2 Agenda Requirements and Implications of being a Clearing Member. Segregation Models, levels of protection and portabilityProcess of trade novation and calling of marginCost Implications for Banks as Clearing Members versus ClientTrading / Pricing implications of frontloadingCCP DifferentiatorsKey contactsAppendix
3 Members of the Clearing House Eurex Clearing offers a flexible account structure to allow the Clearing Member (CM) to differentiate between own trades and trades of their customersEurex ClearingClearingMemberProprietary AccountA-Account(s)(non-seg Clients)NCM / RC1nA1A9A1A9General Clearing MembersMay clear its own transactions, those of its customers, as well as those of trading participants that do not hold a clearing license.Direct Clearing Members*May clear only for himself, his clients and for market participants that are part of affiliated companies.Registered Customers (RCs)Do not have a trading license for any Eurex market. They can become Registered Customers (RC) to benefit from the various Client Asset Protection models offered by Eurex Clearing. Registered customers are not direct participants, but are known by Eurex Clearing.Non Clearing Members (NCMs)*Are market participants in trading systems cleared by the clearing house who have no contractual relationship with the clearing house. A Clearing Member carries out their clearing. NCMS may opt to use segregation models offered by Eurex ClearingNon Disclosed ClientClients that are not known to Eurex Clearing and whose positions are held in the A1 to A9 omnibus client accounts (non-seg clients)*DCM and NCM not valued for OTC
4 Access to the service for Clearing Members General Clearing Members (GCM) may clear their own transactions and those of their RC/NCMs and clients that do not hold a clearing licenseMembership criteriaDescriptionAccess to the clearing system infrastructure of Eurex Clearing as well as being a user of an approved trade source (ATS).Default management obligations.Cash accounts, EUR or CHF and USD cash accounts are required, also a GBP account if clearing swaps in GBP.Evidence of a pledge account at CBF or SIX SIS for deposit of securities collateral.RequirementsEach Clearing Member must make a contribution to the Clearing Fund of Eurex Clearing, being the largest of the following amounts;7 percent of the 30-day average of the initial margin requirement7 percent of the 250-day average of the initial margin requirementDCM: EUR 1 million; GCM 5 millionClearing fundEach Clearing Member must meet the minimum liable equity capital requirements of Eurex Clearing, being the largest of the following amounts;20 percent of the 30-day average of additional margin plus futures spread margin20 percent of the 250-day average of additional margin plus futures spread marginEUR 30 millionLiable equity
5 Access to the service for clients Eurex Clearing will provide a variety of options for clients to connect indirectly to the serviceAccess typeRequirementsTo become a Registered Customer/ Non Clearing Member, the legal entity must have concluded a tripartite agreement with a Clearing Member and Eurex Clearing AG.As such, the primary relationship is between the client and the Clearing Member. Clearing Members are entitled to set their own eligibility criteria for clients.Registered Customer/Non Clearing MemberNon Disclosed ClientsNo direct relationship with Eurex Clearing AG.The primary relationship is between the client and the Clearing Member, therefore Clearing Members are entitled to set their own eligibility criteria for clients.
6 The safety of the CCP through its lines of defense is a key criteria in deciding where to clear Eurex Clearing’s lines of defense are crisis proven – default fund has never been usedRemaining equity of Eurex Clearing AGAssessments tothe Clearing FundApprox. € 289 m, Eurex Clearing thus fully EMIR compliantMin. € 1.0 m (DCM) or € 5.0 m (GCM)Total collateral held at Eurex Clearingapprox. € * bnClose-out of all positionsApprox. € 3.4bn€ 50 mPosition nettingCollaterals of Member in defaultClearing Fund contribution of Member in defaultDedicated amount of Eurex Clearing AGClearing fund contributionof other MembersCoverage in normal market conditions (Lehman/ MF Global)Coverage in extreme market conditionsMax 2 assessment limit liability of CM to 3x prefunded clearing fund contributionEurex Clearing lines of defenseParental Guarantee€ 700 m guaranteed by Deutsche Börse AGLines of Defence before Eurex Clearing’s capital sum up to more than € 9 bnValues as of September, 2014* Monthly average collateral value after haircut
7 Eurex Clearing’s guiding principle in a default situation is to minimize the effect on the Lines of Defense and to stabilize the marketsPosition NettingEurex Clearing Lines of DefenseCollateral of ClearingMember in DefaultEurex Clearing Lines of DefenseEurex Clearing provides a multi-level security systemFirst the collateral and the Clearing Fund contribution of the member in default are utilized.After the defaulter’s contributions are exhausted, an assigned dedicated amount of Eurex Clearing is applied, before non- defaulting clearing members’ Clearing Fund contributions, and remaining capital of Eurex Clearing are used.Each clearing member’s contribution to the Clearing Fund is based on a minimum contribution and a dynamic component, accounting for the individual clearing member’s risk situation.There is one segmented Clearing Fund for listed and OTC business.Following a realization of any Clearing Fund contributions of non-defaulted clearing members, such clearing members are asked to provide assessments to their contributions.Clearing members’ total liability is limited as they have to provide a maximum of two assessments per capped period.Clearing Fund Contribution ofClearing Member in DefaultDedicated Amountof Eurex ClearingClearing Fund Contribution ofOther Clearing MembersMax 2 Assessments perClearing MemberParental GuaranteeRemaining Capitalof Eurex Clearing
8 Further enhancement of Eurex Clearing’s Default Waterfall Possibility to close Liquidation Group at end of Default WaterfallAs of 1 December 2014, Eurex Clearing implements possibility to close liquidation group (LG)* at the end of the default waterfall.Main reason for possible closure of LG is to ensure that failure of one LG does not automatically trigger the entire CCP to be wound down or to enter into recovery or resolution.Closure of a LG qualifies as additional recovery option for Eurex Clearing.As part of implementation of closure of LG, Eurex Clearing deletes termination right as final step of DMP.To facilitate closure of LG at end of the default waterfall:Eurex Clearing sub-divides all financial resources across LGs, starting from the first clearing fund assessment. No changes are implemented with respect to pre-funded clearing fund contributions.If the financial resources earmarked for a specific LG prove to be insufficient to cover all losses in such LG, Eurex Clearing terminates and cash-settles all transactions within this LG across all Clearing Members. All other LGs remain unaffected.Eurex Clearing fully pays out all claims resulting from the closure of LG and returns any remaining clearing fund contributions and margin collateral allocated to this LG to respective Clearing Members.Respective claims become due on day of closure of the LG and are to be paid as soon as reasonably possible.Cash-settlement is based on last available settlement prices for all transactions within respective LG.In Individual Clearing Model, cash-settlement of transactions between Eurex Clearing and Clearing Member automatically results in cash-settlement of corresponding transaction between Clearing Member and ICM-Client.* A LG comprises products with similar risk characteristics, i.e. products of the same asset class.
9 Structure of Default Waterfall End of default waterfallResources are ear-marked, starting from first assessment.Eurex Clearing may close one LG once all resources for such LG would be exhausted; all other LGs remain unaffected.
