Bilateral Margining and Central Clearing
Current regulation requires that OTC derivative markets implement bilateral margin rules with the requirements applying to virtually all significant OTC derivative users from September 2020. These rules are being phased-in with the aim of reducing systemic risk and promoting central clearing. This, along with related implications, is creating significant changes in the nature of collateralization both in terms of variation margin and initial margin – with the latter, in particular, being very complex to model in terms of costs and risk mitigation benefit.
In this hands-on course we will explore in detail the mechanics of bilateral margin rules for OTC derivatives and assess future scenarios along with their opportunities and risks. The programme also covers initial margin methodologies, namely SPAN, Historical VAR and the ISDA Standard Initial Margin Model (SIMM™). Aspects such as segregation and required CSA changes, multilateral netting and the growing use of MVA (Margin Value Adjustment) are also explored.
The programme is suitable for both banks and end-users of OTC derivatives.
Participants will be able to take away all worked examples, as well as additional exercises and models implemented using Excel functions and macros. They will also receive a copy of Dr Jon Gregory's book "The xVA Challenge: Counterparty Risk, Funding, Collateral, Capital and Initial Margin", published by Wiley Finance.
Recommend to a Colleague- Date:
- Please contact us
- Venue:
- Cliftons Singapore - The Finexis Building
- Fee:
This course is also available in London Time Zone and New York Time Zone
This course is FTS-Eligible* and also eligible for CPD hours. GARP & CFA Institute members are eligible for CE/CPD credits. See details
- Credit traders, Derivatives traders and marketers
- Risk managers and credit risk practitioners
- Structurers
- IT, Middle office
- Senior management, Quantitative researchers
- Product control, Portfolio managers
- Operations / Collateral management
- Numerate background (basic)
- Knowledge of derivatives products
- Basic knowledge of Microsoft Excel
*FTS Eligible
This programme is approved for listing on the Financial Training Scheme (FTS) Programme Directory and is
eligible for FTS claims subject to all eligibility criteria being met. Please note that in no way does
this represent an endorsement of the quality of the training provider and programme. Participants are
advised to assess the suitability of the programme and its relevance to participants' business activities
or job roles. The FTS is available to eligible entities, at a 50% funding level of programme fees subject
to all eligibility criteria being met. FTS claims may only be made for programmes listed on the FTS Programme
Directory with the specified validity period. Please refer to www.ibf.org.sg for more information.
Dr Jon Gregory is an independent expert specializing in counterparty risk and xVA related projects. He has worked on many aspects of credit risk in his career, being previously with Barclays Capital, BNP Paribas and Citigroup. He is also a senior advisor at Solum Financial Derivatives Advisory.
Jon is author of the books “The xVA Challenge: Counterparty Risk, Funding, Collateral, Capital and Initial Margin” (now in its fourth edition) and “Central Counterparties: The Impact of Mandatory Clearing and Bilateral Margin Requirements on OTC Derivatives”, both published by Wiley Finance.
Jon holds a PhD from Cambridge University.
Wiley Finance Published Author.
