Detailed Rules of the OTC Clearing System

In connection with the amendments to the Rules of Transaction Clearing (non-organised trading), the Detailed Rules of the OTC Clearing System have also been amended under Resolution No. 11/24 of the KDPW_CCP S.A. Management Board of 2 July 2024.

The amendments entered in to force on 16 July 2024 and consisted of introducing:

• setting out a requirement of participants which have obtained the participation status but have not yet commenced activities in the clearing system to carry out tests confirming their readiness to commence such activities,
• setting out the obligation of participants to comply with the requirements set out in the relevant anti-money laundering and counter-terrorist financing legislation in relation to the business relationships they undertake. A requirement has been set out for entities seeking the participant status and for participants to provide information necessary to identify money laundering and terrorist financing risks associated with the business relationships they undertake. They will be required to provide KDPW_CCP S.A. with an up-to-date Correspondent Banking Due Diligence Questionnaire (CBDDQ, template published by the Wolfsberg Group).

The amendment of the Detailed Rules of the OTC Clearing System under Resolution No. 1/2024 of the Management Board of KDPW_CCP S.A. dated 6 February 2024 entered into force on 21 February 2024.

In Appendix No. 6 to the Detailed Rules of the OTC Clearing System, " Margin calculation methodology and derivatives, repo and sell transactions valuation methodology" in Section 4.1.3, changes are made to the definition of the 6M PLN projection curve (forward) and consist in the removal of points concerning FRA transactions for periods 1x7, 2x8, 3x9, 4x10, 5x11.

The above change is due to the withdrawal of ICE Data Derivatives, the provider of the primary information service, which is the source of data for obtaining interest rates, from continuing to provide this data.

 

In connection with the implementation of changes to the KDPW_CCP clearing system for the clearing of OTC transactions as of 19 December 2022, the amendments to the Detailed Rules of the OTC Clearing System adopted by Resolution No. 52/22 of the KDPW_CCP S.A. Management Board dated 5 December 2022 entered into force on 19 December 2022.

The Detailed Rules of the OTC Clearing System have been amended to take into account changes in communication with clearing members. The names of transmitted messages have been updated and the terminology used in the description of processes has been aligned with the modified message structures.

Amendments to the Detailed Rules of the OTC Clearing System adopted by Resolution No. 10/22 of the KDPW_CCP S.A. Management Board of 15 March 2022 entered into force on 1 April 2022 following the decision of the Polish Financial Supervision Authority (KNF) and ESMA of 26 January 2022 concerning validation of a significant change of the margining model for transactions concluded in non-organised trading (OTC) from a model based on a simulation of Historical VaR to Expected Shortfall.

Amendments to Appendix 6 to the Detailed Rules of the Clearing System modify the margining model for transactions concluded in non-organised trading (OTC) by replacing the model based on the simulation of Historical VaR with Expected Shortfall (ES). The ES model allows for securing the risk of potential loss at the level of average loss exceeding the VaR level determined at a given confidence level. The change was implemented in line with the timetable as of 1 April 2022. Consequently, the modified margin requirements have to be posted on the next business day, i.e., 4 April 2022.

The amendment of the Detailed Rules of the OTC Clearing System under Resolution No. 29/21 of the Management Board of KDPW_CCP S.A. dated 12 October 2021 entered into force on 26 October 2021.

The amendment of the Detailed Rules of the OTC Clearing System results from the termination of the publication of EONIA as of the beginning of 2022. KDPW_CCP is currently not clearing any instruments based on EONIA. All instruments denominated in EUR have been discounted with an OIS curve based on ESTR since 24 July 2020 (under Resolution No. 24/20 of the Management Board of KDPW_CCP S.A. dated 9 July 2020).

As a result, KDPW_CCP is planning to stop accepting transactions in OIS based on EONIA in the OTC clearing system as of 18 October 2021. The date has been agreed by the CCPs which offer clearing services in the EU. However, if any transactions in OIS based on EONIA are presented for clearing before the date when the amendment of the Detailed Rules of the OTC Clearing System comes into force, they will be cleared on the previously applicable terms as long as EONIA is published. Once the publication of EONIA stops, all transactions will be converted to transactions based on ESTR. The conversion of transactions based on EONIA to transactions based on ESTR will change the valuation of transactions, which KDPW_CCP will offset with a one-off cash payment.

KDPW_CCP will not download any EONIA market data once the clearing of transactions based on EONIA stops.

With a view to the foregoing, the Detailed Rules of the OTC Clearing System are amended as follows:

• EONIA is deleted as a reference rate in Table III of Appendix 1 because instruments based on EONIA will no longer be cleared;
• in Annex 6:
  • EONIA is deleted in point 2.5 because the valuation of instruments based on EONIA will stop,
  • the OIS curve based on EONIA is deleted in point 4 because it is redundant,
  • the EONIA data source is deleted in point 5 because EONIA will no longer be downloaded.

Furthermore, following an amendment of the agreement with the European Money Market Institute (EMMI), the information notice will be modified regarding exclusion of EMMI’s liability and the provision and calculation of rates on behalf of EMMI.

The amendment of the Detailed Rules of the OTC Clearing System under Resolution No. 24/20 Management Board of KDPW_CCP S.A. dated 9 July 2020, enter into force on 27 July 2020.

The amendment of the Detailed Rules of the OTC Clearing System aims to:

• extend the scope of OTC interest-rate derivatives cleared by KDPW_CCP by adding the clearing of Overnight Index Swaps (OIS) in EUR based on €STR;
• change the discounting curve used by KDPW_CCP for the purposes of valuation of interest-rate derivatives in EUR in the OTC clearing system. The valuation of such transactions was previously based on the OIS discounting rate using the EONIA rate and will now be discounted with the ESTR curve, including transactions accepted for clearing before the effective date of the amendment of the Detailed Rules of the OTC Clearing System. The change of the discounting curve will modify the valuation of transactions irrespective of any changes in market conditions and time. Consequently, KDPW_CCP will make a one-time adjustment of variation margins and the settlement amount, respectively. The adjustment will be equal to the difference between the valuation of a clearing member’s EUR transaction portfolio using the OIS discount curve based on the EONIA rate and the valuation of the portfolio using the OIS discount curve based on the ESTR rate. That amount will be settled in cash on the following business day;
• change the interest rate of variation margins/the settlement amount (PAI/PAA) for transactions in interest-rate derivatives in EUR cleared in the OTC clearing system which are cleared under the previous rules. The ESTR will replace the EONIA rate.

Amendments of the Detailed Rules of the OTC Clearing System under Resolution No. 63/19 of the KDPW_CCP S.A. Management Board dated 19 November 2019 enter into force on 4 December 2019.

The amendments affect Appendix 1 and Appendix 6 to the Detailed Rules of the OTC Clearing System and concern in particular the clearing of WIBOR 1M swaps with time to maturity under 20 years (previously 3 years).