operations certificate programme · page 1 . operations certificate programme duration: 5 days ....
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Page 1
Operations Certificate Programme Duration: 5 days
The OCP Certificate is intended primarily for two types of candidate. Firstly, operations practitioners within their first ten years in the industry and secondly, operations managers who would benefit from a broader knowledge of the various operational functions in the industry.
Description: This section utilises all the concepts covered in Level I, and:
• describes the Securities Trade Lifecycle at a detailed level, incorporating a full-blown Securities Trade Lifecycle simulation
• describes extremely important tasks that either 1) result from securities trade processing, and/or 2) relate to the management of existing securities positions
o some such tasks form an essential part of a firm’s cost reduction and operational efficiency methods
o in some cases such tasks are offered to clients as an optional service, or may be mandatory events following which trades and positions will be adjusted
• in all cases, accurate and timely processing and the application of relevant controls will be emphasised and reinforced to the delegates - imperative if monetary/reputation loss is to be avoided.
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DAILY OCP TIMETABLE
Start End Training Hours (Cumulative)
09:00 10:30 Session 1 1½
10:30 10:45 Break -
10:45 12:30 Session 2 3¼
12:30 13:30 Lunch -
13:30 15:00 Session 3 4¾
15:00 15:15 Break -
15:15 16:45 Session 4 6¼
16:45 17:00 Break -
17:00 18:15 Session 5 7½
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Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 1 Morning-into-Afternoon - Timing: 09:00 – 12:30
Introduction: the primary objective in trade processing is for the trade to settle on its due date. Reaching that objective is not accomplished by the completion of one single task; instead, timely settlement results from a range of consecutive tasks, each of which builds upon the
successful completion of the prior task. These tasks are collectively known as the Securities Trade Lifecycle.
1 The Securities Trade Lifecycle
Orders:
Purpose
Who Issues Orders?
Who Receives Orders?
Order Types
Trade Execution:
Order-Driven Markets
Quote Driven Markets
Exchange-Traded vs OTC
Fully Automated Trading Systems (Brokertec, MTS, Eurex, MEF)
Less Automated Trading Systems (working title)
Electronic Trading (incl. ECNs)
Voice Brokers and IDBs
The Short Selling Regulation
Changes to Settlement Cycles
Trade Capture (Front Office):
Capture Methods
Components
Speed
Accuracy
Trade Capture (Operations):
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Implications of Successful Capture
Facilitating Successful Capture
Identifying Failed Capture
Implications of Failure to Capture
Reasons for failed Capture
Trade Enrichment:
Purpose
What’s added to basic trade details
Achieving automated enrichment
Importance of Static Data
Trade Agreement:
Purpose
Methods
Trade Confirmation (manual, electronic),
Trade Affirmation (Oasys Global),
Implications of Failing to Agree
Settlement Instructions:
Purpose
Methods
Deadlines
Time-Zone Differences
Implications of Failing to Instruct
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Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 1 Morning-into-Afternoon (continued) - Timing: 09:00 – 12:30 (continued)
1 (cont’d)
The Securities Trade Lifecycle (cont’d)
Settlement Instruction Statuses:
Purpose
Status Types & Meaning
Required Action
Implications of Unmatched Instructions
Failed Trades:
Definition
Causes
Implications
Prevention
Minimising Impact
Enforcing Settlement
New Regulation: Fining and Buy-In
Trade Settlement:
Definition
Causes of Successful Settlement
Full Settlement
Partial Settlement
Securities Only Settlement
Cash Only Settlement
Gross versus Net Settlement
Target 2 Securities (T2S)
Updating Books & Records:
Definition
Purpose
Implications of Successful Update
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Implications of Unsuccessful Update
Reconciliation:
Definition
Purpose
Types
Methods
Risks
Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 1 Afternoon - Timing: 13:30 – 18:00
2 The Securities Trade Lifecycle Simulation
The purpose of the simulation is for delegates to confirm/increase their understanding of each trade lifecycle component, to appreciate the inter-relationships between each component, and to understand the positive and negative knock-on effects of their actions, the actions of their colleagues’ and the actions of counterparties and CSDs.
