Benefit from OTC FX and XCCY Swaps clearing

Cross Currency Swaps & OTC FX

Eurex Clearing is the first CCP to offer a clearing and guaranteed net settlement service in CLSClearedFX across Cross Currency Swaps and OTC FX (FX Spot, FX Forwards and FX Swaps).  

Our service provides capital, margin, settlement and operational efficiencies, leading to substantial cost reductions for Clearing Members.


Key Benefits

Capital benefits

Here's why our OTC Currency Clearing Service provides you with capital benefits:

Eurex is risk-weighted at 2% for Risk Weighted Assets (RWA). This is significantly lower than the ~20% RWA assigned to bilateral counterparties under the IDSA SIMM. Facing the CCP also enables multilateral netting, resulting in a large reduction of initial margin. 

Additionally, banks have to incorporate a CVA charge for bilateral trading. There are no CVA charges when trades are cleared at Eurex.

Banks have submitted a number of portfolios for optimization analysis and depending on the construction of the portfolio, the following benefits were seen:

Margin benefits

Cross Currency Swaps and cleared deliverable FX Spot, FX Forwards and FX Swaps are part of the same liquidity group at Eurex. As a result, all cleared OTC FX products fall under the same netting set, providing margin offsets. Balanced portfolios can achieve an initial margin reduction of up to 98 percent.

By facing a single counterparty (the CCP) instead of multiple bilateral counterparties, the netting down exposures reduced overall initial margin requirements. Furthermore, OTC derivatives processed via CCPs benefit from a shorter margin period of risk (MPOR) than bilaterally processed OTC derivatives (5 versus 10 days).

Settlement benefits

Our OTC FX and Cross Currency Clearing Service is supported via a separate settlement service at CLS - the CLSClearedFX Service. This enables Clearing Members to experience the highest safety and security standards when settling Cross Currency Swaps and FX Spot, FX Forward and FX Swap transactions by leveraging their existing CLS connectivity.

Settlement in the CLSClearedFX service is on a daily net basis, reducing the funding requirements of Clearing Members and alleviating liquidity and funding pressure at the European market open.

Operational benefits

At Eurex, we provide streamlined and harmonized operational processes, significantly reducing workloads for our members.

Our OTC FX and Cross Currency Clearing Service is fully integrated into the EurexOTC Clear workflows, allowing existing Eurex Clearing Members to leverage existing operational processes and procedures to the highest possible extent.

Eurex offers a broad spectrum of eligible collateral, covering government and corporate bonds, equities and ETFs and consolidates margin calls, reducing overall collateral movements. Moreover, we offer re-usage of collateral and transformation possibilities with our repo and securities lending services at Eurex.

Products

Cross Currency Swaps

Cross Currency Swaps with maturities up to 50 years in EUR/USD and GBP/USD currency pairs: Three-month resettable Mark to Market (MTM), Float/Float with initial and final principle exchanges.

Deliverable OTC FX

Cleared FX Spot, FX Forwards and FX Swaps with maturities up to two years in EUR/USD and GBP/USD currency pairs.

Further information on novation criteria for Cross Currency Swaps and FX Spot, FX Forward and FX Swap trades can be extracted from Eurex Clearing's Rules and Regulations or from the Eurex Clearing Member Section.

Functional Model

Eurex is the central counterparty for all your transactions. We provide seamless post-trade services, position and risk management solutions, efficient collateral management and settlement services for your transactions.

Our OTC Currency Clearing Services was designed in collaboration with Clearing Members to satisfy industry standards and best practice in the FX market.

High-level process flow

Trade submission

Cross Currency Swaps are submitted for clearing via IHS Markit's MarkitSERV platform. FX Spot, FX Forward and FX Swap trades are submitted for clearing via 360T's TEX Multidealer Trading System. For both MarkitSERV and 360T, Clearing Members need to set up clearing permissions.

