This document summarizes a roundtable discussion on central counterparty clearing. It discusses the timeline for mandatory central clearing of over-the-counter derivatives under European regulations. It also outlines the role and risk management of central counterparties, including how they operate, mitigate systemic risk, and handle member defaults. The document also discusses the benefits of cross-margining across different product types to improve capital efficiency.
Bloomberg and the Union of Arab Securities Authorities Roundtable Dubai September 2016
1. Bloomberg & The Union of Arab Securities
Authorities Rountable
7 – 8 September 2016
What are CCPs and how do they operate
under new European regulations?
2. www.eurexclearing.com
Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
2
Agenda
• EMIR Mandatory OTC Clearing Timetable
• Role of CCP’s & Risk Management
• Client Asset Segregation & Protection
• OTC IRS & ETD Cross Margining Efficiencies
• ISA Direct Clearing Model – Direct Access for the Buy Side
• Securities Lending & Repo CCP
4. www.eurexclearing.com
Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
4
Agenda
• EMIR Mandatory OTC Clearing Timetable
• Role of CCP’s & Risk Management
• Client Asset Segregation & Protection
• OTC IRS & ETD Cross Margining Efficiencies
• ISA Direct Clearing Model – Direct Access for the Buy Side
• Securities Lending & Repo CCP
5. www.eurexclearing.com
Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
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CCP services improve soundness of market
infrastructure and strengthen market integrity
Reduced systemic risk
• CCP takes over counterparty risk through
trade novation
• CCP enforces strict risk control and
adequate collateralisation of open positions
• Automatic multilateral netting reduces
gross risk exposure
Benefits of multilateral clearing with Central Counterparty
1 Increased transparency
• Awareness of concentration risk
• Independent position valuation by neutral
institution
• Early warning function by daily mark-to-
market
Efficiency gains
• Full automation and straight-through
processing reduces manual errors
• Efficient use and
management of collateral
• Increased capital efficiency
by reduced balance sheet exposure
Bilateral trading & clearing
Current OTC market structure- 1:n relationship
Bilateral trading & multilateral clearing
CCP market structure - 1:1 relationships between CM and CCP
B
C
A
E
D
OTC
CCP
F
A
FD
C
B
E
2 3
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Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
There are two basic models to trade OTC derivatives
Bilateral
OTC model
Centrally cleared
OTC model
Description • Bilateral models are the traditional form of OTC
transactions and take place between two parties
• Two parties enter a OTC transaction and bear the
counterparty credit risk of each other
• During the life of the trade the parties exchange
variation margins (VM) to account for market
value changes
• In most instances initial margins (IM) to account
for potential future exposure (PFE) have to be
exchanged
• In a centrally cleared OTC transaction, a central
counterparty (CCP) steps in between the two
parties
• The initial arrangement between the two parties is
replaced by two agreements on identical
economic terms (“novation”), each with the CCP
and one of the parties
• As a result the CCP administers the transactions,
manages the collateral and also the counterparty
credit risk
• Both parties have to post initial and variation
margins to the CCP
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Schematic
illustration
Party A Party B
Bilateral agreement
CCP
Bilateral
agreement
Party A Party BX
Bilateral
agreement
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Eurex Clearing Lines of Defence
Eurex Clearing’s guiding principle in a default situation is to minimize
the effect on the Lines of Defence and to stabilize the markets
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. 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
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Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
Key focus of stress testing is sizing the Default Fund
Default Fund size is determined regularly based on a “cover 2” scenario
Default Fund contribution is the highest amount of:
• 7% of average IM requirements (30 days), or
• 7% of average IM requirements (250 days), or
• GCM: EUR 5 m, DCM: EUR 1 m
8
• The Default Fund contribution of a Clearing
Member is determined as a percentage of
the Initial Margin requirement
• A quarterly recalibration of the Default Fund
and a regular review of the adequacy of the
Default Fund size and methodology take
place
• Results are presented to senior
management and the Risk Committee
• Sufficiency of the Default Fund to cover the
2 largest defaulting Clearing Members
simultaneously with market stress is
validated daily
• Both historical and hypothetical scenarios
are used for Default Fund dimensioning
• If stress test results indicate that the Default
Fund is not sufficient then:
– Global percentage can be
recalibrated, or
– Member-specific actions can be
taken
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Hypothetical scenarios Historical scenarios
Default Fund
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Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
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Eurex Clearing’s guiding principle in a default situation is to
minimize the effect on the lines of defense and stabilize the
markets
Remaining Capital
of Eurex Clearing AG
Parental Guarantee
Max 2 assessments per CM
Clearing Fund Contribution of
Other Members
Dedicated amount
of Eurex Clearing AG
Clearing Fund Contribution of
Member in Default
Collateral of Member in Default
Position Netting
Eurex Clearing provides a multi-level safety system Lines of defense
• First the collaterals and the clearing fund contribution of the member in
default are utilized.
