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The past year at the KDPW Group was a time of focused efforts to harmonise with the new financial market framework put in place by European post-crisis regulations. In April, the clearing house KDPW_CCP was authorised by the European regulator under EMIR as the third CCP in Europe. The KDPW Group introduced securities netting and automatic partial settlement; these functionalities reduce costs and enhance the attractiveness of the local financial market for Polish and foreign participants. Furthermore, KDPW developed the functionalities of the Trade Repository and the Numbering Agency which issues LEI codes among others. The settlement cycle was reduced from T+3 to T+2 for cash market instruments.
In December 2014, KDPW_CCP filed an application with the Polish Financial Supervision Authority to have its authorisation for cleared instruments extended to include interbank market instruments denominated in the euro and to add the euro and eurobonds to the list of acceptable collateral. “This is part of our efforts to ensure a comprehensive post-trade offer for participants, in this case: the banking sector. As the European obligations come into force, banks will have at hand more attractive solutions on the local market based on existing synergies of services provided to the market by the KDPW Group,” said Iwona Sroka, KDPW and KDPW_CCP President and CEO.
In 2015, KDPW_CCP is planning to launch the service of clearing and guaranteeing transactions in bonds and repo transactions on Treasury BondSpot Poland (TBSP). KDPW will be preparing for authorisation of the central securities depository under the CSDR. Processing of further corporate actions will be standardised and automated. ISO 20022 messages will be implemented.
In the last few years, the KDPW Group has implemented a number of development projects which allow it to offer a complete range of services for the market beyond the traditional depository and clearing services, on par with its peers in France, Germany, Italy, Denmark, Hong Kong or Australia. The KDPW Group offers settlement, clearing, corporate actions processing, data maintenance as well as numbering agency functionalities in order to provide complete and attractive services to Polish investment firms and investors as well as foreign entities present on the Polish financial market. As a result, the Polish capital market is the regional leader of offered post-trade services. “The advanced development of Poland’s capital market infrastructure institutions to date and the obtained authorisations to provide post-trade services in the EU enable the KDPW Group to build international competences,” said Iwona Sroka.
The KDPW Group not only provides the broadest range of services for the financial market in the CEE but also holds European authorisations for the offered services which attest their compliance with the international standards and open the door to the provision of services across the European Union. This strengthens the international credibility of the Polish financial market and serves as a guarantee of the quality of post-trade services offered in Poland.
Details of projects implemented by KDPW and KDPW_CCP in 2014
KDPW
Development of the Trade Repository KDPW_TR
The obligation of reporting derivative contracts to trade repositories took effect on 12 February 2014. As one of six trade repositories registered in the European Union, the KDPW Trade Repository records details of all types of derivative contracts. Since its launch, KDPW_TR has received trade reports from more than 7 thousand entities with the reporting obligation. KDPW_TR participants include 170 institutions in 12 countries.
Implementation of the T+2 settlement cycle
KDPW changed the settlement cycle from T+3 to T+2 for the main cash market instruments as of 6 October 2014. The change of the settlement cycle brings the Polish capital market in line with the standards implemented in the European Union. The change derives from the requirement to harmonise the KDPW regulations with the CSDR (Regulation of the European Parliament and of the Council on improving securities settlement in the European Union and on central securities depositories).
The change allows KDPW_CCP participants to reduce the holding time of margins for clearing positions. Investors and participants benefit from reduced timing of the closing of trades: the buyer receives the securities and the seller, the cash more promptly.
Automatic partial settlement
As of 4 August 2014, KDPW offers the automatic partial settlement functionality which optimises the trade settlement process. Automatic partial settlement allows for the settlement of an instruction in part depending on the balance available in a registration account in the settlement system as at the settlement date and the settlement of the remaining part on subsequent days.
Automatic partial settlement enhances the liquidity of settlement by optimising the settlement of trade in KDPW and improving the liquidity of clearing in KDPW_CCP.
The launch of automatic partial settlement was co-ordinated with the implementation of netting.
First foreign direct participant
Raiffeisen Bank International in Vienna is the first foreign entity to open an omnibus securities account directly with KDPW. The account is used to deposit all securities of the bank’s clients registered with KDPW and traded on the Polish market.
RBI decided to hold an omnibus account with KDPW in order to get professional services including tax issues and to transfer the assets of its clients to an institution which ensures top safety of maintained securities: the central securities depository. Furthermore, RBI is the first entity to communicate with KDPW using SWIFT messages which have been offered by KDPW for a long time as a means of communicating with participants.
Development of Numbering Agency services
As of 17 November 2014, all instruments assigned ISIN and CFI codes by KDPW are also issued the Financial Instrument Short Name (FISN). FISN has been developed in order to ensure a coherent, uniform approach to the standardisation of financial instrument short names under international standards. KDPW has also issued FISN codes to all instruments previously assigned ISIN codes by KDPW.
KDPW is the only institution in Poland and one of few institutions in Europe to offer such a broad range of numbering services for financial market entities and instruments. KDPW issues the following codes:
- ISIN and CFI
- FISN
- LEI
Since the launch of the LEI issuance service in late 2013, KDPW has issued more than 4.5 thousand LEIs.
KDPW_CCP
EU authorisation of KDPW_CCP under EMIR requirements
The Polish Financial Supervision Authority authorised the clearing house KDPW_CCP on 8 April 2014, which confirms that it fulfils all requirements for CCP clearing houses under EMIR. KDPW_CCP was the third clearing house to be authorised in the EU.
With the authorisation, KDPW_CCP became a qualifying central counterparty (as defined in the Capital Requirements Regulation (CRR)), which implies lower risk weights for exposures under transactions cleared by the CCP.
The EU authorisation of KDPW_CCP allows it to centrally clear OTC derivatives denominated in PLN. KDPW_CCP already offers the clearing of the following instruments:
- Forward Rate Agreements (FRA)
- Interest Rate Swaps (IRS)
- Overnight Index Swaps (OIS)
- Basis Swaps
- REPO transactions
In December 2014, KDPW_CCP applied for enlargement of the scope of authorisation to include further instruments: IRS, OIS, FRA denominated in EUR.
With its authorisation as a central counterparty, KDPW_CCP became a qualifying central counterparty (as defined in the Capital Requirements Regulation (CRR)). As a result, capital requirements for financial institutions in respect of transactions cleared in KDPW_CCP as a qualifying CCP are much more attractive (2% for CCPs v. 20-100% for non-CCPs).
Securities netting
The clearing house KDPW_CCP launched the securities netting mechanism as of 4 August 2014, which means in practice that KDPW_CCP may generate one settlement instruction for all operations which credit and/or debit a designated settlement account.
The implementation of netting and directional netting of debits and credits in securities implies a significant reduction of the number of instructions sent for settlement while reducing the cost of trade settlement.
The launch of netting was co-ordinated with the implementation of automatic partial settlement.
Negotiated securities lending system
The system of securities lending initiated by participants is organised by KDPW_CCP in co-operation with KDPW. It has been in operation since 1 October 2014.
The main function of the system is to actively manage counterparty risk and to provide clearing guarantees from the CCP which becomes a counterparty to transactions following novation immediately after the settlement of the opening transaction. This includes transactions concluded on the regulated market or in the alternative trading system.
Other projects of the KDPW Group implemented in 2014:
- Development of KDPW services for repo transactions (launch of the collateral management service, KDPW acting as a tri-party-repo agent, launch of settlement of repo opening and closing legs using separate instructions sent by participants)
- Changes to subscription rights processing: automation of the exchange of data with participants
- Launch of a new electronic channel of communication with participants: webESDI
