Presentation is loading. Please wait.

Presentation is loading. Please wait.

EurexOTC Clear for IRS – EMIR QCCP ABBL November 20 th 2014.

Similar presentations


Presentation on theme: "EurexOTC Clear for IRS – EMIR QCCP ABBL November 20 th 2014."— Presentation transcript:

1 EurexOTC Clear for IRS – EMIR QCCP ABBL November 20 th 2014

2 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Requirements and Implications of being a Clearing Member. Segregation Models, levels of protection and portability Process of trade novation and calling of margin Cost Implications for Banks as Clearing Members versus Client Trading / Pricing implications of frontloading CCP Differentiators Key contacts Appendix Agenda 2

3 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 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 customers Eurex Clearing Clearing Member Proprietary Account A-Account(s) (non-seg Clients) NCM / RC 1 NCM / RC n Proprietary Account A-Account(s) A1A9 May clear only for himself, his clients and for market participants that are part of affiliated companies. Direct Clearing Members* 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 Clearing Non Clearing Members (NCMs)* General Clearing Members May clear its own transactions, those of its customers, as well as those of trading participants that do not hold a clearing license. 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 Disclosed Client Clients that are not known to Eurex Clearing and whose positions are held in the A1 to A9 omnibus client accounts (non-seg clients) A1 A9 *DCM and NCM not valued for OTC

4 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 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 license Membership criteria Liable equity Access 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. Each 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 margin 20 percent of the 250-day average of additional margin plus futures spread margin EUR 30 million Requirements Clearing fund Description Each 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 requirement 7 percent of the 250-day average of the initial margin requirement DCM: EUR 1 million; GCM 5 million

5 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 5 Access to the service for clients Eurex Clearing will provide a variety of options for clients to connect indirectly to the service Access type Requirements Registered Customer/ Non Clearing Member To 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. Non Disclosed Clients No 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 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL The safety of the CCP through its lines of defense is a key criteria in deciding where to clear Values as of September, 2014 * Monthly average collateral value after haircut Eurex Clearing’s lines of defense are crisis proven – default fund has never been used Lines of Defence before Eurex Clearing’s capital sum up to more than € 9 bn Remaining equity of Eurex Clearing AG Assessments to the Clearing Fund Approx. € 289 m, Eurex Clearing thus fully EMIR compliant Min. € 1.0 m (DCM) or € 5.0 m (GCM) Total collateral held at Eurex Clearing approx. € 48.35 * bn Close-out of all positions Approx. € 3.4bn € 50 m Position netting Collaterals of Member in default Clearing Fund contribution of Member in default Dedicated amount of Eurex Clearing AG Clearing fund contribution of other Members Coverage in normal market conditions (Lehman/ MF Global) Coverage in extreme market conditions Max 2 assessment limit liability of CM to 3x prefunded clearing fund contribution Eurex Clearing lines of defense Parental Guarantee € 700 m guaranteed by Deutsche Börse AG 6

7 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Remaining Capital of Eurex Clearing Parental Guarantee Max 2 Assessments per Clearing Member Eurex Clearing Lines of Defense Clearing Fund Contribution of Other Clearing Members Dedicated Amount of Eurex Clearing Clearing Fund Contribution of Clearing Member in Default Collateral of Clearing Member in Default Position Netting 7 Eurex Clearing provides a multi-level security system −First 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. Eurex Clearing’s guiding principle in a default situation is to minimize the effect on the Lines of Defense and to stabilize the markets

8 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Further enhancement of Eurex Clearing’s Default Waterfall 8 As 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. Possibility to close Liquidation Group at end of Default Waterfall * A LG comprises products with similar risk characteristics, i.e. products of the same asset class.

9 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL End of default waterfall Resources 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. Structure of Default Waterfall 9

10 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL ObligationDescription Prior default Nominate DMC Member Clearing 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-drills Clearing 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 details To assist with communication, Eurex Clearing requires all clearing members to supply an appropriate DMP contact and DMP contact details. During default Providing market access to obtain best prices Eurex 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 auctions Non-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 member Whilst 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. 10 Overview of clearing members’ responsibilities within the Default Management Process Responsibilities within the process start prior to a default situation

11 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 11 Process step Description Covered by: Define hedging for defaulting portfolios Hedge portfolio based on management decision Margin and clearing fund contribution of defaulted clearing member Timeline corresponds to assumed period in risk calculation within Eurex Clearing Prisma Set-up/ client Transfer Preliminary Measures Client position and collateral transfer Convention of Default Management Committee Close-out netting per framework agreement Portfolio and market evaluation Handling as required for short maturity positions, e.g. by rolling Technical preparation Preparation of portfolio for liquidation Selling the portfolio independently if it is small or special Asset Class Resolution If Auction results in remaining positions a)Eurex Clearing will hold the positions and charges any losses resulting from them to non- bidders, or b)Non-bidder agrees to enter into respective transactions with Eurex Clearing Mandatory participation in auctions for all clearing members holding clearing licenses with respect to all positions held in the auctioned portfolio NCMs, RCs and clients are able to bid as well, fulfilling the CM’s bidding obligation Economically reasonable bid for a minimum of auction units required Penalty fee and clearing fund juniorization if not fulfilled Hedging Remaining Lines of Defense Independent Sale Auction per liquidation group The new Default Management Process reflects best practice and complies with market expectations and regulatory guidelines Overview of future Default Management Process framework

