KDPW Group
AST asks the president and CEO of Polish central infrastructure, Dr Iwona Sroka, how KDPW is getting ready to tackle EMIR head-on.
AST asks the president and CEO of Polish central infrastructure, Dr Iwona Sroka, how KDPW is getting ready to tackle EMIR head-on.
How is the Polish market preparing itself for EMIR?
A key outcome of KDPW’s strategy for 2010-2013 is the preparation of the Polish financial market infrastructure for the requirements of the European Market Infrastructure Regulation (EMIR) that, among other rulings, imposes the obligation of reporting details of derivative contracts to trade repositories and of clearing selected classes of OTC instruments in a central counterparty (CCP) clearinghouse.
All entities required under the EU regulations to comply with specific obligations, including reporting of contracts and clearing of trades in a CCP, will find the appropriate solutions available in our market. Furthermore, such services may be offered across the EU and they are competitive in terms of both price and quality. As a result of the projects being introduced by the KDPW Group, the Polish market can now provide services that also being offered by Europe’s largest financial hubs.
What about KDPW and your CCP, KDPW_CCP? Do you consider yourself more prepared than other Polish institutions?
It has been our goal to prepare companies and institutions present in the Polish and European financial market for compliance with the obligations imposed by EMIR. In that, we have been successful. We have created a fully-fledged CCP clearinghouse, equipped with the required capital (€52 million) and have applied to the local regulator for its authorisation. Additionally, we have introduced an OTC derivatives clearing service and opened a trade repository.
The evolution towards a CCP in the Polish market started at the initial stage with the spin-off of a trade clearing guarantor, KDPW_CLEARPOOL, from KDPW in 2010.
In the second stage, that company took over clearing functions and the clearing guarantee and collateral management system while its name was changed to KDPW_CCP in 2011. This ensured the separation of risks specific to a clearinghouse from depository activities (in line with the best international practice and standards) while a new risk management system, based on the Standard Portfolio Analysis of Risk methodology, was introduced in 2011.
As a result, KDPW_CCP could launch the CCP service for the clearing of OTC derivatives. We took advantage of that opportunity and prepared a new business line serving new market participants by clearing and guaranteeing OTC trades, initially in Polish Zloty (PLN) denominated instruments (interest rate forwards, interest rate swaps, overnight index swaps, basis swaps) and treasury bond repos by 2012.
Instruments in other currencies will be supported as of 2014. What is important in terms of the quality and credibility of the Polish financial market is that we initiated the regulatory authorisation of KDPW_CCP under EMIR in mid-2013 after the company had been brought in line with the requirements of the ESMA technical standards.
We also opened a confirmation platform for repo and buy-sell-back transactions in 2013. As a complementary project to the harmonisation of KDPW_CCP with EU requirements, KDPW also launched a new trade repository service. KDPW was the first player in the region to open a trade repository, on 2 November 2012.
On 7 November, we were notified of the registration of our trade repository by ESMA as one of the first four repositories in Europe. It should be stressed that we are the only trade repository operating in this part of Europe. The registration application covered all types of contracts subject to the reporting obligation (both exchange-traded and OTC derivatives), which means that financial institutions do not need to use the services of two or more trade repositories.
What kind of new services do you have that are open to foreign financial institutions?
Our services are open to both Polish and foreign entities with no differentiation. Following ESMA’s recent registration of the KDPW Trade Repository, we are now able to offer the service across the EU to all entities that are required to report details of derivative contracts under EMIR.
When we established the KDPW_CCP clearing house in 2011, we introduced the option of remote participation for foreign clearing members. The KDPW Settlement Agent function offers a solution whereby a KDPW_CCP clearing member without a corporate branch in Poland has its trades settled in KDPW (CSD) through the settlement agent’s depository account.
How has your CCP deployed technology from Nasdaq OMX to help it meet EMIR rules?
NASDAQ OMX has provided KDPW_CCP with Sentinel Risk Manager, a product which handles the full transaction cycle, as well as the risk management requirements in the clearing of OTC instruments. We have integrated the module with our proprietary system, KDPW_Stream. We have thus created an optimum model which supports OTC clearing in our clearinghouse, KDPW_CCP