10 Overview of clearing members’ responsibilities within the Default Management Process Responsibilities within the process start prior to a default situationObligationDescriptionPrior defaultNominate DMC MemberClearing members participating in a Default Management Committee (DMC) need to nominate one DMC Member and one DMC Deputy, assisting the clearing house in supporting the hedging, Independent Sale and auctions during the Default Management Process in case of a clearing member default and for regular default simulations. Representatives from affiliated NCMs and RCs can be nominated as well.Participation in fire-drillsClearing members are obliged to participate in regular fire-drills. The fire-drills are intended to test and evaluate the DMP, including (for example) pricing of portfolios.Provide contact detailsTo assist with communication, Eurex Clearing requires all clearing members to supply an appropriate DMP contact and DMP contact details.During defaultProviding market access to obtain best pricesEurex Clearing expects non-defaulted clearing members to support the risk reduction process by providing the clearing house with competitive prices for hedge transactions or during an Independent Sale.Bidding in auctionsNon-defaulted clearing members are obliged to participate in the competitive auction process and submit prices for the hedged portfolio. NCMs, RCs and clients can participate in the auctions as well, thus fulfilling the bidding obligations of their clearing members (as applicable).Taking on client positions from defaulted clearing memberWhilst clearing members are not legally obliged to take on clients from a defaulted clearing member they are expected to assist in the execution of the DMP. Clearing members therefore should work with clients seeking a new clearing member and, providing that the take-on of the client would not significantly impair the clearing member’s own business objectives, be prepared to take on the client(s) trades and collateral in a streamlined and timely manner.
11 The new Default Management Process reflects best practice and complies with market expectations and regulatory guidelinesOverview of future Default Management Process frameworkCovered by:Margin and clearing fund contribution of defaulted clearing memberRemainingLines of DefenseProcessstepSet-up/ client TransferPreliminary MeasuresHedgingIndependent SaleAuction per liquidation groupAsset Class ResolutionTimeline corresponds to assumed period in risk calculation within Eurex Clearing PrismaClient position and collateral transferConvention of Default Management CommitteeClose-out netting per framework agreementPortfolio and market evaluationHandling as required for short maturity positions, e.g. by rollingTechnical preparationPreparation of portfolio for liquidationDefine hedging for defaulting portfoliosHedge portfolio based on management decisionSelling the portfolio independently if it is small or specialMandatory participation in auctions for all clearing members holding clearing licenses with respect to all positions held in the auctioned portfolioNCMs, RCs and clients are able to bid as well, fulfilling the CM’s bidding obligationEconomically reasonable bid for a minimum of auction units requiredPenalty fee and clearing fund juniorization if not fulfilledIf Auction results in remaining positionsEurex Clearing will hold the positions and charges any losses resulting from them to non- bidders, orNon-bidder agrees to enter into respective transactions with Eurex ClearingDescription
12 Each Default Management Committee supports the Default Management Process Default Management Committees (DMCs)Each DMC is continuously defined, but only temporarily convened in case of a clearing member default or for regular default simulation exercises.One DMC for each liquidation group to advise, assist, and provide recommendations to Eurex Clearing to define hedge strategies and organise auctions.Role of the DMCNomination of DMC MembersClearing members can volunteer to participate in any DMC. In case of insufficient number of volunteers, Eurex Clearing nominates additional clearing members based onThe CM has to nominate a DMC Member and a DMC Deputy (members serve for 2 years) and to provide CVs to prove that the nominees have sufficient knowledge and expertise. Representatives from affiliated NCMs and RCs can be nominatedIn case of a default, the current DMC Membersmake themselves available within a short period of time,identify suitable hedging strategies for the defaulted member’s portfolio,assist in transferring segregated clients to solvent clearing members andsupport the execution of auctions, and advice on auction parametersObligations during a clearing member default
13 Eurex Clearing conducts auctions with mandatory participation by clearing members active in the respective liquidation groupAuction format for liquidation group Equities DerivativesAuction FormatTwo-way, one-off, sealed bid, multi-unit, pay-as-you-bid auction with respect to identical auction units.Best bid wins the amount of auction units that it was provided for at the given price.A bid is economically reasonable if the price spread between the two prices submitted is within the given maximum spread, and any economically reasonable bid is accepted.Auction ParticipantMandatory participation for all clearing membersholding the necessary clearing license to acquire the portfolio,have been active in the liquidation group during the last 3 months prior to default andhave the necessary infrastructure in place to process the products.Each auction participant is requested to bid at least for an individually defined minimum amount of auction units, depending on the initial margin of the auction participant relative to the overall initial margin in the liquidation group.The sum of the minimum amounts across all relevant clearing members exceeds 100% of the auction portfolio.Clients can participate in auctions with permission of a clearing member (bids are considered for the minimum bid size calculation).
14 Default Management Committee Rules Default Management Auction Rules The legal framework is built upon three major documents ensuring the enforceability of the Default Management ProcessLegal framework for DMPClearing ConditionsDefault Management Committee RulesDefault Management Auction RulesChapter I Part 1 Number 7.5 of the Clearing Conditions constitutes the legal framework for all components of the Default Management Process.Chapter I Part 1 Number 6 of the Clearing Conditions constitutes the legal framework for the General Clearing Fund.Default Management Committee Rules (DMC Rules) constitute the legal framework for the implementation of Default Management Committees regarding composition, procedures, legal relationship, general duties and liabilities of DMCs.Default Management Auction Rules (DM Auction Rules) constitute the legal framework for the auction process regarding participation, pre- auction procedure, bidding procedure, determination of auction price and auction format.
15 Agenda Requirements and Implications of being a Clearing Member. Segregation Models, levels of protection and portabilityProcess of trade novation and calling of marginCost Implications for Banks as Clearing Members versus ClientTrading / Pricing implications of frontloadingCCP DifferentiatorsKey contactsAppendix
16 Client Asset Protection Decision Tree Eurex Clearing offers Clearing Models which satisfy EMIR segregation and porting requirements providing different levels of protection.Disclosed Client (NCM / RC)NoUndisclosed clientOnly to known clientsValueAssetYesIndividual Segregation Account (ISA)Multiple Omnibus Segregation Account (OSA)Standard Omnibus Segregation Account (OSA)Type of client position account?Fellow customer risk acceptable?Type of collateral protection?Type of segregationElementary Clearing modelsOur Clearing modelsIndividual Clearing Model*Net Omnibus Clearing model*Offers CASS Protection
17 Overview of Segregation Models at Eurex Clearing Standard OSAMultiple OSAsRequires OSA by asset and is available under CASSIndividual Segregated AccountsOSA by ValueOSA by AssetAnd /or OSA under CASS*CM propriet ary accountAgency position accountsRC/NCM position accountsAgency position accountsRC/NCM positionaccountsAgency position accountsAgency position accountsRC/NCM position accountsRC/NCM position accountsRC/NCM position accountsRC/NCM position accountsPosition accountsCM calls each client on a gross basis and can either post net or gross to Eurex Clearing. For the CM, disclosed clients (RC/NCM) are gross marginedMargin calculationCCP MR per P accountCCP MRper A accountCCP MR per RC/NCMCCP MR per A accountCCP MR per RC/NCMCCP MR per A accountCCP MR per A accountCCP MR per RC/NCMCCP MR per RC/NCMCCP MR per A accountCCP MR per RC/NCMCollateral pool for all OSA by asset clientsMOSA collateral pool by assetMOSA collateralpool by assetMOSA collateral pool by assetA single collateral pool is maintained which dynamically records proprietary and OSA by value client collateralRC/NCM collateral poolEurex ClearingCollateral poolsCollateral pool for all OSA under CASS clientsMOSA collateral pool under CASSMOSA collateralpool under CASSMOSA collateral pool under CASSOSA by value is the default segregation model at Eurex Clearing. Segregation is achieved through reporting and not via separate collateral pools in the Eurex Clearing systemWhen OSA by asset is chosen, a separate collateral pool is opened at Eurex Clearing. Specific securities and cash are designated to the collateral pool for all OSA by asset clients and/or OSA under CASSWhen OSA by asset is chosen, CMs have the option to open multiple omnibus collateral pools at Eurex Clearing. This enables CMs to group affiliated clients together. It is possible to have multiple collateral pools protected under UK Client money rules (OSA under CASS) or not (OSA by asset)Full physical segregation of positions and collateral per client1717* The OSA by asset and OSA under CASS models are operationally identically. The only difference is the later affords clients CASS protection.