12 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL In case of a default, the current DMC Members –make 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 and –support the execution of auctions, and advice on auction parameters Obligations during a clearing member default Clearing members can volunteer to participate in any DMC. In case of insufficient number of volunteers, Eurex Clearing nominates additional clearing members based on The 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 nominated 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 DMC 12 Each Default Management Committee supports the Default Management Process Nomination of DMC Members

13 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Eurex Clearing conducts auctions with mandatory participation by clearing members active in the respective liquidation group 13 Auction format for liquidation group Equities Derivatives Auction Participant Auction Format Two-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. Mandatory participation for all clearing members −holding the necessary clearing license to acquire the portfolio, −have been active in the liquidation group during the last 3 months prior to default and −have 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 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL The legal framework is built upon three major documents ensuring the enforceability of the Default Management Process 14 Legal framework for DMP Chapter 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 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. 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 Committee Rules Default Management Auction RulesClearing Conditions

15 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Requirements and Implications of being a Clearing Member. Segregation Models, levels of protection and portability Process of trade novation and calling of margin Cost Implications for Banks as Clearing Members versus Client Trading / Pricing implications of frontloading CCP Differentiators Key contacts Appendix Agenda 15

16 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Disclosed Client (NCM / RC) No Undisclosed client Only to known clients Value Asset Yes Individual Segregation Account (ISA) Multiple Omnibus Segregation Account (OSA) Standard Omnibus Segregation Account (OSA) Type of client position account ? Fellow c ustomer risk acceptable ? Type of c ollateral p rotection? Type of segregation 16 Client Asset Protection Decision Tree Eurex Clearing offers Clearing Models which satisfy EMIR segregation and porting requirements providing different levels of protection. Our Clearing modelsIndividual Clearing Model Elementary Clearing models *Net Omnibus Clearing model *Offers CASS Protection

17 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 17 Agency position accounts CM propriet ary account RC/NCM position accounts Individual Segregated Accounts OSA by Value RC/NCM position accounts RC/NCM collateral pool CCP MR per P account CCP MR per A account CCP MR per RC/NCM Position accounts Margin calculation Eurex Clearing Collateral pools A single collateral pool is maintained which dynamically records proprietary and OSA by value client collateral OSA by Asset And /or OSA under CASS* Multiple OSAs Requires OSA by asset and is available under CASS Agency position accounts RC/NCM position accounts CCP MR per A account CCP MR per RC/NCM Collateral pool for all OSA by asset clients Collateral pool for all OSA under CASS clients Agency position accounts CCP MR per RC/NCM CCP MR per A account CCP MR per RC/NCM MOSA collateral pool by asset MOSA collateral pool under CASS MOSA collateral pool by asset MOSA collateral pool under CASS Agency position accounts RC/NCM position accounts MOSA collateral pool by asset MOSA collateral pool under CASS CCP MR per A account * The OSA by asset and OSA under CASS models are operationally identically. The only difference is the later affords clients CASS protection. OSA 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 system When 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 CASS When 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 client RC/NCM position accounts CM 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 margined Standard OSA Overview of Segregation Models at Eurex Clearing

18 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 18 Standard OSAs 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 Clearing Positions Separate positions accounts are maintained to segregate proprietary (P-/M-Account), client (A-Account) and NCM/RC positions. This applies to all standard OSAs Collateral OSA 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 requirements OSA 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 ID OSA 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 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Standard OSA 19 4% 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 risks Omnibus segregation is offered to both disclosed and undisclosed clients Undisclosed client positions can be segregated into one or more positions accounts (A1-A7) – i.e. net omnibus segregation Disclosed 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 model Standard OSAs and client type Characteristics

20 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 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 transactions Upon application by a Clearing Member, Eurex Clearing will provide a trust acknowledgement letter as required by CASS 7.8.2R For 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 client Considered to be a client transaction account at the CCP For 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 pool 4% capital charge (in Eurex Clearing’s view) Porting possible, but only all clients together to one Clearing Member Inherent in this clearing model are fellow customer, liquidation, replacement and transit risks Attributes of CASS Omnibus Clearing Model Introduction

21 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 21 Default Management Process for Standard OSAs Two separate Difference Claims will be calculated, one Difference Claim for –Proprietary positions –A-Account, NCM and RC positions The 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 positions Portability is only possible to one Clearing Member, i.e. all A-Account, NCM and RC clients need to be ported to the same Clearing Member Portability of positions is facilitated by a transfer to the new Clearing Member Alternative 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. Key elements of the model to fulfil requirements for omnibus client segregation Portability Collateral Positions

22 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 22 Default Management Process in the Multiple Omnibus Segregated Accounts Each 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 pool All 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 Member A back-up Clearing Member may be specified in the documentation Porting 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 begins Portability of positions is facilitated by a transfer to the new Clearing Member The collateral allocated to the multiple omnibus collateral account is transferred to the new Clearing Member Close-out, porting and timelines Portability Collateral Positions

23 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 23 Individually Segregated Accounts (ISA) The ICM provides Clearing Members with: –full physical segregation of actual assets –very likely porting –compatibility with industry standard and bespoke CM documentation 2% capital charge. Eurex Clearing provides Capital Requirement Directive opinions to clients on the Member Section of the website Segregation and porting of clients actual collateral Porting window can be extended to 5 days under our interim participation concept The 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 Eurex clearing introduced the ISA in August 2011

24 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 24 Individual Clearing Model – legal structure Insolvency protection and portability is achieved through close-out netting and pledges In 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) Eurex Clearing Member NCM 2 Receivable pledges from CM to client and from CM to ECAG 2 Differenc e claim following close-out netting 11 Close out netting and receivable pledges The close-out netting is processed between Eurex Clearing and the CM and equally between CM and NCM/RC Due 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 Transfer of legal title Margin collateral Transfer of legal title Eurex Clearing Margin collateral Clearing Member Non-Clearing Member The Individual Clearing Model ensures segregation of collateral via transfer of title Asset segregation is achieved by a title transfer mechanism where the NCM/RC passes through collateral via its Clearing Member to Eurex Clearing.

