Uncleared Margin Rules (UMR) Euroclear triparty solutions Management... · 2020-06-22 · Uncleared...
Transcript of Uncleared Margin Rules (UMR) Euroclear triparty solutions Management... · 2020-06-22 · Uncleared...
Uncleared Margin Rules (UMR)
Euroclear triparty solutions
Phase 5 - Operational Workshop
16 December
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Uncleared Margin Rules – Phases 5 & 6
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Sept-2016 Sept-2017 Sept-2018 Sept-2019 Sept-2020Feb-2017
Phase 1 Phase 1.5 Phase 2
EU
€0.75tr
€1.5tr
€2.25tr€3tr
Phase 3 Phase 4 Phase 5Sept-2021Phase 6
€50bn
€8bn
±600 pairs
live in Euroclear ±600 pairs
live in Euroclear ±600 pairs
live in Euroclear
±1,000 pairs
live in Euroclear
(**) Est: ± 2,000 pairs
Total industry
(**) Est: ± 1,650 pairs
Total industry
Buy-Side firms pulled into exchanging IM… Challenge: combination of both the type of
counterparties (non traditional Euroclear clients)
and quantity still in scope
Educational effort for the industry globally will be
extremely significant
ALL Sell-Side firms have opted for Triparty solutions
• Euroclear Bank triparty:
o USD 70 bn (Sep 2019) or close to 50% of regulatory
IM as published by ISDA
o +/- 2,800 pairs across first 4 Phases
• Streamlined onboarding process
o less steps required, no need of SWIFT messages
anymore to activate eligibility profiles²
(*)(*)
(*)
(*)
(*)
(*)
1,000 Newly In-Scope Counterparties,
10,000 relationships, 20,000 pairs, of which
+/- 3,600 reaching €50mio IM threshold
requiring documentation and custodian
arrangements
(*) Thresholds based on the aggregate average
notional amount (AANA) of non-cleared derivatives
(**) ISDA estimates
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UMR Phase 5
Connecting to Euroclear Bank?
Connecting to Euroclear Bank
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UMR Set-up
Triparty documentation, accounts opening and
activation of triparty relations
Define your operating model. If Triparty, as Pledgee:
1. Set up with your Pledgee Representative
OR
2. Start your admission process in Euroclear Bank
Build your knowledge of Euroclear Bank and Triparty
Digital stand-alone training modules
Now 01 Feb 01 March 31 July
Bilateral negotiation & documentation
ISDA & Euroclear Bank joint documentation
Is UMR new to you ?
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• Define your operating model for UMR Phase 5 for posting and collecting Reg IM (Third-Party? Triparty?)
► Sell Side will use triparty to post collateral
As Pledgor
• Liase with your current location of collateral, i.e. your Global Custodian or Depository
Bank.
• Euroclear offers various solutions (e.g. Portfolio Model) also allowing custodians and
similar institutions to support you in pledging collateral in favor of your counterparty
As Pledgee (collecting party)
• Sell Side (as pledgors) continue using existing collateral ecosystems (Triparty
Collateral Management)
• Your custodian as gateway to the ecosystem of your counterpart (Pledgee
Representative model)
• Maintain your bilateral counterparty relation and OPS setup while relying on an
existing Euroclear infrastructure through your custodian to collect UMR collateral
Phase 5 firms – Who and how many are you?...
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• If you want to receive Reg IM collateral in Euroclear Bank Triparty environment, use your
custodian to act as Pledgee Representative on your behalf
► Engage early (now !) in discussions with your custodians and counterparts about your
best setup
• We can only support you if…we know who you are !
► Please, disclose yourself to us as soon as possible before 01 February to ensure
admission in Euroclear !
► We also invite existing Euroclear UMR clients, i.e. Phases 1 to 4 Pledgors, to provide us
a list of Phase 5 counterparties to ensure earliest involvement of all parties
• Assess quickly if you are able to meet the admission criteria in Euroclear Bank
► financial resources, operational and technological capacity, legal capacity, internal
control and risk management, ethical standards etc.
