Default Handling under ISA Direct Model

Process overview

Replacement Notice

In case of the occurrence of a Termination Event or an Insolvency Termination Event regarding a Clearing Agent, Eurex Clearing will publish a Replacement Notice informing on the beginning of the Replacement Period. If the Basic Clearing Member intends to continue the clearing of its Basic Clearing Member Transactions, either with a Replacement Clearing Agent or as a Direct Clearing Member, the Basic Clearing Member needs to fulfill the Clearing Agent Replacement Requirements prior to the expiry of the Replacement Period.

Replacement Period

The Replacement Period begins either with the publication of the Replacement Notice or with the point in time when the Insolvency Termination Event with respect to the Clearing Agent occurs and ends at 13:00 (Frankfurt am Main local time) on the immediately following business day. Under certain circumstances, Eurex Clearing may extend the Replacement Period.

Basic Clearing Member Election Notice

Upon the publication of the Replacement Notice, each Basic Clearing Member has the choice between three options. The Basic Clearing Member is asked to send the Basic Clearing Member Election Notice to Eurex Clearing and to make one of the following elections: 

1. Replacement Election:
When choosing the Replacement Election, the (defaulting) Clearing Agent is replaced by a new Clearing Agent and the Clearing of the existing Transactions will be continued under the new Clearing Agent arrangement.

2. DCM Election:
Each Basic Clearing Member may choose to become a Direct Clearing Member to continue the Clearing of its Transactions under the Elementary Clearing Model. In such case, the existing Basic Clearing Member Transactions will be continued as Own Transactions.

3. Termination Election:
Instead of continuing the Clearing of the existing Basic Clearing Member Transactions, the relevant Basic Clearing Member may choose to terminate and to close-out its Basic Clearing Member Transactions.  

Close-Out

If Eurex Clearing does not receive a Basic Clearing Member Election Notice or if the relevant Basic Clearing Member made the Termination Election within the Replacement Period, or the Clearing Agent Replacement Requirements are not satisfied at the end of the Replacement Period, the clearing of the Basic Clearing Member Transactions of the relevant Basic Clearing Member will not be continued and the respective transactions will be terminated and Eurex Clearing will calculate the Difference Claim. 

Extension Replacement Period for Basic Clearing Members with own accounts

For Basic Clearing Members that use their own accounts in daily business (i.e. use of their own cash collateral account, securities collateral account and use of their own settlement account) the replacement period can be extended until 13 p.m. (Frankfurt am Main time) on the fifth business day following the (Insolvency) Termination Event (T+5) if an (Insolvency) Termination Event has occurred with respect to the Clearing Agent. During this extended replacement period the eligible Basic Clearing Members will generally be allowed to trade and clear risk-minimising, i.e. include new transactions into the Clearing that do not increase its margin requirements towards Eurex Clearing. 

The eligible Basic Clearing Members will be transferred to a technical Clearing Agent during this period.

Overview of content

Default-Handling-under-ISA-Direct-Model