{"id":170838,"date":"2016-01-06T18:08:48","date_gmt":"2016-01-06T18:08:48","guid":{"rendered":"https:\/\/wordpress-693215-2610341.cloudwaysapps.com\/index.php\/2016\/01\/06\/cross-margining-of-listed-derivatives-and-otc-irs-ccp-cleared-irs-switches-an-analysis\/"},"modified":"2016-01-06T18:08:48","modified_gmt":"2016-01-06T18:08:48","slug":"cross-margining-of-listed-derivatives-and-otc-irs-ccp-cleared-irs-switches-an-analysis","status":"publish","type":"post","link":"https:\/\/theotcspace.com\/cross-margining-of-listed-derivatives-and-otc-irs-ccp-cleared-irs-switches-an-analysis\/","title":{"rendered":"Cross Margining of Listed Derivatives and OTC IRS & CCP Cleared IRS Switches – An Analysis"},"content":{"rendered":"

With the mandatory OTC Clearing timetable now finalised for Europe by ESMA, focus will now feature on the efficiencies of each CCP IRS offering and CCP IRS Switches will undoubtedly increase as Banks seek to minimise capital and funding costs via reduced initial margin requirements, default fund contributions and capital regulatory requirements.<\/p>\n

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With the mandatory OTC Clearing timetable now finalised for Europe by ESMA, focus will now feature on the efficiencies of each CCP IRS offering and CCP IRS Switches will undoubtedly increase as Banks seek to minimise capital and funding costs via reduced initial margin requirements, default fund contributions and capital regulatory requirements.<\/p>\n

CCP IRS Switches<\/strong><\/p>\n

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Cross Margining[1] at Eurex Clearing of OTC and listed derivative products can potentially provide significant margin savings – see the table below for the various cross margin savings between OTC and Listed Derivative Products – across the products within the Fixed Income Liquidation Group i.e. OTC IRS, ZCIS, Fixed Income & Money Market Futures and Options and Deliverable Swap Futures. Eurex Clearing's PRISMA cross margin optimiser automatically calculates the minimum initial margin requirement for a portfolio of OTC and ETD products, if there are no offsets, the initial margin requirement defaults to a 2 day risk horizon for ETD products and a 5 day risk horizon for OTC products.<\/p>\n

CCP IRS Switches can also benefit from reduced default fund contributions – 7pct of initial margin requirement for default fund contributions at Eurex Clearing as a result of an integrated default fund across asset classes segmented by liquidation groups benefitting from portfolio diversification compared to that of 10pct of initial margin requirement default fund contribution for a silo'd CCP default fund structure.    <\/p>\n

Maximum Cross Margin Efficiency between different Fixed Income Products – OTC & Listed Derivative Products <\/strong><\/p>\n

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In December 2015, OpenGamma launched a Cross CCP IRS Initial Margin Calculator[2] service which allows both the Buy Side and Sell Side alike to quantify the actual<\/em> benefits of clearing Euro OTC IRS and Listed Derivative Products across CCPs in two distinct scenarios:<\/p>\n