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A Custodian acts as Pledgee Representative for its Buy Side Client
Euroclear Bank
Buy Side
Pledgee
Representative
EB Third party pledge holder a/c(1 MultiSeg a/c per Pledgee)
Sub div Pledgor 1
Sub div Pledgor 2
Sub Div Pledgor nPledgor n
Pledgor 2
Pledgor 1
Euroclear Bank
Buy Side as direct
Client of Euroclear Bank
Sub div Pledgor 1
Sub div Pledgor 2
Sub Div Pledgor n
Collect Reg IM in Euroclear Bank triparty
Sell Side will most probably want to keep
existing Triparty set-up to post collateral
Triparty Collateral Management
Pledgor n
Pledgor 2
Pledgor 1
Pledgee
EB Third party pledge holder a/c(1 MultiSeg a/c)
Triparty Collateral Management
Buy Side
Start your admission process
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• If becoming a direct Client of Euroclear Bank is a realistic option, start your
admission process asap
• Financial Institutions should contact their Relationship Manager
• Buyside Clients are welcome to contact Relationship Management further
clarification of Admission Criteria and Acceptance Process
► Christian Goossens, for Europe ([email protected])
► Paul Noordam, for the US and Americas ([email protected])
► Fennie Kwok for APAC region ([email protected])
Build your operational knowledge of Euroclear
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• Start building your knowledge of Euroclear Bank and its Triparty service
► We invite you to start your journey of the Euroclear Bank environment by building your
knowledge of the Euroclear system and of the Triparty service in general
► Digital stand-alone training modules on background, functional, technical, legal, and operational setup and process flow of Triparty Collateral Management will be made
available as of early February
• To prepare yourselves to:
► Understand how to operate a direct account in Euroclear Bank
► Manage the UMR onboarding steps: documentation to complete and submit
► Understand the life cycle of a UMR transaction
► Instruct your UMR transactions and understand how to read available reports
► Communicate via Easyway
You will be able to independently operate and monitor your activity in the Euroclear Bank
triparty environment
Your UMR Operational set-up in Euroclear Bank
How does it look like?
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• Collateral
Profile
1. Bilateral negotiation of the
margin terms between the
parties
2. Legal entity signoff on the
Triparty documentation
(to subscribe to the
EB Triparty services)
3. Triparty accounts activation
(Pledgor and pledgee)
Bilateral negotiation &
documentation
ISDA & Euroclear Bank
joint documentation
Triparty documentation
Euroclear Bank single
form of agreement
Opening of a
multiseg
pledged
account & reporting
subscription
Activation of
Triparty relation+
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•By end-May, provide:
signed documentation (single form of agreement and reporting subscription)
List of counterparty pairs
“tailor made” collateral profiles
May
• By end-July, provide :
Account activation details
Activation of “tailor made” profiles
Activation of a “standard” profile or a “high-grade” profile, or
replicate a collateral profile
July
•Processing of legal doc and reporting subscription as of 01 March
March - April
•FINALISATION IN EB
August
Final deadline 31 July
Your UMR Operational set-up in Euroclear Bank
Timeline
Detailed timeline
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UMR Phase 5
« Deep Dive » on Euroclear Bank solutions
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MultiSeg account structure
Collateral
EB Third party pledge holder a/c
(1 single MultiSeg a/c)
Sub div Pledgor 1
Sub div Pledgor 2
Sub Div Pledgor nPledgor n