The purpose also includes having the delegates working in a close-knit team, to appreciate the importance of good and timely communication.
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Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 1Afternoon: Timing: 13:30 – 18:00 (this section will be run in parallel with the Securities
Trade Lifecycle Simulation) Introduction: if an Operations professional is to understand the processing nuances of a variety of transaction types, that task will be made considerably easier if the fundamental
method of accounting for such transactions is understood. This is a structured method of determining/analysing the implications of processing a range of transaction types including buy/sell, repos, securities lending & borrowing, incoming & outgoing collateral, corporate
actions.
3 Securities Bookkeeping
Definition & Purpose
Importance of Accurate Books & Records:
Link with Reconciliation
Double-Entry Bookkeeping
When Entries Must be Passed - Trades:
Trade Date
Value Date
Settlement Date
When Entries Must be Passed - Positions:
Marking-to-Market
Realised/Unrealised P&L
Application in Different Transaction Types
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Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 2 Morning-into-Afternoon - Timing: 09:00 – 15:00
Introduction: the practice of securities financing utilises securities held by a firm to 1) secure a cash borrowing or to 2) lend such equities and bonds in return for additional revenue. During
the lifetime of a securities financing trade, the daily movement in the market value of the securities involved causes exposures that each firm must mitigate. Such transactions cause multiple securities &/or cash movements during their lifetime, all of which must be settled in a
timely manner if risks are to be mitigated.
4 International Securities Financing Transactions
Definition and Family of Instruments
Introduction: for many sell-side firms, the funding costs of maintaining proprietary positions is a reality that must be faced constantly, therefore keeping funding costs to a minimum is paramount if a firm is to maximise its trading profits. The borrowing of cash versus bonds given as collateral is a popular method of minimising funding costs.
4a Repo
The Instrument:
Transaction Structure and Mechanics
Market Conventions
Principal Purposes and Drivers
Terminology
Collateral Issues:
Valuation of Collateral
Initial Margin/Haircut
Marking-to-Market & Margin Maintenance
Right of Substitution of Collateral
Custody & Settlement (Delivery, HIC, Tri-Party)
What Happens in a Default
Failure to Deliver Collateral
Legal Documentation (GMRA)
Key Features:
Legal Structure: Title Transfer
Comparison with Secured Loans
Economic Effect: Borrowing and Lending
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Treatment of Collateral Income
Credit and Liquidity Risk
Implications for Accounting of Repo (Repo 105)
Basic Tax Issues
Synthetic Repo
Specials and GC Repo:
General Collateral
GC repo Rate & Spreads to Unsecured
Specials
Specials Drivers, Patterns of Specialness
Comparison with Securities Lending
Repo Structures:
Repurchase Agreements
Sell/Buy-Back (and forward price)
Floating Rate Repo
Open Repo
Forward Repo
Term Repo
Collateral Up/Downgrade
Collateral Transformation/Liquidity Swaps
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Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 2 Morning-into-Afternoon (continued) - Timing: 09:00 – 15:00 (continued)
4a (cont’d)
Repo (continued)
Tri-party Repo:
Structure
Basic Operations
Collateral Selection and Optimisation
Re-use Facilities
European vs US Tri-party
Market Structure:
Size and Composition of the Market
Electronic Trading
Central Counterparties
GC Financing/Pooling
Repo Trade Repositories
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Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 2 Afternoon - Timing: 15:15 – 17:15
Introduction: for both buy-side and sell-side firms, the equities and bonds they own can be made to generate further revenue if the firm is prepared to lend such securities. Other firms
need to settle sales of securities in a timely fashion, and so such firms become securities borrowers. In order to mitigate the securities lender’s risk, the securities borrower must
provide collateral in the form of cash or other securities.
