WFE’s Clearing and Derivatives Conference

Conference Programme


Day 1 - Mon 19 Apr

  • 11:00 - 11:15:

    Opening Remarks

    Speakers
    • Nandini
      Nandini Sukumar Chief Executive Officer The World Federation of Exchanges
    • Pedro
      Pedro Gurrola-Perez Head of Research The World Federation of Exchanges
  • 11:15 - 12:15:

    Coming of age: 21 years after the G20

    Twenty one years after the G20 was created in the aftermath of one financial crisis and 11 years after leaders at the Pittsburgh summit committed to improving over-the-counter markets in the wake of another, it’s time to take stock. While progress has been made, much remains still to be done. As the pandemic-induced volatility rocked markets over the last year, market infrastructures have held the system securely, ensuring resilience and stability. What lessons has the pandemic taught us? And where should we look next? What lies ahead?

    Dr. Urs Rüegsegger, Chair of SIX Swiss Exchange, Chair of Zuger Kantonalbank and Chair of the World Federation of Exchanges in conversation.

    Chair
    • Dr. Urs
      Dr. Urs Rüegsegger Chairman, SIX Swiss Exchange and WFE Chairman

    Speakers
    • Marguerite
      Marguerite Soeteman-Reijnen Chairman Executive Board Aon Holdings
    • Alexander
      Alexander Schindler Member of the Executive Board Union Asset Management Holding AG
  • 12:15 - 13:00:

    Keynote speech: Dawn DeBerry Stump, Commissioner, Commodity Futures Trading Commission (CFTC)

    Speaker
    • Dawn
      Dawn DeBerry Stump Commissioner Commodity Futures Trading Commission
  • 13:00 - 13:15:

    Break: Next session will resume at 13:15

  • 13:15 - 14:15:

    The Economics of Central Clearing - a conversation

    Author: Albert J. Menkveld (Vrije Universiteit Amsterdam) and Guillaume Vuillemey (HEC Paris)

    This article surveys and takes stock of  the research literature on CCPs in the last decades and provides an overview of the most salient topics: multilateral netting,  protection against counterparty risk, the effect of CCPs on asset prices and fire sales, margins setting, the default waterfall, and CCP governance.

    Speakers
    • Albert J.
      Albert J. Menkveld Professor of Finance Vrije Universiteit Amsterdam
    • John
      John Davidson Chief Executive Officer OCC (Options Clearing Corporation)
  • 14:15 - 15:00:

    The impact of derivatives collateralisation on liquidity risk: evidences from the investment fund sector

    Authors: Audrius Jukonis (European Central Bank), Linda Fache Rousová (European Central Bank) and Elisa Letizia (Single Resolution Board)

    Stricter margining requirements for derivative positions have increased the demand for collateral by market participants. At the same time, euro area investment funds which use derivatives extensively have been reducing their liquid asset holdings. Using transaction-by-transaction derivatives data, the research assesses whether the current levels of funds’ holdings of cash and other highly liquid assets would be adequate to meet funds’ liquidity needs to cover variation margin calls on derivatives under a range of stress scenarios.

    Presenter
    • Audrius
      Audrius Jukonis Analyst European Central Bank

    Discussant
    • Matthias
      Matthias Graulich Member of the Executive Board Eurex Clearing

Day 2 - Tue 20 Apr

  • 11:00 - 11:45:

    The market structure of dealer-to-client interest rate swaps

    Author: Aref Bolandnazar, Ph.D. Candidate in Finance, Columbia Business School, Columbia University.

    Using proprietary data on cleared interest rate swaps (IRS) transactions and the dealers' daily margin requirements, the paper develops an equilibrium model of IRS markets with imperfect competition among capital constrained dealers.

    Presenter
    • Aref
      Aref Bolandnazar Ph.D Candidate in Finance Columbia Business School

    Discussant
    • Jorge
      Jorge Alegria IOMA Chairman (2011-2014)
  • 11:45 - 12:45:

    How market structures are changing

    In the last five years, clearing services have become more concentrated, new products and asset classes have come into the cleared environment, new technologies are permeating the post-trade space and clearing itself has become more fragmented. How will these trends, and others still to come, change clearing and financial market infrastructure?

