28 Oct 2021

Eurex Clearing

EurexOTC Clear Release 12.0 and C7 Release 8.0: Amendments to the Clearing Conditions and FCM Regulations of Eurex Clearing AG

Eurex Clearing Circular 096/21 EurexOTC Clear Release 12.0 and C7 Release 8.0: Amendments to the Clearing Conditions and FCM Regulations of Eurex Clearing AG

1.  Introduction

This circular contains information with respect to amendments to the Clearing Conditions of Eurex Clearing AG (Clearing Conditions) and the FCM Regulations of Eurex Clearing AG (FCM Regulations) corresponding to EurexOTC Clear Release 12.0 and C7 Release 8.0 regarding the following topics:

A. EurexOTC Clear Release 12.0: Conversion of GBP, CHF and JPY trades referencing LIBOR benchmarks to the corresponding risk-free rates (RfR)

B. EurexOTC Clear Release 12.0: Support of clearing of Overnight Indexed Swap (OIS) with four Interest Rate Stub Periods

C. C7 Release 8.0: Due date changes for certain cash settlements under options contracts on shares 

D. EurexOTC Clear Release 12.0 and C7 Release 8.0: Further minor amendments 

The amendments to the Clearing Conditions and FCM Regulations will come into effect as of 22 November 2021

Learn now more about:

  • EurexOTC Clear Release 12.0 on our dedicated initiative page under the following link: Support > Initiatives & Releases > EurexOTC Clear Releases > EurexOTC Clear Release 12.0 
  • C7 Release 8.0 on our dedicated initiative page under the following link: Support > Initiatives & Releases > C7 Releases > C7 Release 8.0.

System documentation, circulars, timeline and much more information is available there for you. 

2.  Required action

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

3.  Details of the initiative

A.    EurexOTC Clear Release 12.0: Conversion of GBP, CHF and JPY trades referencing LIBOR benchmarks to the corresponding risk-free rates (RfR)

As announced in Eurex Clearing circulars 022/21081/21 and Eurex Clearing Readiness Newsflash of 26 May 2021, Eurex Clearing will actively convert the remaining cleared legacy LIBOR-based interest rate swap and basis swap trades to standard and liquid RfR OIS trades before the fallback provisions are triggered. It is planned to execute the conversion of EurexOTC Clear trades referencing

  • CHF LIBOR and JPY LIBOR starting on 3 December 2021 and executed over that weekend and
  • GBP LIBOR starting on 17 December 2021 and executed over that weekend.

In this regard, this Eurex Clearing Circular shall be an announcement of the respective Index Conversions pursuant to Chapter VIII Part 1 Number 1.8.3 Clearing Conditions and Chapter II Part 1 Number 1.8.3 FCM Regulations.

The conversion will be mandatory for all cleared OTC transactions referencing the CHF, JPY and GBP LIBOR floating rates on the above-mentioned dates. It will be effective as soon as it is reflected in Eurex Clearing’s systems.

Eurex Clearing will legally reflect the conversion as an amendment to the relevant transactions by replacing the references to CHF JPY and GBP LIBOR floating rates with the respective RfR index underlying the respective fallbacks. The cornerstones of the conversion are as follows:

1) The original LIBOR trade periods, payment frequency, maturity date and other settings (on either leg) should be retained as much as possible.

2) In the replacing OIS trade, the underlying index (LIBOR) of the floating leg of the original trade is replaced with the respective daily compounded RfR, and a spread adjustment is added as a simple spread, in order to maximize economic equivalence (see for details Section 3.2 of the LIBOR Trade Conversion Booklet). The spread as calculated by Bloomberg will be used (in this regard, please note the attached Bloomberg disclaimer).

3) Due to the replacement of fixing in advance (LIBOR) with fixing in arrears (daily compounded RfR) of the floating leg, where applicable, a payment lag is introduced where applicable according to the market standard that applies to OIS for the respective currency.

4) The conversion aims whenever possible to preserve LIBOR fixings that will be known until the respective LIBOR cessation effective date.

Operationally, the conversion will be executed as a termination of each original LIBOR-based trade and a novation of one or more replacement trades for each original trade. An overview of the conversion details on a trade type level can be found in below table; further details are set out in Section 3.5 of the LIBOR Trade Conversion Booklet.

Trade type

Applied conversion (overview)

Forward start IRS Swap (first reset after index cessation effective date)

Single replacement trade: Full maturity replacement RfR OIS with cash compensation attached as upfront fee, no overlay swaps

1: Fixed Float IRS
(Non-compounded)

Three replacement trades:
1. Full maturity RfR OIS, with cash compensation attached as upfront fee
2. Shortened maturity* RfR OIS with mirrored fixed leg to the shortened maturity LIBOR IRS (trade 3)
3. Shortened maturity* LIBOR IRS

*For trades 2 and 3, the swap Maturity Date will be the end of the last LIBOR floating coupon that fixes before index cessation effective date and both trades will have 0% fixed coupon.

2: Fixed Float IRS
(Compounded, Zero coupon)

Three replacement trades: 1
1. Full maturity RfR OIS, with cash compensation attached as upfront fee
2. Shortened maturity* RfR OIS with mirrored fixed leg to the shortened maturity LIBOR IRS (trade 3)
3. Shortened maturity* LIBOR IRS

*For trades 2 and 3, the swap Maturity Date will be the end of the last LIBOR floating coupon that fixes before index cessation effective date and both trades will have 0% fixed coupon.