4b Securities Lending & Borrowing
The Instrument:
Transaction Structures
Terminology
Principal Purposes & Drivers (Lending & Borrowing)
Legal and Economic Structure
Lender’s Right of Recall
Borrower’s Right of Return
Indemnification by Agent Lenders
Borrowing Fees
Securities Lending versus Repo
Market Structure:
Size and Composition of the Market
End Users
Intermediaries
Collateral Issues:
Initial Margin
Margin Maintenance
Cash Collateral Management
Collateral Delivery
Custody and Settlement (Bilateral & Tri-party)
Treatment of Collateral Income
Corporate Actions
Voting Rights
What Happens in a Default
Failure to Deliver Collateral
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Legal Documentation (GMSLA)
Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 2 Afternoon - Timing: 17:15 – 18:15
4c Repo Exercise/Simulation
The Repo Trade Lifecycle Overview
Opening Leg Settlement:
Settlement of Cash versus Collateral
Throughout Life of Transaction:
Introduction
Marking-to-Market
Bond Accrued Interest
Repo Interest to Date
Margin Calls
Collateral Substitution
Income Payments
Corporate Actions
Closing Leg Settlement
Updating Books & Records
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Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 3 Morning - Timing: 09:00 – 10:00
Introduction: some investment banks choose to offer their clients the service of holding the clients’ securities (and possibly cash) on the clients’ behalf; by providing this service, the bank
becomes a custodian to the client. This in turn introduces a range of risks to the bank, from verifying incoming settlement instructions to the processing of optional corporate actions.
5 Safe Custody
Definition & Purpose
Service Components:
Holding Securities
Holding Cash/Currencies
Securities & Cash Movement Types
Income & Corporate Actions
Valuation
Statements
Legal Agreements:
Structure of Safe Custody Accounts
Authenticating Instructions Received
Other Risks & Controls
Service Charges
Updating Books & Records
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Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 3 Morning-into-Afternoon - Timing: 10:15 – 18:00
Introduction: equity and bond positions (and trades) are impacted by corporate action events
that are either scheduled or announced by the issuer; trading positions, settled positions and
open trades are all subject to adjustment. This topic contains numerous points of risk which
many institutions have experienced to their cost. Knowledge of securities and their processing
is incomplete without an understanding of this challenging topic.
6 Corporate Actions
Introduction:
Overview of corporate actions, including:
Definition
Purpose
Reliance on Trade & Position Management
Fundamental Concepts:
Event Classification
Issuer’s Objectives
Event Initiation
Ultimate Impact of Event
Responsibilities of a Corporate Actions Dep’t
Major Processing Steps
Major Risks
Corporate Actions Lifecycles Overview:
Processing Lifecycle Characteristics of:
Mandatory Events
Mandatory with Options Events
Voluntary Events
Multi-Stage Events
Issuer Notices
Corporate Action Event Types
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Focus on Numerous Event Types, including:
Cash Dividends
Optional Dividends
Dividend Reinvestment Plans
Fixed-Rate & Floating-Rate Coupon Payments
Bonus Issues
Stock Splits, Reverse Splits/Consolidations
Odd-Lot Offers
Bond Conversions
Early/Partial/Voluntary Redemptions
Final Maturity
Rights Issues
Takeovers
The Generic (Mandatory Event) Lifecycle – Overview
Overview of Each Major Step in the Mandatory Event Lifecycle, namely;
Declaration of Event Terms
Capturing Event Terms
Ascertaining Entitlement
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Section Heading Sub-Heading
Operations Certificate Programme
Securities Operations Day 3 Morning-into-Afternoon (continued) - Timing: 10:15 – 18:00 (continued)
6 (cont’d)
Corporate Actions (cont’d) The Generic (Mandatory Event) Lifecycle: Overview (cont’d):
Informing Relevant Parties
Calculating Resultant Entitlement
Updating Books & Records #1
Receiving & Crediting Resultant Entitlement
Updating Books & Records #2
Tax on Income Events - Overview:
Withholding Tax
Domestic Tax
Internal/External Securities Position Management
Over-Taxation
Tax Returns to Tax Authorities
Mandatory with Options Event and Voluntary Event Lifecycles; Overview:
Characteristics of Optional & Voluntary Events
Differences vs. the Mandatory Event Lifecycle
Associated Management Implications
Event Terms
Requesting Election Decisions
Monitoring Outstanding Election Decisions
Managing Incoming Election Decisions
Issuing Outgoing Election Instructions
Calculating Resultant Entitlement
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Section Heading Sub-Heading
Operations Certificate Programme
Derivative Operations and Collateral Management Day 4 Morning - Timing: 09:00 – 11:00
Introduction: the group of products known as OTC Derivatives have become a major aspect of the financial services industry; from a general Operations viewpoint, this is regarded as a
specialist area. However, price movements in OTC derivative trades give rise to the requirement to give and/or take collateral. As collateral may be in the form of cash or securities, deliveries and receipts of securities can occur for reasons completely dis-
associated with securities trading. It is therefore important that an Operations professional is aware of the underlying reasons for such incoming & outgoing movements of securities.