• After the defaulters contribution is exhausted assigned dedicated amount of Eurex Clearing AG is applied
before non-defaulting clearing members contribution and remaining capital of Eurex Clearing AG.
• The contribution to the Clearing Fund is based on a minimum contribution and a dynamic component
accounting for the individual clearing member’s risk situation.
• Following a realization of any contributions to the Clearing Fund of the non-defaulted clearing members,
such clearing members are asked to provide assessments to their contribution.
• Clearing members’ total liability is limited as they have to provide maximum two assessments per capped
period.
• The creation of liquidation group specific clearing fund segments (CFS), within the single common
clearing fund.
• CFS are determined for each liquidation group. A CFS is a partition of the single clearing fund according
to the relative weights of the initial margin of the Liquidation Groups.
• When liquidating a particular Liquidation Group, only the respective CFS can be used to cover losses,
unless there is a known surplus from other, already completed Liquidation Groups.
Segmentation of the clearing fund
Remaining Capital
of Eurex Clearing AG
Parental Guarantee
Max 2 assessments per CM
Clearing Fund Contribution of
Other Members
Dedicated amount
of Eurex Clearing AG
Clearing Fund Contribution of
Member in Default
Collateral of Member in Default
Position Netting
Lines of defense
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Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
Default Management Process reflects best practice and complies
with market requirements and regulatory guidelines
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Overview of Default Management Process
•Preliminary
Measures
• Convention of Default
Management
Committees to support
Eurex Clearing
throughout the whole
DMP
• To protect client assets,
positions and collateral
are transferred
wherever possible
• Portfolio and market
evaluation in
preparation of
liquidation
• Handling positions that
expire shortly
•Hedging
• Hedging of the
defaulted clearing
member’s portfolio
is executed as early
as possible, to limit
losses immediately
• Hedged portfolio is
likely to receive
better prices in the
auction
•Independent
Sale
• If the portfolio is small
or only few clearing
members are active in
the involved products
then bilateral or on-
exchange trades can
ensure a timely
liquidation
• Mutual clearing fund
will not be utilised,
unless all clearing
members have the
chance to provide a
price in the auction
•Auction
• Participation in
auctions is
mandatory for those
clearing members
who are capable from
an operational and
risk perspective to
process the
respective portfolio
• Clients are allowed to
bid via their clearing
member
• Clearing fund
juniorisation and
penalty fee set
incentives for
competitive bidding
Holding period serves as basis for risk calculation within Eurex Clearing
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Overview of major areas within CCP Risk Management
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Counterparty
Assessment
• Eurex Clearing has strict criteria for counterparties to guarantee that clearing members,
payment banks, treasury counterparts have sufficient credit quality and financial strength
• Credit assessments are repeated on a regular basis
Margining
Stress Testing
• Additional post-default backings are available to cover risks beyond the margin confidence level
• The adequacy of the Clearing Fund size, Eurex Clearing’s total financial resources and liquid
financial resources is verified by means of stress tests
• Margin requirements are aimed to cover potential losses arising during the default management
process according to the “defaulter pays” scheme
• Margin requirements are monitored and enforced intraday
Collateral and
Member
Monitoring
Default
Management
Process
• Eurex Clearing only accepts secure, liquid and accessible collateral with low credit risk
• A comprehensive risk management framework has been established in order to identify,
manage and control credit, concentration and wrong way risks
• When a Clearing Member goes into default, one of Eurex Clearing’s principle objectives is to
protect customers and minimize harm to clients and their positions
• Losses to the CCP’s lines of defense and the disruption of the wider market are minimized
Eurex Clearing’s Risk Management Framework
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• Aligned default management process across a Clearing Member’s
positions
• Positions deemed suitable for simultaneous liquidation are
logically assigned to the same Liquidation Group
• Risk offsets are only granted within the same Liquidation Group
(e.g. Equity, Commodity or Fixed Income)
Consistency
4
2
3Central benefits
• Adjustments to enable stable margin requirements: concentration,
