Investment Operations

OTC Derivatives, Collateral and EMIR

Course Instructor

Course Level

Intermediate

Certification

Certificate

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

Description

*This 8-hour course can be offered upon request and can be customized to fit your team’s needs.

Even the most basic type of derivative transaction can prove a challenge from a processing perspective, as there are typically several components that can positively or negatively impact successful and risk-free processing.  If losses are to be avoided, it is essential that those involved in derivative processing, and associated collateral management, understand the overall picture to identify risk situations as early as possible in the transaction lifecycle. The OTC Derivatives, Collateral & EMIR training course is designed to provide a thorough understanding of a range of OTC derivative products and the specific sequential steps in their processing.  Extending the concepts relating to the product, the principles of collateral and of collateral management are described to a detailed level. Finally, the background to EMIR is explained, prior to describing trade reporting to trade repositories and the principles of centrally cleared as well as non-centrally cleared trades.

The objectives of the OTC Derivatives, Collateral & EMIR training course are for the delegates to:

  • Become aware of the fundamental purpose of derivatives
  • Understand the similarities & differences between exchange-traded and OTC derivatives
  • Identify the processing lifecycle of a range of OTC derivative products
  • Understand the purpose of collateral in the management of OTC derivative trades
  • Appreciate each step in daily counterparty risk mitigation within the collateral process
  • Understand the reasons for the introduction of the EMIR controls
  • Appreciate how central counterparties interact with clearing members on a day-by-day basis
  • Understand how clearing members interact with non-members in a central clearing environment
  • Appreciate what causes trades to be either centrally cleared or non-centrally cleared

Who Should Attend

The course is relevant to those currently working within a particular segment of derivative operations (e.g. trade processing, collateral management), but who would appreciate the ‘big-picture’, and how their role relates to that picture. Due to its broad content, besides operations personnel this course is also of value to those working within the following areas; Trading, Sales, Middle Office, Reconciliation, Collateral Management, Risk Management, Compliance, Legal and IT. The course is equally applicable to people within institutional investment firms (e.g. pension funds, mutual funds, insurance companies) and investment banks, and to those working within central banks, derivative exchanges, central securities depositories, custodians and management consultants.

Prerequisite: No formal experience is essential, although it would be advantageous if attendees had a basic or generic appreciation of financial products processing; please refer to the Derivative Operations Fundamentals course.

Agenda

Day 1

 Fundamental Derivative Concepts

  • Definition and Purpose
  • The Derivatives Marketplace
  • Basic Derivative Types
  • Investment Appeal of Derivatives

OTC Derivatives – Introduction

  • Essential Principles of OTC Derivatives
    1. Parties
    2. Tenure
    3. Notional Principal Amount
    4. Rates
    5. Dates
    6. Settlement
    7. Exiting
  • OTC Derivative Product Types (Overview)
  • Legal Documentation – Introduction
    1. ISDA Master
    2. The Schedule
    3. Credit Support Annex

OTC Derivative Products and their Operational Characteristics (part 1)

  • Generic OTC Derivative Trade Lifecycle (Overview)
  • Trade Processing versus Collateral Processing
  • OTC Derivative Products
    1. Interest Rate Swaps
    2. Credit Default Swaps

OTC Derivative Products and their Operational Characteristics (part 2)

  • OTC Derivative Products (continued)
    1. Foreign Exchange Swaps
    2. Currency Swaps

Exiting an OTC Derivative Trade

  • Exit Methods
    1. Unwind
    2. Offset
    3. Novation

Fundamental Collateral Concepts

  • Collateral Concepts for OTC Derivatives
  • How Exposures Arise on OTC Derivatives

Day 2

Fundamental Collateral Concepts

  • Cash Collateral for OTC Derivatives
  • Bond Collateral for OTC Derivatives
  • Bond Collateral: Deriving Haircut Percentages
  • OTC Derivatives and the Credit Support Annex

The OTC Derivative Collateral Lifecycle

  • The Collateral Lifecycle
    1. Portfolio Reconciliation
    2. Marking-to-Market
    3. Exposure Calculation
    4. Exposure Calculation Simulation
    5. Making & Receiving Margin Calls
    6. Holding Collateral Received
    7. Reuse of Bond Collateral
    8. Collateral Substitution
    9. Income and Corporate Action Events
  • Regulatory Change for OTC Derivatives – Introduction
    1. OTC Derivatives & the 2008 Global Financial Crisis
    2. Overview of Required Regulatory Changes
  • EMIR and Centrally Cleared Trades
    1. Central Clearing Primary Concepts
    2. Central Counterparty Services
    3. Central Clearing: Advantages & Disadvantages
    4. Central Counterparty Membership & Non-Membership
    5. Clearing Member Margin Requirements: Introduction
    6. Default Funds, Initial Margin & Variation Margin
    7. Clearing Members Offering Client Clearing Services
    8. The Clearing Obligation
    9. Treatment of Legacy Trades
    10. Central Counterparties and Interoperability
    11. Central Clearing & the OTC Derivative Collateral Lifecycle
  • EMIR and Non-Centrally Cleared Trades – Overview
    1. Definition of Non-Centrally Cleared Trades
    2. Reasons for the Existence of Non-Centrally Cleared Trades
    3. Market Participants Exempt from the Clearing Obligation
    4. Eligible Collateral
    5. Initial Margin and Variation Margin Requirements
    6. Additional Risk Mitigation Regulations

Summary and questions

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2024 Training Calendar

Training Catalogue

Course Instructor

Course Level

Intermediate

Certification

Certificate

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

Description

*This 8-hour course can be offered upon request and can be customized to fit your team’s needs.

