Russian Trading System (RTS) ORC [Date] Presentation
ACI Russia General Assembly 29 May 2014 CME GROUP FX Futures Danny Corrigan CEO, CME European Trade Repository 1,300,000 160.0 1,200,000 140.0 1,100,000 1,000,000 120.0 Notional Value (in billions of dollars) Average Daily Volume (in contracts) CME FX Futures Average Daily Volume and Notional Value with 1 year moving average 900,000 100.0 800,000 700,000 80.0 600,000 500,000 60.0 400,000 40.0 300,000 200,000 20.0 100,000 0 0.0 Foreign Exchange 2 OTC derivatives are going through a global regulatory filter 1 2 3 4 Basel III BCBS/ IOSCO
CPSS/ IOSCO EMIR (Dodd-Frank in the US) Improved coverage of counterparty credit risk (CCR) Margin requirements for non-centrally cleared OTC derivatives Common principles for CCPs Mandatory central clearing for standardized OTC derivatives Introduction of CVA Refined treatment of CCP exposures Introduction of leverage ratio More stringent rules for margin calculation and segregation Subject to an exposure threshold Introduction of guiding principles to structure CCP risk management Stress-test (Cover 1/2) to size default fund Reporting of all derivatives to trade repositories Improved risk management Drives capital requirements Drives initial margin requirements Drives default fund requirements Drives central clearing requirements Source: Council of the EU, ESMA, BCBS, IOSCO, Oliver Wyman analysis 3 Costs Exposure Margin requirement Cost drivers vary significantly across FX models Cost driver
Bilateral OTC FX derivatives, no initial margin Bilateral OTC FX derivatives, with initial margin Centrally cleared OTC FX derivatives Exchange-traded FX derivatives Variation margin Initial margin Margin period of risk (MPOR) for initial margin n/a 10 days ~ 5 days, CCP dependent 12+ days, depending on exchange Bilateral exposure CCP exposure MPOR for capital
10+ days 10+ days 5 days 5 days CVA VaR Default fund contribution Capital costs High Low Low Low Funding costs Low High Medium Low - Medium CVA High Medium No No Relatively high costs Relatively low costs No/low costs 4 Drilldown: Mixed FX portfolio
Current Regulations: Multilateral netting benefits increase cost efficiency of futures and cleared OTC models Annualized cost of 10 BN notional MM Perspectives Bilateral no IM Bilateral with IM OTC cleared Exchange traded Trade exposure capital 7.4 1.7 0.2 0.2 Default fund capital 0.0 0.0 1.2 0.5 CVA VaR capital 0.7 0.2 0.0 0.0 Total capital requirement 8.1 1.8 1.4 0.7 Funding Initial margin posted 0.0 456.6 156.0 65.9
Capital Total costs (annualized) MM Cost in % of bilateral with no initial margin A central counterparty model may result in significant multilateral netting benefits for portfolios of trades1 Risk exposure reduced and capital requirements lowered Multilateral netting results in lower initial margin requirements Benefits of using counterparty highlighted when considering a trading portfolio rather than a single directional trade Cost benefits clearest for ETD model where initial margin requirements and therefore funding costs are decreased Source: Datastream, Bloomberg, CME, Oliver Wyman analysis 1. Depends on overall risk offsets; assumed 60% IM and exposure netting benefit for CCP models vs. 20% for bilateral trades Key assumptions underlying analysis: Initial margin calculated using 99% VaR methodology; assumed 5% DF/IM with 10% c-factor; EPE FX and IR methodology used for proxy factors in capital and CVA exposure calculation; 30% bilateral risk weight; 2% CCP risk weight; proxy multiplier used for CVA VaR calculation;12.5% bank capital ratio; 11% cost of capital; 1.2% funding costs; 1.2% annualised CVA CME Europe Ltd Launched April 2014 London-based, FCA supervised RIE positioning it in Europes most important financial centre Wholly owned subsidiary of CME Group with a dedicated Board of Directors and Management Team Initially launching with 30 FX futures including USD/RUB and will become a multi-asset class exchange phased in over time Guided by the strategic imperatives of efficiency & simplicity Using CME Globex, the worlds leading electronic trading system, as its trading platform CME ClearPort will be used to enter block & EFP trades, amongst others, to bring them under the rules of the exchange and for clearing Clearing services are provided by CME Clearing Europe, a Bank of England recognised and supervised London-based clearing house 6 [email protected] Will Patrick CME group
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