18 Standard OSAs Omnibus segregation options at Eurex Clearing Positions Standard OSAs provide segregation between a Clearing Member’s client and house business. Within a Standard OSAs, all of the Clearing Member’s clients (excluding ISA clients) are grouped together with one collateral pool. There are three variants of the standard OSA;Omnibus segregation options at Eurex ClearingPositionsSeparate positions accounts are maintained to segregate proprietary (P-/M-Account), client (A-Account) and NCM/RC positions. This applies to all standard OSAsCollateralOSA by Value - One collateral pool (cash and securities) with pro rata allocation by value (as a percentage) to proprietary and client positions automatically in the Eurex Clearing System based on margin requirementsOSA by Asset - Allocation of securities collateral by Clearing Member in SWIFT instructions to CBF, SIX SIS Ltd., CBL accounts Allocation of cash collateral by Clearing Member through pool IDOSA under CASS - Operationally identical to the OSA by Asset model but client money is held under UK CASS rules. Eurex Clearing will acknowledge that this cash pool is held on trust by the Clearing Member and will therefore not be subject to set off (as required by CASS 7.8.2R
19 Standard OSAs and client type Characteristics4% capital charge (in Eurex Clearing’s view)Porting is possible where all clients (undisclosed and NCM/RCs) agree to port to a single replacement Clearing Member.Inherent in this clearing model are fellow customer, liquidation, replacement and transit risksOmnibus segregation is offered to both disclosed and undisclosed clientsUndisclosed client positions can be segregated into one or more positions accounts (A1-A7) – i.e. net omnibus segregationDisclosed clients have their own position accounts (and can execute listed derivative and OTC transactions), which are maintained on a gross-position keeping basis but net initial margin (net IM per a position account). This set-up effectively allows gross margining for disclosed clients, with a single commingled collateral pool – i.e. gross omnibus modelStandard OSAs and client type
20 Legal overview of OSA under CASS Eurex Clearing’s CASS Net Omnibus Clearing model allows CMs located in the United Kingdom to apply the Client Assets (CASS) rules in relation to their undisclosed omnibus clients, Registered Customers (RCs) or Non-Clearing Members (NCMs)Functionally and operationally is comparable to the ECM by asset model but allows the CM to be CASS Compliant. The model allows the omnibus segregation of customer positions and margin and it is available for Eurex Exchange transactions, European Energy Exchange, and OTC IRS transactionsUpon application by a Clearing Member, Eurex Clearing will provide a trust acknowledgement letter as required by CASS 7.8.2RFor undisclosed clients, the Model is a traditional net omnibus clearing model, for NCMs and RCs, the model operates as a gross omnibus model for that clientConsidered to be a client transaction account at the CCPFor either the net or gross omnibus set up, the model segregates and would only port the value of the collateral segregated within one commingled collateral pool4% capital charge (in Eurex Clearing’s view)Porting possible, but only all clients together to one Clearing MemberInherent in this clearing model are fellow customer, liquidation, replacement and transit risksIntroductionAttributes of CASS Omnibus Clearing Model
21 Default Management Process for Standard OSAs Key elements of the model to fulfil requirements for omnibus client segregationTwo separate Difference Claims will be calculated, one Difference Claim forProprietary positionsA-Account, NCM and RC positionsThe A-Account, NCM and RC clients can choose whether they want to be ported to a new Clearing Member until 1pm on the business day immediately following default.Based on this decision the positions of A-Account, NCM and RC clients are either ported to a new Clearing Member or liquidated along with the Clearing Member’s positionsPortability is only possible to one Clearing Member, i.e. all A-Account, NCM and RC clients need to be ported to the same Clearing MemberPortability of positions is facilitated by a transfer to the new Clearing MemberAlternative 1: In case of allocation by value, the portion of the collateral that is transferred to the new clearing member is determined by the ratio of the margin requirement of the NCM/RC and A-Account positions relative to the overall margin requirement.Alternative 2: In case of allocation by asset (sub account/pool ID) the collateral allocated to the NCM/RC/A-Account positions is transferred to the new Clearing Member.PortabilityPositionsCollateral
22 Default Management Process in the Multiple Omnibus Segregated Accounts Close-out, porting and timelinesEach multiple omnibus segregated account constitutes a separate standard agreement, which means a Difference Claim (i.e. a net set-off amount) will be calculated per multiple omnibus collateral poolAll of the clients collectively within a multiple omnibus segregated account (any combination of A-Account, NCM and RCs) may port to the same back-up/Transferee Clearing MemberA back-up Clearing Member may be specified in the documentationPorting Requirements must be fulfilled by 1pm CET on the business day after the default occurs.Based on whether the Porting Requirements are fulfilled or not, the positions of A-Account(s), NCM and RC clients are either ported to a new Clearing Member or terminated and the calculation of the Difference Claim beginsPortability of positions is facilitated by a transfer to the new Clearing MemberThe collateral allocated to the multiple omnibus collateral account is transferredto the new Clearing MemberPortabilityPositionsCollateral
23 Individually Segregated Accounts (ISA) Eurex clearing introduced the ISA in August 2011The ICM provides Clearing Members with:full physical segregation of actual assetsvery likely portingcompatibility with industry standard and bespoke CM documentation2% capital charge. Eurex Clearing provides Capital Requirement Directive opinions to clients on the Member Section of the websiteSegregation and porting of clients actual collateralPorting window can be extended to 5 days under our interim participation conceptThe ICM will have a higher degree of operational complexity because Clearing Members will individually segregate clients at the CCP level (therefore offering the greatest level of protection envisaged under EMIR).Eurex Clearing will not charge additional fees based upon segregation model chosen.Attributes
24 Individual Clearing Model – legal structure Insolvency protection and portability is achieved through close-out netting and pledgesThe Individual Clearing Model ensures segregation of collateral via transfer of titleAsset segregation is achieved by a title transfer mechanism where the NCM/RC passes through collateral via its Clearing Member to Eurex Clearing.Non-ClearingMemberClearing MemberEurex ClearingTransfer of legal titleTransfer of legal titleMargin collateralMargin collateralMargin collateralClose out netting and receivable pledgesIn case of a CM’s insolvency or expiry of the grace period of other pre-defined trigger events, a cash settlement taking the evaluation of all covered transactions and actual delivered collateral will take place (close-out netting)EurexClearingMemberNCM2Receivable pledges from CM to client and from CM to ECAGDifferenc e claim following close-out netting1The close-out netting is processed between Eurex Clearing and the CM and equally between CM and NCM/RCDue to the established pledges, Eurex Clearing is obliged to pay a positive final result of the close-out netting to the NCM/RC without involvement of the defaulting clearing member