25 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 25 Individual Clearing Model – alternatives in a default situation The handling of segregated clients after close-out netting Individual Clearing Model There are three options an NCM/RC can choose from: A.to receive a final pay out of the cash settlement amount; the liquidation process begins B.Immediate re-establishment under new relationship (back up Clearing Member) C.to become an Interim Participant and have the positions and collateral be transferred to a technical clearing member ID Valuation Day + 1 Assumption: 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 + 5 Immediate re-establishment Interim participation Pay out Close-out netting of positions 07:00 – 22:30 CET A B C

26 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL CM old Close-out Netting Close-out Netting Interim participation Max. 5 day period ECAG CM newIP NCM/RC 26 Individual Clearing Model – Interim Participant solution Transfer of client positions and collateral via the unique Interim Participant status The 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. Characteristics Legal requirements

27 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL The fund manager set-up 27 Reduced operationally and documentation effort for fund managers Eurex 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 ISA Fund Manger Fund 1 Position Account Fund 2 Position Account Fund 3 Position Account Fund 4 Position Account Whilst 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 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Examples of the fund manager set up in omnibus and individual segregation FM Standard Omnibus Segregated Account Multiple omnibus collateral pools Segregated multiple omnibus collateral pool for FM only One collateral pool for all OSA by asset clients CCP MR per RC/NCM Agency position accounts … CCP MR per FN Fund N CCP MR per F1 CCP MR per F2 F1 F2 … CCP MR per F1 CCP MR per F2 CCP MR per FN … … Fund N F2 F1 RC/NCM position accounts CCP MR per A account FM … F1 Seg Pool F2 Seg Pool FN Seg Pool Individual Segregated Accounts CCP MR per F1 CCP MR per F2 CCP MR per FN … F1 F2 Fund N Margin calculation Position accounts Eurex Clearing Collateral pools Each fund its individually segregated, with it’s own collateral pool holding collateral solely for the purpose of that fund The 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 have The 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. Segregation options for the fund manager

29 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 29 Master fund Structure for Eurex OTC IRS Fund Manager MF1 Seg Pool CCP MR per MF1 MF1 Margin calculation Position accounts Eurex Clearing Collateral pools MF2 Seg Pool CCP MR per MF2 MF2 MF3 Seg Pool CCP MR per MF3 MF3 MF4 Seg Pool CCP MR per MF4 MF4 Master Fund 1 – Position Account Segment 1 – MW BIC 123 Segment 2 – MW BIC 124 Segment 3 – MW BIC 125 Segment 4 – MW BIC 126 Segment 6 – MW BIC 127 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 purposes As 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 ISA Each 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)

30 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Client Clearing Documentation – ECAG’s ICM clients can choose their documentation approach 30 Eurex Clearing Documentation (ECD) Your own documentation Market Standard Client Clearing Documentation (CCD) Triparty agreement provided by Eurex Clearing Existing agreement governs the relationship between Eurex Clearing, Clearing Member, & RC/NCM for the Individual Clearing Model across all asset classes In use by members since the ICM was launched in 2011 Eurex Clearing allows Individual Documentation based on market standard client clearing documentation such as the BdB CRV, FOA Module, or ISDA/FOA Addendum Eurex 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 other The Clearing Member’s documentation should comply with the eligibility criteria laid out in the clearing conditions CM agrees to representations and indemnities in the Participation Agreement Clearing Agreement under Eurex Clearing AG Documentation (ECD) Participation Agreement under Client Clearing Documentation (CCD) 123

31 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 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 2013. With this service: Segregated ICM client will be able to transfer collateral directly to Eurex Clearing Direct 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 Clearing Transformation will still be possible, but it will remain outside Eurex Clearing’s ICM model Direct collateral transfer is an optional service and can be chosen for cash and/or security collateral Direct collateral transfer applies to initial margin requirements Direct collateral transfer will not impact the interest income process for cash collateral and security handling fee for posted security collateral

32 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL  Overview of the Client Custodian Gateway  A 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 Custodian  Reduces operational effort for all involved parties in the margining process by providing a high-degree of automation for the collateral allocation, withdrawal and substitution process  Reduces / shortens time for movement of securities and reduces manual intervention  Provides the necessary control and safety for Clearing Member towards the RC’s and NCM‘s  Assumes 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 cleared  Creation of an attractive value proposition to market actors through  Leveraging the Buy-Side clients’ existing infrastructure and business relationships with Clearing Members, (I)CSDs and Global Custodians in the design of the joint solution  Extension of the Client Custodian Gateway to include additional service offerings such as Securities Lending and Tri-Party Repo 32 Solution Concept: Client Custodian Gateway

33 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL As of August 2014 (http://www.eurexclearing.com/clearing-en/risk-management/risk-parameters/) 33 Admissible Securities Collateral

