Pre-trade risk control

Pre-trade risk measures

The pre-trade risk controls we offer are the first step in helping Members to manage their risk. These tools offer Members flexibility in setting intelligent limits that reflect their risk profiles. Furthermore, they are part of our ongoing commitment to safeguarding the marketplace.

Advanced Risk Protection

In response to industry demand for enhanced intraday risk monitoring, Eurex Clearing offers a pre-trade risk management service that enables Clearing Members to define individual risk limits for their associated Trading Participants and DC Market Participants to define risk limits for themselves. These limits are based on actual calculations and result in various pre-trade actions without latency impact.

The limits are evaluated against corresponding risk figures being calculated by Prisma and any breach of a set limit can result in the restriction of further trading activity, as pre-defined by the Clearing Member or their associated Trading Participants.

How limits are defined

All Members can select from four pre-defined metrics. Each represents a different aggregate of risk values, described below:

  • Total exposure (TMR) = Total margin requirement
  • Profit and loss (CULI) = Premium margin + current liquidating margin + variation margin + option premium
  • Cash flow (CASH) = Variation margin + option premium
  • Market risk (NDM) = Additional margin + initial margin

Available actions

These new limits encourage Members to set risk limits in advance to proactively safeguard trading activities. Members specify which of three actions will be implemented when a breach of each level or risk limits occurs.

Level 1: An alert message is broadcasted to the respective member.

  • An additional checkbox is available for Members to configure an automatic delete of all open orders and quotes.

Level 2: The system automatically slows down a Participant's order/quote entry and order/quote modification by enforcing a minimum delay between non-delete transactions in any single product.

  • Minimum delays can be configured between 250 and 5,000 milliseconds. Setting the level to zero deactivates the feature.
  • An additional checkbox is available for Members to configure an automatic delete of all open orders and quotes.

Level 3: The Member's trading state is set to "halt":

  • All open orders and quotes are deleted.
  • All trading and clearing functions are prevented.

However, when both a GCM and DC Market Participant both set limits, the more restrictive limits will hold.

Changing limits & timelines for settings

The Advanced Risk Protection service is based on real-time data being calculated by Prisma. This enables Members to implement additional risk monitoring metrics that are more complex as well as tailor-made.

Members can set risk limits using the C7 ARP GUI provided by Eurex Clearing. When Members use the GUI to enter and/or change risk limits, the new limits become valid immediately.

Caution: The Advanced Risk Protection defines 3 action levels.

While level 1 and level 2 limits represent early lines of defense, a level 3 limit is designed as a measure of last resort in order to prevent or limit damage to Clearing Member’s liquidity. Consequently, resulting measures are severe. With a level 3 limit breach the respective member will be set to HALT in Trading and Clearing and all open orders and quotes will be deleted. No new orders or quotes can be entered as long as the HALT state persists. Deleted orders and quotes cannot be restored; therefore, any order book priority will be lost.

Eurex Clearing AG
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