Default Management Process


Hedging is an important component of the Default Management Process, aiming to stabilize the defaulted Clearing Member’s portfolio to enable a portfolio based liquidation. Hedging can be conducted either by closing out certain concentrations within the defaulted Clearing Member’s portfolio, or by Eurex Clearing entering into additional, one-sided transactions, which are added to the defaulted Clearing Member’s portfolio and will in the following be liquidated jointly. Eurex Clearing can also execute hedging in form of Hedging Auctions on Liquidation Group level.

When defining hedging strategies, Eurex Clearing’s internal qualified traders are supported by the expertise provided by each Liquidation Group’s Default Management Committee (DMC).

The final decision of what hedging transactions are executed remains with the Executive Board of Eurex Clearing. The DMC member is not liable for the economic success of the strategies proposed.

Defining the instruments

Eurex Clearing does not define any hedging thresholds to be met, as hedging requirements will largely depend on detailed portfolio specifics and market conditions. In fact, it might even be possible to liquidate certain portfolios without any hedging being conducted. 

  • Potential hedging instruments are usually products cleared by Eurex Clearing which form part of the Liquidation Group for which the hedging strategy is being defined.
  • Hedging counterparty can be any Clearing Member or disclosed client who is able to trade and clear the respective products. For Hedging Auctions selection of counterparties is formalized, based on expressed willingness to participate via opt-in process and trading capacity as indicated in the liquidity surveys.

Hedging Auctions

Hedging Auctions are conducted on Liquidation Group (LG) level. This additional hedging channel supports the CCP to mitigate the market risk for the positions inherited from the defaulted Clearing Member.

Who has to participate in a Hedging Auction

Large market makers with adequate operational and risk capabilities are targeted participants. A formalized two-step approach insures a pool of suitable hedging auction counterparties:

  • Opting-in principle for participation – the Clearing Members or Direct Disclosed Clients can volunteer to participate in hedging auctions.
  • Mandatory participation – in case the number of opted-in participants deems to be insufficient, Eurex Clearing selects Clearing Members with the highest (proprietary) trading volumes to be mandated.

A limited number of participants will be preselected based on product activity, risk capacity and support to the Default Management Process (including i. a. results of liquidity surveys). Upon a Clearing Member default, auction participants are informed about their mandatory participation requirement in consultation with the Default Management Committee.

The Maximum Hedging Spread Value, as defined in the Clearing Conditions 7.5.2 (2) (vi), is as follow:

  • Maximum bid-ask spread = Max(worst winning ask – worst winning bid,0) + distance parameter 


  • Winning ask is the highest sell price accepted, if auction trades on the ask
  • Winning bid is the lowest buy price accepted, if auction trades on the bid
  • Distance parameter is a fixed number, defined for each auction by ECAG together with the DMC, and is always above 50% of the Initial Margin Requirement of the auction unit

We encourage all Clearing Members to opt-in for participation in Hedging Auctions. Please see here further details.
For any questions and for opting-in for participation please contact the Default Management Team.

Register to become a hedging counterparty

Any Clearing Member, Non-Clearing Member or Registered Customer, who would be interested to be contacted as potential hedging counterparty for a particular Liquidation Group, is encouraged to register here.


Video: Default management process – hedging in a default

What is portfolio hedging within the Default Management Process all about? Find out about when and how it is executed and why Eurex Clearing’s experience proves the necessity of having its own traders: watch our interview with Marat Kadir and Michael Kraft, traders from Eurex Clearing’s Default Management Team, sharing their insights on hedging activities required to “stop the bleeding” in default scenarios.