25 Individual Clearing Model – alternatives in a default situation The handling of segregated clients after close-out nettingIndividual Clearing ModelThere are three options an NCM/RC can choose from:to receive a final pay out of the cash settlement amount; the liquidation process beginsImmediate re-establishment under new relationship (back up Clearing Member)to become an Interim Participant and have the positions and collateral be transferred to a technical clearing member IDValuation Day + 1Assumption: If the trigger event is identified prior to 17:23 CET, valuation day equals termination date. If the trigger event is identified after 17:23 CET, Valuation day is D+1.Valuation DayValuation Day + 2Valuation Day + 3Valuation Day + 4Valuation Day + 5Immediatere-establishmentInterim participationPay outClose-out netting of positions07:00 – 22:30 CETABC
26 Individual Clearing Model – Interim Participant solution Transfer of client positions and collateral via the unique Interim Participant statusThe interim period can last up to 5 business days and can be extended by Eurex Clearing.The IP is assigned to a technical CM ID in the Eurex® system.The Interim Participant may only execute trades on a restricted basis as outlined in the Clearing Conditions.If the Interim Participant doesn’t fulfil its obligations during the interim period Eurex Clearing can suspend it according to the Clearing Conditions with immediate effect and start the close-out netting. The same happens after the interim period and if no new Clearing Member was found.Eurex Clearing does not have the power to enforce a transfer to a non-defaulting Clearing Member.All outstanding payments related to the positions reopened.Sufficient coverage for any margin shortfall.Coverage of Clearing Fund contribution for the interim period.Confirmation of its financial solvency and technical ability to maintain its position.CharacteristicsECAGECAGECAGClose-outNettingCM oldIPCM newClose-outNettingLegal requirementsInterim participationNCM/RCNCM/RCMax. 5 day period
27 The fund manager set-up Reduced operationally and documentation effort for fund managersEurex Clearing has developed a specific approach to facilitate the onboarding of fund managers. The Fund Manager Set-Up allows the asset management company to sign on behalf of an unlimited number of funds (when the funds have no legal personality)This approach results in documentation efficiencies and reporting benefits. In this approach the fund manager becomes a technical RC but each fund remains the legal counterparty, essentially each fund has it’s own ISAFund MangerFund 1 Position AccountFund 2 Position AccountFund 3 Position AccountFund 4 Position AccountWhilst the position accounts of the fund manager set-up remains constant independent of the model used, collateral may fall under omnibus or individual segregation
28 Segregation options for the fund manager Examples of the fund manager set up in omnibus and individual segregationIndividual Segregated AccountsStandard Omnibus Segregated AccountMultiple omnibus collateral poolsAgency position accountsRC/NCM positionaccountsPosition accountsFMFMFMF1F2Fund NF1F2…Fund NF1F2……Fund NCCP MR per F2CCP MR per FNCCP MR per A accountCCP MR per RC/NCMCCP MR per F1CCP MR per F1CCP MR per F2CCP MR per FNCCP MR per F1CCP MR per F2CCP MR per FNMargin calculation………F1SegPoolF2SegPoolFNSegPoolOne collateral pool for all OSA by asset clientsSegregated multiple omnibus collateral pool for FM onlyEurex ClearingCollateral poolsEach fund its individually segregated, with it’s own collateral pool holding collateral solely for the purpose of that fundThe fund’s positions remain individually segregated in their own position account but there is no longer one collateral pool per a position account. The collateral belonging to all funds sits in the omnibus collateral pool. This exposes the client to fellow customer risk as all of the CMs clients sit in the same collateral pool i.e. clients in the A1 – A9 accounts and any RCs or NCMs that the CM may haveThe CM may open a multiple collateral account for the sole purpose of the fund manager. Positions remain individually segregated but the collateral sits in a omnibus collateral pool. This pool holds collateral only for the fund manager so fellow customer risk exists only between the funds and not the CMs other clients.
29 Master fund Structure for Eurex OTC IRS Each master fund contains a number of segments which might be (externally) managed by different asset managers. Separate reporting is therefore necessary for each segment for management or performance measurement purposesAs it is the master fund that is the legal identity, individual segregation is not required on the fund segment level but on the master fund level. In Eurex Clearing’s structure, each master fund sits in it’s own position account with its own collateral pool i.e. each master fund has its own ISAEach segment has an individual individual MarkitWire ID (MW BIC) which is used by the respective segment asset manager for entering OTC IRS trades at MarkitWire. It is the MW BIC that is used to identify each segment within the master fund position account.Initial margin is calculated net per a position account i.e. on the master fund level. Therefore each master fund benefits from risk offsetting between different segments within one master fund. The master fund can however calculate hypothetical margin per MarkitWire BIC by using the CC208 report)Master Fund 1 – Position AccountSegment 1 – MW BIC 123Segment 2 – MW BIC 124Segment 3 – MW BIC 125Segment 4 – MW BIC 126Segment 6 – MW BIC 127Position accountsFund ManagerMF1MF2MF3MF4CCP MR per MF1CCP MR per MF2CCP MR per MF3CCP MR per MF4Margin calculationMF1SegPoolMF2SegPoolMF3SegPoolMF4SegPoolEurex ClearingCollateral pools
30 Your own documentation Market Standard Client Clearing Documentation (CCD)Client Clearing Documentation – ECAG’s ICM clients can choose their documentation approachEurex Clearing Documentation (ECD)123Clearing Agreement under Eurex Clearing AG Documentation (ECD)Participation Agreement under Client Clearing Documentation (CCD)Triparty agreement provided by Eurex ClearingExisting agreement governs the relationship between Eurex Clearing, Clearing Member, & RC/NCM for the Individual Clearing Model across all asset classesIn use by members since the ICM was launched in 2011Eurex Clearing allows Individual Documentation based on market standard client clearing documentation such as the BdB CRV, FOA Module, or ISDA/FOA AddendumEurex Clearing will rely upon trade association netting opinions and will obtain extension opinions to ensure that the Eurex Clearing specific annex terms to the client documentation are compliant with each otherThe Clearing Member’s documentation should comply with the eligibility criteria laid out in the clearing conditionsCM agrees to representations and indemnities in the Participation Agreement
31 Direct Transfer of Collateral – Overview As part of our Individual Segregation Clearing Model (ICM), we have launched the Direct transfer of collateral under the ICM in November With this service:Segregated ICM client will be able to transfer collateral directly to Eurex ClearingDirect transfer of collateral does not change the legal concept of double title transfer, meaning as soon as the collateral is actually delivered and credited to the Margin Account at Eurex Clearing, this transfer fulfils the ICM segregated client’s obligation towards its CM and the CM’s obligation towards Eurex ClearingTransformation will still be possible, but it will remain outside Eurex Clearing’s ICM modelDirect collateral transfer is an optional service and can be chosen for cash and/or security collateralDirect collateral transfer applies to initial margin requirementsDirect collateral transfer will not impact the interest income process for cash collateral and security handling fee for posted security collateral
