Poland's central securities depository, the National Depository for Securities (KDPW), will transfer its clearing functions to KDPW_CCP, a central counterparty (CCP) for transactions executed in the primary market – the Warsaw Stock Exchange – and across alternative trading systems, on 1 July.
While management of Poland's clearing liquidity guarantee system will be migrated to KDPW_CCP, transaction settlement and central securities depository functions will remain within KDPW. The transfer of transaction clearing, risk management and margining to the CCP enables a separation of risk previously concentrated in KDPW. Sell-side participants had previously expressed optimism that the anticipated separation will allow a reduction in post-trade costs, as margins are calculated more precisely.
To eliminate the risk of uncleared transactions, the clearing house will use a risk management system based on the widely-used Standard Portfolio Analysis of Risk methodology, which calculates initial margins due to and from clearing members, based on the largest possible loss incurred by a portfolio, based on changes to price and volatility. KDPW_CCP can use up to €25 million of its own capital to guarantee clearing liquidity.
Since May 2010 clearing in Poland has been provided by KDPW Clearpool, which acted as a transaction settlement guarantor which held a €15 million guarantee fund to pay the liabilities of any insolvent participants, but did not act as a principal in the transaction. KDPW Clearpool, renamed KDPW_CCP in February 2011, acted as an interim alternative while CCP rules were being framed by the national financial regulator, Komisja Nadzoru Finansowego (UKNF).
The relevant internal operating regulations for both KDPW and KDPW_CCP have been approved by the UKNF and the new clearing house will seek recognition as a qualified CCP on the basis of the provisions of the European Commission's proposed European market infrastructure regulation. EMIR, which will provide the operational standards and regulatory framework for European CCPs, is currently in the process of being read by the European Parliament and The Council of the European Union, which are expected to deliver an agreed piece of legislation later this year.
Once KDPW_CCP is launched, further plans for new services will be developed, which will extend the range of clearing house functionality, including securities netting, the clearing and guarantee of OTC derivatives transactions, as well as the clearing and guarantee of repos, reverse repos and market lending.”¨
Additionally, it is expected that KDPW_CCP will offer clearing services to other smaller markets in the region without their own CCPs as part of an effort to position Poland as a financial services hub within central and eastern Europe. The Warsaw Stock Exchange announced its first Lithuanian and Romanian trading members last week, which took the total number of remote members to 25.
“The creation of the KDPW_CCP clearing house is the result of the implementation of a key project in the KDPW Corporate Strategy for 2010-2013, which sees the growth of both companies based on a new business model,” said says Iwona Sroka, president and CEO of KDPW. “New solutions we are planning to introduce as part of the project should increase the interest of investors in the Polish market, both domestic and foreign. We are already seeing potential foreign members of KDPW_CCP, based in markets where similar standards as those met by KDPW_CCP already apply, showing an active interest in direct participation in our new clearing house.”