Amendments to the Clearing Conditions and FCM Default Rules of Eurex Clearing AG - Consultation

1. Introduction 

This circular contains information with respect to the service offering of Eurex Clearing AG (Eurex Clearing) and introduces amendments to the Clearing Conditions of Eurex Clearing AG (Clearing Conditions) and the FCM Default Rules of Eurex Clearing AG (FCM Default Rules) regarding the following topics:

A.  Introduction of a new juniorisation scheme for Interest Rate Derivative Transactions and OTC NDF Transactions in DM Auctions, and

B.  Correction of a reference within the exemption provisions regarding Public Entities

The amendments to the Clearing Conditions are subject to a consultation process (Consultation). The Consultation will end with the expiry of 27 May 2024 (Consultation Period). The planned effective date for these amendments is 1 July 2024, depending on the outcome of the Consultation which will be communicated in a separate Eurex Clearing Circular.

The planned effective date for the amendment to the FCM Default Rules is 1 July 2024,

2. Required action

Clearing Members, ISA Direct Clearing Members, Disclosed Direct Clients, FCM Clearing Members, vendors and other affected contractual parties should take the amendments to the Clearing Conditions and FCM Default Rules into consideration.

The amendments to the Clearing Conditions are subject to a Consultation which will end with the expiry of 27 May 2024.

Eurex Clearing herewith invites all Affected Customers to submit comments on the proposed changes and amendments within the Consultation Period.

3. Details 

A.  Introduction of a new juniorisation scheme for Interest Rate Derivative Transactions and OTC NDF Transactions in DM Auctions

According to Eurex Clearing’s current juniorisation scheme applicable to DM Auctions relating to Interest Rate Derivative Transactions and OTC NDF Transactions (so-called single unit/one-way liquidation auctions), Bids provided by Mandatory Participants are classified as “sufficient”, “medium” or “insufficient”, always in relation to a distance parameter from the winning bid in line with the formula shown below:

After consistent feedback received from Clearing Members and unreasonable results obtained during Default Management Process (DMP) fire drills, Eurex Clearing aims now to improve and simplify the current juniorisation scheme by introducing two additional safeguards reducing the risk of “unfair” juniorisation of Clearing Members:

i.  As a first correction, Eurex Clearing’s own evaluation of mid-market value around the bidding time is introduced as minimum reference to protect participants who have priced the portfolio in line with the fair value from getting juniorised in case the winner has placed a bid significantly through the fair value.

ii.  In addition, a fixed amount of EUR 3 million is introduced in the new formula as a backstop in case of a low Initial Margin (IM) requirement applicable to the auction portfolio to protect bidders from getting technically juniorised, where operational costs of processing the portfolio is higher than the risk premium.

Thus, Eurex Clearing plans to replace the current juniorisation scheme with the formula below:

To reflect the changes, the following provisions in the rulebooks of Eurex Clearing shall be amended as outlined in Attachments 1 and 2:

• Chapter I Part 1 Number 7.5.3 (4) of the Clearing Conditions and

• Number 4.3.3 of the FCM Default Rules

B.  Correction of a reference within the exemption provisions regarding Public Entities

In Eurex Clearing Circular 007/24, Eurex Clearing introduced amendments to the exemption provisions regarding Public Entities under Chapter I Part 1 Number 2.1.3 of the Clearing Conditions.

Eurex Clearing missed to update a reference in the rule text, which is corrected with the proposed amendments outlined in Attachment 1. Public Entities qualifying as “public sector entities” within the meaning of Chapter I Part 1 Number 2.1.3 (1) (c) of the Clearing Conditions cannot be exempted from providing Contributions to the Default Fund or from the applicable margin requirement.

To reflect the change, the following provision in the Clearing Conditions shall be amended as outlined in Attachment 1:

• Chapter I Part 1 Number 2.1.3 (1) 

Consultation with respect to the proposed amendments to the Clearing Conditions

Pursuant to Chapter I Part 1 Number 17 of the Clearing Conditions, the proposed amendments to the Clearing Conditions are subject to a Consultation which will end with the expiry of 22 April 2024. 

Eurex Clearing herewith invites all Affected Customers to submit comments on the proposed changes and amendments within the Consultation Period.

During the Consultation Period, comments on proposed changes or amendments shall be only submitted through a web-based commenting service for which a registration form is available on the Eurex Clearing website under the following link: 

Find > Forms: Consultation Form

The form has to be duly signed and returned to Eurex Clearing via e-mail to SpecialProvisions@eurex.com, in order to obtain a User ID and Password together with a link for accessing the web-based commenting service.

To the extent that Eurex Clearing AG decides to implement any comments received during the Consultation, the so-amended version of the Clearing Conditions will be published after the Consultation.

The currently envisaged effective date of the changes is 1 July 2024. However, after the Consultation Period, Eurex Clearing AG will issue a separate circular to announce the concrete date on which the proposed changes (as the case may be, implementing comments received during the Consultation) will come into effect. 

This announcement will be made with at least 15 Business Days’ notice (Regular Notification Period). However, if Eurex Clearing AG should receive a request for a Prolonged Notification Period from more than two Affected Customers during the Consultation Period, a Prolonged Notification Period as set out in the Clearing Conditions will be applied and Eurex Clearing AG will notify all affected parties accordingly.

Publication of amendments

As of the effective date, the full versions of the amended Clearing Conditions will be available for download on the Eurex Clearing website www.eurex.com/ec-en/ under the following link:

Rules & Regs > Eurex Clearing Rules and Regulations

The amendments to the legal framework of Eurex Clearing AG published by this circular are deemed accepted by each affected contractual party of Eurex Clearing AG, unless the respective contractual party objects by written notice to Eurex Clearing AG prior to the relevant effective date(s) as stipulated in this circular. In case of an objection by the respective contractual party pursuant the preceding sentence, Eurex Clearing AG is entitled to terminate the respective contract (including a Clearing Agreement, if applicable). Instead of submitting an objection, the respective contractual party may submit in writing to Eurex Clearing AG comments to any amendments of the legal framework of Eurex Clearing AG within the first 10 Business Days after the publication of the amendments. Eurex Clearing AG shall assess whether these comments prevent the published amendments from becoming effective taking into account the interests of Eurex Clearing AG and all contractual parties. 

Unless the context requires otherwise, terms used and not otherwise defined in this circular shall have the meaning ascribed to them in the Clearing Conditions, as applicable.

Attachments:

• 1 – Amended sections of the Clearing Conditions of Eurex Clearing AG, effective 1 July 2024
• 2 – Amended sections of the FCM Default Rules of Eurex Clearing AG, effective 1 July 2024

Further information