34 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Requirements and Implications of being a Clearing Member. Segregation Models, levels of protection and portability Process of trade novation and calling of margin Cost Implications for Banks as Clearing Members versus Client Trading / Pricing implications of frontloading CCP Differentiators Key contacts Appendix Agenda 34

35 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Trade Capture & Novation Flow Deal submitted Eligibility Check CM take-up trade? Risk Check Collateral to Novate? Update to ATS Legal CCP Novation by reporting Reporting n y n Process Repeat y ATS Eurex Clearing CM Eurex Clearing continuosly novates trades during opening hours between 08.00-22.00 CET ATS (Approved Trade Source) submits allocated, affirmed and released eligible deals for clearing Eurex Clearing checks if the trade is eligible Clearing Member takes-up the trade for clearing ECAG performs a Incremental Risk check i.e. calculates margin requirements and incremental portfolio increase Eurex Clearing verifies if pending deals can be covered by available collateral If sufficient Collateral ECAG novates the trade: –Trade status updated in ATS –Trade 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 day Eurex Clearing issues daily overnight Margin Call covering the entire portfolio risk. Three 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 calls Take-up Accept/ Reject 35 Trading Registered Client Clearing Member Dealer

36 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Intraday Margining Real-time market monitoring and collection of extra collateral if needed Increasing risk breaching intraday credit thresholds Start of TradingEnd of Tradingtt + 30min 1st Margin Call issued 30mins left to reduce shortfall by trading, position management or pledging collateral 2nd Margin Call issued (1) Cancellation or (2) announcement of final margin call amount, followed by cash debit t + 60min Margin Call Collateral Shortfall resolved 1.Eurex Clearing monitors the member’s risk exposure seamlessly on a real-time basis during daily business hours (7.00am – 10.30pm CET) 2.An 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 exceeded 3.Eurex Clearing communicates  The amount of the intra day margin call  The timeframe 4.An intra day margin call payment can be avoided by reducing the risk position within 30 minutes after the margin call issue by  Closing transactions  Trading activities (to reduce risks) 5.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 fax 36

37 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Initial Margin (IM) Calculated per account in clearing currency using portfolio margining IM = Market Risk (MAX(FHS,SP***)) + Correlation Break Adjustment + Liquidity Adjustment Reported 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 day Eurex Clearing will always first utilize securities collateral to cover IM and return excess cash Variation Margin (VM) Calculated per trade in product currency and summed at account level VM = MtM T – MtM T-1 Reported 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 currency Price Alignment Interest (PAI) Interest on the cumulated Variation Margin PAI = = MtM T-1 * OIS rate * Day count (EUR 1/360, GBP 1/365) * Day Difference Reported EOD: CC203** (Variation Margin Report), CD010* (Daily Cash Account CM), one figure as VM Calculated using the benchmark overnight rates per currency (e.g. EONIA for EUR, SONIA for GBP) and is settled daily in the product currency Definition of Terms Initial Margin, Variation Margin and PAI *) Eurex Classic Report **) EurexOTC Clear Report ***) FHS=Filtered Historical Simulation, SP=Stressed Periods 37

38 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Intraday Margin Calculation and Margin Calls (1/3) Margin Requirements are determined throughout the day Full Portfolio Recalculations A 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 trade Market 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 requirements Intraday 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 CET Additional full portfolio recalculations can be triggered manually by Eurex Clearing Market Data Updates and Incremental Risk Checks New 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 data The 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 margining Eurex Clearing will distribute the market data after each portfolio recalculation 38

39 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Intraday Margin Calculation and Margin Calls (2/3) 39 Intraday Margin Calls are based on total margin requirements and collateral Margin Requirement Determination A 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 accounts Margin requirements for segregated RCs are calculated separately Margin 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 RC Determination of margin shortfalls and surpluses Eurex 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 shortfalls Direct 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 CET Direct 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 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Intraday Margin Calculation and Margin Calls (3/3) Intraday Margin Calls can be fulfilled with cash and securities collateral Issue of intraday Margin Call A 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 minutes Cash received from an intraday Margin Call will be booked on the prop. account Failure to meet a Margin Call In case a Margin Call is not met a trigger event “Failure to provide margin” is active The member has the chance to resolve the trigger, in case the trigger is not resolved the CM will be set to default 40

41 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Client Asset Protection Default Management Collateral Reductions and Efficiencies through Cross Margining Collateral Optimisation & Transformation CCP Differentiators Key contacts Appendix Agenda 41

42 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 42 Introduction The Capital Requirements Regulation (Regulation (EU) No 575/2013 – “CRR”) includes certain privileges as regards the own funds requirements for CCP-cleared transactions Exposure values from CCP-cleared transactions can be calculated on a net basis if covered by an eligible netting agreement Under 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 distinguished Clearing Member`s (“CM”) exposure to CCP CM`s exposure to its Clients Client`s exposure to its CM Eurex 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 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 43 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) CRR According 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 CRR This 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 basis Close-out netting arrangements under the Clearing Conditions comply with the requirements stipulated by Art 296, 297 CRR and qualify as eligible netting arrangements ECAG`s close-out netting arrangements also include any title transfer collateral the 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) CRR consequently, any “Redelivery Claim” established under the ECAG’s Clearing Conditions forms part of the Difference Claim the general risk weight for the exposure arising from the relevant Difference Claim is 2% (Art 306(1)(a) CRR) ECAG qualifies as Qualifying CCP Eligible Netting Arrangements

