Central Counterparty Clearing

2 dny
Praha, hotel NH Prague
    Objective is for participants to gain an appreciation and understanding of the following topics:
  • The background and evolution of central counterparty clearing
  • CCP margin frameworks
  • The default management process
  • The loss allocation waterfall
  • Key issues including: direct clearing, indirect client clearing, portability, segregation
  • Counterparty risk mitigation tools and their limitations
  • Systemic risk and extreme tail risk
  • Can a CCP fail? Some historical examples
  • Stress Testing a CCP and a recovery and resolution plan
  • The risk transformations CCPs generate
  • The implication of CCP clearing for XVA
An overview of the evolution of OTC Central Clearing, regulatory initiatives, and the implications for the risk landscape.

This course is intended to provide an appreciation of the evolution of central counterparty clearing particularly in relation to the clearing of OTC derivatives. Particular focus will be given to regulatory initiatives to develop the use of CCPs for OTC derivatives clearing following the financial crisis of 2007/8, the risk mitigation mechanisms developed by CCPs in response to the regulatory challenge in particular the margin requirements, auction processes, loss allocation methods and of course capital requirements. The course will look at risk transformation processes and the impact on risk that CCPs may have in future crises, both positive and negative, particularly in relation to counterparty credit risk and systemic risk.

The course is intended particularly for risk managers, traders, regulators and anyone involved with clearing systems.

Who should attend?

Analysts, Vice Presidents, Directors, Senior Managers in:
  • Risk Analytics
  • Credit Risk Management
  • Capital Management
  • Regulatory Compliance
  • Governance
  • Audit
  • Regulators
  • Traders

09.00 - 09.15 Welcome

09.15 - 12.30


  • Early trading and clearing platforms
  • The ETD and OTC derivative markets
  • How does a CCP work?
    • Direct clearing, client clearing and indirect clearing
    • Complete and incomplete clearing
    • Margining
    • Default management process
    • Loss mutualisation
  • The 2008 crisis
  • Political and regulatory responses, IOSCO and the G20 Clearing Mandate, Dodd Frank, EMIR, OTC regulation, Basel III, IFRS13

Overview of Counterparty Risk

  • The nature of Counterparty risk
  • Mitigation methods
  • How does a CCP help?
    • Netting
    • Trade Compression
    • Margining/default Funds
    • Standards for clearing members
    • Legal certainty
    • Default Management Procedure

12.30 - 13.30 Lunch

13.30 - 17.00

A closer look at Margining

  • Variation Margin
    • Obtaining prices for OTC products
  • Initial Margin
    • SPAN
    • VaR and Expected Shortfall
    • Stressed Loss Add-Ons
    • SIMM
  • Segregation of collateral

A closer look at Default Funds

  • Sizing the default fund
  • Allocating the default fund to clearing members
  • Default Fund versus margining

A closer look at The Default Management Process

  • Declaring a default
  • Macro Hedging
  • The Auction Process
  • Client Portability

Case Studies

  • LCH
  • ICE
  • CME

Day Two

09.00 - 12.30

Loss Allocation

  • The CCP waterfall and the "defaulter pays principle"
  • Loss allocation methods
    • Powers of Assessment
    • Default Fund tranches
    • Variation Margin Gains Haircutting
    • Trade tear-up
    • Forced Allocation
    • IM haircutting, novation to other CCPs, reversion to bilateral trades, CCP wind-up

Client Clearing

  • The client clearing models - clearer or client?
  • Portability
  • Segregation of collateral - Omnibus or ISA accounts - LSOC and EMIR

Capital Requirements for exposures to a CCP

  • Earlier regulatory proposals
  • BCBS 282
    • Trade exposures
    • Default fund contribution capital requirements
  • CCP Basis Risk
  • Calculating EAD for regulatory capital
    • CEM
    • Standardised Approach for Counterparty Credit Risk (SA-CCR)
    • IMM

12.30 - 13.30 Lunch

13.30 - 17.00

Can a CCP fail?

  • Some historical examples - including Nasdaq's Nordic power market
  • Extreme tail risk and systemic risk - Brexit example
  • Fire Drills
  • Stress Testing a CCP
    • Some thoughts from LCH
  • Recovery and Resolution of a CCP
  • Risk Transformation, the effects a CCP has on the risk landscape
    • Moral Hazard
    • Wrong-Way Risk
    • Operational Risk
    • Liquidity Risk
    • Interoperability and Systemic Risk
    • Multiple clearing member defaults across multiple CCPs
    • Stress testing CCPs simultaneously
  • Some interesting findings from CPMI/FSB/IOSCO/BCBS/ESMA/ISDA


  • CVA: Credit Valuation Adjustments
  • DVA: Debit Valuation Adjustments
  • BCVA: Bilateral CVA
  • FVA: Funding Valuation Adjustments
  • MVA: Margin Valuation Adjustments
  • KVA: Capital Valuation Adjustments
  • ColVA
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