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October 6, 2014

Trading and Clearing at Eurex | Efficiency is the Key

Hybrid products, and integrated default fund, and cross-margining, delivers maximum economic efficiency to customers

Eurex continues to work towards an integrated clearing platform that provides the highest level of economic efficiency for users. Amongst the components of this strategy are both product and process innovations:

Futures on an Interest Rate Swaps

Eurex has launched a Swap Future which is cross margined against Eurex Fixed Income Futures so it will be margin efficient to create synthetic asset swap trades ie bond futures vs swap futures (see this PDF also).

Eurex Repo Futures

On November 12th we will be launching a Euro Repo Future (Secured Funding Future) on GC Pooling repo rates trading on Eurex Repo – hedge GC funding rate exposure – even Price Alignment Interest exposure! For more information see this PDF (http://www.eurexchange.com/blob/exchange-en/4790/1065954/2/data/factsheet_EUR_secured_funding_futures_8_en.pdf) So with the launch of a Euro Repo Future Eurex will cover the whole yield curve with one integrated Default Fund, see below

Sell Side Benefits

So what's the benefit for the Sell Side – pretty substantial:

Integrated Default Fund

Also, Eurex offers an integrated Default Fund across Repo, Securities Lending, Listed and OTC segmented by Liquidation Groups, this reduced risk because of portfolio diversification, the bottom line is Default Fund efficiency – with a Default Fund contribution of 7% of initial margin requirements compared to 10% of initial margin requirements for a silo'd CCP default fund structure:

Cross Margining

As covered in my three part article I've attached a number of cross margining examples below, one is of four actual sell side bank IRS portfolios (anonymised) that were analysed:

I'm always keen to hear your feedback on these topics, leave your comments below or contact me directly, Byron.


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