29 Oct 2021

Eurex Clearing

Prisma: Update of ETD Liquidity Add-On Parameters effective 29 November 2021

Eurex Clearing Circular 097/21 Prisma: Update of ETD Liquidity Add-On Parameters effective 29 November 2021


1. Introduction

As part of a regular review of concentration risk handling in the risk methodology, Eurex Clearing has recalibrated the Liquidity Add-on for ETD products. The affected model parameters comprise Market Capacities of all Prisma Liquidation Groups in the ETD space. The recalibration follows standard calibration methodology. 

Production start: 29 November 2021

Eurex Clearing provides the possibility to calculate impacts on margining using Cloud PME, where an additional environment was set up with the updated parameters at the Cloud Prisma Margin Estimator.

2. Required action

No specific actions are required by clients. The recalibration is a regular update and does not encompass changes to the model. 

3. Details of the initiative

Eurex Clearing has prudent risk framework in place to mitigate counterparty credit risks. In particular, concentration risks are covered as part of this framework. Next to Concentration Risk limits, Eurex Clearing’s PRISMA methodology comprises a dedicated Liquidity Add-On accounting for this type of risk.

In general, the Liquidity Add-On is designed to capture the potential additional costs when liquidating portfolios, where the key features are:

  • The Liquidity Add-On depends on the relative size of positions as compared to observed tradable volumes. 
  • The Liquidity Add-On depends on the current level of market risk of the respective products.

The Liquidity Add-On’s scaling properties towards large and potentially concentrated positions are mainly governed by a linear Liquidity Factor function, which translates position sizes into a scaling factor in the Add-On. As part of a regular review of concentration risk handling in the risk methodology, Eurex Clearing has recalibrated the Market Capacity parameters with a focus on the observable tradable volumes in the market as well as availability of broader liquidity pools, whereby accessibility to the underlying cash market allows to reflect higher liquidity for certain products. 

All Prisma ETD Liquidation Groups will be affected.

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

Recipients:

All Clearing Members, Basic Clearing Members, Direct Clearing Members, Disclosed Direct Clients of Eurex Clearing AG, vendors and other affected contractual parties

Target groups:

Front Office/Trading, Middle + Backoffice

Contact:

Risk Exposure Management, tel. +49-69-211-1 24 52, risk@eurex.com

Web:

www.eurex.com/ec-en/

Authorized by:

Dmitrij Senko