On 16 August 2012, EU Regulation No. 648/2012 of the European Parliament and of the Council of 4 July 2012 in the matter of “OTC Derivatives, Central Counterparties and Trade Repositories” came into force. On 19 December 2012 the European Commission adopted the “Technical Standards for the Regulation on OTC Derivatives, CCPs and Trade Repositories” which came into force on 15 March 2013.
In particular, Article 47 of EMIR identifies the milestones to which the CCPs’ investment activity needs to comply to. Moreover, Chapter VIII (Liquidity controls) of “Technical Standards” defines the requirements needed for the construction of a framework to monitor liquidity needs so as to manage efficiently the investments. CC&G complies to EMIR, and all other applicable regulations, while defining its investment policies.
The main goal of the investment activity of the cash amounts deposited by Participants, as Margins, “Default Funds” as well as those representing Own Means, is the protection of principal.
CC&G has a low risk appetite. Thus, CC&G neither invests in financial instruments with a low rating, nor deals with counterparties having low creditworthiness. The investment activity is always driven by the objective of maximizing portfolio’s return through best execution and efficient risks mitigation. Besides that, all rules implemented by CC&G in the management of investments aim at minimizing portfolio losses in order to protect the capital base of the company.
To such purpose:
- the criteria provided ensure to maintain a balance between a capital structure and risk/control framework;
- the activity is performed exclusively with counterparties with high credit rating;
- the investment in financial instruments is performed abiding by the principle of diversification of maturities;
- the established operational and concentration limits enable to significantly reduce the risk linked to the maintenance of broad positions - deposits and financial instruments - vis-à-vis counterparties or issuers;
- the haircut levels provided enable to minimize the market risk of the financial instruments held;
- the use of derivative contracts is allowed exclusively for hedging the FX risk.
CC&G put in place a comprehensive controls framework (e.g: Value at Risk monitoring). This structure ensures full compliance to capital requirements and guarantees uninterrupted service with sufficient liquid resources at all times without the need to reach any capital injection from shareholders.
Specific monitoring tools, such as the Liquidity plan, as well as tailor-made in-house systems enable an efficient management of the investments considering all CC&G’s liquidity needs (towards participants, towards settlement systems), in ordinary as well as in stressed market conditions.
The main objectives of CC&G’s investment activity are listed below:
- Maintenance of sufficient liquid resources at all times;
- Protection of Capital;
- Portfolio diversification;
- Full compliance to regulatory capital requirements.
CC&G implemented a multi-level control framework, with a clear segregation of duties between control functions and operations so as to identify, monitor and manage all investment risks. These controls are aimed at, among other things, ensuring:
- A proper implementation of the risk management framework and compliance to opeational limits assigned to the different functions;
- Compliance to all relevant rules and regulations.