Additional challenges of giving &/or receiving securities collateral is the potential re-use of such collateral and the impact on income processing. The purpose of this section is to
describe the elementary aspects of OTC derivatives.
7 Derivative Fundamentals
Introduction
The Derivatives Marketplace:
Exchange Traded versus OTC Derivatives
Derivative Exchanges
Basic Derivative Types:
Futures
Options
Swaps
8 OTC Derivatives; An Introduction
Structural Aspects of OTC Derivatives:
Generic Product Definition
The Nature of the Trade
Parties to a Trade
Trade Tenor
Exchange of Notional Value
Trade Settlement
Exiting a Trade
Legal Documentation:
ISDA Master Agreement
The Schedule
Credit Support Annex
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Trade Confirmation
Section Heading Sub-Heading
Operations Certificate Programme
Derivative Operations and Collateral Management Day 4 Afternoon - Timing: 11:15 – 13:00
Introduction: this section focuses more specifically on particular OTC derivative products, and explains the basic purpose of each product prior to describing their particular characteristics,
including their settlement and Operational requirements, prior to describing the associated collateral activity.
9 OTC Derivative Products & Their Processing Characteristics
Introduction
For each product listed below, the following aspects will be covered:
1) Product Definition & Purpose
2) The Investors’ Need
3) Structure & Characteristics
4) The Trade Lifecycle
5) Benefits & Risks
6) Operations Activity Overview
7) Product Variations Overview
Example OTC Derivative Products:
Credit Default Swaps
Contracts for Difference
Currency Swaps
Foreign Exchange Swaps
Fixed Foreign Exchange Forwards
Non-Deliverable Forwards
Interest Rate Swaps
Forward Rate Agreements
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Section Heading Sub-Heading
Operations Certificate Programme
Derivative Operations and Collateral Management Day 4 Afternoon - Timing: 14:00 – 15:30
Introduction: the practice of giving and taking collateral has gained a very high profile since the
2008 financial crisis. The management of collateral relates to mitigation of exposures in OTC
derivatives (and other products) and involves a defined series of processing steps. To date, collateral management has related to direct exposure with bilateral counterparties, but this will
change in 2013-14. This section introduces collateral management relating to OTC derivatives, and in particular describes the rules by which a firm must abide on a daily basis, in order for its
exposures to be mitigated.
10 Collateral Management for OTC Derivatives
Collateral Concepts for OTC Derivatives:
How Exposures Arise on OTC D
Specific Purpose of OTCD Collateral
Collateral Differences vs. Repo & SLB
Why the Increased Focus on Collateral?
Collateral Impact on Regulatory Capital
Overview of OTCD Collateral Lifecycle
Types of Collateral:
Cash
Bonds
Legal Protection:
Necessity of Legal Protection
Master Agreements
Credit Support Annexes
Haircut Calculation
Confirmations
Static Data:
Concepts of Static Data
Concepts of Straight Through Processing
Static Data & STP in Collateral Management
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Section Heading Sub-Heading
Operations Certificate Programme
Derivative Operations and Collateral Management Day 4 Afternoon (continued) - Timing: 15:30 – 18:00
and
Day 5 Morning - Timing: 09:00 – 10:30
Introduction: this section takes the rules described within the prior section, and places such rules within the daily activity known as the Collateral Lifecycle, a series of sequential steps resulting in
collateral receipt or delivery. The central aspects of the Collateral Lifecycle will be run as a simulation, where each delegate will form part of a trading firm, and the primary steps in the
lifecycle will be acted out.
