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OTC Derivatives, Collateral Management and EMIR

Dates:
May 14 - 15, 2020
Price:
EUR 1,400 + VAT
Location:
Prague, NH Hotel Prague
Language:
English
Lecturer:
Mike Simmons
    The objectives of the course are for the delegates to:
  • Become aware of the fundamental purpose of derivatives
  • Understand the similarities & differences between exchange traded and OTC derivatives
  • Identify the processing lifecycle of OTC derivative products
  • Understand the purpose of collateral in the management of OTC derivative trades
  • Appreciate each step in daily counterparty risk mitigation within the collateral process
  • Appreciate how central counterparties interact with clearing members on a day-by-day basis
  • Understand how clearing members interact with non-members in a central clearing environment
  • Appreciate what causes trades to be either centrally cleared or non centrally cleared
Aims of the Course:
The training course is designed to provide a thorough understanding of a range of OTC derivative products and the specific sequential steps in their processing. Extending the concepts relating to the product, the principles of collateral and of collateral management are described to a detailed level. Finally, the background to EMIR is explained, prior to describing trade reporting to trade repositories and the principles of centrally cleared as well as non centrally cleared trades.

The course provides a focus on factors enabling efficient operational processing by both buy-side and sell-side firms, the relationships between the various components, the risks at each step and the mitigating controls.

The course is designed to provide a thorough understanding of several of the most important existing and new aspects of OTC derivative operations. The course begins at an elementary level, but then multiple challenging concepts are introduced in rapid fashion, covering trades executed with (historic) bilateral counterparties and with (current) central counterparties.

The course takes a highly structured approach to explaining the background to each topic, the principal purpose of the associated tasks, the lifecycle of steps for successful task completion, the related risks and the mitigating controls. Throughout the course, delegates have numerous opportunities to prove their understanding of concepts through multiple exercises and simulations. The overriding aim is for each delegate to fully comprehend not only the overall picture, but also the component parts that form the overall picture, under the new regulatory regime for OTC derivatives.

Approach:
Each topic will be expanded and explained to the delegates in a structured manner (via linked building blocks), developing their knowledge through diagrams, ‘live’ drawings and on-the-spot explanations. Active participation by the delegates is always encouraged, and as part of achieving this the course director will request the delegates to ask questions and to seek clarification of concepts throughout the course. Exercises or simulations will be introduced at frequent and appropriate points to enable delegates to prove their understanding of concepts.

Thursday, May 14

09.00 - 09.10 Welcome and Introduction

OTC Derivatives

09.10 - 12.30

1. Fundamental Derivative Concepts

  • Definition and Purpose
  • The Derivatives Marketplace
  • Basic Derivative Types
  • Investment Appeal of Derivatives

2. OTC Derivatives - Introduction

  • Essential Principles of OTC Derivatives
    • Parties
    • Tenure
    • Notional Principal Amount
    • Rates
    • Dates
    • Settlement
    • Exiting
  • OTC Derivative Product Types (Overview)
  • Legal Documentation - Introduction
    • ISDA Master
    • The Schedule
    • Credit Support Annex

12.30 - 13.30 Lunch

13.30 - 17.00

3. OTC Derivative Products and their Operational Characteristics (part 1)

  • Generic OTC Derivative Trade Lifecycle (Overview)
  • Trade Processing versus Collateral Processing
  • OTC Derivative Products
    • Interest Rate Swaps
    • Credit Default Swaps

For each product, the description includes definition, the investors' risk, product characteristics, trade components, cashflow concepts, settlement value calculation, settlement frequency, pre-maturity options, processing risks and mitigating controls

3. OTC Derivative Products and their Operational Characteristics (part 2)

  • OTC Derivative Products (continued)
    • Foreign Exchange Swaps
    • Currency Swaps

For each product, the description includes definition, the investors' risk, product characteristics, trade components, cashflow concepts, settlement value calculation, settlement frequency, pre-maturity options, processing risks and mitigating controls

4. Exiting an OTC Derivative Trade

  • Exit Methods
    • Unwind
    • Offset
    • Novation

Friday, May 15

Collateral Management for OTC Derivatives

09.00 - 12.30

5. Fundamental Collateral Concepts

  • Collateral Concepts for OTC Derivatives
  • How Exposures Arise on OTC Derivatives
  • Cash Collateral for OTC Derivatives
  • Bond Collateral for OTC Derivatives
  • Bond Collateral: Deriving Haircut Percentages
  • OTC Derivatives and the Credit Support Annex

6. The OTC Derivative Collateral Lifecycle

  • The Collateral Lifecycle
    • Portfolio Reconciliation
    • Marking-to-Market
    • Exposure Calculation
    • Exposure Calculation Simulation
    • Making & Receiving Margin Calls
    • Holding Collateral Received
    • Reuse of Bond Collateral
    • Collateral Substitution
    • Income and Corporate Action Events

12.30 - 13.30 Lunch

European Market Infrastructure Regulation

13.30 - 17.00

7. Regulatory Change for OTC Derivatives - Introduction

  • OTC Derivatives & the 2008 Global Financial Crisis
  • Overview of Required Regulatory Changes

8. EMIR and Centrally Cleared Trades (part 1)

  • Central Clearing Primary Concepts
  • Central Counterparty Services
  • Central Clearing: Advantages & Disadvantages

9. EMIR and Centrally Cleared Trades (part 2)

  • Central Counterparty Membership & Non-Membership
  • Clearing Member Margin Requirements: Introduction
  • Default Funds, Initial Margin & Variation Margin
  • Clearing Members Offering Client Clearing Services
  • The Clearing Obligation
  • Treatment of Legacy Trades
  • Central Counterparties and Interoperability
  • Central Clearing & the OTC Derivative Collateral Lifecycle
  • Collateral Transformation

10. EMIR and Non Centrally Cleared Trades - Overview

  • Definition of Non Centrally Cleared Trades
  • Reasons for Existence of Non Centrally Cleared Trades
  • Market Participants Exempt from the Clearing Obligation
  • Eligible Collateral
  • Initial Margin and Variation Margin Requirements
  • Additional Risk Mitigation Regulations
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