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CC&G
Your global partner in post-trade excellence
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II
Contents
Overview 1
Continuouslyexpandingclearingoffering 2
ComprehensiveapproachtoRiskManagement 3
CC&G&settlement 8
Realtime,effortlesspost-tradingmanagement 9
«CC&G prides itself in the robustness of its clearing platform,enabling our clients to conduct their business safely, securely and with condence in our full service-offering»
P. Cittadini, CEO of CC&G
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Overview
CC&G(CassadiCompensazioneeGaranzia)ispartoftheLondon
StockExchangeGroup.CC&GprovidesCentralCounterpartyservices
tomultipletradingvenuesforabroadrangeofassetclassesincluding
equities,ETFs,equityandenergyderivatives,closed-endfunds,
investmentcompanies,government,corporateandconvertible
bonds.Governmentbondsareclearedthroughinteroperabilitybyvirtueofaninnovativedualcounterpartyagreement,therstof
itskind.CC&GalsoprovidesaguaranteeserviceontheNewMic
Interbankcollateralisedmarket.
S e C t i o n S
Clearing system provider, not Legal CCP Compulsory CC&G Membership
Optional CC&G Membership
Markets
Productsguaranteedby CC&G
Settlement
EquitiesEnergy
Derivatives
IDEM Equity
InterbankDeposits
Euro
MTS
EquityDerivatives
Bonds
• Index futures
• Index options
• Single stock futures
• Single stock
options
Energy futures
NewMICinterbank
collateraliseddeposits
• Shares
• Warrants
• Convertiblebonds
• Closed-endfunds
• Investmentcompanies
• REIC
• ETF
• ETC
Governmentand corporate bonds
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Continuouslyexpandingclearingoffering
Recently, CC&G broadened service range to new products and venues:
In November 2010, CC&G extended the CCP
service on xed income products to include
government, corporate, eurobonds and ABS
listed on MOT market.
CC&G Members trading on Domestic MOT
will benet from risk reduction, anonymity and
lower costs.
In October 2010 CC&G launched a
guarantee service on NewMIC, the Interbank
collateralised deposit market run by e-MID.
Domestic MOTNewMIC
CC&G has strengthened its derivatives
coverage becoming the clearing system
provider of Turquoise Derivatives with a
strong benet for members of both Turquoise
Derivatives and IDEM who can access
post-trading services using the same ITinfrastructure.
Turquoise Derivatives
In June 2011, CC&G began providing CCP
services to bonds traded on EuroTLX
and settled in Monte Titoli. CC&G clients
trading bonds on Domestic MOT, EuroTLX,
MTS, EuroMTS and ICAP benet from
signicant savings due to settlement nettingin addition to margin offsetting across all
trading venues.
EuroTLX
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ComprehensiveapproachtoRiskManagement
Advantages
1. Trading anonymity
2. CC&G assumes the counterparty risk from tradeexecution
3. Lower tied-up capital required by the regulatory
authority 4. Reduction of systemic risk.
C C & G n o v a t i o n
TradingMember B
TradingMember A
CC&G assumesthe counterparty
risk
Trading Trading
Member A
Trading
Member B
TradingMember B
(ICM)GCM of A
TradingMember A
(NCM)
In order to effectively manage counterparty and
market risks, CC&G adopts an optimal nancial
safeguarding system based on multiple levels of
protection:1. Clearing Membership screening
2. Margin system
3. Additional resources.
1. Clearing Membership screening
CC&G carries out the central counterparty
function by taking on the counterparty risk from
the execution of the contracts, acting as buyer
towards each seller and as seller towards each
buyer, and becoming the guarantor of the nal
settlement of the contracts, ensuring delivery/
receipt of securities versus cash, also in case
of default of the trading counterparty.
s y s t e
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s a f e
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d i n g
N o v a
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u r e
S c r e e n i n g
M e m b e r s h i p
C l e a r i n g
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P r
o t e c
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e t t l e m
e n t
D e
f a u
l t f u n
d
s y s t e m M a r g i n g
T r a d e
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M e M b e r
Membership requirements
CC&G Members meet supervisory capital, organisational and technical requirements.
Who can become a Member • Banks and Investment Firms authorized to provide Investment Services in Italy;
• Those authorized to provide such Services subject to mutual recognition;• Other Members of the markets guaranteed by CC&G who have signed the agreement with
a GCM to become an NCM.
How to become a MemberThe entire membership process to CC&G, Borsa Italiana and Monte Titoliis managed on line via the BIt Club website, a simple, fast and efcientcommunication tool.
Supervisory
Capital
R e q u i r e m e n t s
Technical
& Organisational
Requirements
SupervisoryCapital (€)
N. of Non ClearingMembers
25 m Up to 1
30 m From 2 to 5
35 m From 6 to 10
40 m Above 10
If the Supervisory Capital is lower, but at leastequals 15 m€, CC&G accepts a guaranteeissued by a bank for the difference betweenthe Supervisory Capital requirement and theSupervisory Capital held.
