How To Clear Of Sek Denominated Repos

Transcription

1 Repoclearing CCP CLEARING OF SEK DENOMINATED REPOS Product specification Facts Type of contract: Buy/sell-back of a specific Contract base: The nominal amount shall be one million Swedish Kronor for each specific Contract base value: Market value of the specific (clean price + accrued interest) at start day Buyer: The party who first buys and then sells the Seller: The party who first sells and then buys the Start day: The date of the repo s first settlement transaction shall be agreed to by the parties, but earliest the bank day after registration and not later than the bank day before end day End day: the date of the repo s second settlement transaction shall be agreed to by the parties, but not earlier than two bank days after registration and not later than one year after registration Series term: Number of calendar days as of start day to end day Clean price: The clean price of the specific at start day shall be agreed to by the parties Accrued interest: Refers to the specific and is calculated as of start day Repo interest rate: The repo interest rate shall be agreed to by the parties and be expressed with ACT/360 day count convention and as percentage with three decimals Start consideration: (Clean price + Accrued interest as of start day) / 100 * Nominal amount End consideration: Start consideration * (1 + r / 100 * days / 360) Registration: CET on normal bank days Settlement: Payment of start consideration and end consideration are to be settled on start day and end day respectively and in accordance with the clearing house instructions Series term: T/N, S/N, S/W, C/W, 1M, 2M, 3M, 6M and 1Y Dealing of the coupon: For Buy/sell-back transaction applies the rule that if a coupon is paid between S1 and S2, e.g. on the coupon date, then the EC will be adjusted by the coupon amount + interest (repo rate) on coupon amount. Market model and central counterparty clearing Buy/Sell-backs are traded in the current structure for Swedish interest rate derivatives. Trades in the repo transactions will be reached through bilateral negotiations between buyers and sellers, and reported to NASDAQ OMX for central counterparty clearing. Novation, meaning when the exchange substitutes existing contracts with new ones, in relation to the buyer and seller takes place when the settlement is matched and collateral has been placed. Subsequently, there is no counterparty relationship between the buyer and seller; instead both parties have the exchange as counterparty. Trade Registration and Settlement Trade registration Trades can be registered either through the new report window that has been implemented in the SECUR TM application or through an API connection to the clearing house through the OMnet API. The Repo Orders window of The Group, Inc.

2 in SECUR TM provides a flexible way for trade registration of repos. The following parameters need to be entered for each trade report: Series Counterparty Quantity Repo rate Clean price Account Buy/Sell Start and end dates if it s a tailor made Please see Appendix for a definition of the parameters. Both parties will be able to see their trades directly in the SECUR TM back-office application. will create reports intra-day that is available to download from the SECUR TM back-application the same day the trade has been done. Reports Information about the trades and delivery instructions is available from the Repo Trade, Repo Trade Clearing Account and Repo Physical Settlement report in the SECUR TM back-office application. The reports mentioned above are created a couple of times every day so new trades can be updated to the reports, please see example on reports below. The above information about trades, delivery and settlement could also be found in the Clearing Information window which is updated as soon as the repo transaction has been matched in the SECUR TM application. Settlement calculates the settlement amounts for both 1 st (Start Consideration) and 2 nd (End Consideration) leg of the transaction on the same time the repo transaction has been matched. The calculation how to determine Start Consideration and End Consideration are described below. In the Clearing Information window in the SECUR TM application are the Start Consideration and End Consideration amounts shown immediately after the trade been matched and could also be found in the reports the same day.

3 Settlement calculations determines Start Consideration and End Consideration based on the start day and end day on the standard maturities from the series or from the dates the parties enters if it is a tailor made repo transaction. The Start Consideration, first settlement amount, is based on reported nominal amount,, clean price and start day. See formula below. Start Consideration = (Clean price + Accrued interest, for each specific as of start day) / 100 * Nominal amount The End Consideration, second settlement amount, is based on the Start Consideration, days between start day and end day and the repo rate. See formula below. End Consideration = Start Consideration * (1 +r / 100 * d / 360) For Buy/sell-back transaction applies the rule that if a coupon is paid between start day and end day, e.g. on the coupon date, then the End Consideration will be adjusted by the coupon amount + interest (repo rate) on coupon amount. If the repo transaction is of Classic style then coupon payment will be debited on the clearing account of the receiver and be credited on the clearing account of the transferor, and the End Consideration will in this case be unadjusted. A calculator for the settlement amounts will be available on Deliveries Delivery of the repo legs are settled in EUROCLEAR Sweden AB (VPC) with as counterparty for both buyer and sellers and settlement instructions are registered trade by trade continuously during the trading day. Actual settlement occurs according to EUROCLEAR Sweden AB s principles. Please see for settlement cut off times at EUROCLEAR Sweden AB. has following account number for repo transaction deliveries in EUROCLEAR Sweden AB; OMS , for further information and delivery issues please contact Trading and Clearing Operations on Eligible securities Swedish government bonds, Swedish government T-bills, Swedish covered mortgage bonds and Swedish Municipals bonds. Only so called bullet maturities with zero coupons or securities with one fixed coupon per year will be accepted for clearing. A full list of securities eligible for clearing will be specified on Series names Series will be designated by Security, repo style and repo period/start day and end day. Example standardized maturities, buy/sell-back: GB1052_BSB_TN GB1052_CLS_TN Government Bond 1052, buy/sell-back style repo, T/N maturity Government Bond 1052, classic style repo, T/N maturity Example modified start and end day, buy/sell-back: GB1052_BSB_ _ Start day August 2 nd end day September 15 th

4 Risk Model and Margin Requirements In order to support clearing of repo transactions has implemented a, for the clearing house, new yield curve based risk model. The clearing house will stress the yield curve in order to retrieve a stressed market value for the repo portfolio that needs to be pledged as collateral to the clearing house before CET the following day. The approach towards risk is based on principal components analysis (PCA) where the first three principal components are used for stressing the curve. More information about the risk model and the calculations behind can be found in the document OTC Clearing Margin Guide available upon request. Risk parameters The risk parameters for repo transactions could be found in the Derivatives Markets Rules & Regulations. Eligible bonds List of eligible bonds that could be used as collateral could be found in the Derivatives Markets Rules and Regulations on Haircuts will not apply any hair cuts on the repo transaction settlement amounts, i.e. clean/dirty price of the designated bond will determine settlement amounts. Appendix Trade registration parameters Series: Shown in the curtain. Series designation is name, repo style and repo period (start to end day) Counterparty: The trading counterparty in the specific transaction Quantity: Nominal amount, one million SEK expressed as 1 Repo rate: The repo rate shall with ACT/360 day count convention and as percentage with three decimals Clean price: The clean price shall be expressed with three decimals Account: The account the registration part wants the trade Buy/sell: Depends on the party who first buys and then sells the or vice versa

5 cleared repo transactions Private negotiation Euroclear Sweden settlement Euroclear Sweden settlement T T+2 Transaction day T + two bank days T+2+7 T +2+7 calendar days Bank A Bank A A B Banken A Repoavtal + interest + interest Bank B Bank B