uncertainty in correlations, model adjustments if compression
is used
• Flooring for stability: Stressed period scenarios and dynamic volatility
scaling to at least long run volatility percentiles
Stability
• More accurate risk netting effects than legacy risk models
• Higher capital efficiency for customers through risk calculation on a
portfolio basis
Capital
Efficiency
• Reduced time-to-market for new productsFlexibility
1
5
• Cross-product scenarios enable consistent way to account for portfolio
correlation and diversification effects
• Risk covered at high confidence level through margin calculation
consisting of a
− Mark to market component
− Forward looking component
− Adequate liquidation time horizon
Accuracy
Eurex Clearing employs a state-of-the-art margin method
Several benefits are derived through the methodical cornerstones of Eurex Clearing’s
portfolio margining model methodology, PRISMA
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Solutions: Optimising Transaction Economics
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§ Single legal cross product netting set
§ Capital efficient clearing models across securities finance,
repo and derivatives
§ Advanced netting and compression reduce gross notional
and balance sheet usage
§ Eurex Clearing Prisma: Live cross-product margining
§ Full fixed income rates curve across listed and OTC
§ Most comprehensive equity/index derivatives coverage
§ Product innovation continuously complementing fixed
income and equity product range
§ Largest spectrum of eligible collateral
§ Collateral transformation tools to increase the effective
supply of collateral
§ Collateral enhancement tools enable additional returns
§ Superior client asset protection models
§ Robust default management process with strong lines of
defense, increased dedicated amount of ECAG
§ Central bank access for investment and liquidity purposes to
ECB and SNB
Integrated CCP model
Eurex Clearing AG is the only fully integrated QCCP maximising capital, margin and collateral
efficiencies across instruments
Safety &
robustness
Margin
efficiency
Capital
efficiency
Collateral
efficiency
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Key
Challenges
Component Cross-product netting benefit Derivatives Securities financing
Listed OTC Repo Sec lending
Capital
RWA
• Netting of exposure at default across
different products under a single
legal CCP construct
Leverage
Ratio
• Netting of LR exposure across
different derivatives and different
securities financing transactions
under single legal CCP construct
Collateral &
Liquidity
Demand
(Margin)
• Netting of positions in liquidation
groups for initial margin across
products
• Variation margin netting across all
cleared products
Cross-product netting: enables participants to reduce exposures
across derivatives and securities financing transactions
15
Standardized
EAD calculation
Standardized EAD
calculation
Internal EAD modelling approach
Derivatives
exposure
calculation
Sec financing
exposure
calculation
Margin netting across derivatives
Cross-product netting opportunity
Enabledby
EurexPrisma
Enabledbyanintegrated
legalCCPconstruct
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Agenda
• EMIR Mandatory OTC Clearing Timetable
• Role of CCP’s & Risk Management
• Client Asset Segregation & Protection
• OTC IRS & ETD Cross Margining Efficiencies
• ISA Direct Clearing Model – Direct Access for the Buy Side
• Securities Lending & Repo CCP
17. www.eurexclearing.com
Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
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Segregation and portability has become increasingly
important because of client demand & regulation
EMIR article 39 requires CCPs and Clearing Members to offer at a minimum omnibus and individual
segregation models.
After the Lehman and MF Global defaults, the demand for segregation increased as clients have faced issues
around uncertainty of porting, double funding, mutualisation of client and CM risks from co-mingling of assets and
potential misuse of client collateral.
Individual models are intended to secure the positions and the collateral assets at all times in the event of
default of a Clearing Member or other clients of the clearing member.
Some local investment laws require asset managers to segregate assets at the fund level to prevent co-mingling
of positions and assets between the clearing broker, other clients and funds of the same fund company.
Both buy-side and sell-side clients are requesting protection from additional risks including transit and
liquidation risk.
ESMA finally provided clarity that individual client segregation requires that the actual assets of the client are
segregated and available for porting. Models which merely segregate the value of collateral due to the accounts of
clients, 'do not meet the requirement to offer individual client segregation’ (ESMA Q&A 5 August 2013).