SupervisoryCapital (€)
Market
3 m Equities
10 m Derivates
10 m Bonds
10 m More than 1 market
If the Supervisory Capital is lower, but at leastequals 3 m€, CC&G accepts a guaranteeissued by a bank for the difference betweenthe Supervisory Capital requirement and theSupervisory Capital held.
Organisational structure, technological and information technology systems
Two referents for each section
Hold a central cash account in Target 2
Join the central depository service (CSD)
Join the Settlement Services
Directly or througha Settlement Agent
General Clearing Individual Clearing Non Clearing
Clients may subscribe to CC&G as
• General Clearing Member: GCMs become counterparties to CC&G for proprietary and clienttransactions; they can also clear contracts on behalf of their Non-Clearing Members.
• Individual Clearing Member: ICMs become counterparties of CC&G for proprietary and client
transactions.• Non-Clearing Member: NCMs are not counterparties to CC&G. They must be market members
and must sign an agreement with a General Clearing Member for the provision of GCM services.
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Rome
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1. Full exibility in the choice of membership type per market cleared
2. CC&G has an international client base of more than 170 clearing members3. Over 70 direct members, including major international players as GCMs
Advantages
Membersofboththecashequityandequityderivativessections
ofCC&Gbenetfromasignicantdecreaseininitialmargin
requirementsthankstoCC&G’suniquecross-marginingfunction.
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2. Margin system
The margining system is CC&G’s fundamental
risk management tool. CC&G’s risk management
approach is fully compliant with international
recommendations (CPSS-IOSCO) and ESCB-
CESR and is in line with the current draft of the
new EU Regulation on CCPs with reference to
risk management. Margins are calculated using
sophisticated, proven systems: a methodology based on TIMS (Theoretical Intermarket Margins
System) for equity derivatives products, the ERM
methodology (Equity Risk Management) for cash
equity products, the MMeL methodology (Margins
for Electric Market) for energy derivatives and the
MVP methodology (Method for Portfolio Valuation)
for Italian government bonds.
Equity Derivatives and Cash Equity
Margin Calculation
The metodologies used for equities and equity derivatives are integrated and correlated,
therefore capable of recognising the overall risk
in a portfolio. This allows for the offsetting of risk
between closely correlated products, as well as
cross-margining between derivatives and equity
cash products in the portfolio.
The overall risk exposure for integrated portfolios
with signicant price correlation is determined by:
• Product Group: integrated portfolio
of underlying assets with statistically
signicant price trend correlation;
• Class Group: integrated portfolio of cash and
derivatives instruments related to the same
underlying stock.
Energy Derivatives Margin Calculation
Derivatives contracts traded on IDEX form an
integrated portfolio considered as a whole for
the purpose of Initial Margins calculation.
The MMeL margining methodology has a structure
of classes which recognises contracts tradable on
the market. Each class includes all the contracts of
the same type (futures or options),
Advantages
1. Cross margining between cash equity and equity derivatives signicantly reduces margins, withoptional separate calculation reporting to satisfy customers’ cost allocation needs
2. One collateral pool: guarantees in place cover the cash call on all asset classes
3. Members trading the same asset classes on
multiple trading venues cleared by CC&G takeadvantage of full netting for settlement andmargining purposes
4. Customer choice over number of accounts/sub-accounts on Derivatives and net/grossmargining between main and sub-accounts.
with the same underlying security (PUN) and the
same characteristics (Delivery Period and type of
supply: Baseload, Peakload or Off Peak).
Bonds Margin Calculation
MVP determines the overall risk exposure for
integrated portfolios by grouping classes of bonds
with statistically signicant correlation in their
sensitivity to interest rates variations, measured
by the duration. A single net position is calculated
independently from the market origin of the
contracts - MTS, EuroMTS, BrokerTec, MOT and
EuroTLX - and risk management is accordingly
performed on the net positions.
Initial marginInitial margin is called on a daily basis to cover the
theoretical costs of liquidation, which CC&G would
incur in the event of a member’s default, in order
to close the open positions in the worst possible
market scenario, within a maximum price variation
range called “Margin Interval”.
The “Margin Interval”, specic for each nancial
instrument, is periodically reviewed as a result
of statistical analysis.
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Intraday margin
Intraday margins are called by CC&G in case
of sudden sharp price variations or an increase of
a member’s excessive overall risk exposure.
Intraday margin is calculated with the same
methodologies as the initial margin.
Collateral
Initial margin can be placed in cash (Euro) or in Euro denominated securities: Italian, French
and German Government Bonds traded on MTS
and EuroMTS.
Government bonds are marked to market daily
at the weighted average price recorded on the
MTS market. The Bonds deposited as collateral
are grouped in classes of haircut based on their
duration, for Italian Government bonds, and
on their time to maturity, for French and German
Government Bonds. Intraday Margins must be
deposited in cash (Euro).
3. Lines of Defence
CC&G manages three separate default funds: one
for equity and equity derivatives, one for energy
derivatives and one for xed income. These default
funds are essential as additional protections to
cover any risks associated with sharp price/
interest rate movements. Initial default fund
contributions are calculated based on the results
of periodic stress tests. Default fund contributions
are re-calculated on a monthly basis based onprevious month’s activity.