3: Basis Swap
Non-compounded

Single replacement trade: Shortened maturity LIBOR basis swap, with cash compensation attached as upfront fee. Each floating leg will have its final cash flow at the end of the last respective LIBOR floating coupon that fixes before index cessation effective date.

4: Basis Swap compounded / having stubs / Forward start with first reset after index cessation effective date

Termination with termination fee and no replacement trade.

1 If a compounding period requires LIBOR fixing post index cessation effective date, this entire period will be replaced in the full maturity RfR OIS trade with compounded RfR + spread adjustment. For compounding with a zero coupon pay frequency, the replacement trade compounds over the whole calculation period. 


A one-off cash compensation as further detailed in Section 4.1 of the LIBOR Trade Conversion Booklet will be applied to mitigate the associated change in present values of affected OTC transactions. The compensation fee will have the following settlement dates:

  • 7 December 2021 regarding the CHF LIBOR conversion,
  • 8 December 2021 regarding the JPY LIBOR conversion and
  • 21 December 2021 regarding the CHF LIBOR conversion.

For more information, please refer to Eurex Clearing Readiness Newsflash of 26 May 2021 and to the detailed explanation in the document “EurexOTC Clear – LIBOR Trade Conversion Booklet” (the LIBOR Trade Conversion Booklet) which is available in the Member Section of Deutsche Börse Group under the following path:

Resources > Eurex Clearing > Documentation and Files > Benchmark Transition Information > LIBOR Trade Conversions.

Upon completion of the transition, LIBOR floating-rate references in CHF, JPY and GBP will no longer be eligible for clearing in the EurexOTC Clear service.

To reflect the change of eligibility, the following provisions will be amended as outlined in Attachments 1 and 2:

  • Chapter VIII Part 2 Number 2.1.5.1 of the Clearing Conditions
  • Chapter II Part 2 Number 2.1.5.1 of the FCM Regulations

B.   EurexOTC Clear Release 12.0: Support of clearing of Overnight Indexed Swap (OIS) with four Interest Rate Stub Periods

Currently, Eurex Clearing supports clearing of OIS with two non-standard shortened or extended calculation periods (Interest Rate Stub Periods) that relate to a time period after novation, whereby both Interest Rate Stub Periods must be either Interest Rate Front Stub Periods or Interest Rate Back Stub Periods.

With EurexOTC Clear Release 12.0, clearing of OIS with four Interest Rate Stub Periods will be supported. i.e. for OIS, it will be eligible to have an Interest Rate Front Stub Period and an Interest Rate Back Stub Period on the same leg, if the other leg has also two Interest Rate Stub Periods.

To implement the change, the following provisions will be amended as outlined in Attachment 1 and 2:

  • Chapter VIII Part 2 Number 2.1.5.1 of the Clearing Conditions
  • Chapter II Part 2 Number 2.1.5.1 of the FCM Regulations

C.    C7 Release 8.0: Due date changes for certain cash settlements under options contracts on shares

As announced in Eurex Clearing Circulars 048/21 and 089/21, with C7 Release 8.0, Eurex Clearing will change the due date for pure cash flows resulting from exercise/assignment of options contracts on shares (OSTK) (e.g. cash settled flexible contracts or settlement of fractions) from T+2 to T+1.

To implement the changes, the following provisions will be amended as outlined in Attachment 3:

  • Chapter II Part 3 Number 3.6.8 and Chapter II Part 4 Number 4.2.2.(2) of the Clearing Conditions

D.    EurexOTC Clear Release 12.0 and C7 Release 8.0: Further minor amendments to the Clearing Conditions and FCM Regulations

Eurex Clearing applies further minor amendments to the Clearing Conditions and FCM Regulations including:

  • Amendments to reflect the brand name change of the benchmark provider from Thomson Reuters to Refinitiv
  • Update of a reference to the 2021 ISDA Definitions to align with v2 of the 2021 ISDA Definitions
  • Clarification on the definition for “Day Count Basis” to align with v2 of the 2021 ISDA Definitions

To implement the changes, the following provisions will be amended as outlined in Attachment 1 and 2:

  • Chapter VIII Part 1 Numbers 1.7, 1.8 and 1.9, Part 2 Number 2.2, Part 3 Number 3.4, Part 4 Number 4.2.8 of the Clearing Conditions
  • Chapter II Part 1 Numbers 1.7, 1.8 and 1.9, Part 2 Number 2.2 of the FCM Regulations

Publication of amendments to the Clearing Conditions and the FCM Regulations

As of the effective date, the full version of the amended Clearing Conditions and FCM Regulations 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 changes and 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 ten (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.

Attachments:

  • 1 Amended sections of Chapter VIII of the Clearing Conditions
  • 2 Amended sections of Chapter II of the FCM Regulations
  • 3 Amended sections of Chapter II of the Clearing Conditions
  • 4 Bloomberg disclaimer

Further information

Recipients:

All Clearing Members, Basic Clearing Members, Disclosed Direct Clients, FCM Clearing Members, vendors and other affected contractual parties

Target groups:

Front Office/Trading, Middle + Backoffice

Contact:

client.services@eurex.com

Related circulars:

Eurex Clearing circulars 022/21, 048/21, 063/21, 081/21089/21

Web:

Support > Initiatives & Releases > EurexOTC Clear Releases > EurexOTC Clear Release 12.0

Support > Initiatives & Releases > C7 Releases > C7 Release 8.0

Authorized by:

Jens Janka