    Moderator
    • Umesh
      Umesh Gajria Global Head of Index-Linked Products Bloomberg

    Panellists
    • John
      John Fennell Executive Vice-President & Chief Risk Officer OCC (Options Clearing Corporation)
    • Vikram
      Vikram Kothari Managing Director National Securities Clearing Corporation Limited (NSCCL)
    • Erik Tim
      Erik Tim Müller Chief Executive Officer Eurex Clearing AG
  • 12:45 - 13:15:

    Break: Next session will resume at 13:15

  • 13:15 - 14:00:

    Model risk at central counterparties: Is skin-in-the-game a game changer?

    Authors: Wenqian Huang (Bank of International Settlements) and Előd Takáts (Bank of International Settlements)

    The authors investigate empirically how the balance sheet characteristics of central counterparties affect their modelling of credit risk. They find that higher skin-in-the-game is significantly associated with more prudent modelling, in contrast to profits and forms of capital other than skin-in-the-game.

    Presenter
    • Előd
      Előd Takáts Principal Economist Bank for International Settlements

    Discussant
    • John
      John McPartland Director of Research Hidden Road Partners LP
  • 14:00 - 15:00:

    Skin Skin Skin

    Skin-in-the-game (SITG), the part of the CCP's own capital included in the pre-funded default waterfall,  is not intended to be meaningful as a loss-absorbing component but rather to signal the CCP’s strong incentive to perform consistently prudent risk management. While research has shown increasing SITG could provide the wrong incentives for clearing members in a default in addition to increasing the costs of clearing across the financial sector, the sizing and structure of SITG continues to be the focus of a debate. Can we reconcile these different and often conflicting interests?  Is there a case for revisiting its structure? Why does its calibration vary?  Is there an optimal outcome in the trade-off between SITG and the cost of clearing?

    Chair
    • John
      John McPartland Director of Research Hidden Road Partners LP

    Panellists
    • Dr. David
      Dr. David Murphy Visiting Professor, Department of Law London School of Economics (LSE)
    • Juan A.
      Juan A. Blackwell Senior Principal, Head of Credit and Counterparty Risk Management Ontario Teachers’ Pension Plan Board
    • Marcelo
      Marcelo Carvalho Managing Director, CCP Chief Risk Officer B3 - Brasil Bolsa Balcão
    • Suzanne
      Suzanne Sprague Managing Director, Credit & Liquidity Risk, Risk Policy, & Banking CME Group

Day 3 - Wed 21 Apr

  • 10:45 - 11:00:

    Keynote speech: Eva Hüpkes, Head of Regulatory and Supervisory Policies, Financial Stability Board (FSB)

    Speaker
    • Eva
      Eva Hüpkes Head of Regulatory and Supervisory Policies Financial Stability Board (FSB)
  • 11:00 - 12:00:

    Recovery and resolution: the parable of the incentives

    As we design risk management strategies to deal with tail events, everyone agrees that it's crucial to ensure that incentives across the CCP ecosystem are aligned in a way that promotes financial stability -- including in extreme situations. What are the elements of this design? How do we ensure the market gets the certainty it needs and under what scenarios? While we have never reached the end of the modern waterfall, if ever we do -- what is the optimal strategy to maximise the probability of a successful resolution? At what point should the resolution authorities intervene? What impediments, both legal and operational, should we account for? How do we ensure incentives stay adequately aligned at times of crisis?

    Moderator
    • Diana
      Diana Chan Independent Director Euroclear SA/NV

    Panellists
    • Robert
      Robert Steigerwald Senior Policy Advisor, Financial Markets Federal Reserve Bank of Chicago
    • Simon
      Simon Gleeson Partner Clifford Chance
    • Christopher S.
      Christopher S. Edmonds Global Head of Clearing and Risk Intercontinental Exchange
    • Richard
      Richard Metcalfe Head of Regulatory Affairs The World Federation of Exchanges
  • 12:00 - 12:45:

    Fireside chat

    Speakers
    • Nandini
      Nandini Sukumar Chief Executive Officer The World Federation of Exchanges
    • Tajinder
      Tajinder Singh Acting Secretary General IOSCO
  • 12:45 - 13:15:

    Break: Next session will resume at 13:15

  • 13:15 - 14:00:

    Intermediation networks and market liquidity: evidence from CDS markets

    Author(s): Mark Paddrik (Office of Financial Research, U.S. Department of Treasury) and Stathis Tompaidis (McCombs School of Business, University of Texas at Austin)

    Using supervisory data between 2010-16 for the OTC CDS market, the research empirically tests several predictions and evaluates how changes in intermediation networks are related to the liquidity of dealers and the market.

