National Depository for Securities KDPW Poland

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National Depository for Securities (KDPW)Poland
After the meltdown How CSDs are identifying,
measuring and managing risks now Radoslaw
Ignatowicz - CSD10, Budapest May 2009
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KDPW Background

• Role
• Central securities depository
• Clearing house for cash and derivatives markets
• Responsibilities
• Custody
• Securities clearing and settlement
• Risk management
• Clients
• Issuers
• Intermediaries (custodian banks brokers)

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Risk Management - all markets
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Risk Management derivatives market
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Guarantee Funds

• 4 guarantee funds managed by KDPW, of which
• 3 guarantee funds used to guarantee the
  obligations of clearing members arising from
  their positions in the regulated cash and
  derivatives markets
• KDPW operates a special clearing fund the ATS
  guarantee fund - to guarantee the clearing of
  transactions executed in the New Connect
  alternative trading system
• When the clearing members own assets are
  insufficient to meet obligations, the guarantee
  fund resources are used
• When the guarantee fund resources are
  insufficient to meet clearing member obligations,
  the clearing members are obliged to make
  additional contributions to the fund
• KDPW does not guarantee with its own assets
  clearing member obligations from transactions
  secured by the guarantee fund.

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Downturn in Poland Share capitalisation
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Downturn in Poland Number and value of share
transactions (regulated market)
2006
2007
2008
2009
2006
2007
2008
2009
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Downturn in Poland Futures turnover (regulated
market)
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Exposure to the 2008 financial downturn

• Exposure to assets
• No exotic financial instruments traded, or
  registered in KDPW
• e.g. OTC derivatives, credit default swaps,
  foreign complex debt
• Foreign securities traded in the regulated
  market only plain vanilla shares of mostly EU
  dual-listed companies
• THEREFORE No contagion from toxic assets

• Exposure to participants
• No meltdown victims were direct KDPW participants
• Stable financial standing of clearing members
• THEREFORE No contagion from toxic
  participants, no participant default
  experienced as a result of market turmoil

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KDPW response to the 2008 financial meltdown

• KDPW actions following the increased volatility
  in the derivatives market in Autumn 2008
• Meetings with participants in order to discuss
  lessons from high market volatility and the need
  for increased intra-day margin calls
• Setting up new transaction limit usage
  pre-advice level to inform participants regarding
  potential intraday margin calls in advance
• Scoring system for participants - clearing
  members breaching transaction limits can be
  requested to make extra contributions to the
  guarantee fund
• Changes to the calculation of maintenance margins
  in response to market requests aimed at limiting
  the need of intraday margin calls (higher during
  volatility, lower during stabilization)

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KDPW response to the 2008 financial

meltdown

• Default procedures review
• Default scenario analysis
• Default risk factors/ triggers
• Default declaration
• Legal aspects of a participants default
• Liquidation of open positions
• Internal procedures update
• Risk Committee responsibilities
• Allocation of duties
• Default participants position liquidation
• Use of deposits/ guarantee funds assets
• Tests of communication channels with Warsaw Stock
  Exchange to assure streamlined default procedure
  execution.

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KDPW response to the 2008 financial meltdown

• Other issues
• Stress testing frequency set up to monthly mode
  with possibility of launching ad hoc stress tests
  if needed
• Deposits / Guarantee funds assets management
  policy review
• Providers diversification
• Shortening of investment horizon
• Special set ups with National Bank of Poland
• Position concentration on derivatives market
• Individual position monitoring and disclosure
• High concentration risk analysis
• Amending the KDPW Rules to introduce possibility
  of individual margin requirements for highly
  concentrated positions

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Thank You For Your Attention
www.kdpw.pl