Eurex Clearing
From MarketsWiki
| Eurex Clearing | |
| |
| Founded | 1998 |
|---|---|
| Headquarters | Frankfurt, Germany |
| Key People | Andreas Preuss, CEO; Jürg Spillmann, deputy CEO |
| Web site | http://www.eurexchange.com/clearing_en.html |
Eurex Clearing is a central clearing counterparty (CCP) for derivatives transactions executed on the Eurex platform, as well as for equities, bonds, and repo transactions executed on other platforms.
The company is a wholly-owned subsidiary of Eurex Frankfurt AG, the joint venture between Deutsche Börse and the SWX Swiss Exchange.
Contents |
History
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Structure
Trades are passed on to Eurex Clearing after being matched on Eurex, Xetra, or any other platforms that sign licensing agreements. The positions are then passed on to Eurex Clearing, which becomes the buyer to every seller and the seller to every buyer, and calculates a customer's net risk and determines the amount of margin each customer must have on deposit. This implies that the clearing house not only assumes the counterparty risk for all market participants, but also simplifies settlement processes for the clearing members, whilst at the same time guaranteeing post-trade anonymity from trading to settlement.
Securities are then registered in a Central Securities Depository (CSD), such as Clearstream or Euroclear.
Products and Customers
Eurex Clearing acts as a CCP for trades matched on several entities in addition to Eurex itself, and its services are available to any entity that enters into a licensing agreement. As of January, 2008, Eurex Clearing provides central clearing for the following entities:
- Eurex Bonds GmbH
- Eurex Repo GmbH
- FWB Frankfurter Wertpapierbörse (the Frankfurt Stock Exchange).
- Irish Stock Exchange (ISE)
| Clearing License | Cleared and Settled Products |
|---|---|
| Derivatives Clearing License | Fixed-Income Derivatives, Money Market Derivatives, Equity and Equity Index Derivatives, Exchange-Traded Funds Derivatives, Volatility Index Futures, Futures Leg of Basis Trades |
| Bonds Clearing License | German Government Bonds; German Jumbo Pfandbriefe; Issues of the Kreditanstalt für Wiederaufbau (Reconstruction Loan Corporation), the European Investment Bank, and the German States; Selected European government bonds, corporate bonds, and covered bonds; Securities leg of basis trades |
| Repo Clearing License | General Collateral snd Special Repo on: German government bonds, German Jumbo Pfandbriefe, Issues by the Kreditanstalt für Wiederaufbau and German States, Austrian government bonds, Selected European corporate bonds and covered bonds |
| Equity Clearing License (Frankfurt Stock Exchange) | German and international shares that are traded on the Frankfurt Stock Exchange floor or via Xetra |
| Equity Clearing License (Irish Stock Exchange) | Irish Stock Exchange Xetry order book transactions in Irish shares and Irish exchange-traded funds (ETFs) |
Foreign Currency Settlement
In addition to the existing trading and settlement of products denominated in euro and Swiss Franc, additional trading products denominated in US Dollar and British Pound are already being planned and prepared for settlement processes. Additional currencies can be included in the clearing system. Collateral may be deposited in the form of securities denominated in the trading and settlement currencies.
Optimum Margin Calculation
Eurex Clearing AG’s Risk-based Margining encompasses the entire process of measuring, calculating and administering the margin required for open positions in order to cover any contractual risks that may arise. This provision of collateral guarantees that all open positions belonging to a clearing member can be closed and offset within a short period of time. The margins required for deposit are reviewed for each member on a daily basis, since new positions may have been created during the trading day and existing positions closed out through offsetting transactions. Daily adjustments of margins are smoothly facilitated as standardized contracts allow continuous price monitoring. The profits or losses arising from the day’s price fluctuations are either settled with cash (Variation Margin) or in the form of margin deposited with Eurex Clearing AG (Premium Margin).
Intraday Risk Calculations
Eurex Clearing AG also offers an intraday risk information service on the basis of its Risk-based Margining, upon request. This service facilitates virtually real-time calculation of the current market risk relating to open positions up to member level. Clearing members can use this to counter increased margin requirements using intra-day, risk-adequate collateral provision. Moreover, in the case of an anticipated adverse price movement within 24 hours, an Additional Margin is imposed. This margin is calculated separately according to whether proprietary trading or client positions are concerned (P and A accounts). All products with the same risk potential are categorized in distinct margin classes. In turn, several margin classes with a similar risk structure may be grouped together in margin groups. In both the margin classes and margin groups, risks that offset each other are eliminated from the calculation (cross margining), so that members are required to provide significantly less in collateral than if the products were valued separately. Thus, a liquidity-preserving margin is calculated for all product segments (for example bonds or futures and option products) for which Eurex Clearing AG acts as central counterparty.