Request a Brochure with full details for Bilateral Margining and Central Clearing
Background
- The OTC derivatives market
- Impact of the financial crisis
- The clearing mandate
-
BCBS-IOSCO margin requirements
- Requirements
- Phase in
- Thresholds
Case Study: Impact of bilateral margin requirements for banks under Phase I and II
Counterparty Risk and Risk Mitigation
- Netting
- Portfolio compression
- Margin (collateral)
- Variation margin
- Initial margin (independent amount)
Case Study: Comparison of traditional bilateral clearing, central clearing and clearing under the new margin requirements
The Impact of Collateral
- Discounting and collateral optionality
- Impact of collateral on exposure
- Rehypothecation and segregation
- Collateral and funding
- The impact of initial margin
Case Study: Comparison of collateral usage under traditional bilateral clearing, central clearing and BCBS-IOSCO rules
Mechanics of Bilateral and Central Clearing
- History of central and OTC clearing
- Contractual terms
- Close-out process
- The margin period of risk (MPR)
- CCP loss waterfall and comparison to bilateral markets
Case Study: NASDAQ default fund losses
Traditional Initial Margin Methods
- Standard portfolio analysis of risk (SPAN)
- Value-at-risk (VAR) and expected shortfall (ES)
- Historical simulation
- Example CCP methodologies
-
Potential problems
- Procyclicality
- Data history
- Normal vs. absolute returns
Example: Initial margin calculation with historical simulation
The ISDA Standard Initial Margin Model (SIMM™)
- The fundamental review of the trading book (FRTB)
- Variance-covariance approximation to VAR and ES
-
SIMM methodology
- Asset classes and risk classes
- Risk weights and basis formula
- Netting
- Comparison to Historical simulation
Example: SIMM calculation examples
Initial Margin – Risk Reduction and Cost
- Capital and SA-CCR
- Reduction of counterparty risk (CVA)
- Capital relief from initial margin
- The cost of initial margin
- MVA (margin valuation adjustment)
- The CCP basis
Example: MVA calculation
The Impact of Netting and Margining
- Bilateral vs. multilateral netting
- Does multilateral netting reduce exposure?
- The impact of variation margin
- The impact of initial margin
- Impact on CCP risk management
- Risks of increase in margin requirements
Example: The impact of netting and margining on counterparty risk and CVA
The course met all of my expectations and much more! The course content was quite accessible and offered excellent coverage of bilateral margining and central clearing with real life applications and examples. Highly recommend it!
(Specialist - OSFI)
Very interesting course. Tutor really knows what he is talking about. Very useful course material.
(Middle Office - Argenta Spaarbank)
Jon Gregory strikes a brilliant and insightful balance between context, main principles and issues to tackle, bringing a much needed broader and deeper understanding. I left the course with a lot of key actionable take-aways.
(Chief Risk Officer - Oilinvest)
Jon was a great teacher. Keeping it simple yet detailed, relevant and tied in the theory with actual examples. Very engaging.
(Senior Client Manager - TriOptima)
I recommend this course for people interested in getting an overview of OTC and exchange derivatives market and how they manage counter-party credit risk. The course also walks you through the history of counter-party risk management in these markets. Though the title of the course mentions about teaching SIMM in bilateral trades which is covered in detail on the second day of the course, I think it covers useful topics for anyone looking to learn about CCPs and OTC counter-party risk management. I have mathematics background and have worked for a CCP for few years now and I wish I had taken this course earlier to get a full understanding of the company I work for.
(Senior Quantitative Analyst - Options Clearing Corporation)
Many thanks for a very informative and detailed course. It will help me develop a more in-depth knowledge on clearing and margin requirements.
(Investment Manager - Penisonfonds ING)
Jon Gregory explained a complex subject with clarity and patience. He provided very good examples to illustrate his points and was more than happy to answer questions around the topic. He was keen to make sure that the content was thoroughly understood and encouraged discussion.
(Electronic Broking Sales - Tullett Prebon)
Very comprehensive two-day course!
(Chief Operating Officer - Comder Contraparte Central S.A.)
The course was absolutely fantastic! Jon Gregory was great and answered every question. He made me focus on the subject and think about it from a different perspective. Time and money definitely worth spending on this course. It was one of the best trainings I have ever done!
(Capital & CVA Risk Analyst - BNP Paribas)
"Good lecturer. The course addressed the subject from a global stance where mechanics where treated sufficiently and considerations were debated intensively. Especially the latter contributed to my objectives of the course."
(ALM & Treasury - ABN AMRO Bank)
"Very comprehensive and well-focused on all the questions related to CCPs for OTC derivatives."
(Manager - Deutsche Bundesbank)
"Well timed. Considering regulation in the EU and USA. Gives a broad understanding of clearing organizations trough time and relevant issues at the moment."
(Product Developer - Transtrend BV)
Course Details
This course is also available in London Time Zone and New York Time Zone
- To run this course at your organisation, contact us.
Call now for more information on this course or to book:
Asia Pacific +65 3159 3707
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