Even the most basic type of derivative transaction can prove a challenge from a processing perspective, as there are typically several components that can positively or negatively impact successful and risk-free processing.  If losses are to be avoided, it is essential that those involved in derivative processing, and associated collateral management, understand the overall picture to identify risk situations as early as possible in the transaction lifecycle. The OTC Derivatives, Collateral & EMIR training course is designed to provide a thorough understanding of a range of OTC derivative products and the specific sequential steps in their processing.  Extending the concepts relating to the product, the principles of collateral and of collateral management are described to a detailed level. Finally, the background to EMIR is explained, prior to describing trade reporting to trade repositories and the principles of centrally cleared as well as non-centrally cleared trades.

The objectives of the OTC Derivatives, Collateral & EMIR training course are for the delegates to:

  • Become aware of the fundamental purpose of derivatives
  • Understand the similarities & differences between exchange-traded and OTC derivatives
  • Identify the processing lifecycle of a range of OTC derivative products
  • Understand the purpose of collateral in the management of OTC derivative trades
  • Appreciate each step in daily counterparty risk mitigation within the collateral process
  • Understand the reasons for the introduction of the EMIR controls
  • Appreciate how central counterparties interact with clearing members on a day-by-day basis
  • Understand how clearing members interact with non-members in a central clearing environment
  • Appreciate what causes trades to be either centrally cleared or non-centrally cleared

Who Should Attend

The course is relevant to those currently working within a particular segment of derivative operations (e.g. trade processing, collateral management), but who would appreciate the ‘big-picture’, and how their role relates to that picture. Due to its broad content, besides operations personnel this course is also of value to those working within the following areas; Trading, Sales, Middle Office, Reconciliation, Collateral Management, Risk Management, Compliance, Legal and IT. The course is equally applicable to people within institutional investment firms (e.g. pension funds, mutual funds, insurance companies) and investment banks, and to those working within central banks, derivative exchanges, central securities depositories, custodians and management consultants.

Prerequisite: No formal experience is essential, although it would be advantageous if attendees had a basic or generic appreciation of financial products processing; please refer to the Derivative Operations Fundamentals course.

Agenda

Day 1

 Fundamental Derivative Concepts

  • Definition and Purpose
  • The Derivatives Marketplace
  • Basic Derivative Types
  • Investment Appeal of Derivatives

OTC Derivatives – Introduction

  • Essential Principles of OTC Derivatives
    1. Parties
    2. Tenure
    3. Notional Principal Amount
    4. Rates
    5. Dates
    6. Settlement
    7. Exiting
  • OTC Derivative Product Types (Overview)
  • Legal Documentation – Introduction
    1. ISDA Master
    2. The Schedule
    3. Credit Support Annex

OTC Derivative Products and their Operational Characteristics (part 1)

  • Generic OTC Derivative Trade Lifecycle (Overview)
  • Trade Processing versus Collateral Processing
  • OTC Derivative Products
    1. Interest Rate Swaps
    2. Credit Default Swaps

OTC Derivative Products and their Operational Characteristics (part 2)

  • OTC Derivative Products (continued)
    1. Foreign Exchange Swaps
    2. Currency Swaps

Exiting an OTC Derivative Trade

  • Exit Methods
    1. Unwind
    2. Offset
    3. Novation

Fundamental Collateral Concepts

  • Collateral Concepts for OTC Derivatives
  • How Exposures Arise on OTC Derivatives

Day 2

Fundamental Collateral Concepts

  • Cash Collateral for OTC Derivatives
  • Bond Collateral for OTC Derivatives
  • Bond Collateral: Deriving Haircut Percentages
  • OTC Derivatives and the Credit Support Annex

The OTC Derivative Collateral Lifecycle

  • The Collateral Lifecycle
    1. Portfolio Reconciliation
    2. Marking-to-Market
    3. Exposure Calculation
    4. Exposure Calculation Simulation
    5. Making & Receiving Margin Calls
    6. Holding Collateral Received
    7. Reuse of Bond Collateral
    8. Collateral Substitution
    9. Income and Corporate Action Events
  • Regulatory Change for OTC Derivatives – Introduction
    1. OTC Derivatives & the 2008 Global Financial Crisis
    2. Overview of Required Regulatory Changes
  • EMIR and Centrally Cleared Trades
    1. Central Clearing Primary Concepts
    2. Central Counterparty Services
    3. Central Clearing: Advantages & Disadvantages
    4. Central Counterparty Membership & Non-Membership
    5. Clearing Member Margin Requirements: Introduction
    6. Default Funds, Initial Margin & Variation Margin
    7. Clearing Members Offering Client Clearing Services
    8. The Clearing Obligation
    9. Treatment of Legacy Trades
    10. Central Counterparties and Interoperability
    11. Central Clearing & the OTC Derivative Collateral Lifecycle
  • EMIR and Non-Centrally Cleared Trades – Overview
    1. Definition of Non-Centrally Cleared Trades
    2. Reasons for the Existence of Non-Centrally Cleared Trades
    3. Market Participants Exempt from the Clearing Obligation
    4. Eligible Collateral
    5. Initial Margin and Variation Margin Requirements
    6. Additional Risk Mitigation Regulations

Summary and questions

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2024 Training Calendar

Training Catalogue

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