11 The OTC Derivative Collateral Lifecycle
Throughout Lifetime of Trade
Portfolio & Exposure Reconciliation:
Definition & Purpose
Benefits
Method
Causes of Discrepancies
Discrepancy Resolution
Marking-to-Market:
Definition & Purpose
Method
Collateral Call Calculation:
Definition & Purpose
Frequency
Uniqueness of Counterparty Arrangements
Determining Factors
Making & Receiving Collateral Calls:
Issuing/Receiving Collateral Demands
Deadlines & Time-Zone Differences
Steps in Processing Collateral Demands
Agreeing / Disputing Collateral Demands
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Settling Collateral Demands
Cash Collateral vs Bond Collateral
Holding Bond Collateral
Reuse of Collateral
Security Interest vs Title Transfer
Collateral Substitution:
Definition & Purpose
Circumstances Causing Substitution
Settling Collateral Substitutions
Risks When Substituting
Income & Corporate Actions:
Impact on Collateral Giver & Taker
Trade Termination:
Definition & Purpose
Early Termination
Termination on Scheduled Maturity Date
Impact on Collateral
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Section Heading Sub-Heading
Operations Certificate Programme
Derivative Operations and Collateral Management Day 5 Morning-into-Afternoon - Timing: 10:45 – 12:30
and
Day 5 Afternoon - Timing: 13:30 – 14:30
Introduction: the introduction (during 2013-14) of an entirely new set of regulatory measures relating to OTC derivatives has an extreme impact on ongoing counterparty exposures, which in turn
impacts collateral management which in itself is designed to mitigate risk. The implications, both from a trading and an operational perspective, are far-reaching in a number of senses, and will
impact both sell-side and buy-side firms.
12 Regulatory Change for OTC Derivatives
Introduction:
Trading on Exchanges or Electronic Trading Platforms: Overview
Central Clearing: Overview
Capital Requirements: Overview
Trade Repositories: Overview
13 Central Clearing & its Impact on Collateral
Central Clearing Primary Concepts:
Trade Netting
Capital Benefits
Central Counterparty Membership Structure:
Central Clearing for Clearing Members
Central Clearing for Non-Members
Multiple Central Counterparty Implications:
Interoperability
Netting & Capital Implications
Risk Management within Central Counterparties:
Margin Requirements
Eligible Collateral
Impact of Collateral
Collateral for Buy-Side Firms
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Operational Implications of Central Clearing
Communicating New Trades to the Central Counterparty
Cleared versus Uncleared Trades
Legacy Trades:
Backloading Method
Netting & Capital Benefits
Legal Documentation for Central Clearing
Central Counterparty Regulation & Supervision
Clearing Member Insolvency
Central Counterparty Insolvency
Collateral Requirements on Buy-Side Firms:
Impact of Initial Margin & Variation Margin
14 Central Clearing & Collateral Transformation
Collateral Transformation; Purpose & Methods:
Repo
Securities Lending
Operational Implications of Collateral Transformation
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Operations Certificate Programme
Exam Revision Day 5 Afternoon - Timing: 14:30 – 18:00
Introduction: this is a ‘free’ session where each delegate can choose exactly how they wish to use the time. MS will be available for Q&A for the entire period. Where there are a number of delegates expressing interest in re-visiting particular topics, MS will organise timed sessions where individual
delegates may choose to attend (e.g. ‘Corporate Actions’ session will be run 15:30 – 16:00, and ‘Collateral Management’ will be run 16:30 – 17:00). This is designed to make the most efficient use
of the delegates’ available time.
Exam Revision Session
Operations Certificate Programme
Exam Day 6 Morning - Timing: 09:00 – 12:00
Introduction: this is the exam itself, which will be run very formally in a room laid out in a particular fashion (e.g. with a minimum space between each desk), requiring both MS and an assistant to
invigilate.
Exam