Clearing and Settlement of spot bonds 03 February 2005 Brett Kotze.
-
Upload
margaret-newton -
Category
Documents
-
view
219 -
download
2
Transcript of Clearing and Settlement of spot bonds 03 February 2005 Brett Kotze.
Clearing and Settlement of spot bonds
03 February 2005
Brett Kotze
The New Model
Matching NEW SAFEMS Clearing Members
Matching STRATE Settlement agents
Trade for margin
Icon
Spot trades
Derivatives
Process flows
JSE SETTLEMENTAUTHORITY
ICONTRADINGENGINE
TRADINGMEMBER
CLIENT
CLEARINGMEMBER
YIELD-XCLEARINGSYSTEM
STRATE
SETTLEMENTAGENT
TRADE AFFIRMATION
PENALTIES
(RECONCILES TRADESWITH MATCH ORDERSRECEIVED FROM STRATE
COMMUNICATION
MONITOR COMMITS
EN
TE
RS
C
OR
RE
CT
IVE
TR
AD
ES
TRADE FOR MARGIN
MATCHED TRADE
TRADE AFFIRMATION
MA
RG
INR
EQ
UIR
EM
EN
T
MA
TC
HO
RD
ER
NO
CO
MM
ITIN
TIM
A-
TIO
NS
CO
MM
I T
Net
SE
TT
LE
-M
EN
TP
OS
ITIO
N
COMMUNICATIO
N
TR
AD
E L
EG
Principles• CENTRAL ORER BOOKS = Anonymous orders matched on the central order book on the basis of
time-price priority. This includes bonds and carry’s. These are guaranteed by SAFCOM subject to challenge and price
discovery of the central order book.
• REPORTED TRANSACTIONS =Reported Transaction where terms and/or price are agreed
(GUARANTEED) Off-Exchange and transaction is booked for reporting and settlement purposes. Clearing Members may accept these for
risk management purposes following which SAFCOM will guarantee settlement.
• REPORT TRANSACTIONS = Report Only Transaction where terms and/or price are agreed
(NOT GUARANTEED) Off-Exchange and transaction is booked for reporting and settlement purposes, not accepted by the Clearing Member
for risk management purposes, will not be guaranteed by the SAFCOM
• CYCLES = Will be T+3 Rolling Contractual Settlement, except for :
- Correction Trades (Equal & Opposites)
- SLB or Carry’s to secure settlement
Principles (Cont.)
• ALLOCATIONS = On T, late allocations and allocation corrections done by Settlement Authority
• UNCONDITIONAL COMMIT= Settlement Agents commits become unconditional at 12h00 on T+2 unless provisional sequestration
T3
TRADE
TRADE TO STRATE
NET SETTLEMENT POSITION TO CSDP's
MARGIN POSITION
BILLING REPORT
MARGIN PAYMENT
COMMIT BY CSDP
MONITOR FOR COMMIT
REVALUE MARGIN POSITION
BILLING REPORT
TOP-UP MARGIN
TRADE MEMBER MANAGEMENT
JSE SETTLEMENT AUTHORITY MANAGEMENT
FAILS MANAGEMENT (GIVE-UPS)
SETTLEMENT
12H00
T2
12H00 14H00 16H00
T T1
Timelines
Risk Management Structure Historically
NCMNCM
Clearing House
(SAFCOM)
Clearing House
(SAFCOM)
DCMDCM
InvestorInvestor
InvestorInvestor
InvestorInvestor
GCMGCM
MARKET RISK
CREDIT RISK
Definitions
Market Risk
The risk that adverse price movements in the level or volatility of a price may create an anticipated loss. For example, a dramatic change in the interest rate
during one day may create the risk of loss.
Credit Risk
The risk that a counterparty will not settle an obligation for full value, either when due or at a time thereafter.
But what about settlement risk?
The guaranteeing of settlement of loan stock by SAFCOM brings in a new element of risk to SAFCOM, settlement risk
Defined as: -
The risk that a party will default on one or more settlement obligations due to no funds or securities
Risk Management Structure
NCMNCM
Clearing HouseClearing House
DCMDCM
InvestorInvestor
InvestorInvestor
InvestorInvestor
GCMGCM
SETTLEMENTRISK
Risk and Margin Methodology
MARKET RISK: - The Calm methodology was developed specifically for Yield-X. It is a conventional VaR (Value at Risk) calculation. The parameters which Yield-X uses in this calculation are one trading day (the loss is estimated over
the period to the end of the next trading day) and 99.95% confidence level, which equates to Initial Margin.
SETTLEMENT RISK: - Using the Calm methodology with the resultant figure computing to points per instrument, and applying rands per point, which
equates to Settlement Margin.
Market Risk versus Settlement Risk
MARKET RISK
•Where offset is allowed between Forward Bonds•Where offset is allowed between Derivatives and Forward Bonds•All Derivative products•Forward Bonds
SETTLEMENT RISK
•Where there is SFIDvP•Only on S-3 of the transaction
Initial Margin versus Settlement Margin
• Offset between a Derivative and a Forward Bond where correlation exists
Long DerivativeShort Forward Bond
= Offset = Initial Margin (Market Risk)
S-3 Obligations are separatedLong Derivative = Initial Margin (Market Risk)Short Spot Bond = Settlement Margin (Settlement Risk)
• Offset between Bonds
Long Forward Bond R152Short Forward Bond R186
= Offset = Initial Margin (Market Risk)
S-3 Obligations are separatedLong Spot Bond R152 = Settlement Margin Short Spot Bond R186 = Settlement Margin
Initial Margin versus Settlement Margin
• The calculation for both Initial Margin and Settlement Margin will be computed and the higher of the 2 will be taken on S-3
• The unsettled position will be Marked-to-Market on EOD T+1, any short-fall will be requested as a Top-up Margin
• The Settlement Margin will be used as the Sweetener for Fails Management, i.e. Give-ups. Where Initial Margin is held (higher of the 2), surplus will be returned to the Clearing Member
Trading Members / Clients
• Financial Instrument Principal (FIP)
Principal Transactions
• Financial Instrument Traders (FIT)
Principal Transactions
Member Settled clients
Non-Member Settled clients
Securities Lending & Borrowing
• SETTLEMENT AGENT SECURITIES LENDING AND BORROWING (SLB)
Settlement Authority will book
Identified as SLB on STRATE and Settlement Agent systems
• SETTLEMENT AUTHORITY
Lender of last resort
Identified as SLB on STRATE and Settlement Agent systems
Questions