44 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 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 CM Art 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 default According to Art 304(1) in connection with Art 295 et seq. CRR, CM`s exposure to Client could be calculated on a net basis Clearing Conditions do not provide for close-out netting provisions in case of a Client default CM and client are free to agree on such clauses in their client clearing documentations Art 304 CRR does not provide for any reduced risk weights for CCP-cleared transactions 44 Overview on own funds reduction options under the CRR regarding ECAG-cleared transactions (2/4) CM’s exposure to ECAG CM’s exposure to Client

45 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Individual Clearing Model Under 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 clients ECAG`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 insolvency ECAG 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 clients ECAG qualifies as Qualifying CCP As 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 arrangement 45 Overview on own funds reduction options under the CRR regarding ECAG-cleared transactions (3/4) Client’s exposure to CM

46 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 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 default All the other conditions under Art 305(2) CRR are met Client 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) CRR BUT: interpretation of Art 305(3) CRR not entirely clear Art 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 segregation Due 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) CRR ECAG 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) CRR 46 Overview on own funds reduction options under the CRR regarding ECAG-cleared transactions (4/4) Client’s exposure to CM

47 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 47 General overview of Capital Requirements Regulation on the treatment of trade exposures to CCPs 1) Non CRR eligible client segregation solution CMClientCCP  Client exposure risk weight: min 20% + CVA charge  CM exposure risk weight: min 20% + CVA charge  Risk weight: 2% CMClientCCP  Client exposure risk weight: 2% to 4%  CM exposure risk weight: min 20% + CVA charge  Risk weight: 2% 2) CRR provisions offer opportunities to receive reduced risk weights for segregated clients CRR eligible client segregation solutions will translate into risk weight reductions: 2% for individual segregation and 4% for omnibus segregation CM exposures with qualified CCPs will receive 2% risk weight Non CRR eligible client segregation solutions will not translate into risk weight reductions *CVA = Credit Valuation Adjustment

48 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 48 Capital Requirements Regulation offers opportunities to market participants to receive reduced risk weights (1/2)  Difference claim exposure  Collateral exposure a)Pledged collateral b)Title transferred collateral 0% Risk weight 2% Risk weight  CMs Difference claim exposure with ECAG will receive a risk weight of 2%  Pledged collateral is bankruptcy remote from ECAG, thus no capital charge will apply  Title transferred collateral would receive a risk weight of 2%, but is legally treated as transaction and thus already included in difference claim exposure CCP CM Proprietary trade exposure Financial intermediary trade exposure 1 2 Proprietary trade exposure 1 2% Risk weight  Difference claim exposure a)Recourse b)No recourse 0% Risk weight 2% Risk weight  Zero 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 apply  Title 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 exposure 2  Collateral exposure a)Pledged collateral b)Title transferred collateral 2% Risk weight 0% Risk weight

49 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 49 2) ECM/NOCM = Elementary Clearing Model / Net Omnibus Clearing Model 1) ICM = Individual Clearing Model ICM 1 trade exposure 3 Capital Requirements Regulation offers opportunities to market participants to receive reduced risk weights (2/2) Client CM ICM 1 trade exposure ECM/NOCM 2 trade exposure 3 4  Difference claim exposure  Collateral exposure a)Pledged collateral b)Title transferred collateral n.a. 2% Risk weight  ICM 1 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 arise  Title transferred collateral would receive a risk weight of 2%, but is legally treated as transaction and thus already included in difference claim exposure 2% Risk weight ECM/NOCM 2 trade exposure 4  Difference claim exposure  Collateral exposure a)Pledged collateral b)Title transferred collateral 4% Risk weight  Omnibus segregation models may qualify for application of 4% risk weight for omnibus segregated client exposures  Interpretation of Art 305(3) CRR not entirely clear  ECAG has submitted a request to EBA asking for guidance on whether omnibus segregation models are covered by Art 305(3) CRR 4% Risk weight

50 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Client Asset Protection Default Management Collateral Reductions and Efficiencies through Cross Margining Collateral Optimisation & Transformation CCP Differentiators Key contacts Appendix Agenda 50

51 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Key operational differentiators to be assessed between CCP’s Early return of cash removes double funding Early return of cash reduces counterparty risk and funding costs to the CCP Central bank access provides liquidity in a crisis and reduces systemic risk Eurex Clearing Operational Differentiators Direct delivery of cash and securities removes operational cost for CM Over 25,000 eligible securities lowers funding costs of IM and DF GC Pooling allows re-use of securities to cover IM requirements Intraday return of cash removes double funding Single netted margin call across all asset classes Direct delivery of cash and securities means no transit risk Full protection of client excess allows pre-funding at no risk Full protection of clients own assets removes liquidation and replacement risk No mutualization of risks with fellow customers Operational efficiencies Efficient collateral management Portability and legal certainty Central Bank access Portability of clients actual / own assets in CM default Ability to become Interim Participant allows 5 + days for porting Legal certainty for clients and Clearing Members domiciled in EU Legal certainty for porting, close-out netting and protection of assets at fund level Protection and segregation 51

52 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Key operational differentiators to be assessed between CCP’s 5 day MPOR applied to OTC IRS for both house and client accounts 0% capital risk weight for house collateral 2% capital risk weight for individual segregation 0.34% C Factor Lower DF means lower funding costs Lower IM means lower funding costs Over 25,000 eligible securities lowers funding costs of IM and DF GC Pooling allows re-use of securities Near real-time margins and intraday return of cash removes double funding Eurex Clearing Cost Differentiators Cross asset class CCP with single legal netting lower EaD which lowers capital Cross product margins in Liquidation Groups Payment netting across asset class with a single margin call DF segmentation decreases total size of CF by 40% DF allocated as 7% of IM. Cross margins lowers IM by 20 – 40% and hence DF contribution Capital and funding efficiencies Capital costs Netting Default Fund Funding costs 52