Pledgor 2
Pledgor 1
1 Pledgeen Pledgors
Triparty Collateral Management
Euroclear Bank
• Under a MultiSeg account structure, Euroclear Bank is acting as pledge holder, exerting required controls on the pledged account:
►One pledged account in which collateral is received from all pledgors
►Collateral is segregated at “subdivision” level, each with a unique identifier, relating to a specific pledgor
►Each transaction is treated independently legally & operationally, and collateral in each subdivision is ring-fenced legally & operationally
►Validated with ISDA members & supported by relevant bilateral documents and Legal opinions
►Supported by a specific (optional) MT535 triparty
pledge positions report
Pledgee Representative structure – Description
• In order for two parties to enter into a regulatory initial margin
arrangement pursuant to which the Pledgor directly provides eligible
collateral via Euroclear to a Pledgee, both parties must be direct
participants within the Euroclear System
•However, some entities may not currently be direct participants of
Euroclear and may not become direct participants
•The Pledgee Representative structure is a method by which a Pledgorcan provide collateral for the benefit of a Pledgee which is not a
direct participant – the Pledgee will appoint a third entity to act as an
intermediary on its behalf, which entity is itself a direct participant of
Euroclear
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Pledgee Representative structure – Description
•The pledgor posts collateral to an account ultimately pledged in
favour of the pledgee
•This account is opened in the books of Euroclear Bank, acting in its
own name but for the account of the pledgee Representative, which
in turn acts in its own name but for the account of the specific
pledgee
•Euroclear recognises that the Pledgee Representative is not acting for its own account but on behalf of the specified underlying Pledgee
and will interface with the Pledgee Representative (but not the
Pledgee) in the daily running of the account (e.g. MT527, reporting,
default process, etc.)
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Sell Side 2
Sell Side 1
Euroclear Bank
Pledgor
Sell Side X
Buy Side A…
Subdivision X
Subdivision 1
Representative
Pledgee Representative structure
•MutiSeg a/c opened in the books of Euroclear
Bank, acting in its own name but for the account
of the pledgee Representative, which in turn
acts in its own name but for the account of the
specific pledgee
• Sell Side pledgor
► leverage existing set-up using triparty
collateral management and Euroclear Bank
as pledge location
• Buy Side pledgee access to triparty
► use an intermediary (e.g. their custodian) as
Representative
• Pledge and Account Control Agreement (*) in the books of Euroclear Bank ((*) SPPA and
Amendment agreements)
Sell side to Buy side
Triparty Collateral Management
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Collateral Transfer Agreement (CTA) Ridder to allow the option of a Pledgee Representative
RG812 - Single form of agreement (One-off) - Collateral Service Agreement- SPPA & Amendment agreement, including the Pledgee Rep
Euroclear Security Agreement (ESA) Ridder to allow the option of a Pledgee Representative
- Collateral Profiles
ISDA Bilateral Documentation and legal opinions
Euroclear TripartyDocumentation and legal opinion
Legal opinion on Custodian insolvency and segregation
Legal opinion on validity & enforceability of the Belgian Pledge, including the Pledgee Rep structure
The Pledgee Representative’s role is expressly envisaged and recognised under the Belgian Financial Collateral Law (Article 5)
Belgian Financial Collateral Law
Legal framework
Legal comfort … end-to-end !...