After trades are submitted for clearing, trade eligibility checks and risk checks are performed at Eurex and feedback is sent to 360T's TEX Multidealer Trading System or MarkitSERV platform to display the trade status.

Clearing

After submission of trades to Eurex, eligibility checks and risk checks are performed. If all checks are successful, the trade is registered for clearing with Eurex. When a trade is rejected, a rejection message is sent in real-time to the market participants and 360T's TEX Multidealer Trading System or the MarkitSERV platform. 

Eurex also offers backloading of trades, which is a process of submitting existing trades for clearing that were executed in the past. 

Once transactions are novated, they are booked on the Clearing Members account under the selected segregation model. The transactions are then risk-managed by Eurex until maturity. 

Settlement

Eurex calculates all trade-related cash flows and nets them for settlement in the CLSClearedFX service (‘CLS’). Eurex sends the payment schedule for each settlement day to CLS. At the same time, Eurex forwards the payment schedule to each Clearing Member via SWIFT ISO20022 and reports. Clearing Members have to fund payments as per the payment schedule to CLS. 

CLSClearedFX

Settlement of Cross Currency Swap and OTC FX transactions is done via CLS, a specialized settlement services provider in the foreign exchange markets. 

The CLSClearedFX service is different from the CLS main cycle as it works on an "all-or-nothing" basis. The correspondent pay-outs are only released if all of our Clearing Members for the OTC Currency Clearing Services have fulfilled their pay-ins by a specific Cut-Off time. As we are the central counterparty for all your transactions, we have dedicated processes and procedures in place to guarantee settlement is fulfilled.

High-level process flow

For Cross Currency Swap and OTC FX transactions, Eurex nets all trade-related flows into one net settlement amount per Clearing Member and currency, covering proprietary and client business on a daily basis. Pay-in and pay-out advises to the CLSClearedFX service for settlement are sent via a SWIFT instruction and reported to our Clearing members. The following trade-related flows are netted:

  • Cross Currency Swaps – notional exchanges, notional resets, coupons, variation margin, price alignment interest and trade-related fees (upfront fee, unclassified fee, trade transfer fee and termination fee)
  • OTC FX (FX Spot, FX Forward and FX Swap) FX amounts bought/sold, variation margin, price alignment interest and any trade-related fees 

We calculate the net settlement for each settlement day one business day prior to the settlement day, starting at 22:00 CET. Hence, trades that have initial settlement in the CLSClearedFX service the following day should be novated by close of business (22:00 CET) a day before. As a next step, Eurex sends pay-in and pay-out schedules to the Clearing Members using the ISO 20022 Swift connection and settlement reports via the Common Report Engine, which outlines instructions for settlement. 

The Clearing Members are required to fulfill their pay-in obligations by transferring funds directly to the CLSClearedFX service by the Cut-off time of 08:00 CET. Eurex Clearing will forward pay-in and pay-out confirmations to the respective Clearing Members near real-time using the ISO 20022 Swift connection. Once all pay-ins by all Clearing Members have been received, CLS instructs correspondent pay-outs to the Clearing Members. 

Eurex has dedicated processes and procedures in place for scenarios in which the Clearing Member has not met their pay-ins for the CLSClearedFX service by 08:00 CET (Cut-Off time).

Requirements

For CLSClearedFX, our Clearing Members will be specifically set up a CLS. The CLSClearedFX service uses the same central bank account structure as for the CLS main session.

However, for the CLSClearedFX service, payments need to be tagged explicitly with the payment instruction information. The correct payment formatting is tested during the onboarding of a Clearing Member.

Contacts

Jens Quiram

Global Head of FX

+49 6921112619

jens.quiram@eurex.com

Archana Varshney

Head of OTC FX Sales & Business Development

+44 2078627269

archana.varshney@eurex.com

Ante Loncar

OTC FX Sales

+49 1704881187

ante.loncar@eurexclearing.com

Andrew Punter

OTC FX Sales

+44 7909008277 

andrew.punter@eurex.com