On Monday 17th of October Eurex provided a briefing on their forthcoming extension of clearing into Interest Rate Swaps and Equity Options. Eurex have an existing offering for CDS which is in maintenance mode, but they plan to be ready for the rush into clearing next year as the Dodd Frank and EMIR regulations get closer.
Their design is comparable to the LCH.Clearnet SwapClear service, there are details that Eurex can supply which go beyond the detailed PDF here which Eurex have provided for publication. Potential users might like to discuss with Eurex key aspects such as the client default process, the initial margin calculations, and their approach to portability should your Clearing Member default.
From a functional and technical point of view the proposed service looks spot on – the key challenge for Eurex or any other CCP is to gather support from a launch group of members, able to pull the sell-side community onto the platform. Eurex generates around 50% of it’s exchange business from outside Germany, so has a strong European buy-side footprint. This broad customer base needs to be persuaded to use Eurex as their preferred CCP for OTC products, perhaps a launch group of large domestic OTC users would be the starting point, and an advantage for Eurex being based in Frankfurt.
Eurex will need to find it’s niche amongst other CCPs, will it succeed as a domestic CCP, along the same lines as Japan, Canada or Australia? Or could it achieve wider success and dominate European or global OTC clearing against competition from SwapClear and CME? Only time will tell.
|Collateral||Govvies, Cash, Gold, KfWCorporates under consideration||As LCH plus Equities|
|Products||IRS, OIS, including compounding and zero coupon||IRS, OIS, FRAsEquity Options, exchange look-a-likeEquity Swaps|
|Currencies||17||EUR, GBP, CHF, USD|
|Workflow||Intraday submission, margin run / call, acceptance||Same|
|Opening hours||07:30 to 22:00 GMT||Eurex can provide|
|Feeds||MarkitSERVVCON, TradeWeb in development||MarkitSERVVCON, TradeWeb|
|Client model||European CB (principal), or US FCM (agency)||European CB (principal)|
|Misc||2 day lag before accepting initial payments||Eurex can provide|
|Trade Netting / Compression||None / TriOptima||Netting of offsetting trades, other services, call Eurex|
|Default Fund||Common across all LCH||Common across Eurex, except CDS|
|Default Management Process||Hedging, Auction, Allocation||Similar|
|IM Calcs||5 years / 1250 scenarios, 100% confidence, 5 day holding, FHS||Eurex can provide|
|Portability||Clients can nominate backup Clearing Brokers, to which LCH offer their portfolio in the event their primary CB defaults||Portfolio cash settlement close out. A client can elect to become an Interim Participant for 5 days whilst selecting a backup CM, and hold up the close out|
|Client segregation||Full account segregation, LSOC in development||Same|