53 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Client Asset Protection Default Management Cross Margining and Collateral Efficiency Differentiators Appendix – Products and currencies Volumes Members Roadmap Important information on the public website Fee model Fee incentive Key contacts Agenda 53

54 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Mandatory Clearing Regulatory Technical Standard (RTS) Category 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 2015 Category 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 2016 Category 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 2016 Category 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 54 On 1 OCT 2014 EMSA issued the final proposal to the EU Commission regarding the timeline and categories of firms for the clearing obligation

55 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Mandatory Clearing Regulatory Technical Standard (RTS) The 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 JPY Next 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 55 The frontloading obligation effectively marks the start of mandatory clearing

56 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 56 © Oliver Wyman We have seen a significant increase in new CM’s & RC’s 38 OTC IRS Clearing Members and 54 Registered Customers admitted Over 100 Registered Customers currently onboarding Union Invest first major KVG live in Individual Segregation with approx. 100 underlying funds Admitted Clearing Members: 56

57 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 57 © Oliver Wyman CRD IV Clearing demand Liquidity Collateral End clients New capital requirements introduced in Jan 2014 Mid tier European banks becoming direct CM’s and increasing Eurex activity Liquidity provided by all major broker dealers GC pooling collateral re- use and late return of Central Bank cash Approx. 140 RC’s have qualified for the fee waiver and many starting to actively clear Fee waiver No OTC IRS clearing fees until Jan 2016 Eurex Clearing volumes have increased significantly since the beginning of 2014 57 Outstanding Total turnover EUR 40,105,436,212 54,682,823,582 CHF 30,597,100,000 31,397,100,000 USD 643,070,000 Total (EUR) 65,678,631,314 80,909,218,723

58 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Currencies: Types: Vanilla IRS (Fix vs Float) Basis swap (Float vs Float) OIS, FRA Zero coupon Compounding Variable notional Structures: Spot, forward start & stub periods, linear interpolation EUR (EURIBOR) and GBP (LIBOR), 1m, 3m, 6m, 12m USD and CHF (LIBON) 1m, 3m, 6m EURUSD GBPCHF Product description JPY OTC derivative classes Derivative classes Current Product classes Asset-classTypeUnderlying 1Notional Currency Settlement Currency Maturity/Range of maturities/Tenor Settlement conditions Range of payment frequency Interest RateFixed to FloatEURIBOREUR 2D-50YCash1M, 3M, 6M, 1Y Interest RateFixed to FloatLIBORCHF 2D-30YCash1M, 3M, 6M Interest RateFixed to FloatLIBORUSD 2D-50YCash1M, 3M, 6M Interest RateFixed to FloatLIBORGBP 2D-50YCash1M, 3M, 6M, 1Y Interest RateFixed to FloatEURIBOREUR 2D-50YCash1M, 3M, 6M, 1Y Interest RateFixed to FloatLIBORCHF 2D-30YCash1M, 3M, 6M Interest RateFixed to FloatLIBORUSD 2D-50YCash1M, 3M, 6M Interest RateFixed to FloatLIBORGBP 2D-50YCash1M, 3M, 6M, 1Y Interest RateBasisEURIBOREUR 2D-50YCash1M, 3M, 6M, 1Y Interest RateBasisLIBORCHF 2D-30YCash1M, 3M, 6M Interest RateBasisLIBORUSD 2D-50YCash1M, 3M, 6M Interest RateBasisLIBORGBP 2D-50YCash1M, 3M, 6M, 1Y Interest RateBasisEURIBOREUR 2D-50YCash1M, 3M, 6M, 1Y Interest RateBasisLIBORCHF 2D-30YCash1M, 3M, 6M Interest RateBasisLIBORUSD 2D-50YCash1M, 3M, 6M Interest RateBasisLIBORGBP 2D-50YCash1M, 3M, 6M, 1Y Interest RateOISEONIAEUR 2D-3YCash1M, 3M, 6M, 1Y Interest RateOISTOISCHF 2D-3YCash1M, 3M, 6M Interest RateOISFed FundUSD 2D-3YCash1M, 3M, 6M Interest RateOISSONIAGBP 2D-3YCash1M, 3M, 6M, 1Y Interest RateFRAEURIBOREUR 28D-2YCash1M, 3M, 6M, 1Y Interest RateFRALIBORCHF 28D-2YCash1M, 3M, 6M Interest RateFRALIBORUSD 28D-2YCash1M, 3M, 6M Interest RateFRALIBORGBP 28D-2YCash1M, 3M, 6M, 1Y Interest RateFixed to FloatLIBORJPY 2D-50YCash1M, 3M, 6M, 1Y Interest RateFixed to FloatLIBORJPY 2D-50YCash1M, 3M, 6M, 1Y EurexOTC Clear for IRS was launched in Nov. 2012 and was authorized as a QCCP on 10 April 2014 58

