Annual Default Management Process simulation (“Fire Drill”)

1.  Introduction

Eurex Clearing conducts annual simulations of its Default Management Process to test both its internal processes and Member readiness in what is typically known as “Fire Drills”.

This year, the Fire Drill will take place in the week of 8 May - 12 May 2023. Details around the specific auction times will be shared bilaterally with the participants.

The product scope varies from year to year with the aim of keeping the Fire Drill relevant for all stakeholders. This year, we will include the following asset classes and liquidation methods:

• Equity Derivatives: Futures and Options by Hedging and Liquidation Auction(s)
• EUR IRS by Hedging and Liquidation Auction(s)
• Zero-Coupon Inflation by a Liquidation Auction
• Listed Fixed Income: Futures and Options by separate Liquidation Auctions
• Listed FX: Futures by a Liquidation Auction
• Cash bonds and repo by either an Auction or Independent Sale
• Centrally cleared cash market products by an Independent Sale
• Crypto linked derivatives by an Independent Sale

Discretionary hedging may take place prior to Liquidation Auctions.

The Fire Drill will also include a complementary client porting simulation to test the porting process. Both Clearing Members and clients may participate voluntarily.

2.  Required action

Mandatory auction participants will be invited to the Fire Drill over the course of the next few days.

The Fire Drill will include Hedging Auctions for EUR IRS and Delta One equity with our signed-up participants. Members considering signing up may take part by informing us by e-mail to DMP_Inbox@deutsche-boerse.com. 

• For other parts of the drill, Members and clients who have not been invited bilaterally by next week, may also participate by contacting DMP_Inbox@deutsche-boerse.com. Please specify which asset class you would like to participate in.
• Clearing Members and Direct Clients interested in participating in the client porting simulation: Please contact client.services@eurex.com.

3.  Details of the initiative

As an EMIR-compliant CCP, Eurex Clearing conducts at least one simulation of its Default Management Process per year. For each asset class, Eurex Clearing nominates certain Clearing Members for whom participation in an upcoming simulation is mandatory. Mandatory participation is detailed in Chapter I, Part 1, Number 7.5.5 of the Clearing Conditions of Eurex Clearing AG.

In addition to the mandatory participants, Clearing Members and Disclosed Clients are invited to participate voluntarily.

The simulation is an opportunity for all Members to ensure that they can comply with and understand the Eurex Clearing Default Management Process and that they have access to the web-based auction platform where information about the portfolio is shared and prices are submitted. It also offers the possibility for Members to give feedback on their experience of the process and help shape future enhancements.

Similarly, the complementary porting simulation is an opportunity for Direct Clients to test the necessary steps for a transfer of open transactions as well as assigned collateral to another Clearing Member (the “Replacement Clearing Member”) in case their Clearing Member defaults (i.e. porting). For Clearing Members, it is an opportunity to test the process for becoming a Replacement Clearing Member.

Please note that in case of a real termination event (default), non-compliance with mandatory bidding obligations in an auction can result in Default Fund Contribution juniorization and other monetary penalties. In the Fire Drill, non-compliance is reported to Eurex Clearing’s National Competent Authority.
 

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