Transaction management OTC derivatives

With us, OTC market participants have the chance to mitigate counterparty risk and simultaneously benefit from seamless transaction management.

We provide a wide range of transaction management services for the EurexOTC Clear’s offering.

EurexOTC interest rate swaps functionalities

Take-up of a bilateral trade by a Clearing Broker is a part of the client trade registration at the clearing house. The client indicates the Clearing Broker and the trade is offered to this Clearing Broker for take-up. The Clearing Broker can either accept or reject the trade.

The Clearing Member (CM) or Disclosed Direct Client With System Access (DC) may request a transfer of a trade to another CM (in full or partially). Subject to acceptance by the other CM (if DC is a requester) the trade will be offered to the transferee for take-up. If the consent is given by the transferee and the risk check is positive, the trade is transferred (i.e., terminated in the account of a transferor and created in the account of the transferee).

The Clearing Member (CM) or Disclosed Direct Client With System Access(DC) may request transfer of a trade within the CM’s accounts (CM’s prop and agent accounts and all accounts of its DCs). Subject to acceptance by the CM (if DC is a requester) and after a positive risk check, one trade or splits will be rebooked to the specified accounts.

The trade amendment enables changing/adding the internal client references or/and split trades within the current account. If a trade is split, the process is subject to acceptance by the Clearing Member (if Disclosed Direct Client with System Access is a requester). All splits will be rebooked within the current account. A risk check is not applied.

After a positive risk check and acceptance from the owner of a linked trade, a trade may be terminated in full or partially. It means that the notional of a trade will be reduced or the trade will be terminated in full and will not exist anymore. No termination is possible if a Post Trading Event (PTE) has been performed on the linked trade (original bilateral trade) and the notional of this trade has been changed.

On the GUI, a netting string may be added to the trade; the trades with the same and eligible netting string will be netted/accumulated in the next netting cycle (end of day). Removing the netting string from a trade is also possible.

In order to exploit additional potential for notional reduction which is not covered by risk free netting, Eurex Clearing offers Clearing Members risk constraint netting (portfolio compression) via a third party compression services provider. Portfolio compression aims to reduce the size of an existing OTC derivatives portfolio with respect to the number of trades and notional through (partial) termination of bilaterally agreed trades after novation to Eurex Clearing. Compression is currently only offered for OTC IRS.

Eurex Clearing supports multilateral unlinked compression. With multilateral unlinked compression, all trades between the CCP and a participating counterparty can be taken into account even if the other side of the original trade is not eligible for compression. Even if both sides of a bilateral trade are submitted, compression may or may not consider both sides. Where a linkage is not available due to a post trade event, trades can still be considered for compression.

Portfolio compression is risk constrained, allowing counterparties to explicitly define risk tolerances within which the member portfolio net cash flows or the net risk profile may change*. Portfolio compression works in “cycles”, meaning that it is not a continuous or end of day process. Instead, it is run with a certain frequency for trades in a predefined currency depending on the cleared contracts volume and members’ interest for a compression cycle in the respective currencies**. Only Clearing Members are eligible to participate in compression runs, i.e. only trades that are part of their P-account qualify for a compression cycle. For compression as an embedded service in the EurexOTC Clear Service, trades of Disclosed Direct Clients and agent clients thus cannot be submitted for compression. Trades with maturity date on or before the cycle live execution date are not considered for compression. Furthermore, trades with cashflow dates on the cycle live execution date or a business day in the respective currency after this date are not considered for compression.

All products supported by EurexOTC Clear (except ZCIS and Currency products) are eligible for portfolio compression. This also includes Variable Notional Swaps and trades with attached fees.

* Note that in any case it is required that Eurex Clearing is still cash flow-flat after a compression run.
** Specific dates for scheduled compression cycles will be announced via Eurex Clearing circulars and / or will be published on TriOptima®’s website.