    Presenter
    • Mark
      Mark Paddrik, PhD Senior Research Economist, Office of Financial Research U.S. Department of the Treasury

    Discussant
    • Christer
      Christer Rydberg Head of Risk Policy Singapore Exchange
  • 14:00 - 14:45:

    Keynote speech: Rent-Seeking Platforms

    Speaker
    • Rod
      Rod Garratt Maxwell C. and Mary Pellish Chair in Economics University of California, Santa Barbara

Day 4 - Thu 22 Apr

  • 11:00 - 12:00:

    Margin procyclicality or ecosystem fragilities?

    During the most challenging days of March 2020, we saw volatility spike to levels above those of the Global Financial Crisis and, as a consequence of that heightened risk, margin calls also peak. As analysis of these events progresses, it is clear the liquidity demands experienced can only be explained by looking at the complex set of interactions and interdependencies across the financial system as a whole. So -- is the procyclicality of margin models really the issue or should participants just be better prepared? What are the trade-offs involved in risk models? What would be the costs and benefits of less procyclical but less sensitive models? Are there other ways of contributing to remediate system-wide fragilities?

    Chair
    • Froukelien
      Froukelien Wendt Independent Member of the CCP Supervisory Committee The European Securities and Markets Authority (ESMA)

    Panellists
    • Pedro
      Pedro Gurrola-Perez Head of Research The World Federation of Exchanges
    • Ananda
      Ananda Radhakrishnan Vice President, Bank Derivatives Policy American Bankers Association (ABA)
    • Vicky
      Vicky Hsu Head of European Counterparty Risk BlackRock
  • 12:00 - 12:45:

    A CBA of APC

    Authors: David Murphy (London School of Economics) and Nicholas Vause (Bank of England)

    The authors propose a cost measure that allows them to  perform a cost benefit analysis (‘CBA’) of the different antiprocyclicality  (APC) measures. To illustrate this, they  use a commonly-used type of initial margin model, filtered historical simulation value at risk, presenting the costs and benefits of applying a number of different APC mechanisms to this model, including those defined in in EU legislation.

    Presenter
    • Nicholas
      Nicholas Vause Advisor in the Financial Stability Directorate Bank of England

    Discussant
    • Ron
      Ron Berndsen Independent Director of LCH Ltd. and LCH SA, and Professor of Financial Market Infrastructures Tilburg University
  • 12:45 - 13:15:

    Break: Next session will resume at 13:15

  • 13:15 - 14:00:

    Systemic stress testing under central and non-central clearing

    Authors: Barbara Casu (Cass Business School, City, University of London), Elena Kalotychou (Cyprus University of Technology), and Petros Katsoulis ( Cass Business School, City, University of London),

    By developing a stress-testing network model of the largest market participants the authors compare defaults due to counterparty and liquidity risks and systemic losses in the regime with and without non-central clearing.

    Presenter
    • Petros
      Petros Katsoulis PhD Candidate in Finance The Business School (formerly Cass), City, University of London

    Discussant
    • Dr. Alicia
      Dr. Alicia Greenwood Chief Executive Officer, JSE Clear and Member of the Executive Board Johannesburg Stock Exchange (JSE)
  • 14:00 - 15:00:

    How CCPs Can Manage Climate-Related Financial Risks

    Climate change, the world agrees, is a great and looming risk to the stability of the global financial system. It affects every facet of the economy and the health & survival of the human race. The role of financial market infrastructure is to enable systemic stability, manage risk and bring transparency to markets. So - what is the role of financial market infrastructure in managing climate-related financial risks? How can they diminish financial system stress and boost resilience? What kind of data can and should FMI’s provide to bring greater understanding of these risks? How can FMI’s provide practical solutions to the problems caused by climate change? How can they support the financial system in the transition to the net-zero economy? What kind of policy and regulatory levers need to be adopted, and in what time frame, for that to happen?