32 Solution Concept: Client Custodian Gateway Overview of the Client Custodian GatewayA solution whereby Clearstream Banking Luxembourg and Eurex Clearing jointly offer, in collaboration with Global Custodians, a collateralization model that:Allows Registered Customers and NCM’s to satisfy margin requirements for their segregated collateral business under the Individual Clearing Model (ISA/ICM) while keeping securities at their existing CustodianReduces operational effort for all involved parties in the margining process by providing a high-degree of automation for the collateral allocation, withdrawal and substitution processReduces / shortens time for movement of securities and reduces manual interventionProvides the necessary control and safety for Clearing Member towards the RC’s and NCM‘sAssumes compliance with EMIR requirements for Omnibus and Individual Segregation Model (Article 39) as well as safekeeping of collateral assets (Article 47.3)Offering is currently focused on OTC IRS but will be extended across all asset classes clearedCreation of an attractive value proposition to market actors throughLeveraging the Buy-Side clients’ existing infrastructure and business relationships with Clearing Members, (I)CSDs and Global Custodians in the design of the joint solutionExtension of the Client Custodian Gateway to include additional service offerings such as Securities Lending and Tri-Party Repo
33 Admissible Securities Collateral As of August 2014 (http://www.eurexclearing.com/clearing-en/risk-management/risk-parameters/)
34 Agenda Requirements and Implications of being a Clearing Member. Segregation Models, levels of protection and portabilityProcess of trade novation and calling of marginCost Implications for Banks as Clearing Members versus ClientTrading / Pricing implications of frontloadingCCP DifferentiatorsKey contactsAppendix
35 Trade Capture & Novation Flow Eurex Clearing continuosly novates trades during opening hours between CETATS (Approved Trade Source) submits allocated, affirmed and released eligible deals for clearingEurex Clearing checks if the trade is eligibleClearing Member takes-up the trade for clearingECAG performs a Incremental Risk check i.e. calculates margin requirements and incremental portfolio increaseEurex Clearing verifies if pending deals can be covered by available collateralIf sufficient Collateral ECAG novates the trade:Trade status updated in ATSTrade novated upon ‘OTC Trade Novation’ report distributed (event driven)If sufficient Collateral is not available, the trade returns to incremental ‘Risk check’.After Clearing cut-off, remaining pending as well as new deals submitted during closure from ATS are queued for processing next dayEurex Clearing issues daily overnight Margin Call covering the entire portfolio risk.Registered ClientClearing MemberTradingDealerDeal submittedATSUpdate to ATSEligibility CheckProcess RepeatEurex ClearingLegal CCP Novation by reportingRiskCheckCM take-up trade?Collateral to Novate?nyynReportingTake-up Accept/ RejectCMThree times a day, ECAG will issue a margin call for any trades that have not novated due to missing collateral: 12:00, 14:00 & 18:00. A direct debit will take place 1h after the call.Any trades not novated by closure (22:00) are included in the End-Of-Day overnight Margin calls35
36 Intraday MarginingReal-time market monitoring and collection of extra collateral if neededIncreasing riskbreaching intradaycredit thresholdsStart of TradingEnd of Tradingtt + 30min1st Margin Call issued 30mins left to reduce shortfall by trading, position management or pledging collateral2nd Margin Call issued (1) Cancellation or (2) announcement of final margin call amount,followed by cash debitt + 60minMargin CallCollateral ShortfallresolvedEurex Clearing monitors the member’s risk exposure seamlessly on a real-time basis during daily business hours (7.00am – 10.30pm CET)An intra day margin call payment can be avoided by reducing the risk position within 30 minutes after the margin call issue byClosing transactionsAn intraday margin call is issued by phone and confirmed by fax transmission as soon as the individual member’s threshold (intraday margin call limit) is exceededTrading activities (to reduce risks)If the risk position is not reduced within 30 minutes after the margin call issue, Eurex Clearing issues an intraday margin call payment by phone and faxEurex Clearing communicatesThe amount of the intra day margin callThe timeframe
37 Definition of Terms Initial Margin, Variation Margin and PAI Initial Margin (IM)Calculated per account in clearing currency using portfolio marginingIM = Market Risk (MAX(FHS,SP***)) + Correlation Break Adjustment + Liquidity AdjustmentReported EOD: CC050* (Daily Margin EOD), CC060* (Daily Margin Requirements, at pool id level) and CC204** (Overall Margin Report)Can be covered by securities or cash in any currency intraday and end of dayEurex Clearing will always first utilize securities collateral to cover IM and return excess cashVariation Margin (VM)Calculated per trade in product currency and summed at account levelVM = MtMT – MtMT-1Reported Intraday: CI050* (Daily Margin Intraday), NOT IN CI140* (Variation Margin Intraday)Reported EOD: CC203** (Variation Margin Report), CD010* (Daily Cash Account CM)Can be covered intraday by securities or cash and must be settled EOD in cash in the product currencyPrice Alignment Interest (PAI)Interest on the cumulated Variation MarginPAI = = MtMT-1 * OIS rate * Day count (EUR 1/360, GBP 1/365) * Day DifferenceReported EOD: CC203** (Variation Margin Report), CD010* (Daily Cash Account CM), one figure as VMCalculated using the benchmark overnight rates per currency (e.g. EONIA for EUR, SONIA for GBP) and is settled daily in the product currency*) Eurex Classic Report **) EurexOTC Clear Report ***) FHS=Filtered Historical Simulation, SP=Stressed Periods37
38 Intraday Margin Calculation and Margin Calls (1/3) Margin Requirements are determined throughout the dayFull Portfolio RecalculationsA full portfolio recalculation will evaluate each portfolio with the latest market data and result in up-to-date IM requirements per account and intraday VM requirements per tradeMarket data used for the scheduled full recalculations intraday and end of day are distributed after the full recalculations via the Common Report Engine to enable CMs to recalculate the margin requirementsIntraday full recalculations are scheduled every day at the following times in addition to the end of day full recalculation:09:00, 11:00, 13:00, 15:00, 17:00, 19:00, 21:00 CETAdditional full portfolio recalculations can be triggered manually by Eurex ClearingMarket Data Updates and Incremental Risk ChecksNew market data is received by Eurex Clearing every 10 minutes. Incremental Risk Checks for trades submitted for clearing and post trade events use the latest available market dataThe incremental risk check will determine the VM for the trade and the additional IM for the trade in the specific account as IM uses portfolio marginingEurex Clearing will distribute the market data after each portfolio recalculation38
