09 Jul 2021

Eurex Clearing

Amendments to the Clearing Conditions, FCM Regulations and the Price List of Eurex Clearing AG; Introduction of a simplified Security Collateral Fee Scheme 2021-2022

Eurex Clearing Circular 062/21 Amendments to the Clearing Conditions, FCM Regulations and the Price List of Eurex Clearing AG; Introduction of a simplified Security Collateral Fee Scheme 2021-2022

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, FCM Regulations and the Price List of Eurex Clearing AG regarding the following topics:

A.    Introduction of a simplified Security Collateral Fee Scheme 2021-2022

B.    Introduction of JPY as an additional cash collateral currency  

C.    Alignment of Securities Collateral Fee related to Default Fund contributions provided in USD

D.    Introduction of rejection right regarding Eligible Margin Assets

The amendments to the Clearing Conditions, FCM Regulations and the Price List will come into effect on 1 August 2021.

2.  Required action

There is no required action.

3.  Details of the initiative

A.    Introduction of a simplified Security Collateral Fee Scheme 2021-2022

i) Removal of the staggered securities collateral fee scheme approach and introduction of a flat securities collateral fee at 10 basis points and aligned handling of net and gross segregated accounts:

In response to changed market conditions, client requests and to further support the regulatory agenda, Eurex Clearing introduces a simplified collateral fee scheme concerning margin collateral and the default fund contribution. As part of the annual review for the Security Collateral Pricing, Eurex Clearing will introduce the following amendments with effect from 1 August 2021:

For simplification reasons, the staggered securities collateral fee scheme approach will be replaced by a flat securities collateral fee of 10 basis points effective 1 August 2021. This fee will apply to net and gross segregated pools, but there will be no changes to the current exceptions for OTC IRD client pools (100 percent discount) and ISA Direct Clients (Basic Clearing Members) (50 percent discount).

In addition, a 50 percent discount on securities collateral for Cross Product Margining client pools will be introduced effective 1 January 2022.

In addition, the incentives for gross segregated pools for covering margin requirements with cash will be removed. The regular currency-related cash handling fee will be applied to net and gross segregated pools, effective 1 August 2021.

ii) GC Pooling® re-use collateral fee at 5 basis points 

Since November 2010, Clearing Members and Basic Clearing Members can cover their proprietary margin requirements by reusing the received GC Pooling® collateral. 

Effective 1 August 2021, Eurex Clearing AG will introduce a fee on GC Pooling® re-use collateral delivered by Clearing Members and Basic Clearing Members to cover their proprietary margin requirements. The security collateral fee is charged on a collateral pool level and applies to all collateral pool types (default, omnibus and segregated). The regular fee will be set to 5 basis points per annum for all pool types. However, this fee is fully waived (100 percent discount) until 30 June 2022, meaning no collateral handling fee is to be applied to GC Pooling® re-use collateral before 1 July 2022. 

Where the Securities delivered through the Eurex GC Pooling® re-use collateral fee collateralize Eurex Clearing’s exposure against the Clearing Member or Basic Clearing Member that results out of Repo Transactions (including GC Pooling Repo Transactions), a discount of 100 percent will remain to be granted.

iii) Adjustment of the concentration fee to 7.5 basis points

As a Central Counterparty (CCP), Eurex Clearing is obliged to maintain adequate levels of liquidity to comply with regulatory requirements. Cash margins represent the most relevant source of liquidity for a CCP. 

Eurex Clearing now clarifies that – due to its healthy overall cash-to-securities ratio – it will normally not charge an additional concentration fee and it adjusts the fee to 7.5 basis points that may be applicable for Clearing Members and Basic Clearing Members with an overall cash-to-securities-ratio (with respect to margin assets and Contributions to the Default Fund) below 30 percent. 
Note the said 30 percent cash-to-securities-ratio is an indication which might change over time to ensure compliance with regulatory required stressed market liquidity.

The application of the concentration fee will be communicated to affected Clearing Members and/or Basic Clearing Members in advance. Eurex intends to provide a notice period of two months between the announcement and the actual application of the fee (while not assuming any such obligation).

To retain flexibility, Eurex Clearing introduces two pricing options for the concentration fee. If the application of the concentration fee is triggered, Eurex Clearing will announce which option is applicable.

Option 1:

  • Identification of affected Clearing Members and Basic Clearing Members: Cash-to-securities ratio of each Clearing Member and/or Basic Clearing Member (measured across all margin and Default Fund contribution pools) has to meet at least 30 percent, otherwise 7.5 basis points will be applied to the Securities delivered as margin or Contribution to the Default Fund in addition to the regular securities collateral fee (of all proprietary, NOSA UDC and Default Fund pools irrespective of the cash-to-securities ratio per pool).
  • The concentration fee will not be applied to gross segregated client pools.
  • Clearing Members and Basic Clearing Members with a cash-to-securities ratio of at least 30 percent across all pools will not be affected at all.

