28 Nov 2022

Eurex Clearing

Amendments to the Clearing Conditions of Eurex Clearing - Consultation - Implementation of Article 9 (14) of Regulation (EU) 2021/23 (“Second Skin in the Game”)

Eurex Clearing Circular 088/22 Amendments to the Clearing Conditions of Eurex Clearing - Consultation - Implementation of Article 9 (14) of Regulation (EU) 2021/23 (“Second Skin in the Game”)

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 of Eurex Clearing (Clearing Conditions) and the FCM Default Rules of Eurex Clearing (FCM Default Rules) regarding the following topic:

  • Implementation of the regulatory requirement on a “Second Skin in the Game” (SSITG) stipulated by Article 9 (14) Regulation (EU) 2021/23 (CCP Recovery & Resolution Regulation). 

The amendments to the Clearing Conditions regarding the above topic are subject to a consultation process (Consultation). The Consultation will end on 28 December 2022 (Consultation Period). The planned effective date of these amendments is 12 February 2023, depending on the outcome of the Consultation which will be communicated in a separate Eurex Clearing circular. 

The amendments to the FCM Default Rules will become effective as of 12 February 2023.

2. Required action

The amendments to the Clearing Conditions are subject to a Consultation which will end with the expiry of 28 December 2022

Eurex Clearing herewith invites all Affected Customers to submit comments on the proposed changes and amendments within the Consultation Period.

3.    Details of the initiative

Article 9 (14) of the CCP Recovery & Resolution Regulation requires Eurex Clearing to implement a second layer of pre-funded own resources, called SSITG. The SSITG shall cover default and non-default events. 

Eurex Clearing’s participation in the Default Waterfall – Status Quo

Currently, Eurex Clearing contributes to the Default Waterfall at two levels: 

  • Immediately after the Contributions of the defaulting Clearing Member and prior to the Contributions of the non-Defaulting Clearing Members, Eurex Clearing realizes its “Dedicated Amount” (First “Skin in the Game” (SITG)) of 200 million euro
  • Secondly, when requesting the non-defaulting Clearing Members to provide Further Contributions to the Default Fund (“Assessments”), Eurex Clearing contributes on a pro-rata basis with its “Further Dedicated Amount” (FDA) of up to 300 million euro. 

Eurex Clearing’s participation in the Default Fund after the implementation of the SSITG

With the introduction of SSITG, Eurex Clearing refines its participation to the Default Waterfall. Overall, Eurex Clearing’s contribution will remain well above the regulatory requirements. Eurex Clearing will redistribute its currently prefunded amount of 200 million euro between the SITG and the SSITG, in the same proportion to the regulatory requirements. The “Dedicated Amount” (SITG) will amount to 143 million euro and the SSITG to 57 million euro.

Eurex Clearing´s FDA of up to 300 million euro will remain unchanged. 

SSITG will follow the current segmented structure of the Default Waterfall as described and shown in the graph below. SSITG will be split in segments proportionally to the Liquidation Group size, similarly to the Default Fund of the Clearing Members. Each SSITG segment will be utilized just after the corresponding segment of the non-defaulted Clearing Members. The remaining order of priority of other layers in the Default Waterfall remains unchanged. 

Eurex Clearing´s affected Default Fund layers shall be refined as described below (new or changed layers shown in bold):

1.    Default Fund Contribution of the Defaulted Clearing Member 
a.    Contributions relating to the segments (Liquidation Groups) where losses remain (so-called Liquidation Group Ratio)
b.    Contributions relating to segments (Liquidation Groups) where all losses are covered, and Contributions remain (so-called spill-over)

2.    In case of a defaulting Basic Clearing Member (BCM) only: Further Contributions for such defaulted BCM (assessments) provided by Clearing Agent
a.    Further Contributions relating to the segments where losses remain (so-called Liquidation Group Ratio)
b.    Further Contributions relating to segments where all losses are covered, and Further Contributions remain (so-called spill-over)

3.    Dedicated Amount of Eurex Clearing (SITG - now amounting to 143 million euro)
a.    Dedicated Amount relating to segments where losses remain (so-called Liquidation Group Ratio)
b.    Dedicated Amount relating to segments where no losses remain or from segments not affected at all (so-called spill-over)

4.    “Juniorized” Default Fund Contribution of non-defaulted Clearing Members being Non-Bidders / any BCM Contributions of the defaulted Clearing Agent
a.    Contributions relating to segments where losses remain, and non-defaulting Clearing Members did not provide auction bids (so-called Liquidation Group Ratio)
b.    Contributions relating to segments with respect to which the non-defaulting Clearing Members did not provide bids, but where all losses are covered, and Contributions remain

