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Central Counterparties, Clearing Houses & Exchanges

Fitch Learning
Course summary
2 days
2,295 GBP excl. VAT
Online courses
Next available date: 30/11/2021 - Online courses
Professional Training

Course description

Central Counterparties, Clearing Houses & Exchanges

The goal of this course is to explain the role of central counterparties (CCPs) in exchange-traded and bilateral markets. The course will explain the basics of exchange-traded and over-the-counter (OTC) derivatives, central clearing and risk management.

Live Online Training

Since 2003, Fitch Learning’s industry experts have been delivering world-renowned virtual training programs to learners across the globe. Benefits include:

  • World-class video conferencing technology
  • Fully interactive, engage and network with peers using break out rooms, quizzes and polls
  • On-hand technical support team throughout
  • Attend from anywhere, across four time zones
  • Save time and costs on travel

Suitability - Who should attend?

  • Banks and end-users of derivatives
  • Traders and marketers
  • Risk managers
  • Portfolio managers
  • Credit risk practitioners
  • IT, Middle office
  • Operations / Collateral management

Outcome / Qualification etc.

Credits: 16 CDP pts.

Key Learning Outcomes:

  • The markets, mechanics and risk mitigation in bilateral and exchange-traded derivatives
  • Mechanics of central clearing in securities and derivatives markets
  • Bilateral margin requirements and the ISDA SIMMTM
  • Comparison of exchange-traded, bilateral OTC and central cleared OTC derivatives
  • Initial margin methodologies
  • Risk management frameworks

Training Course Content

Day One

Markets: The Mechanics and Participants

The goal of this section is to review the underlying markets, market participants and risk mitigation methods.

Markets and participants

  • How risks arise in the trade cycle from execution to settlement: Securities and derivatives, OTC and exchange-traded markets
  • Market characteristics: Order-driven and quote-driven markets, exchange traded and over the counter markets

Settlement and pre-settlement risk

  • Settlement mechanics
  • Pre-settlement risk (counterparty risk) in exchange traded, bilateral and OTC cleared environments

Risk mitigants

  • Settlement mechanisms and the risks: Delivery vs. payment (DVP) systems, free delivery risk and how to mitigate the risks
  • General techniques for counterparty risk mitigation
  • Netting
  • Compression
  • Collateral (margin)
  • Segregation and rehypothecation of collateral

The basics of central clearing

  • The CCP landscape
  • CCP membership, default process, and client clearing

Operating Environment

The goal of this section is to understand the operation and regulation of exchanges and CCPs and to examine more around the mechanics of central clearing.

Central counterparties

  • Central counterparties and clearing houses (e.g. LCH Clearnet, CME Inc., IceClear, Japan Securities Clearing Corporation)
  • Business models

Regulation

  • Regulatory initiatives to extend the use of central clearing: Dodd-Frank in the USA, EMIR, MIFID and MIFIR in the European Union, major Asian markets
  • Timeline for introduction of central clearing
  • Basel III rules on risk weighting exposures to CCPs and impact of the leverage ratio
  • CPSS/IOSCO principles for FMIs
  • Bilateral margin requirements

Central counterparties – mechanics

  • Novation process
  • Impact of netting
  • Client clearing: Porting, segregation and account structures

Central counterparties – risk management

  • How central counterparties manage risk: Membership criteria, margining approaches, default fund structures, waterfall in the event of a clearing member default
  • Managing an OTC default

Day Two

Risk Management

The goal of this section is to discuss the risk mitigation methods of central counterparties and the risks they face.

CCP analysis

  • Risks faced by a CCP
  • The use of margin

Margin methodologies

  • SPAN
  • Historical VAR
  • The ISDA SIMMTM
  • Eligible collateral

Default fund methodologies

  • Balance between initial margin and default funds and skin-in-the-game
  • Auctions and default fund tranching
  • Stress tests and allocation of default funds

Other CCP risks

  • Settlement, custody and investment risks
  • Operational and liquidity risks
  • Systemic risks and interoperability

Impact and Risk

The goal of this section is to review the risks presented by central counterparties and how they might arise via initial margin methodologies and loss allocation methods.

Historical CCP defaults

  • CCPs failures: Caisse de Liquidation, Kuala Lumpur Commodity Clearing House, Hong Kong Futures Guarantee Corp, CME Clearing Corp, Options Clearing Corp, Bolsa de Mercadorias and Futuros, London Metal Exchange
  • Lessons from historic CCP failures

Initial margin calculations

  • Initial and variation margin and the margin period of risk (MPR)
  • Value-at-risk (VaR) and expected shortfall
  • Historical simulation for determining initial margin requirements
  • The challenges of historical simulation
  • Wrong-way risk
  • Case study: Initial margin problems

Other loss allocation methods

  • CCP resolution and loss allocation: Rights of assessment, VMGH and partial tear-up
  • Comparison of loss allocation methods

Why choose Fitch Learning

9 in 10 would recommend us to a colleague

Over 1,300 clients worldwide

CPD recognized

About provider

Fitch Learning

Live Online Training Since 2003, Fitch Learning’s industry experts have been delivering world-renowned virtual training programs to learners across the globe. Benefits include: World-class video conferencing technology  Fully interactive, engage and network with peers using break out rooms, quizzes and...


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17th Floor, 25 Canada Square
E14 5LQ Canary Wharf London

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