18. www.eurexclearing.com
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1818
Agency
position
accounts
CM
Prop
account
RC/NCM
position
accounts
Individual
Segregated
Accounts (ISA)OSA by Value
RC/NCM
position
accounts
RC/NCM collateral
pool
CCP MR
net for all
P & M
accounts
CCP MR
per A
account
CCP MR
per
RC/NCM
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 OSA
by asset
Collateral pool for OSA
under CASS
Agency
position
accounts
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
CCP MR per
A account
* Securities collateral under omnibus segregation is held under pledge whilst ISA collateral is full title transfer to Eurex Clearing
**The OSA by asset and OSA under CASS models are operationally identical. 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 on
the books and records of Eurex
Clearing rather than on the CSD
level
When OSA by asset is chosen, a
separate collateral pool is opened at
Eurex Clearing and an account on
the CSD level. 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
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
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 Omnibus Segregated Accounts (OSA)
Overview of Segregation Models at Eurex Clearing
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Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
The Individual Segregated Account structure provides the
highest level of protection and porting likelihood
19
• No fellow customer risk
• Highly likely porting
• Actual assets protected
• Allows full segregation at sub-fund
• 2 percent risk weight for trade and collateral exposures
• Asset tagging (optional)
• Direct transfer of collateral (optional)
• Later cash withdrawals for EUR and CHF
• All actual assets provided to Eurex Clearing are protected against
the default of another market participant
• This differs from value-based models where only a value equivalent
is protected instead of the client‘s actual assets
• Should there be a default, clients can choose to port immediately to
a Replacement Clearing Member or become an Interim Participant,
directly facing Eurex Clearing until a Replacement Clearing
Member is identified and accepts the port.
• Alternatively, clients can elect to closeout and directly receive their
collateral back
SafetyEfficiency
Protection of assets
and portability
ensures
• No replacement risk
• No liquidity risk
• No liquidation risk in
case of a Clearing
Member default
Position
account
Collateral
account
Cl Client
Cl1
ISA
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Agenda
• EMIR Mandatory OTC Clearing Timetable
• Role of CCP’s & Risk Management
• Client Asset Segregation & Protection
• OTC IRS & ETD Cross Margining Efficiencies
• ISA Direct Clearing Model – Direct Access for the Buy Side
• Securities Lending & Repo CCP
21. www.eurexclearing.com
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Conceptual working of portfolio and cross margining
Portfolio margining accounts for netting effects and cross margining determines the
optimal combination of listed fixed income products with OTC IRS
Portfolio margining Cross margining
Euro Stoxx 50 futures
(short)
DAX futures
(long)
Margin reduction by
portfolio margining:
Portfolio
margining
benefit
• Cross margining allows for offsets between products
with different holding periods
• Eurex Clearing offers cross margining for OTC IRS (5
day holding period) and listed fixed income (FI)
products (2 day holding period)
• Listed FI positions are transferred to the OTC IRS split
such that the reduced risk is reflected in lower margins
IRS + FI
Allocation of
FI listed products
that hedge IRS exposure
FI only
Listed FI OTC IRS
Total (without
cross margining)
Cross-margined
portfolio
Margin requirementsMargin requirements
• Portfolio margining is applied to products
within the same liquidation group and
with the same holding period, e.g. Euro
Stoxx 50 and DAX futures
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Lower costs through cross margining OTC and listed
positions
Without cross margining With cross margining
IRS and fixed income futures/futures-style options are margined
separately:
• IRS with a 5 day liquidation horizon
• Futures and futures-style options with a proposed two day liquidation
horizon
OTC IRSFI listed products
IR swaps
FI futures /
futures-style
options
2 day horizon 5 day horizon
Margin requirements:
Futures/future-style options OTC IRS
If IRS and futures positions are hedged:
• Futures are transferred to the IRS split such that the reduced risk is
reflected in lower margins*
IRS+FI
IR swaps
FI fut./options
Allocation of
FI listed
products
that hedge IR
exposure
FI-only
FI futures /
futures-style
options
2 day horizon 5 day horizon
Margin reduction by cross margining:
Cross margined portfolio
Overall initial margins for cross margined portfolios can be lower reflecting the overall risk reduction
* Depending on portfolio diversity