Option 2:

  • Identification of affected Clearing Members and Basic Clearing Members: Cash-to-securities ratio of each Clearing Member and/or Basic Clearing Member has to meet at least 30 percent, otherwise 7.5 basis points will be applied to the Securities delivered as Contribution to the Default Fund or margin, but only with respect to those pools which – on a pool level – have a cash-to-securities ratio below 30 percent. 
  • Clearing Members and Basic Clearing Members with an overall cash-to-securities ratio of at least 30 percent across all pools will not be affected at all.
  • Collateral Pools with a cash-to-securities ratio of at least 30 percent on pool level will not be affected at all.

B.    Introduction of JPY as an additional cash collateral currency

In response to requirements from our customers and to support Eurex Asia strategy related to MSCI derivatives contracts, OTC IRD and Trading Hours Extension, Eurex Clearing is introducing JPY as an additional cash collateral currency that will allow customers to utilize JPY when trading Japanese contracts and to improve their collateral mix.

JPY is already supported as a currency for VM (variation margin) and non-cash IM (initial margin) so this extension will leverage the proven existing infrastructure of Eurex Clearing. The admitted correspondence banks are published on the Eurex Clearing website www.eurex.com/ec-en/ under the following link: 

Services > Collateral management > Cash collateral

Eurex Clearing will apply the standard procedures of processing of JPY cash collateral, i.e.:

  • JPY deposits will be accepted based on the settlement confirmation of the correspondence bank 
  • JPY withdrawals will be processed only if the remaining collateral value covers the margin requirement

Please note: Intraday margin calls will not be issued in JPY.

The type of money “TERM“ will be assigned to JPY balances to ensure money is not returned overnight (similar to USD). A pre-advice for a deposit and withdrawal instruction will be required by 2 pm CE(S)T on T-2.

TONAR (Tokyo Overnight Average Rate) as a benchmark rate will be passed on to the Clearing Members and/or Basic Clearing Members after deduction of a cash service fee of 30 basis points.

If you have any questions regarding set-up or processing, please contact your Clearing Key Account Manager.

To implement these changes, the following provisions will be amended as outlined in Attachment 1:

  • Number 9.1 (1) of the Price List 

C.    Alignment of Securities Collateral Fee related to Default Fund contributions provided in USD

The cash service fee for Eligible Margin Assets in the form of cash denominated in USD and delivered to Eurex Clearing for overnight holdings (type of money "TERM" in the Eurex Clearing GUI) is subject to a discount on the standard service fee of 20 percent, resulting in an absolute service fee of 40 basis points p.a. 

In addition, there is a temporary reduction of the cash service fee to 20 basis points until further notice.

This discount will be applied as well to cash denominated in USD for overnight holdings delivered as Contributions to the Default Fund. To implement this change, the following provision will be amended as outlined in Attachment 1:

  • Numbers 9.1 and 9.3 of the Price List 

Further, this fee reduction will be applied as of publication of this Eurex Clearing Circular. 

In addition, there is already today a temporary reduction of the service fee for USD delivered as cover for margin requirements by 50 percent (resulting in an absolute service fee of 20 basis points for USD delivered as overnight holdings). This temporary reduction shall also apply to Contributions to the Default Fund denominated in USD which are delivered as overnight holdings as of publication of this Eurex Clearing Circular until further notice. 

D.    Introduction of rejection right regarding Eligible Margin Assets

According to the current Clearing Conditions and FCM Regulations, Eurex Clearing can request an exchange of Eligible Margin Assets that were delivered to Eurex Clearing in case any specific Eligible Margin Assets provided by a Clearing Member or Basic Clearing Member are subject to adverse market developments.

In addition to safeguard the clearing house, Eurex Clearing is introducing a rejection right in relation of Eligible Margin Assets that are delivered with a pre-advice notice, i.e. before such assets are effectively received by Eurex Clearing.

To implement these changes, the following provisions will be amended as outlined in Attachments 2 and 3:

  • Chapter I Part 1 Number 3.2.4 of the Clearing Conditions and
  • Chapter I Number 3.1.2 of the FCM Regulations

Publication of amendments to the Clearing Conditions, the FCM Regulations and the Price List

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

Rules & Regs > 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 within the first 15 Business Days (or, in respect of amendments to the Price List, within the first 10 Business Days) after publication. Any ordinary right of Eurex Clearing AG to terminate the respective contract (including a Clearing Agreement, if applicable) shall remain unaffected.

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. Unless the context requires otherwise, the term "Clearing Member" shall also include FCM Clearing Members.

Attachments:

Amended sections of the following Rules and Regulations:

  • 1 – Price List of Eurex Clearing AG
  • 2 – Clearing Conditions of Eurex Clearing AG
  • 3 – FCM Regulations of Eurex Clearing AG


Further information

Recipients:

All Clearing Members, FCM Clearing Members, Basic Clearing Members, Disclosed Direct Clients, FCM Clients of Eurex Clearing AG and vendors

Target groups:

Front Office/Trading, Middle + Backoffice, IT/System Administration, Auditing/Security Coordination

Contact:

client.services@eurex.com

Web:

www.eurex.com/ec-en/ 

Authorized by:

Jens Janka