Capital increase in KELER CCP
In line with the resolution passed at the Annual General Meeting, KELER as a majority shareholder of KELER CCP increased the capital of the company by HUF 4bn as of 29 June 2013. As a result the share capital of KELER CCP now exceeds HUF 5bn and fully complies with the capital requirement provisions of the European Market Infrastructure Regulation (EMIR). The capital increase has been submitted to the Court of Registration for approval. Due to the capital increase, as of 29 June 2013 KELER has 99.72% stake, while the National Bank of Hungary (NBH) has a 0.15% and BSE has a 0.13% share in KELER CCP. At the same time the amount of joint and several liabilities undertaken by KELER in favour of KELER CCP in relation to its clearing functions was reduced to HUF 4bn. It is possible that the guarantee will cease to exist from the beginning of next year and will be replaced with further capital injections. The management and the shareholders will take decisions about this subject until the end of this year.
EMIR compliance
To obtain the CCP licence to continue clearing activities according to EMIR requirements, KELER CCP has submitted its request to the Hungarian Financial Supervisory Authority (HFSA). An international supervisory college including HFSA will evaluate the application by March 2014. System developments and new general business rules of KELER CCP complying with EMIR requirements have already been approved both by the NBH and the HFSA, and will enter into force on 1 August 2013.
Trade Repository
EMIR requires all derivatives trades to be reported to a Trade Repository (TR) that forwards the information to the European Securities Markets Authority (ESMA). KELER intends to offer a solution to domestic and regional market players to meet their reporting obligations and intends to become a Trade Repository in 2014. A clearing house is not allowed to provide trade repository services for market participant, as a result KELER, as the Hungarian CSD, made the decision to apply for the licence and establish the trade repository service. KELER will submit the application for the licence before the 16 September 2013 and expectedly will start functioning as a full trade repository as of 1 January 2014, depending on when ESMA grants the necessary licence. In order to use the repository service of KELER, a separate agreement will need to be signed between KELER and the market players interested in KELER’s services.
Should KELER not get the TR license, it plans to act as data hub collecting and forwarding trade information between market participants and an approved TR.
Changes in clearing fee structure
In 2014 KELER CCP intends to renew its clearing fee structure to provide more favourable conditions for its clients handling relatively high turnover. Accordingly the currently fix monthly clearing fee (HUF 100,000) will increase to a certain extent while on the other hand KELER intends to introduce a turnover-based tiered pricing in order to offer discounts for larger clearing members.
Client satisfaction survey
In order to improve its services, KELER conducted a client satisfaction survey last year; the results of the latter were shared at the forum. Generally clients gave positive feedback, however, some improvement proposals were made such as more customer-friendly web page, improved electronic communication, more professional management of customer needs, development of services, etc. This year the client satisfaction survey is expected to be organized between September and November and in addition to the online questionnaire, KELER introduces personal interviews in order to receive proper and more complex answers from clients.
T+2
In line with the EU level harmonization KELER CCP will shorten the equities settlement cycle from T+3 to T+2 expectedly in September – November 2014 and simultaneously, the clearing deadline is expected to be shifted from 2.00 p.m. to 3:00 p.m. or 4.00 p.m. depending on the results of a consultation with the market players.
OTC derivative clearing
KELER Group is in consultation with NBH concerning the potential launch of OTC derivatives clearing services. KELER presented the settlement model that is expected to be judged by NBH by end of August. In case of a positive result, it may go live in the second half of 2014. The service at the first stage will cover swap and FX deals in HUF, EUR, USD and CHF currencies.
System Modernization Program (SMP)
Mid 2012 KELER launched the SMP with the aim of replacing its almost 20 year old account management system ensuring that the new application is fully compliant with Target2Securities (T2S) functionalities by September 2016 when KELER will join T2S as part of the 3rd migration waive. Currently the first phase of SMP is close to completion, during which the selection of the vendor and the detailed assessment of T2S requirements shall be finalized. The Board of Directors has made a decision on the supplier of the new system; it is expected to be named later this year as soon as the contract has been signed with the successful tenderer. In addition KELER’s White Paper describing the T2S offering of KELER is being finalized and shall be available on KELER’s website by the end of August. As per the plans, the new system will be in place by end of 2014 so that during 2015 and 2016 all tests as well as the accession to T2S can be accomplished.
KID modernization project
In 2011 KELER started the modernization of its client communication interface, KID, that is used by clients of KELER being directly connected to KELER’s systems. As a result of the first phase KELER’s system can be also accessed with standard browsers on the internet in addition to the previously offered leased line connection. The second phase is expected in November 2013 and will convert KID to a full-scale communication interface. According to the plans all functions will be available in an STP mode in the new version and it will comply with ISO 20022 SWIFT standard communication as far as statements and data import and export functions are concerned.
FATCA compliance
KELER prepares for being fully FATCA compliant improving its ‘Know Your Customer’ procedures as of 1 January 2014. Expectedly the new documentation requirements and procedures will affect only the power market participant clients of KELER. Relevant market participants will have a reporting obligation under FATCA from 2015 in relation to the account balances in 2014.
Power and gas market
In accordance with the strategic co-operation agreements signed in 2012 and 2013 KELER Group provides clearing services related to several gas and power markets in the region, it can settle gas and power market transactions, furthermore it can provide information on market prices. Currently, KELER Group provides this type of services for approximately 20-25 clients mainly from Eastern Europe and the Balkan region.
Wide Application Routing Platform (WARP)
WARP is an integrated platform for investment funds providing a direct link for fund managers, distributors, custodians and KELER. The new platform was implemented in April 2013. One of the most important aims of the system is to facilitate the expansion of relations between distributors and fund managers. In the current phase, the platform is accessible at a reduced charge for market participants that support the system development with their personal experiences. An updated version will be implemented in August 2013 in which, among others, extended settlement report and new liquidity report will be available. Version v2.0 is expected to be launched in Q4 2013 with some new functions such as DVP/RVP settlement and trailer fee calculation.
Impact on investors: At the latest Custodian Forum KELER Group described its recent system developments and future plans, and participants discussed the major market changes that affect them and their clients.