Eurex Clearing

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Eurex Clearing AG
Eurex Clearing Logo.jpg
Founded 1998
Headquarters Frankfurt, Germany
Key People Erik Tim Müller, CEO; Heike Eckert, Deputy CEO & COO
Products Clearing House
Website www.eurexclearing.com

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, which is part of the Deutsche Boerse Group.

Since January 2016, Eurex trading and clearing has been part of the newly created “Clients, Products & Core Markets” division headed by Jeffrey Tessler.[1]

History

Eurex Clearing was founded in 1998 as a wholly-owned subsidiary of Eurex Frankfurt AG, a holding company formed through the merger of Deutsche Terminbörse (DTB) and the Swiss Options and Financial Futures Exchange (Soffex).

On July 31, 2009, the CFTC recognized Eurex Clearing as a Multilateral Clearing Organization (MCO), enabling Eurex Clearing to offer its existing OTC facilities to the 75 Eurex members based in the U.S.[2]

On May 16, 2011, Eurex Clearing applied for registration as a derivatives clearing organization (DCO) for the purpose of clearing swaps. At the request of Eurex Clearing AG, the 180-day review period was extended to December 31, 2014.[3]

On April 10, 2014, Eurex Clearing was granted authorization from Germany's financial regulator BaFin as a central counterparty clearing organization (CCP) under the European Market Infrastructure Regulation (EMIR).[4]

On February 1, 2016, Eurex Clearing was approved by the CFTC as a registered Derivatives Clearing Organization (DCO).[5]

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.

Securities are then registered in a Central Securities Depository (CSD), such as Clearstream or Euroclear.


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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 of 2008, Eurex Clearing provides central clearing for the following entities:

Current Licensing Agreements with Eurex Clearing
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)


Eurex Credit Clear

For Eurex Credit Clear, which provides clearing for credit default swaps, Eurex Clearing has developed a state-of-the-art risk management model. Implementation has been supported by deploying proven application modules from Calypso Technology Inc., a provider of risk solutions for credit derivatives. Eurex Credit Clear cleared its first transaction on July 30, 2009.

On Aug. 28, 2009, Eurex Credit Clear announced that it achieved another milestone by successfully clearing a single name credit default swap (CDS) as the first central counterparty (CCP) in the world. The cleared transaction had a notional value of €5 million, the single name CDS is based on RWE.

Eurex Credit Clear was designed in close consultation with users and envisions customer governance of products and functionalities as well as sharing the economics with the industry. Eurex Credit Clear is interlinked with the Depository Trust & Clearing Corporation (DTCC) Trade Information Warehouse to deliver straight-through-processing and a seamless integration into existing OTC market infrastructure.

On July 23, the U.S. Securities and Exchange Commission (SEC) approved a conditional exemption that allowed Eurex Clearing to operate as a central counterparty for CDS clearing. Britain's Financial Services Authority (FSA) gave regulatory approval for the UK market on July 24, 2009.

Credit Clear operates the only CCP for both index and single-name CDS. It is accessible for buy-side firms from day one. The initial product scope covers a European CDS product suite of iTraxx indices and selected single name iTraxx index constituents. In a next step, further European single names will be added to provide full coverage of the iTraxx benchmark index constituents.

Functional Model

Eurex Credit Clear's functional model is built on accepted CDS market standards and enhances them by adding clearing best practices. Eurex Credit Clear's objective is to leverage existing infrastructure and address OTC CDS market concerns appropriately. Whereas the existing DTCC OTC credit infrastructure delivers trade capture, confirmation and settlement features, Eurex Credit Clear's solution will add CCP services, essential position and risk management, margins and payments.

Eurex Credit Clear Functional Model.gif

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 daily, since new positions may have been created during the trading day and existing positions closed out through offsetting transactions. 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.

Foreign Currency Settlement

In addition to the existing trading and settlement of products denominated in euro and Swiss Franc, additional trading products denominated in U.S. Dollar and British Pound are planned. 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.

People

Resources

References

  1. Implementation of new leadership structure for Eurex trading and clearing business. Deutsche Boerse Group.
  2. CFTC Recognizes Eurex Clearing. exchange-handbook.co.uk.
  3. DDerivatives Clearing Organizations. CFTC.
  4. DERIVATIVES: BaFin gives Eurex clearing approval. International Financing Review.
  5. Eurex Clearing receives U.S. regulatory approval. Deutsche Borse AG.
  6. Executive Board of Eurex Clearing AG. Eurex Clearing AG.