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Agenda
• EMIR Mandatory OTC Clearing Timetable
• Role of CCP’s & Risk Management
• Client Asset Segregation & Protection
• OTC IRS & ETD Cross Margining Efficiencies
• ISA Direct Clearing Model – Direct Access for the Buy Side
• Securities Lending & Repo CCP
24. www.eurexclearing.com
Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
Concentration of risk in the US OTC Derivatives Clearing Business 1
Challenges
TOP 5
~70%
TOP 10
~95%
1 Source: http://www.cftc.gov/MarketReports/FinancialDataforFCMs/index.htm - *as of 30.09.2015
• Concentration is increasing. US
market structure is likely to
arise in Europe as well
• Limited balance sheet capacity
of many clearing brokers and
poor economics for client
clearing
• Porting of clients in crisis
massively at risk given
constraints of clearing brokers
to pick up clients
Significant negative implications including domino effects can be expected in a crisis,
as long as neither the capital rules nor the market structure changes
Derivatives market structure shows a strong concentration of risk to
the Top 10 Clearing Brokers
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Credit Suisse
Morgan Stanley
J.P. Morgan
Citigroup Global
Barclays Capital
Wells Fargo Securities
Goldman Sachs
Merrill Lynch
Deutsche Bank
UBS
TOTAL Initial Margin: ~ 56 BN US $*
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ISA Direct – Direct Access for Client Clearing
26
ISA Direct client
Clearing Agent
CCP
Direct contractual relationship
Provision of operational
services* by Clearing Agent to
ISA Direct client
• Default Fund contribution
• Bidding obligation
Transaction
Management
Cash
Management
Collateral
Management
The solution
ISA Direct delivers a framework that is
operationally similar to a traditional
segregated client clearing relationship
under a different legal relationship.
1. Client becomes principal to the CCP
and directly clears trades
2. Clearing Agent facilitates operational
services*, and specific default
obligations
3. ISA Direct clients have to meet
admission criteria equivalent to
regular Clearing Members
In addition to improving market safety and
integrity, this results in a number of key
benefits to both parties:
Benefits for Clearing Agent
• Capital costs substantially reduced (LR, RWA)
• Allows maintenance of client relationship and delivery of
a range of clearing services
• Increased default fund contributions for ISA Direct
Member and Eurex Clearing’s dedicated amount create
layers of protection before loss mutualisation
Benefits for ISA Direct Client
• No default fund contribution
• Assets are segregated, securities under pledge
• Collateral eligibility >17,000 ISINs
• Porting issues removed, appointment of new Clearing
Agent in default scenario
• Relieves concentration of CMs offering client clearing
New regulations are impacting costs and access to clearing for non members
*operational services can be performed by the Agent or the ISA Direct client
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Derivatives: Capital costs for providing (client) clearing services can
be substantially reduced via direct clearing models
Capital cost of clearing agent (bps of IM)
Clearing
agent
CCPClient
Exposure
IM
DF
IM
Exposure
~80%+
Capital costs for providing default fund
(only applies if clearing agent provides
default fund, otherwise this is a direct
costs for the client)
27
Client clearing
Direct clearing
Leverage
ratio
RWA
Leverage
ratio
RWA
Banks can take on a range of roles, enabling them to retain and service client relationships
CCPClient
Exposure
IM
DF
Trading activity
Clearing
agent
Derivatives clearing models and corresponding annual capital costs for a clearing agent
Example based on ~5 year duration, directional EUR IRS swap portfolio
~85%-95%+
~25-701
~14
~3
~3
1. Depends on final leverage ratio rule (use of SA-CCR with collateral offset leads to reduced costs of ~25 bps vs. ~70 bps based on current proposal with CEM
Note: Requirements are foreseen to only allow direct access for clients of high credit quality (requiring credit assessments required for each new clearing license, discussed within the
Eurex Clearing Credit Committee, signed-off by the Eurex Clearing Executive board)
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Agenda
• EMIR Mandatory OTC Clearing Timetable
• Role of CCP’s & Risk Management
• Client Asset Segregation & Protection
• OTC IRS & ETD Cross Margining Efficiencies
• ISA Direct Clearing Model – Direct Access for the Buy Side
• Securities Lending & Repo CCP
29. www.eurexclearing.com
Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
Lending CCP – our service for Securities Lending
The solution
Eurex Clearing offers a CCP service for the securities lending
market, strengthening our commitment to reducing systemic
risk and ensuring the safety of the market overall. By retaining