    Chair
    • Bob
      Bob Litterman Chairman of the Climate-Related Market Risk Subcommittee Commodity Futures Trading Commission (CFTC)

    Panellists
    • Alessandro
      Alessandro Cocco Vice President and Head of Financial Markets Group Federal Reserve Bank of Chicago
    • Adrian
      Adrian Farnham Chief Executive Officer LME Clear

Day 5 - Fri 23 Apr

  • 11:00 - 11:45:

    Taking money off the table: suboptimal early exercises, risky arbitrage, and American put returns

    Authors: Kevin Aretz (Manchester Business School), Ian Garrett (Manchester Business School), Adnan Gazi (University of Liverpool)

    Many studies report that American option investors often exercise their positions suboptimally late. Yet, when that can happen in case of puts, there is an arbitrage opportunity in perfect markets, exploitable by longing the asset-and-riskfree-asset portfolio replicating the put and shorting the put. Using early exercise data, the paper analizes such  arbitrage strategies.

    Presenter
    • Adnan
      Adnan Gazi Assistant Professor of Finance University of Liverpool Management School

    Discussant
    • Jon V.
      Jon V. Cherry President & Global Head of Options Northern Trust Securities, Inc.
  • 11:45 - 12:45:

    Innovation in CCP risk models

    During the first half of 2020, we saw risk factors move in unprecedented ways.  Oil prices turned negative, traditional correlations in Treasuries broke down, and  commodity spreads spiked. These events remind us of the importance of continuous innovation in risk modelling, including in model design and in model validation techniques.  What are the modelling  challenges arising from the extraordinary risk factor movements seen in 2020? What is the right balance between modelling these as part of the initial margin or as part of the default fund? Should  non-market risks be modelled as an intrinsic part of the IM model? How do  they fit in the context of the default waterfall? What new techniques are available for model validation?

    Chair
    • Pedro
      Pedro Gurrola-Perez Head of Research The World Federation of Exchanges

    Panellists
    • Fernando
      Fernando Cerezetti Director of Risk Oversight ICE Clear Europe, Intercontinental Exchange
    • Travis
      Travis Nesmith Assistant Director and Section Chief, Quantitative Risk Analysis Federal Reserve Board
    • Wael
      Wael AlHazzani Chief Executive Officer Securities Clearing Center (Muqassa)
    • Nicholas
      Nicholas Lincoln Group Head of Market & Liquidity Risk at LCH London Stock Exchange Group
  • 12:45 - 13:15:

    Break: Next session will resume at 13:15

  • 13:15 - 14:00:

    Competition and manipulation in derivative contract markets

    Author: Anthony Lee Zhang, University of Chicago Booth School of Business

    This paper studies manipulation in cash-settled derivative contract markets. It defines two measures of manipulation-induced welfare losses, which can be estimated using commonly observed market data.

    Presenter
    • Anthony
      Anthony Lee Zhang Assistant Professor University of Chicago Booth School of Business

    Discussant
    • Richard
      Richard Heckinger Contributing Editor, Central Banking Journal, Associate Editor, Journal of Financial Market Infrastructure and a Member, Editorial Advisory Board of the Global Commodities Applied Research Digest.
  • 14:00 - 14:30:

    Keynote speech: Still the World’s Safe Haven? Redesigning the U.S. Treasury Market After the COVID19 Crisis

    Speaker
    • Darrell
      Darrell Duffie Adams Distinguished Professor of Management and Professor of Finance Stanford University’s Graduate School of Business
  • 14:30 - 15:15:

    Fireside chat

    Speakers
    • Sunil
      Sunil Cutinho President, Clearing & Post-Trade Services CME Group
    • Darrell
      Darrell Duffie Adams Distinguished Professor of Management and Professor of Finance Stanford University’s Graduate School of Business
  • 15:15 - 15:30:

    Concluding Remarks and Announcing the Call for Papers WFE’s Clearing Conference 2022

    Speakers
    • Nandini
      Nandini Sukumar Chief Executive Officer The World Federation of Exchanges
    • Pedro
      Pedro Gurrola-Perez Head of Research The World Federation of Exchanges