Clearing of OTC XCCY transactions and OTC FX transactions: New product launch

1.  Introduction

This circular contains information with respect to Eurex Clearing’s service offering of the following topics:

A.    Launch of the clearing service for cross currency swap transactions traded over-the-counter (“OTC XCCY transactions”)

B.    Launch of the clearing service for foreign exchange spot transactions traded over-the-counter (“OTC FX Spot transactions”), foreign exchange swap transactions traded over-the-counter (“OTC FX Swaps”) and foreign exchange forward transactions traded over-the-counter (“OTC FX Forwards” together with the OTC FX Spot transactions and the OTC FX Swaps, “OTC FX transactions”).

Eurex Clearing offers a clearing service for EUR/USD and GBP/USD OTC XCCY Swaps alongside a range of cleared OTC FX products: OTC FX Spot, OTC FX Swaps and OTC FX Forwards in the same two currency pairs.

OTC FX transactions and OTC XCCY transactions settle daily in the Continuous Linked Settlement (CLS) CCP Service and are part of the same Eurex Clearing liquidity pool, margined together to provide margin offsets across cleared foreign exchange and cross currency products.

There are numbers of benefits of the service to users, namely: 

• Net settlement in the CLS CCP Service, providing liquidity benefits,
• Multilateral netting opportunities realised in facing the CCP,
• Option to choose between Collateralised to Market (CTM) and Settle to Market (STM) accounting practices with no counterparty risk,
• Potential capital benefits, as Eurex Clearing is a qualified central counterparty (CCP), Clearing Members may potentially apply a risk weight of 2% to their trade exposures, see Art. 306 No.1 lit.(a) Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms (CRR). 

Product launch: 15 March 2021

2.  Required action

In order to clear OTC FX and OTC XCCY transactions, Clearing Members are required to obtain a separate Clearing License for OTC Currency Products (OTC Currency Products Clearing License). For further information on becoming a Clearing Member for OTC Currency Products, please contact:

onboarding-team@deutsche-boerse.com

Settlement of all transactions is via the CLS CCP Service. Clearing Members (both GCM and DCM) must complete mandatory Testing and Trialling phases before confirming production readiness and clearing of OTC FX transactions and OTC XCCY transactions. For further information on Testing and Trialling for OTC Currency Products, please contact:

fx@eurex.com     

3.  Details of the initiative

Product scope

OTC FX Spot transactions, OTC FX Forwards and OTC FX Swaps in EUR/USD and GBP/USD with maturities up to 2 years in EUR/USD and GBP/USD.

OTC XCCY transactions with maturity up to 50 years in EUR/USD and GBP/USD. 3-month resettable Mark to Market (MTM), Float/Float with initial and final principle exchanges.

Trade submission

OTC FX Spot transactions, OTC FX Forwards and OTC FX Swaps are submitted for clearing via the approved trade source 360T TEX Multi-Dealer trading system.

OTC XCCY transactions are submitted for clearing via the approved trade source IHS Markit, MarkitSERV.

Eurex Clearing also offers the backloading of existing cross currency swap trades or portfolios of trades into clearing. For a trade to be backloaded, the initial principle exchange must have already taken place.

Settlement in the CLS CCP Service

Settlement in the CLS CCP Service is on a net basis. For each Clearing Member there is one net settlement per currency, made up of initial and final principle exchanges, coupons, Variation Margin (VM) and Price Alignment Interest (PAI) in USD, alongside all trade related fees.

The CLS CCP Service uses the same central bank accounts as the CLS main cycle. However, the identification of funds by CLS for the CLS CCP Service is based on the formatting of the payment messages.

Initial Margin and Variation Margin

The clearing of OTC FX Transactions and Cross Currency Swap transactions leverages Clearing Members’ existing connectivity to EurexOTC Clear, using standard EurexOTC Clear reporting with no separate default fund and all current forms of collateral accepted for posting Initial Margin. VM and PAI are posted in USD and settled on a net basis in the CLS CCP service.

For more information, please contact: fx@eurex.com.

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 or FCM Clearing Conditions of Eurex Clearing AG, as applicable.

Further information