39 Intraday Margin Calculation and Margin Calls (2/3) Intraday Margin Calls are based on total margin requirements and collateralMargin Requirement DeterminationA positive intraday VM will be deducted from the IM within the same account to determine the total margin requirement for the account. In case the positive intraday VM is larger than the IM in a specific account the excess positive VM can not be used to reduce margin requirements in other accountsMargin requirements for segregated RCs are calculated separatelyMargin requirements from OTC business will be aggregated with margin requirements from the listed business on account as well as CM and segregated RC level to arrive at the total margin requirements per CM and segregated RCDetermination of margin shortfalls and surplusesEurex Clearing will determine if the total margin requirements of segregated RCs are covered by the sum of that RC‘s collateral.Shortfalls from segregated RCs are covered by the CM’s proprietary collateral. If segregated RCs’ shortfalls exceed the CM’s margin surplus (or if the CM also has a margin shortfall) an overall margin shortfall on CM level exists. Segregated RCs’ surpluses can not be used to cover other shortfallsDirect Debits for pending IRS trades:For any trades that has not novated due to insufficient collateral, we produce a ‘Preliminary OTC Margin Call Report’ at 12:00, 14:00, 18:00 CETDirect Debits will be instructed one hour later (13:00, 15:00, 19:00 CET)Prior the Direct Debit we will recalculate Margin Requirements. If the amount is lower, we will debit that amount. If it is higher, we will only debit the amount specified Margin Call report.Novation Report:The Trade Novation Report CI200 will be sent every hour as legal novation of trades
40 Intraday Margin Calculation and Margin Calls (3/3) Intraday Margin Calls can be fulfilled with cash and securities collateralIssue of intraday Margin CallA Margin Call can be issued when the member has an overall margin shortfall.A call followed by a Fax is made to the CM.The CM has the option to cover the call with non-cash collateral or enter risk reducing trades. This has to be done within 30 min. After the 30 min the Margin Call has to be settled in cash.The Margin Call has to be settled within 60 minutesCash received from an intraday Margin Call will be booked on the prop. accountFailure to meet a Margin CallIn case a Margin Call is not met a trigger event “Failure to provide margin” is activeThe member has the chance to resolve the trigger, in case the trigger is not resolved the CM will be set to default40
41 Agenda Client Asset Protection Default Management Collateral Reductions and Efficiencies through Cross MarginingCollateral Optimisation & TransformationCCP DifferentiatorsKey contactsAppendix
42 IntroductionThe Capital Requirements Regulation (Regulation (EU) No 575/2013 – “CRR”) includes certain privileges as regards the own funds requirements for CCP-cleared transactionsExposure values from CCP-cleared transactions can be calculated on a net basis if covered by an eligible netting agreementUnder further preconditions, reduced risk weights can be applied (i.e. 0%, 2%, 4%)No-recourse clause (Art 306(1)(c) CRR)Bankruptcy remoteness (Art 306(2), Art 305(2)(a) CRR)Segregation (Art 305(2)(a) CRR)Porting (Art 305(2)(c) CRR)When looking at own funds requirements for CCP-cleared transactions, the following exposures need to be distinguishedClearing Member`s (“CM”) exposure to CCPCM`s exposure to its ClientsClient`s exposure to its CMEurex Clearing AG (“ECAG“) comissioned an English law and a German law legal opinion which address the exposure calculation and the application of the reduced risk weights in relation to each of its clearing models (“CRR-Opinions”)This presentation provides an overview of the own funds requirements of CMs and their Clients in relation to transactions cleared through ECAG
43 ECAG qualifies as Qualifying CCP Eligible Netting Arrangements Overview on own funds reduction options under the CRR regarding ECAG-cleared transactions (1/4)ECAG holds a licence pursuant to Art 14 European Market Infrastructure Regulation (Regulation (EU) 648/2012) and thus is a “Qualifying CCP” pursuant to Art 4 (88) CRRAccording to Art 306(3) CRR (CM`s exposure to CCPs), Art 304(1) CRR (CM`s exposure to clients) and Art 305(1) CRR (Client`s exposure to CM), the own funds requirements for CCP-cleared transactions shall be calculated pursuant to Sections 1 to 8 of Part 3 Title II Chapter 6 CRRThis reference includes the provisions under Art 295 to 298 CRR which provide for the recognition of contractual netting arrangements leading to the calculation of the exposure value on a net basisClose-out netting arrangements under the Clearing Conditions comply with the requirements stipulated by Art 296, 297 CRR and qualify as eligible netting arrangementsECAG`s close-out netting arrangements also include any title transfer collateralthe collateral provider`s exposure for the return of collateral provided by way of full title transfer (covering both: Margin and Variation Margin) will be treated as individual transaction within the meaning of Art 296(1)(a) CRRconsequently, any “Redelivery Claim” established under the ECAG’s Clearing Conditions forms part of the Difference Claimthe general risk weight for the exposure arising from the relevant Difference Claim is 2% (Art 306(1)(a) CRR)ECAG qualifies as Qualifying CCPEligible Netting Arrangements
44 Overview on own funds reduction options under the CRR regarding ECAG-cleared transactions (2/4) Since ECAG is a Qualifying CCP, the general risk weight for the CM`s trade exposure to ECAG is 2% (Art 306(1)(a) CRR); the trade exposure is calculated on a net basis and considers any title transfer collateral delivered by the CMArt 306(2) CRR provides the possibility to apply a 0% risk weight to the exposure arising from the collateral provided to ECAG by the CM; as title transfer collateral is considered within ECAG`s close-out netting arrangements, such reduction only applies to collateral other than title transfer arrangements (i.e. pledges under ECAG`s Elementary Clearing Model)Art 306(1)(c) CRR allows the application of a 0% risk weight in relation to exposures arising from client transactions provided that the CM is not obliged to reimburse its client in case of ECAG`s defaultAccording to Art 304(1) in connection with Art 295 et seq. CRR, CM`s exposure to Client could be calculated on a net basisClearing Conditions do not provide for close-out netting provisions in case of a Client defaultCM and client are free to agree on such clauses in their client clearing documentationsArt 304 CRR does not provide for any reduced risk weights for CCP-cleared transactionsCM’s exposure to ECAGCM’sexposure to Client
45 Client’s exposure to CM Overview on own funds reduction options under the CRR regarding ECAG-cleared transactions (3/4)Individual Clearing ModelUnder the requirements stipulated by Art 305(2) CRR, Client is entitled to calculate its own funds requirements in accordance with Art 306 CRR with a risk weight of 2%Under ECAG`s Individual Clearing Model, Client`s positions and assets are (i) individually segregated from the positions and assets of the CM and other clients of the CM and (ii) bankruptcy remote in case of an insolvency of the CM or of its clientsECAG`s Clearing Conditions facilitate the transfer of the client`s positions and collateral to another CM in the event of the CM`s default or insolvencyECAG provides an English law and German law legal opinion confirming that the client bears no losses on account of the insolvency of CM or of any of the CM`s clientsECAG qualifies as Qualifying CCPAs any collateral under the Individual Clearing Model needs to be delivered on a title transfer basis, any exposure arising in relation to Segregated Margin and Segregated Variation Margin will be included in the netting arrangementClient’s exposure to CM
