October 25, 2011

Eurex extend CCP into OTC IRS and Equities

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.

More details in this PDF, follow up with Alison King at Eurex:

Category SwapClear Eurex
Status Live Launching soon
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

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