the bi-lateral trading relationship, existing market relationships
are preserved. It also delivers other key benefits:
• Efficient use of borrower’s capital (RWA, CVA, netting)
• Agency and Principal roles for Lenders
• Simplifies a multiple counterparty credit structure to a
single CCP relation
• Operational efficiency via CCP managed post-trade
services
• Enhanced default management protection by the CCP
• CCP risk management approved by regulatory authorities
• Re-use of existing infrastructure to allow for a wider
distribution of counterparts
• Flexible collateral schedules allowing for optimization of
collateral Post trade functionality
• Loan Deliveries, Mark-to-Marks, Re-rates, Recalls,
Returns, Buy-ins
• Corporate Actions, dividend payments
• Automated billing (lending fees & rebates)
Principal collateral > 30,000 ISINs
• Cash (EUR, USD),
• Bonds, Equities and ETFs
Markets > 25,000 ISINs
• Fixed income – European government, supra, corporate
bonds
• Equities – coverage of key European markets
• Exchange Traded Funds (ETFs)
Risk considerations and operational efficiencies are driving change
Securities lending market participants
Eurex Clearing Lending CCP
Bilateral market (OTC) Electronic SL trading platforms
Eurex Repo-SecLend MarketFlow Providers & Trade Capture Platforms
Central Securities Depositories
International Central Securities
Depositories
29
30. www.eurexclearing.com
Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
Lending CCP – Specific Lender License
30
The solution
The Specific Lender License facilitates lending only participants (beneficial owners) the ability to
remain as principal via a direct relationship with the CCP and the Agent Lender remains as an
account operator as agent. It also delivers other key benefits:
• No requirement to clear through a GCM, pay margin or default fund contribution
• Existing relationships with Lending Agents are maintained
• Agent Lender continues to arrange loans for CCP eligible transactions
• Operational links with flow provider and CCP maintained by Agent Lender
• Agent Lender reports loans and collateral through existing reporting set
• Simplifies multiple counterparty credit structure to a single CCP
• Transparent and standardized risk management and default procedures approved by
regulators
• Access a wider distribution of counterparts via one legal framework
• Flexible collateral schedules allow optimization of collateral
• Reduction of Agent Lender’s indemnification costs
Allowing Beneficial Owners to participate directly with a CCP
CCPs for Securities
Lending deliver:
• Effective use of capital
• Better terms
• Credit intermediation
• Risk mitigation
• Increased utilization
• Operational efficiency
• Collateral optimization
31. www.eurexclearing.com
Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016
GC Pooling Select – Invest and Finance
31
Direct clearing models link supply with demand in a capital efficient way
The solution
Direct CCP clearing models are the
catalyst to eliminate exposure between
client and bank in existing bilateral and
tri-party models. As an integrated CCP,
Eurex Clearing offers tailored clearing
licenses for buy side customers to gain
direct access to the repo CCP markets.
Eurex Clearing’s integrated securities
financing service enables collateral
availability, liquidity and fluidity for all
market participants.
GC Pooling Select Finance
• Accommodates access to CCP cleared secured funding
and investments for buy side
• By leveraging proven GC Pooling infrastructure buy side
clients are enabled to perform collateral transformation
for cash margin coverage, specifically VM funding for
pension funds and asset managers
• Delivered via the ISA Direct clearing membership, buy
side participants can gain access via a Clearing Agent
GC Pooling Select Invest
• Facilitates secured deposits and delivers a substantial
reduction in the credit and liquidity risks of lending
unsecured
• is available for non-banks, such as corporates or
insurance companies, wishing to invest cash on a
secured basis with a CCP
• No default fund or initial margin
• No access to clearing systems required
GC Pooling and Repo market: benchmark for secured funding and financing
GC Pooling and Repo
Sell Side
GC Pooling
Buy Side
EUR USDGBP*
Select Invest
(EUR)
Select Finance
(CHF, EUR, GBP**, USD)
Cash provider and cash taker
Banks, brokers, central banks, finance agencies,
supranational organisations
Corporates, pension funds, asset managers, insurance
companies
Net cash provider
Cash provider and cash
taker
Fully comply with Eurex Clearing’s
clearing conditions
Unique set up:
• No default fund
• No initial margin
• No access to clearing
systems required
ISA Direct clients:
• Principal to CCP
• Must meet admission
criteria equivalent CM
• Clearing Agent
provides services
*GBP will be launched in Q216; ** GBP will be available under Select Finance in Q316
CHF
GC Pooling and Repo
Buy Side