46 Client’s exposure to CM Overview on own funds reduction options under the CRR regarding ECAG-cleared transactions (4/4)Elementary Clearing Model (Net Omnibus Clearing Model)Art 305(3) CRR could provide a privilege for the exposure calculation under Omnibus Segregation Models which states:When Client is not protected from losses in case CM and another client of CM jointly defaultAll the other conditions under Art 305(2) CRR are metClient may calculate its own funds requirements for its exposure to CM pursuant to Art 306 CRR, subject to replacing 2% with a 4% risk weight under Art 306(1)(a) CRRBUT: interpretation of Art 305(3) CRR not entirely clearArt 305(3) CRR expressly requires that “…all the other conditions set out in paragraph 2 are met…”, which also includes the provision of Art 305(2)(a) CRR which requires that the relevant clearing model provides for individual segregationDue to these inconsistencies, no conclusive statement can be made as to whether ECAG`s Elementary Clearing Model and Net Omnibus Clearing Model fall under the scope of application of Art 305(3) CRRECAG submitted a formal request to the European Banking Authority (EBA) asking for guidance whether and under which conditions omnibus segregation models may benefit form the 4% reduced risk weight pursuant Art 305(3) CRRClient’s exposure to CM
47 General overview of Capital Requirements Regulation on the treatment of trade exposures to CCPs 1) Non CRR eligible client segregation solutionClientCMCCPCM exposures with qualified CCPs will receive 2% risk weightNon CRR eligible client segregation solutions will not translate into risk weight reductionsClient exposure risk weight: min 20% + CVA chargeCM exposure risk weight: min 20% + CVA chargeRisk weight: 2%2) CRR provisions offer opportunities to receive reduced risk weights for segregated clientsClientCMCCPCRR eligible client segregation solutions will translate into risk weight reductions: 2% for individual segregation and 4% for omnibus segregationClient exposure risk weight: % to 4%CM exposure risk weight: min 20% + CVA chargeRisk weight: 2%CVA = Credit Valuation Adjustment
48 Proprietary trade exposure Financial intermediary trade exposure Capital Requirements Regulation offers opportunities to market participants to receive reduced risk weights (1/2)CCPCMProprietary trade exposureFinancial intermediary trade exposure121Proprietary trade exposureDifference claim exposure2% Risk weightCMs Difference claim exposure with ECAG will receive a risk weight of 2%Pledged collateral is bankruptcy remote from ECAG, thus no capital charge will applyTitle transferred collateral would receive a risk weight of 2%, but is legally treated as transaction and thus already included in difference claim exposureCollateral exposurePledged collateralTitle transferred collateral0% Risk weight2% Risk weightDifference claim exposureRecourseNo recourse0% Risk weight2% Risk weightZero risk weight can be assigned to financial intermediary CM difference claim exposures to ECAG, if no-recourse clause is included in Netting Agreement (Art. 306(1)(c) CRR)Pledged collateral is bankruptcy remote from ECAG, thus no capital charge will applyTitle transferred collateral would receive a risk weight of 2%, but is legally treated as transaction and thus already included in difference claim exposure (not subject to risk weighting if ‘no-recourse’ clause is included in Netting Agreement (Art. 306(1)(c) CRR)Financial intermediary trade exposure2Collateral exposurePledged collateralTitle transferred collateral
49 ECM/NOCM2 trade exposure ECM/NOCM2 trade exposure Capital Requirements Regulation offers opportunities to market participants to receive reduced risk weights (2/2)ClientCMICM1 trade exposureECM/NOCM2 trade exposure343ICM1 trade exposureDifference claim exposure2% Risk weightICM1 clients difference claim exposure with a CM for a trade cleared through ECAG will receive a risk weight of 2% (Art 305(2), Art 306 CRR)In ECAG’s ICM client collateral is posted to ECAG via title transfer, thus no exposure out of pledged collateral will ariseTitle transferred collateral would receive a risk weight of 2%, but is legally treated as transaction and thus already included in difference claim exposureCollateral exposurePledged collateralTitle transferred collateraln.a.2% Risk weightECM/NOCM2 trade exposure4Difference claim exposureCollateral exposurePledged collateralTitle transferred collateral4% Risk weightOmnibus segregation models may qualify for application of 4% risk weight for omnibus segregated client exposuresInterpretation of Art 305(3) CRR not entirely clearECAG has submitted a request to EBA asking for guidance on whether omnibus segregation models are covered by Art 305(3) CRR1) ICM = Individual Clearing Model2) ECM/NOCM = Elementary Clearing Model / Net Omnibus Clearing Model
50 Agenda Client Asset Protection Default Management Collateral Reductions and Efficiencies through Cross MarginingCollateral Optimisation & TransformationCCP DifferentiatorsKey contactsAppendix
51 Key operational differentiators to be assessed between CCP’s Early return of cash removes double fundingEarly return of cash reduces counterparty risk and funding costs to the CCPCentral bank access provides liquidity in a crisis and reduces systemic riskEurex Clearing Operational DifferentiatorsDirect delivery of cash and securities removes operational cost for CMOver 25,000 eligible securities lowers funding costs of IM and DFGC Pooling allows re-use of securities to cover IM requirementsIntraday return of cash removes double fundingSingle netted margin call across all asset classesDirect delivery of cash and securities means no transit riskFull protection of client excess allows pre-funding at no riskFull protection of clients own assets removes liquidation and replacement riskNo mutualization of risks with fellow customersOperational efficienciesEfficient collateral managementPortability and legal certaintyCentral Bank accessPortability of clients actual / own assets in CM defaultAbility to become Interim Participant allows 5 + days for portingLegal certainty for clients and Clearing Members domiciled in EULegal certainty for porting, close-out netting and protection of assets at fund levelProtection and segregation
52 Key operational differentiators to be assessed between CCP’s 5 day MPOR applied to OTC IRS for both house and client accounts0% capital risk weight for house collateral2% capital risk weight for individual segregation0.34% C FactorLower DF means lower funding costsLower IM means lower funding costsOver 25,000 eligible securities lowers funding costs of IM and DFGC Pooling allows re-use of securitiesNear real-time margins and intraday return of cash removes double fundingEurex Clearing Cost DifferentiatorsCross asset class CCP with single legal netting lower EaD which lowers capitalCross product margins in Liquidation GroupsPayment netting across asset class with a single margin callDF segmentation decreases total size of CF by 40%DF allocated as 7% of IM.Cross margins lowers IM by 20 – 40% and hence DF contributionNettingCapital costsCapital and funding efficienciesDefault FundFunding costs
53 Agenda Client Asset Protection Default Management Cross Margining and Collateral EfficiencyDifferentiatorsAppendix –Products and currenciesVolumesMembersRoadmapImportant information on the public websiteFee modelFee incentiveKey contacts
54 Mandatory Clearing Regulatory Technical Standard (RTS) On 1 OCT 2014 EMSA issued the final proposal to the EU Commission regarding the timeline and categories of firms for the clearing obligationCategory 1: Clearing members (within Article 2(14) of EMIR), for at least one of the classes of OTC derivatives subject to the clearing obligation, of at least one authorised or recognised CCP. Mandatory Clearing will start 6 month after RTS most likely Q3 2015Category 2: Counterparties not included in Category 1 that belong to a group whose aggregate month-end average notional amount of non-centrally cleared derivatives over a certain three-month period is above €8 billion and which are financial counterparties (FCs) or Alternative Investment Funds (AIFs), as defined in Article 4(1)(a) of the Alternative Investment Fund Managers Directive (AIFMD), that are non-financial counterparties (NFCs) meeting the conditions referred to in Article 10(1)(b) of EMIR. Mandatory Clearing will start 12 month after RTS Likely Q1 2016Category 3: Counterparties not included in Category 1 or Category 2 that are FCs or AIFs, as defined in Article 4(1)(a) of the AIFMD, that are NFCs meeting the conditions referred to in Article 10(1)(b) of EMIR. Mandatory Clearing will start 18 month after RTS, most likely Q3 2016Category 4 covers NFCs meeting the conditions referred to in Article 10(1)(b) of EMIR and that are not included in Category 1, Category 2 or Category 3. Mandatory Clearing will start 36 month after RTS, most likely Q1 2018