Pledgee Representative – Legal opinions
• ISDA
►Legal opinion on validity & enforceability of the Belgian Pledge
(provided by A&O to ISDA, for the benefit of the ISDA members)
►Collateral Giver and Collateral Taker opinions
•Euroclear
►Legal opinion on Euroclear insolvency and segregation (provided by
NautaDutilh for the benefits of Euroclear clients)
•Pledgee Representative
►Legal opinion on insolvency of Pledgee Rep. not claiming an interest
in the pledged assets (conflicts of law analysis)
Euroclear will provide a legal opinion for UK and US, Pledgee Rep
need to provide the legal opinions for other jurisdictions19
2020
Custodian
Buy Side 1Sell Side 2
Sell Side 1
Sell Side X
Buy side to Sell side
Collateral
Portfolio
Collateral Portfolio service
Triparty Collateral Management
•The Collateral Portfolio service is designed for Buy-Side clients acting as Pledgors
•The Collateral Portfolio service allows Global
Custodians to leverage the existing Eurocleartriparty collateral management services with the pledge and account control taking place in their own books
►Buy Side can pledge margin collateral in the books of their Custodian, maintaining existing custody relationship
►Reduced frictions for the Buy-Side clients: leveraging existing custodian relationship
►Reduced operational burden for the Sell Side dealers (leveraging existing triparty connectivity)
•Expandable to other exposure types, e.g. Financing
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UMR Phase 5
Set-Up of UMR agreements and pairing
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+Legal
Pack
(RG812)
Collateral
Profile
RG148
Pledgor
Pledgee
Pairs
Account Opening &
Reporting subscriptionContract Activation
@
FastTrack Activation
details
1 3
6
Confirmation +
Subdivision id
Service Activation
FastTrack Activation
details
@
@
@
FYI – confirmation
of a/c opening &
reporting & pairs
4
Legal
Pack
(RG812)
1
Clients on-boarding process
5
@
Confirmation +
Subdivision id
@
FYI
a/c nbr & reporting
@
2
2
4 5
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@
Legal
Documentation
RG812
• Provides two signed
copies per legal entity
Fast Track Activation
• Provides Excel RG1011 and
send it via e-mail (accounts
and activation details)
• Provides one signed copy
of each profile
Collateral
Profile
Once per legal entity Once per legal entity Per batch
@
Per batch
Counterparty list
(pairs) RG1003
• Provides list of
counterparties
OTCD Set-up – Overview of documentation
Legal
Documentation
RG812
• Provides two signed
copies per legal entity
Once per legal entity
PLEDGOR
PLEDGEE
@
Fast Track Activation
• Provides Excel RG1011 and
send it via e-mail (accounts
and activation details)
Per batchOnce per legal entity
Account Opening
RG148 & Reporting info
• Provides one signed copy
per legal entity (RG148)
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• With our EasyWay solution for Collateral Contracts Management, all triparty collateral profiles available in electronic format and human readable
• Benefits
► Faster set up and easier amendment: Clients can negotiate, amend and create their profiles online, with electronic or wet signature
► Easy monitoring: Consult and query all profiles, able to see a Dashboard with contract status
► More efficient and faster replication: easy to copy sets from existing ones
• Bilateral ISDA contracts available in electronic format on ISDA Create
EasyWay Contract Management
We strongly recommend the usage of EasyWay to speed up the set up and implementation of eligibility sets
Phase 4, around 350 profiles (on 1.100) were drafted directly by clients using EasyWay
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• We have created several templates of collateral profiles for your
convenience in order to help you (guideline) create your own tailor made
collateral profile(s)
They are already implemented in our system and can be quickly
signed and activated
They can serve as a base for negotiation and tailoring to your needs
You can find these templates under the Euroclear Bank triparty
documentation section on the following link:► https://my.euroclear.com/eb/en/reference/services/collateral-
management/otc-derivatives-margin-service/non-
cleared_otc_derivative_margining_service.html
You remain responsible to create collateral profile compliant with the
regulations applicable to you
Collateral profile – Templates
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• You can
1. build your own collateral profile (“tailor made”) using the
building blocks of the different templates shared with you or profiles activated in previous waves
2. Independently customize your collateral profile directly in
EasyWay (without the intervention of Euroclear)
3. copy an existing profile as many time as you may require
4. agree to have your counterparty's collateral profile applied to
your triparty contract
Building your tailor-made collateral profiles (1)
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• You can create 1 “tailor-made” collateral profile per counterparty
and reuse it as a standard profile across your counterparties
In order to easily create and negotiate a profile with your counterparty, we suggest you start by using the wider profile
possible (in the framework of your acceptable risks)
Then, take out the items / criteria that are not accepted
between you and your counterparty
It is easier, especially when using EasyWay, for you and your counterparty to take out items / criteria rather than starting with
a restrictive one and add criteria
Building your tailor-made collateral profiles (2)