59 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 59 Important Information on the public website Eurex Clearing Company Profile http://www.eurexclearing.com/clearing-en/about-us/company-profile/ Eurex Clearing Rules and Regulations: Clearing Conditions https://www.eurexclearing.com/clearing-en/resources/rules-and-regulations/136778/ Admission documents and membership forms http://www.eurexclearing.com/clearing-en/resources/forms/ Eurex Clearing Price List https://www.eurexclearing.com/clearing-en/resources/rules-and-regulations/ List of admitted Clearing Members http://www.eurexclearing.com/clearing-en/resources/clearing-contacts/ Production Newsboard http://www.eurexclearing.com/clearing-en/resources/production-newsboard/ Risk Management Information on Lines of Defense, Default Management Process etc. http://www.eurexclearing.com/clearing-en/risk-management/ Risk Parameters and Eligible Collateral http://www.eurexchange.com/exchange-en/market-data/clearing-data/risk-parameters/ Information on C7, our new clearing architecture http://www.eurexclearing.com/clearing-en/technology/c7/ Report Reference Manual http://www.eurexclearing.com/blob/clearing-en/136500-861464/1032542/3/data/Eurex_XML_Report_Reference_Manual_V211.pdf

60 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 60 EurexOTC Clear for IRS: Standard Fee Model Booking Fee Booking fee per million in trade currency0.25 Maturity premium per million per year in trade currency 0.75 Fee cap (Booking fee + Maturity premium) per million in trade currency 18.00 * Effective 1 May 2014 Note: Fees are always billed in the underlying currency Maintenance Fee Maintenance fee per million notional per day in trade currency 0.007 Booking Fee Rebates (Based on the cumulated cleared notional amount) Up to 240 bn € cleared notional 0% 240 bn € to 720 bn €15% 720 bn € to 1,500 bn €25% Above 1500 bn €35% Rebate program for Registered Customers Maintenance Fee Rebates (Based on the outstanding notional amount) Up to 240 bn € cleared notional 0% 240 bn € to 720 bn €15% 720 bn € to 1,500 bn €25% Above 1500 bn €35% Backloading discount for booking fee: 70% NEW*

61 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL A strict policy determines re-investment of provided cash collateral Eurex 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 deducted For margin currencies USD and GBP, 50 basis points are deducted Interest on cash collateral is calculated daily per collateral pool and settled monthly Interest on cash collateral is reported via CD230 Monthly Interest Report Eurex Clearing passes on interest earned from cash investments * 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. Collateral Fee 61 Securities collateral used to cover margin requirement are subject to a handling fee of 5bp Any over-collateralization is not charged Securities 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 monthly Security collateral fee is reported via CB235 Daily Security Collateral Fee Statement Security Collateral Fee

62 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL 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 ready Who 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 2016. To qualify you must complete the admission process by 19 th December 2014. The following discounts apply: You will receive a 25 percent discount if on-boarding is completed (full admission) by 16 December 2014. 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.

63 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL Eurex Clearing Sales & Relationship Management Head of SectionUK + Netherlands – Buy SideUK – Sell Side Philip Simons T +44 (0) 20 7862 7239 M +44 (0) 782 414 1618 philip.simons@eurexclearing.com Ricky Maloney T +44 (0) 20 7862 7612 M +44 (0) 755 117 1212 ricky.maloney@eurexclearing.com Byron Baldwin T +44 (0) 20 7862 7266 M +44 (0) 788 465 5089 byron.baldwin@eurexchange.com AmericasFrance, Luxembourg + BelgiumSwitzerland, Lichtenstein & Italy Tim Gits T +1 (0) 312 544 1091 Tim.gits@eurexclearing.com Ebru Ciaravino T: +33 (0) 1 55 27 67 68 M: +33 (0) 6 85 93 13 33 ebru.ciaravino@eurexclearing.com Markus-Alexander Flesch T +41 (0) 43 4 30 71 21 M +41 (0) 79 5 70 02 80 Markus-alexander.flesch@eurexclearing.com Germany + AustriaGermany + NetherlandsNordics Andreas Stadelmaier T +49 (0) 692 111 3859 M +49 (0) 172 614 7753 andreas.stadelmaier@eurexclearing.com Matthias Kronenberger T +49 (0) 692 111 8719 M +49 (0) 172 619 9912 Matthias.kronenberger@eurexchange.com Deborah Garlick T +44 (0) 20 7862 7217 M +44 (0) 781 851 2101 Deborah.garlick@eurexclearing.com Client Solutions (Head of Unit)Client SolutionsSecurities Financing Afriyie Ola Dimeji T +44 (0) 20 7862 7218 M +44 (0) 782 724 0086 afriyie.ola.dimeji@eurexclearing.com Michael Hildebrand T +44 (0) 20 7862 7168 M +44 (0) 778 048 1481 Michael.hildebrand@eurexchange.com Gerard Denham T +44 (0) 20 7862 7634 M +44 (0) 787 688 5276 Gerard.denham@eurexchange.com 63 Contacts at Eurex Clearing