55 Mandatory Clearing Regulatory Technical Standard (RTS) The frontloading obligation effectively marks the start of mandatory clearingThe frontloading obligation will only apply to Category 1 and Category 2 entities.Frontloading means that all swaps which are executed between the effective date of the RTS (earliest possible date) and the effective date of the clearing obligation have to be CCP cleared if the residual maturity of the trade at the date of the clearing obligation is at least 6 month.All such trades have to be "back-loaded" if not immediately cleared latest on the day of the clearing obligation.For the purposes of calculating the group aggregate month-end average notional amount, all of the group’s non-centrally cleared derivatives, including foreign exchange forwards, swaps and currency swaps, must be included.Suggested mandatory cleared product scope includes plain vanilla interest rate swaps, Overnight Index Swaps (IOS) and Forward Rate Agreements (FRA) denominated in EUR, USD, GBP and JPYNext steps: EU commission has a 1-3 month decision period, this is then followed by a 1-3 month(s) consideration and no-objection by the parliament leading to a effective date of the RTS between beginning of December 2014 and beginning of May 2015
56 We have seen a significant increase in new CM’s & RC’s 38 OTC IRS Clearing Members and 54 Registered Customers admittedOver 100 Registered Customers currently onboardingUnion Invest first major KVG live in Individual Segregation with approx. 100 underlying fundsAdmitted Clearing Members:
57 Eurex Clearing volumes have increased significantly since the beginning of 2014 OutstandingTotal turnoverEUR40,105,436,21254,682,823,582CHF30,597,100,00031,397,100,000USD643,070,000Total (EUR)65,678,631,31480,909,218,723CRD IVNew capital requirements introduced in Jan 2014Mid tier European banks becoming direct CM’s and increasing Eurex activityClearing demandLiquidityLiquidity provided by all major broker dealersGC pooling collateral re-use and late return of Central Bank cashCollateralApprox. 140 RC’s have qualified for the fee waiver and many starting to actively clearEnd clientsFee waiverNo OTC IRS clearing fees until Jan 2016
58 Current Product classes EurexOTC Clear for IRS was launched in Nov and was authorized as a QCCP on 10 April 2014Product descriptionOTC derivative classes Derivative classesCurrent Product classesAsset-classTypeUnderlying 1Notional CurrencySettlement CurrencyMaturity/Range of maturities/TenorSettlement conditionsRange of payment frequencyInterest RateFixed to FloatEURIBOREUR2D-50YCash1M, 3M, 6M, 1YLIBORCHF2D-30Y1M, 3M, 6MUSDGBPBasisOISEONIA2D-3YTOISFed FundSONIAFRA28D-2YJPYCurrencies:Types:Vanilla IRS (Fix vs Float)Basis swap (Float vs Float)OIS, FRAZero couponCompoundingVariable notionalStructures:Spot, forward start & stub periods, linear interpolationEUR (EURIBOR) and GBP (LIBOR), 1m, 3m, 6m, 12mUSD and CHF (LIBON) 1m, 3m, 6mEURUSDGBPCHFJPY
59 Important Information on the public website Eurex Clearing Company ProfileEurex Clearing Rules and Regulations: Clearing Conditionshttps://www.eurexclearing.com/clearing-en/resources/rules-and-regulations/136778/Admission documents and membership formsEurex Clearing Price Listhttps://www.eurexclearing.com/clearing-en/resources/rules-and-regulations/List of admitted Clearing MembersProduction NewsboardRisk Management Information on Lines of Defense, Default Management Process etc.Risk Parameters and Eligible CollateralInformation on C7, our new clearing architectureReport Reference Manual
60 EurexOTC Clear for IRS: Standard Fee Model Booking FeeBooking fee per million in trade currency0.25Maturity premium per million per year in trade currency0.75Fee cap (Booking fee + Maturity premium) per million in trade currency18.00Maintenance FeeMaintenance fee per million notional per day in trade currency0.007Backloading discount for booking fee: 70%Rebate program for Registered CustomersNEW*Booking Fee Rebates(Based on the cumulated cleared notional amount)Up to 240 bn € cleared notional0%240 bn € to 720 bn €15%720 bn € to 1,500 bn €25%Above 1500 bn €35%Maintenance Fee Rebates(Based on the outstanding notional amount)Up to 240 bn € cleared notional0%240 bn € to 720 bn €15%720 bn € to 1,500 bn €25%Above 1500 bn €35%* Effective 1 May 2014Note: Fees are always billed in the underlying currency
61 Collateral FeeEurex Clearing passes on interest earned from cash investmentsA strict policy determines re-investment of provided cash collateralEurex Clearing passes on interest earned from cash investments to its Clearing Members* on a monthly basis after a deduction according to the currency:For clearing currencies EUR and CHF, 20 basis points are deductedFor margin currencies USD and GBP, 50 basis points are deductedInterest on cash collateral is calculated daily per collateral pool and settled monthlyInterest on cash collateral is reported via CD230 Monthly Interest ReportSecurity Collateral FeeSecurities collateral used to cover margin requirement are subject to a handling fee of 5bpAny over-collateralization is not chargedSecurities collateral management charge does not apply to OTC IRS business of Registered Customers (segregated and non-segregated Registered Customers)The security collateral fee is calculated on a daily basis and settled monthlySecurity collateral fee is reported via CB235 Daily Security Collateral Fee Statement* In order to invest the cash overnight and associate investment returns with interest paid to Clearing Members there is an intraday cut off time after which cash is not included in the interest calculation; for more details around cash cut off times, please refer to overview on the next page .
62 Emir readiness – benefit from our fee Incentive On 10 April 2014 Eurex Clearing was granted authorization as a CCP under the European Market Infrastructure Regulation (EMIR). In light of this we offered a number of incentive programs to help you become EMIR readyWho is the fee waiver for? Our new incentive program "EMIR Readiness" is targeted at all market participants who have not already been admitted as Clearing Member (CM), Registered Customer (RC) or who will not qualify for the full fee waiver incentive program.What does the program entail? If you are not part of our full fee waiver incentive program and plan to start the on-boarding process as a CM or RC in the coming months, our "EMIR Readiness" program offers you a discount of up to 75 percent on booking and maintenance fees until January To qualify you must complete the admission process by 19th December 2014.The following discounts apply: You will receive a 25 percent discount if on-boarding is completed (full admission) by 16 December This rebate will apply following full admission until January 2016.An additional 25 percent discount will be given if the accumulated cleared volume (measured since full admission) or the notional amount outstanding (measured on the last business day of each month) exceeds EUR 500 million.A further 25 percent discount if the accumulated cleared volume (measured since full admission) or the notional amount outstanding (measured on the last business day of each month) exceeds EUR 5bn.Please note that the additional discounts under (2) and (3) will only be available to Clearing Members and Registered Customers who have fulfilled the condition under (1). You can find more details on our website.