
Reconciliation DB reconciles DB internal trade bookings versus ICE affirmed trade details and versus DTCC confirmed trade details on a daily
basis.
Client can download report in excel or PDF format from ICELINK and perform their own reconciliation.
DB will assist client in researching and resolving any breaks.
dbClearDeutsche Bank
Introducing dbClear
Confirmation and SettlementsCME
144
29/03/2011 2010 DB Blue template
When all parties affirm a trade on the affirmation platform, the affirmation acts as a legally binding confirmation of the trade.
Upfront fees settle T+1 and coupon accrual settles daily through variation margin.
Client will retain the same dedicated Collateral Management representative that they interact with for bilateral trades.
Reconciliation
DB reconciles internal trade bookings versus CME affirmed trade details on a daily basis.
Clients can reconcile their position and activity detail on the affirmation platform.
DB will assist client in researching and resolving any breaks.
dbClearDeutsche Bank
Introducing dbClear
Confirmation and SettlementsLCH
145
29/03/2011 2010 DB Blue template
When all parties affirm a trade in the affirmation platform, the affirmation acts as a legally binding confirmation of the trade.
LCH cleared trades have upfront fees settle per standard currency default.
Client will retain the same dedicated Settlements representative that they interact with for non-cleared trades.
Reconciliation
DB reconciles internal trade bookings versus LCH affirmed trade details on a daily basis.
Clients can reconcile their position and activity detail on the affirmation platform.
DB will assist client in researching and resolving any breaks.
dbClearDeutsche Bank
Introducing dbClear
Confirmation and SettlementsIDCG
146
29/03/2011 2010 DB Blue template
When all parties affirm a trade in the affirmation platform, the affirmation acts as a legally binding confirmation of the trade.
IDCG cleared trades have no upfront fees.
Client will retain the same dedicated Collateral Management representative that they interact with for non-cleared trades.
Reconciliation
DB reconciles internal trade bookings versus IDCG affirmed trade details on a daily basis.
Clients can reconcile their position and activity detail on the affirmation platform.
DB will assist client in researching and resolving any breaks.
dbClearDeutsche Bank
Introducing dbClear
CME (Rates) only nets trades with the same effective, maturity date, fixed rate, and next float start period.
IDCG nets all trades with the same maturity.
LCH does not currently offer compression/netting.
Compression / NettingLCH, CME (Rates), IDCG
147
29/03/2011 2010 DB Blue template
CME (Rates)/IDCG Netting example:
Pay 1mm 3M Libor vs. 5% mat. 8/10/2020
Rec. 2mm 3M Libor vs. 5% mat. 8/10/2020 Pay 2mm 3M Libor vs. 5% mat. 8/10/2020
Pay 3mm 3M Libor vs. 5% mat. 8/10/2020
dbClearDeutsche Bank
Introducing dbClear
CME (Credit) automatically nets all trades of the same reference entity, fixed rate, and maturity date on a daily basis.
Client will only see one netted trade on each reference entity, fixed rate, and maturity date at each end of day.
Compression / NettingCME (Credit)
148
29/03/2011 2010 DB Blue template
Buy 1mm CDX_13
Sell 2mm CDX_13
Buy 3mm CDX_13 Buy 3mm CDX_13
Sell 4mm CDX_13
Buy 5mm CDX_13
CME (Credit) Netting example:
dbClearDeutsche Bank
Introducing dbClear
ICE Trust proposal: Automated daily netting of eligible trades to one position or ad hoc netting of existing trades when clientschange from keeping individual trades to full position netting
ICE Clear: Custom netting of trades at an agreed interval of time or on request on an ad hoc basis
ICE netting terminates the trades completely and creates a new trade with the net notional.
Compression / NettingICE*
149
29/03/2011 2010 DB Blue template
Buy 1mm CDX_13
Sell 2mm CDX_13
Buy 3mm CDX_13
Sell 4mm CDX_13
Buy 5mm CDX_13
Buy 2mm CDX_13
Sell 4mm CDX_13
Buy 5mm CDX_13
Ad – Hoc Netting example: Client chooses to net trades 1, 2, and 3.
Scheduled Netting example: Client scheduled to net all trades.