Multilevel Financial Safeguarding System
CC&G protects market integrity in case of default
by a clearing member by using a set of nancial
resources which are allocated by using the
following set of nancial resources:
• initial margin of the defaulting member
• contribution to the relevant default fund
of the defaulting member
• CC&G shareholders’ equity of up to € 5 million • remaining default fund, on the basis
of a “loss sharing” principle
• remaining CC&G shareholders’ equity.
Advantages
1. Optimal protection for members in times of stressed markets
2. In case of default by a clearing member, the maximum exposure of each clearing member is limited to his
contribution to the relevant default fund
O u t s t a n
d i n g CC&G’s o w n a s s e t s
O u t s t
a n d ing def a u l t f u n d
C C
& G ’ s o w n a ssets u p t o 5 m
i l l i o n
D e f a u l t i n
g m ember ’ s d e f a u
l t f u n d
Defaulting
member’s
initial margin
In case of default of a participant, market integrity is preserved
by a multi tiered nancial safeguard system.
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CC&G&settlement
CC&G has a direct account in the Express II
settlement system, managed by Monte Titoli.
All trades cleared by CC&G settle on a net
basis. Net balances against CC&G can be split
into partials in the net settlement cycles and are
subject to being shaped into smaller lots prior
to being submitted to the gross settlement cycle.
CC&G automatically manages buy-ins and sell-outs
according to published rules.
CC&G has introduced additional reporting to
highlight the separate margining of fails and partials
and to report the buy-in and sell-out process.
Advantages
1. Settlement of net balances against CC&G is prioritised over non-CCP guaranteed and
‘off-exchange trades’
2. For settlement purposes, one single balance per security and account is created for Italian
Government Bonds independently from the trading venue: MTS, EuroMTS, BrokerTec,
MOT and EuroTLX.
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Realtime,effortlesspost-tradingmanagement
1. Derivatives Clearing
BCS, the user interface, integrates all derivatives
clearing functionalities such as early exercise,
international give-up combined with the splitting
facility, position transfer and related enquires into
a single technical infrastructure. BCS also allows
for the download of clearing reports and data les
used to support clearing on the derivatives market.
BCS, fully integrated with the IDEM market
infrastructure, is available in the following versions:
• BCS-WS: stand-alone windows workstation;
• BCS-API: Application Program Interface
to automate the end-to-end processing
of transactions;
• BCS PLUS, both WS and API, allows the
automation of the International give-up.
International give-up business model
Contracts executed on the IDEM market can be
transferred on trade date at the execution price.
This functionality, combined with the trade splitting
facility, fully complies with the international uniform
give-up agreement and allows STP into the middle
and back ofce systems.
1. General Clearing Members benet from
a complete Non-Clearing Member post
trading report for reconciliation purposes
2. BCS PLUS automates international
give-up management
3. General Clearing Members can monitor
the trading activity of their NCMs
throughout the business day.
Advantages
2. Reporting
A wide range of reports and data les is available
to allow for quick reconciliation of transactions,
positions and margins.
ICWS allows for the download of clearing reports,
fails reporting and data les to support clearing on
all markets.
FTP, FTPS and SFTP are available for all markets
to download batch les, with different levels of
security.
Give-upfunctionalitycombinedwithtradesplittingavailable
asacompleteSTPmodel.
CC&G offers a range of exible connectivity solutions for accessing the clearing system to suit the needs
of all clearing members.
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© September 2011 CC&G - London Stock Exchange Group
All rights reserved.
The publication of this document does not represent solicitation, by Borsa Italiana S.p.A., of public saving and is not to
be considered as a recommendation by Borsa Italiana as to the suitability of the investment, if any, herein described. This
document has not to be considered complete and it is meant for information and discussion purposes only. Borsa Italiana
accepts no liability, arising, without limitation to the generality of the foregoing, from inaccuracies and/or mistakes, for
decisions and/or actions taken by any party based on this documents. Trademarks Monte Titoli, X-TRM and MT-X areowned by Monte Titoli S.p.A. London Stock Exchange, the coat of arms device and AIM are a registered trade mark of
London Stock Exchange plc. The above trademarks and any other trademark owned by the London Stock Exchange Group
cannot be used without express written consent by the Company having the ownership of the same. Borsa Italiana S.p.A.
and its subsidiaries are subject to direction and coordination of London Stock Exchange Group Holdings (Italy) Ltd – Italian
branch. The Group promotes and offers the post-trading services of Cassa di Compensazione e Garanzia S.p.A. and Monte
Titoli S.p.A. in an equitable, transparent and non-discriminatory manner and on the basis of criteria and procedure aimed at
assuring interoperability, security and equal treatment among market infrastructures, to all subjects who so request and are
qualied in accordance with national and community legislation applicable rules and decisions of the competent Authorities
Piazza degli Affari, 620123 Milano - Italy Tel +39 02 336351
Contacts
[email protected] - Tel. +39 02 72426 [email protected] - Tel. +39 02 33635 283
[email protected] - Tel. +44 0207 797 3052
CC&G - Cassa di Compensazione e Garanzia
Via Tomacelli, 14600186 Roma - Italy Tel +39 06 32395202
www.ccg.itwww.londonstockexchangegroup.com