EurexOTC Clear: Introduction of Additional Validations for Bunched Order Workflow and adoption of Advanced Risk Netting Units under EMIR as well as LSOC Clearing Models: 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) regarding the following topics:

A. Additional Validations for Bunched Order Workflow
B. Adoption of Advanced Risk Netting Units under EMIR as well as LSOC Clearing Models

The amendments of the Clearing Conditions and FCM Regulations will come into effect as of 26 September 2022.

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.    Additional Validations for Bunched Order Workflow

Bunched order clearing is a functionality to facilitate the clearing of OTC IRD block trades that are initially booked into a “suspense account” for post-novation allocation to different target accounts (so-called “bunched orders”). For the initial clearing of a client’s bunched orders by a “stand-by” Clearing Member, “Bunched Orders Suspense Accounts” are used as a client position account type. Any trade booked into the “Bunched Orders Suspense Accounts” are cleared the same way as any other client trade. For the successful novation of the bunched orders, sufficient client collateral should be available, as well as the stand-by Clearing Member must accept the bunched orders. 

After clearing on a block level, the bunched orders are allocated from “Bunched Orders Suspense Account” into the target accounts of the Clearing Member which clears the transactions of the client to which the bunched order relates, on a pre-condition that the target accounts must be sufficiently collateralized. The allocation of bunched orders to target accounts is carried-out either via 1) third-party allocation service provider or 2) via post-trade events (PTE) directly at Eurex Clearing.

1) Allocation via third-party

For an allocation trade that is submitted to Eurex Clearing via a third-party allocation service provider Eurex Clearing validates: (i) if the respective bunched order is already cleared by Eurex Clearing, (ii) if the notional value of the respective bunched order is equal to or greater than the notional value of the respective allocation trade that is to be novated. 

Starting from 26 September 2022 changes for the EurexOTC Clear interfaces, Eurex Clearing will further validate: (iii) trade economics of allocation trade should match with the trade economics of the bunched order. If (i), (ii) or (iii) fails, the allocation trade will be rejected directly, and a rejection notification message will be sent to the submitting Approved Trade Source (ATS).

2) Allocation via PTEs

For an allocation of bunched orders through already-existing PTE, the stand-by Clearing Member can use either “Account Transfer” – to allocate it to any other of its own accounts, or “Trade Transfer” – to allocate it to accounts of another Clearing Member. There is no update planned with 26 September 2022 changes regarding the allocation via PTEs.

To reflect the change, the following provision will be amended as outlined in Attachment 2:

• Chapter VIII Part 1 Number 1.2.3 (10) of the Clearing Conditions

B.    Adoption of Advanced Risk Netting Units under EMIR as well as LSOC Clearing Models

Eurex Clearing started to offer risk netting across several client Transaction Accounts on the OTC derivatives side via Advanced Risk Netting Units (ARNUs) under EMIR Clearing Models on 4 May 2020. Eurex Clearing will enhance its Advanced Risk Netting Unit functionality on the OTC derivatives market under EMIR as well as LSOC Clearing Models in Prisma and in (partially) Calypso. The ARNU functionality enables customers (with multi-branch setups or sub-funds structures) to benefit from portfolio netting effects for Initial Margin calculation, even if transactions are booked to separate transaction accounts for proper position keeping and accounting. ARNUs do neither change the risk model nor the margin model – the calculation is always portfolio based.

The usage of ARNU will be optional and Clearing Members and FCM Clearing Member can assign ARNU setups via the Company Admission Tool (ValiT) during the onboarding process of a Disclosed Client/FCM Client.

ARNU will be available under all EMIR Clearing Models as well as under LSOC Clearing Models for transaction accounts of Disclosed Direct Clients and Indirect Clients. To comply with EMIR and CFTC regulations and due to technical limitations, the following restrictions apply: 

• ARNU is only possible across transaction accounts that relate to the same Disclosed Direct/Indirect Client.
• An ARNU is only possible with respect to transaction accounts that are allocated to the same segregation model and to the same collateral pool.
• In case of LSOC Clearing Models, only one ARNU can be linked to one LSV Collateral Pool.
• Following the creation of an ARNU, the Initial Margin requirement will be reported at ARNU level for the accounts assigned to an ARNU.
• The name of an ARNU has always to start with ‘ARNU’, e.g., ‘ARNUBIGCLIENT1’, ‘ARNU2392199’, etc. The name may only consist of alphanumeric uppercase characters; special characters will be not allowed. The maximum number of characters for the name of an ARNU will be 20 (including the first 4 characters specified as ‘ARNU’).

Please note that ARNUs have no impact on the Variation Margin requirement, i.e., the calculation and reporting of the Variation Margin will still take place on transaction level respective transaction account level.

To reflect the changes, the following provisions will be amended as outlined in Attachments 1 and 3:

• Chapter I Number 3.1.1, Number 4.2.1 (1) and (2), 4.2.2, 4.2.3 (2), 4.3.1 (3), 5.2, 6.2.5 (3), 6.2.6, 6.4.2 (1), 6.4.3 (1), (2) and (3), 6.5.3 (1) and (2), 6.5.4 (1), (2) and (3) Number 9.1 (1) and (2), 9.4.1 (1), 9.5.5 (2), 9.5.6, 10.2 (4), 11.1.2 (1), (3) and (4), 11.2.1 (2) and 11.2.2 (1)  of the FCM Regulations 
• Chapter I Part 1 Number 3.1.2 (2) of the Clearing Conditions

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 fifteen (15) 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 Regulations of Eurex Clearing AG, as applicable.

Attachments:

1. Amended sections of Chapter I of the Clearing Conditions
2. Amended section of Chapter VIII of the Clearing Conditions 
3. Amended sections of Chapter I of the FCM Regulations

Further information