LSOC clearing model: Introduction of US dollar as cash collateral currency for Initial Margin payments and changes to cut-off times for interest calculation

1. Introduction

This circular contains information with respect to the Legally Segregated Operationally Commingled (LSOC) service offering of Eurex Clearing AG (Eurex Clearing).

Under its LSOC clearing model, Eurex Clearing currently only accepts euro as cash collateral currency for Initial Margin payments. Eurex Clearing has now extended its service offering by also accepting US dollar for such payments from 2 March 2020 onwards (please also refer to Eurex Clearing circulars 069/19 and 004/20).

In addition, Eurex Clearing may determine, in accordance with the FCM Regulations, to pay interest or to charge negative interest on Eligible Margin Assets in the form of cash delivered to Eurex Clearing. Eurex Clearing will change the existing cut-off times to determine the credit balance for the interest calculation on cash balances held in US dollar and British pound. The reason for this amendment is feasibility of investments.

Service start: 2 March 2020.

2. Required action

There are no required actions for FCM Clearing Members.

3. Details

A. Introduction of US dollar as cash collateral currency for Initial Margin payments

Especially in the context of Eurex Clearing’s capacity as a Derivatives Clearing Organization (DCO), FCM Clients structurally wish to deliver US dollar as cash collateral via the FCM Clearing Member to Eurex Clearing. The extension of the service offering by adding US dollar as cash collateral currency for Initial Margin payments has been subject to the implementation of an investment scheme applying CFTC Rule 1.25 which is in place now. 

As of 2 March 2020, Eurex Clearing will accept US dollar as cash collateral currency for Initial Margin payments under LSOC as follows: 

a)    Cash Deposits and Intraday Margin Calls 

US dollar will be accepted for Intraday Deposits and to cover Intraday Margin Calls. On t+1, a substitution of the US dollar amounts into clearing currency (which remains euro only) will be triggered by Eurex Clearing. The applicable cash service fee will be 25 basis points. 

b)    Permanent cash holdings in US dollar

A permanent cash holding in US dollar can be instructed via the C7 CMS GUI. For permanent cash holdings in US dollar, the cash service fee will be 20 basis points. 

Detailed information with regards to cut-off times and applicable interest rates on US dollar deposits as well as the list of admitted settlement banks can be found on Eurex Clearing’s website www.eurexclearing.com under the following link: 

Markets Services > LSOC > Infrastructure and collateral

B. Changes to cut-off times for interest calculation in US dollar and British pound

In accordance with the FCM Regulations, Eurex Clearing may determine to pay interest or to charge negative interest on Eligible Margin Assets in the form of cash actually delivered to Eurex Clearing. Such interest is calculated based on the collateral balance that is held with Eurex Clearing at a certain point in time (cut-off time).

Eurex Clearing will change the existing cut-off times to determine the credit balance for the interest calculation on cash balances held in US dollar and British pound (please also refer to Eurex Clearing circular 123/19). The reason for this amendment is feasibility of investments. 

The changed cut-off times as shown in the table below will become effective as of 3 March 2020.

Deadlines to determine the credit balance for the interest calculation on the collateral pool:

As of the effective date, the new cut-off times will be published on the Eurex Clearing website www.eurexclearing.com, as part of the overview of cut-off times for cash collateral deposit and withdrawal requests, under the following links:

Markets Services > LSOC > Infrastructure and collateral
Collateral management > Cash collateral > cut-off times

Unless the context requires otherwise, terms used and not otherwise defined in this circular shall have the meaning ascribed to them in the FCM Clearing Conditions of Eurex Clearing AG.

Further information