64 www.eurexclearing.com EurexOTC Clear IRSNovember 2014 - ABBL © Eurex 2014 Deutsche Börse AG (DBAG), Clearstream Banking AG (Clearstream), Eurex Frankfurt AG, Eurex Clearing AG (Eurex Clearing) as well as Eurex Bonds GmbH (Eurex Bonds) and Eurex Repo GmbH (Eurex Repo) are corporate entities and are registered under German law. Eurex Zürich AG is a corporate entity and is registered under Swiss law. Clearstream Banking S.A. is a corporate entity and is registered under Luxembourg law. U.S. Exchange Holdings, Inc. and International Securities Exchange Holdings, Inc. (ISE) are corporate entities and are registered under U.S. American law. Eurex Frankfurt AG (Eurex) is the administrating and operating institution of Eurex Deutschland. Eurex Deutschland and Eurex Zürich AG are in the following referred to as the “Eurex Exchanges”. All intellectual property, proprietary and other rights and interests in this publication and the subject matter hereof (other than certain trademarks and service marks listed below) are owned by DBAG and its affiliates and subsidiaries including, without limitation, all patent, registered design, copyright, trademark and service mark rights. While reasonable care has been taken in the preparation of this publication to provide details that are accurate and not misleading at the time of publication DBAG, Clearstream, Eurex, Eurex Clearing, Eurex Bonds, Eurex Repo as well as the Eurex Exchanges and their respective servants and agents (a) do not make any representations or warranties regarding the information contained herein, whether express or implied, including without limitation any implied warranty of merchantability or fitness for a particular purpose or any warranty with respect to the accuracy, correctness, quality, completeness or timeliness of such information, and (b) shall not be responsible or liable for any third party’s use of any information contained herein under any circumstances, including, without limitation, in connection with actual trading or otherwise or for any errors or omissions contained in this publication. This publication is published for information purposes only and shall not constitute investment advice respectively does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. This publication is not intended for solicitation purposes but only for use as general information. All descriptions, examples and calculations contained in this publication are for illustrative purposes only. Eurex and Eurex Clearing offer services directly to members of the Eurex exchanges respectively to clearing members of Eurex Clearing. Those who desire to trade any products available on the Eurex market or who desire to offer and sell any such products to others or who desire to possess a clearing license of Eurex Clearing in order to participate in the clearing process provided by Eurex Clearing, should consider legal and regulatory requirements of those jurisdictions relevant to them, as well as the risks associated with such products, before doing so. Eurex derivatives are currently not available for offer, sale or trading in the United States or by United States persons (other than EURO STOXX 50 ® Index Futures, EURO STOXX 50 ® ex Financials Index Futures, EURO STOXX ® Select Dividend 30 Index Futures, EURO STOXX® Index Futures, EURO STOXX® Large/Mid/Small Index Futures, STOXX ® Europe 50 Index Futures, STOXX® Europe 600 Index Futures, STOXX ® Europe 600 Banks/Industrial Goods & Services/Insurance/Media/Travel & Leisure/Utilities Futures, STOXX® Europe Large/Mid/Small 200 Index Futures, Dow Jones Global Titans 50 Index SM Futures (EUR & USD), DAX ® /MDAX®/TecDAX® Futures, SMIM ® Futures, SLI Swiss Leader Index® Futures, MSCI World/Europe/Japan/AC Asia Pacific ex Japan Index Futures and VSTOXX® Futures as well as Eurex inflation/commodity/weather/property and interest rate derivatives). Trademarks and Service Marks Buxl ®, DAX ®, DivDAX ®, eb.rexx ®, Eurex ®, Eurex Bonds ®, Eurex Repo ®, Eurex Strategy Wizard SM, Euro GC Pooling ®, FDAX ®, FWB®, GC Pooling ®,, GCPI ®, MDAX ®, ODAX ®, SDAX®, TecDAX ®, USD GC Pooling ®, VDAX ®, VDAX-NEW ® and Xetra ® are registered trademarks of DBAG. Phelix Base® and Phelix Peak® are registered trademarks of European Energy Exchange AG (EEX). All MSCI indexes are service marks and the exclusive property of MSCI Barra. RDX® is a registered trademark of Vienna Stock Exchange AG. IPD® UK Annual All Property Index is a registered trademark of Investment Property Databank Ltd. IPD and has been licensed for the use by Eurex for derivatives. SLI ®, SMI ® and SMIM ® are registered trademarks of SIX Swiss Exchange AG. The STOXX ® indexes, the data included therein and the trademarks used in the index names are the intellectual property of STOXX Limited and/or its licensors Eurex derivatives based on the STOXX ® indexes are in no way sponsored, endorsed, sold or promoted by STOXX and its licensors and neither STOXX nor its licensors shall have any liability with respect thereto. Dow Jones, Dow Jones Global Titans 50 Index SM and Dow Jones Sector Titans Indexes SM are service marks of Dow Jones & Company, Inc. Dow Jones-UBS Commodity Index SM and any related sub-indexes are service marks of Dow Jones & Company, Inc. and UBS AG. All derivatives based on these indexes are not sponsored, endorsed, sold or promoted by Dow Jones & Company, Inc. or UBS AG, and neither party makes any representation regarding the advisability of trading or of investing in such products. All references to London Gold and Silver Fixing prices are used with the permission of The London Gold Market Fixing Limited as well as The London Silver Market Fixing Limited, which for the avoidance of doubt has no involvement with and accepts no responsibility whatsoever for the underlying product to which the Fixing prices may be referenced. PCS® and Property Claim Services® are registered trademarks of ISO Services, Inc. Korea Exchange, KRX, KOSPI and KOSPI 200 are registered trademarks of Korea Exchange Inc. BSE and SENSEX are trademarks/service marks of Bombay Stock Exchange (BSE) and all rights accruing from the same, statutory or otherwise, wholly vest with BSE. Any violation of the above would constitute an offence under the laws of India and international treaties governing the same. The names of other companies and third party products may be trademarks or service marks of their respective owners. 64


Download ppt "EurexOTC Clear for IRS – EMIR QCCP ABBL November 20 th 2014."

Similar presentations


Ads by Google