5.    “Standard” Default Fund Contribution of non-defaulted Clearing Members / SSITG
a.    Contributions of non-defaulting Clearing Members relating to segments where losses remain (so-called Liquidation Group Ratio)
b.    Additional contribution of Eurex Clearing (SSITG) relating to the Segments where losses remain
c.    Contributions of non-defaulting Clearing Members relating to segments where all losses are covered, and Contributions remain, or segments not affected at all (so-called spill-over)
d.    Remaining additional contribution of Eurex Clearing (SSITG spill-over) relating to segments where all losses are covered, and Contributions remain or segments where no losses remain or segments not affected at all 

6.    “Seniorized” Default Fund Contribution of non-defaulted Clearing Members, which won Hedging Auctions
a.    Contribution relating to segments where losses remain and with respect to which the non-defaulting Clearing Members won Hedging Auctions (so-called Liquidation Group Ratio)
b.    Contributions relating to segments where all losses are covered, and Contributions remain and with respect to which the non-defaulting Clearing Members won Hedging Auctions (so-called spill-over)

7.    “Juniorized” Further Contribution of non-defaulted Clearing Members (Assessments) 
a.    Further Contributions relating to segments where losses remain (so-called Liquidation Group Ratio) – here no spill-over applies

8.    “Standard” Further Contributions of non-defaulted Clearing Members (Assessments) and Further Dedicated Amount by Eurex Clearing (FDA 300 million euro maximum)
a.    Further Contribution / FDA relating to segments where losses remain (so-called Liquidation Group Ratio) – here no spill over applies

For further details on Eurex Clearing´s Liquidation Groups please refer to the Eurex Clearing website www.eurex.com/ec-en/ under the following link: Services > Risk parameters

Screenshot 2022-11-24 154635










In order to ensure compliance with regulatory requirements stipulated by Regulation (EU) 2021/23, Eurex Clearing is entitled to use SSITG earlier within the above illustrated order of priority. 

To reflect the proposed changes, the following provisions will be added as outlined in Attachments 1 to 2:

  • Attachment 1: Chapter I Part 1 Numbers 6.1.3 and 6.2.1 of the Clearing Conditions
  • Attachment 2: Numbers 3.1.3 and 3.2.1 of the FCM Default Rules

Consultation with respect to the amendments to the Clearing Conditions

Pursuant to Chapter I Part 1 Number 17 of the Clearing Conditions, the proposed changes and amendments to the Clearing Conditions are subject to a Consultation which will end with the expiry of 28 December 2022

Eurex Clearing herewith invites all Affected Customers to submit comments on the proposed changes and amendments within the Consultation Period.

During the Consultation Period, comments on proposed changes or amendments shall be only submitted through a web-based commenting service for which a registration form is available on the Eurex Clearing website under the following link: link: Find > Forms.

The form has to be duly signed and returned to Eurex Clearing via e-mail to SpecialProvisions@eurex.com, in order to obtain a User ID and Password together with a link for accessing the web-based commenting service.

To the extent that Eurex Clearing decides to implement any comments received during the Consultation, the so-amended version of the Clearing Conditions will be published after the Consultation.

The currently envisaged effective date of the changes is 12 February 2023. However, after the Consultation Period, Eurex Clearing will issue a separate circular to announce the concrete date on which the proposed changes (as the case may be, implementing comments received during the Consultation) will come into effect. 

This announcement will be made with at least 15 Business Days’ notice (Regular Notification Period). However, if Eurex Clearing should receive a request for a Prolonged Notification Period from more than two Affected Customers during the Consultation Period, a Prolonged Notification Period as set out in the Clearing Conditions will be applied and Eurex Clearing will notify all affected parties accordingly.

Publication of amendments to the Clearing Conditions, FCM Regulations and the FCM Default Rules

As of the effective date, the full versions of the amended Clearing Conditions, FCM Regulations and the FCM Default Rules 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 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 prior to the relevant effective date(s) as stipulated in this circular. In case of an objection by the respective contractual party pursuant the preceding sentence, Eurex Clearing AG is entitled to terminate the respective contract (including a Clearing Agreement, if applicable). Instead of submitting an objection, the respective contractual party may submit in writing to Eurex Clearing AG comments to any amendments of the legal framework of Eurex Clearing AG within the first 10 Business Days after the publication of the amendments. Eurex Clearing AG shall assess whether these comments prevent the published amendments from becoming effective taking into account the interests of Eurex Clearing AG and all contractual parties. 

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. Updated sections of the Clearing Conditions of Eurex Clearing AG 
  2. Updated sections of the FCM Default Rules of Eurex Clearing AG 

Further information

Recipients:

All Clearing Members, ISA Direct Clearing Members, Disclosed Direct Clients, FCM Clearing Members of Eurex Clearing, 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