06 Jul 2022

Eurex Clearing

Implementation of Regulatory Requirements stipulated by the CCP Recovery and Resolution Regulation (Regulation (EU) 2021/23) into the Legal Framework of Eurex Clearing AG

Eurex Clearing Circular 050/22 Implementation of Regulatory Requirements stipulated by the CCP Recovery and Resolution Regulation (Regulation (EU) 2021/23) into the Legal Framework of Eurex Clearing AG

1.  Introduction   

This circular contains information with respect to the service offering of Eurex Clearing AG and introduces amendments to the Clearing Conditions of Eurex Clearing AG (Clearing Conditions), the FCM Regulations of Eurex Clearing AG (FCM Regulations) as well as the Default Management Auction Rules (DM Auction Rules) regarding the following topic:

  • Implementation of the regulatory requirements stipulated by the European regulation on a framework for the recovery and resolution of central counterparties (Regulation (EU) 2021/23). 

The planned effective date of these amendments is 12 August 2022

2.  Required action

No specific actions are required by clients. 

3.  Details of the initiative

Regulation (EU) 2021/23 requires Eurex Clearing AG to implement various provisions into its legal framework to comply with regulatory requirements. 

The contemplated amendments attached to this circular intend to implement the following regulatory requirements:

a) Client Participation in Auctions (Article 18 (1) Regulation (EU) 2021/23)

Pursuant to Article 18 (1) of the Regulation, BaFin, acting in its capacity as Eurex Clearing AG’s resolution authority may require Eurex Clearing AG to instruct Clearing Members to invite their clients to participate directly in default management auctions organized by the CCP when the nature of the auction justifies this exceptional participation.

Upon request of Eurex Clearing AG, Clearing Members shall inform their clients about the option to participate in a Default Management auction (DM Auction, DM Bonds Auction or Hedging Auction) following the instructions received from the CCP. 

Alternatively, Eurex Clearing AG may directly inform any Disclosed Direct Client or FCM Client, if Eurex Clearing AG deems the participation as appropriate.  

b) Enforcement of Outstanding Obligations (Article 27 (5) of Regulation (EU) 2021/23)

If BaFin, acting in its capacity as Eurex Clearing AG’s resolution authority, makes use of one or more resolution measures and if BaFin prior to such resolution measures refrained partially or fully from enforcing certain rights under the Clearing Conditions or FCM Regulations (i.e. to call for Further Contributions, Further BCM Contributions or Further FCM Clearing Member Contributions, to exercise its cash settlement rights (partial tear-up)), BaFin shall be entitled to enforce any of such refrained rights within 18 months after the CCP is considered to be failing or likely to fail.

c) Termination Right for Resolution Authorities of Eurex Clearing (Article 29 of Regulation (EU) 2021/23)

Article 29 of the Regulation (EU) 2021/23 requires a CCP to implement provisions in its rulebooks, which entitle BaFin, acting in its capacity as Eurex Clearing AG’s resolution authority, to terminate some or all of the following contracts under resolution: (i) contracts with the Clearing Member in default; (ii) contracts of the affected clearing service or asset class; (iii) the other contracts of the CCP under resolution.

d) Resolution “Variation Margin Gains Haircutting” (VMGH) (Article 30 of Regulation (EU) 2021/23)

Pursuant to Article 30 of the Regulation (EU) 2021/23, Eurex Clearing AG is required to implement provisions in its rulebooks, which entitle BaFin, acting in its capacity as Eurex Clearing AG’s resolution authority, to reduce the daily profits non-defaulting Clearing Members and FCM Clearing Members will receive from cleared Transactions which foresee daily Variation Margin or Settled-to-Market (STM) Amount payments after the occurrence of a Termination with respect to a Clearing Member or FCM Clearing Member (Variation Margin Gains Haircutting – VMGH). 

The total amount needed to cover Eurex Clearing AG's losses will be shared between all Clearing Members on a pro-rata basis.

e) Resolution Cash Calls (Article 31 of Regulation (EU) 2021/23)

Pursuant to Article 31 of the Regulation (EU) 2021/23, Eurex Clearing AG is required to implement provisions in its rulebooks, which entitle BaFin, acting in its capacity as Eurex Clearing AG’s resolution authority, to require the non-defaulting Clearing Members and FCM Clearing Members to provide further contributions to the Default Fund in the form of cash (Resolution Cash Calls) to cover any outstanding default loss or non-default loss. 

The Resolution Cash Calls may amount up to twice the applicable Contribution Requirement of the relevant Clearing Member.

f) Recognition of Resolution Measures (Article 53 (2) of Regulation (EU) 2021/23)

Furthermore, according to Article 53 (2) of the Regulation (EU) 2021/23, Eurex Clearing AG is required to implement provisions in its rulebooks pursuant to which the Clearing Members and FCM Clearing Members agree to be bound by any resolution tool taken by BaFin, acting in its capacity as Eurex Clearing AG’s resolution authority, in respect to  the Clearing Member’s, Basic Clearing Member’s or FCM Clearing Member’s assets, rights, obligations and liabilities under Clearing Conditions or FCM Regulations, including the application of Article 28 (position and loss allocation tools), Article 32 (write down and conversion tool), Article 55 (power to suspend certain obligations), Article 56 (power to restrict the enforcement of security interests) and Article 57 (power to temporarily suspend termination rights) of the Regulation (EU) 2021/23. 

To reflect the proposed changes, the following provisions will be added as outlined in Attachments 1 to 3:

  • Attachment 1: Number 3.4.5 of the DM Auction Rules 
  • Attachment 2: Chapter I Part 1 Number 17.7.2 of the Clearing Conditions
  • Attachment 3: Chapter I Number 16.6.2 of the FCM Regulations

Publication of amendments to the Clearing Conditions

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

Rules & Regs > Eurex Clearing Rules and Regulations

The changes and amendments to the DM Auction Rules, Clearing Conditions and FCM Regulations published by this circular are deemed accepted by each affected contractual party of Eurex Clearing, unless the respective contractual party objects by written notice to Eurex Clearing within the first ten (10) Business Days after publication. Any ordinary right of Eurex Clearing to terminate the respective contract (including a Clearing Agreement or a FCM 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:

  • Attachment 1 – Amendments to the DM Auction Rules
  • Attachment 2 – Amendments to the Clearing Conditions
  • Attachment 3 – Amendments to the FCM Regulations


Further information

Recipients:

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

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:

Dmitrij Senko