Buy 1mm CDX_13
Sell 2mm CDX_13
Buy 3mm CDX_13 Buy 3mm CDX_13
Sell 4mm CDX_13
Buy 5mm CDX_13
*Process for FCM model has not been finalised by ICE. Above is subject to change.
dbClearDeutsche Bank
Introducing dbClear
Current SCM Model FCM Model
Intermediary as Agency or Principle Principle Agent
Eligible Currencies EUR, USD, GBP, AUD, CAD, CHF, JPY, SEK, DKK, HKD, NZK, NOK, PLN, ZAR
Same
Eligible Products IRS, OIS Same
Multiple Clearing Members Yes Yes
Middleware MarkitServ Same
Trade Netting No No
Post Trade Events Yes Only termination via offsetting trade
Backloading 1. Executing Dealer uploads the eligible trades onto MarkitWire.
2. Client and Clearing Member accept trades.3. Backloading portfolio accepted by CCP
overnight. 4. When both dealers and CCP accept, trades
are rebooked as tri-party trades.
Same process
Fallback Partial Clearing is allowed.
Executing Dealer can exercise fallback 4 hours after trade execution.
TBD
150
Clearing House trade processingLCH: current SCM model vs. future FCM model comparison
dbClearDeutsche Bank
Introducing dbClear
Deutsche BankCorporate & Investment Bank
Appendix DListed Derivatives: Key Exchange memberships, Electronic execution
dbClearDeutsche Bank
Introducing dbClear
Listed Derivatives: Key DB Exchange memberships
152
North America EMEA Asia PacificAMEX New York AEX Amsterdam ASX SFE NZFE SydneyBOX Boston ADX Athens HKFEx Hong KongCBOE Chicago BSE Budapest KRX SeoulCBOT Chicago EDX London SEHK Hong KongCME Chicago EEX Frankfurt MDEX Kuala LumpurCSCE New York ENDEX Amsterdam NSE MumbaiCX New York EUXNP Paris OME OsakaICE Atlanta Eurex Frankfurt & Zurich SEM MumbaiISE New York ENXBE Brussels SGXDT SingaporeKCBT Kansas ENXPT Lisbon TFX TokyoMGE Minneapolis HEX Helsinki TGE TokyoMTRL Montreal ICE London TOCOM TokyoNQLX New York IDEM Milan TSE TokyoNYBOT New York IMAREX Oslo TAIFEX TaiwanNYCE New York LIFFE London TFEX ThailandNYFE New York LME London YGE YokohamaNYMEX New York MEFF BarcelonaNYSE New York MIF MilanONE CHICAGO, Chicago NORDPOOL Oslo Africa & Middle EastPBOT Philadelphia OM Stockholm SAFEX, JohannesburgPCX San Francisco OSE Oslo TASE, Tel AvivPHLX Philadelphia PowerNXT Paris DME, DubaiTFE Toronto TURKDEX IstanbulTSE Toronto WBAG ViennaWCE Winnipeg WSE Warsaw
dbClearDeutsche Bank
Introducing dbClear
Listed Derivatives: Electronic execution Exchange connectivity
153
dbClearDeutsche Bank
Introducing dbClear
Listed Derivatives: Electronic execution Exchange connectivity (contd.)
154
dbClearDeutsche Bank
Introducing dbClear
Listed Derivatives: Electronic execution Exchange connectivity (contd.)
155
The list above demonstrates the current development pipeline for connectivity, driven primarily by customer demand, all of which are scheduled for delivery in Q1 2011.
dbClearDeutsche Bank
Introducing dbClear
Strictly Private & Confidential
Disclaimer
The information herein is believed to reliable and has been obtained from sources believed to reliable, but we make no representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonableness or completeness of such information. In addition we have no obligation to update, modify or amend this communication or to otherwise notify a recipient in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. We therefore strongly suggest that recipients seek their own independent advice in relation to any investment, financial, legal, tax, accounting or regulatory issues discussed herein. Analyses and opinions contained herein may be based on assumptions that if altered can change the analyses or opinions expressed. Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, credit, currency, rate or other market or economic measure. Furthermore, past performance is not necessarily indicative of future results.This communication is provided for information purposes only. It is not an offer to sell, or a solicitation of an offer to buy any security, no to enter in to any agreement or contract with Deutsche Bank AG or any affiliates. In addition, any subsequent offering will be at your request and will subject to negotiation between us. It is not intended that ay public offer will be made by us at any time, in respect of any potential transaction discussed herein. Any offering or potential transaction that may be related to subject matter of this communication will be made pursuant to separate and distinct documentation and in such case the information contained herein will be superseded in its entirety by such documentation in final form.In the United Kingdom this communication is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange. This communication has not been approved for distribution to, or the use of, private customers as defined by as defined by appropriate local legislation and regulation. In the United States this document is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, FINRA, NFA and SIPC.This communication and the information contained herein is confidential and may not be reproduced or distributed in the whole or in part without our prior written consent. Copyright © 2011 Deutsche Bank AG