Streamlining of the position limit regime at Eurex

1. Introduction

With this Circular, the Management Board of Eurex Deutschland (Eurex) introduces a streamlined position limit framework for Eurex derivatives that are subject to position limits, i.e. Fixed Income, equity, ETP and commodity derivatives. The revised framework aims to harmonize the position limit regime across product classes wherever possible, simplify the application of position limits, enhance transparency and reduce operational burdens for Trading Participants (Admitted Companies) and their clients.

In addition, it consolidates and replaces existing Eurex Circulars 097/04, 226/06 and 232/07 that set out individual aspects of the position limit regime, establishing a single comprehensive framework for the Eurex position limit regime.

The legal basis for Eurex position limits remains unchanged and continues to be set out in § 11 of the Eurex Exchange Rules (Börsenordnung). In addition, statutory requirements, including § 7 (1) of the German Exchange Act (Börsengesetz), and with respect to commodity derivatives, §§ 54 et seq. of the German Securities Trading Act (Wertpapierhandelsgesetz) and Articles 57 et seq. of Directive 2014/65/EU (MiFID II), remain applicable.

2. Required action

Trading Participants are required to take the new position limit regime into account and ensure ongoing compliance with all applicable position limits for both proprietary and client positions. 

3. Details of the initiative

Position limits for all products can be found in our Product Overview by filling in the respective Eurex product in the search box and then switching to the "Stats" tab. They are also available in the complete list of all Eurex products in csv format available for download at the bottom of that page.

The following table provides a high-level overview of position limits at Eurex. The main changes and clarifications are highlighted in bold (for details and exceptions, please see the text below):

General Position Limit Framework

Position limits at Eurex generally apply per legal entity, i.e. per Admitted Company for proprietary positions and per customer (i.e. end client), even where positions are held through different Admitted Companies (see § 11 (2) Eurex Exchange Rules).

Depending on the product, position limits apply to the gross long or gross short position (gross position) or the net position. The term "gross position" refers to the sum of relevant open long or short positions without netting against any mirroring open relevant short or long positions. The term "net position" refers to the result of netting relevant open long positions against mirroring open relevant short positions. The details of the possible netting are set out below.

For proprietary positions of Admitted Companies, the relevant position consists of the positions held on proprietary (P) and/or market making (M) accounts of the respective Admitted Company, as well as any further proprietary positions held as a client of another Admitted Company and/or Clearing Member.

For client-related positions, the relevant position consists of the respective end client’s position held across all Clearing Members and/or Admitted Companies. If the respective end client is not disclosed to Eurex, the relevant position shall be the gross position of the relevant long or short positions (depending on the product) on the last level disclosed to Eurex (e.g. for positions in Fixed Income Futures on an agency (A) account without disclosure of the individual end clients and their respective positions, the gross long position on that A account must meet the applicable position limit).

If an agency (A) account reveals a gross position exceeding the applicable position limit, Eurex may request further information to verify position limit compliance per end client or, where only the client next in the line is disclosed, on a gross basis for that client next in the line (see § 11 (4) Eurex Exchange Rules). Such information may also be provided by a Trading Participant to the Eurex Trading Surveillance Office without prior request by Eurex.

Whether and how a netting of position in different products and/or expiries is possible (if the end client is known) depends on the respective product (see table above and further explanations below).

If position limits apply to a product, they apply on a permanent basis, including intraday. Accordingly, when a position is rolled, the current position should first be closed out before a position in the next expiry is opened. Alternatively, the respective calendar spread product with the corresponding legs set to closing/opening may be used for rolling, where available. Furthermore, any immediate position adjustments should be made using the Trade Adjustment function (Open/Close Adjustment) instead of Position Close-Out, as this helps prevent transactions from being subject to late closing fees.

For the purpose of position limit compliance, Eurex excludes non-tradeable derivative positions that only remain open in the settlement cycle (i.e. positions between the end of the last trading day and actual settlement).

Consequences of the exceedance of a position limit at Eurex

The procedure for an exceedance of a position limit at Eurex is set out in § 11 Eurex Exchange Rules. For commodity derivatives additionally § 7 (1) German Exchange Act, §§ 54 et seq. German Securities Trading Act and Art. 57 et seq. MiFID II apply.

In particular, according to § 11 (3) Eurex Exchange Rules, Eurex will require the Admitted Company to reduce its position to comply with a position limit. If the position is not reduced accordingly, Eurex itself may reduce the position on behalf of the Admitted Company to ensure position limit compliance. 

Exceedance of a position limit may be reported to the competent authority – i.e. to the German Federal Financial Supervisory Authority (Bundesanstalt for Finanzdienstleistungsaufsicht (Bafin)) and/or the Hessian Exchange Supervisory Authority (Hessische Börsenaufsicht), as applicable.

Product-specific Details

A. Fixed Income Futures

Position limits for Fixed Income Futures are set by the Eurex Management Board based on § 11 Eurex Exchange Rules and announced by Eurex Circular, generally at least six trading days before the first calendar day of the respective expiry month to which they apply (see e.g. Eurex Circular 038/26). Generally, position limits for Fixed Income Futures are preceded by reporting limits (see below).

During the period in which they are effective, both position limits and reporting limits are also published in the relevant Product Overview).

Position limit application for Fixed Income Futures:

• Temporary Application: Position limits generally apply only for the next expiry (front month) during the last three trading days.
• Only long positions in the next expiring Fixed Income Futures contract on the relevant underlying are considered and count against the applicable position limit. Positions held in other expiry months are not included in the calculation.
• Position limit calculation per entity:
  - Per Admitted Company: The net long position per Admitted Company is relevant.
  - Per (end) client: The gross long position per end client (or on the last level disclosed to Eurex, as applicable) is relevant.

Reporting limits for Fixed Income Futures:

Position limits for Fixed Income Futures are preceded by reporting limits that allow Admitted Companies to prepare for the position limits. Reporting limits usually apply after the end of the last trading day before first calendar day in the delivery month until the start of the actual position limit. During applicability of a reporting limit, Admitted Companies with a gross long position on their A accounts exceeding the relevant reporting limit will be requested (via e-mail, etc.) by the Trading Surveillance Office of Eurex Deutschland to provide details to which (end) clients the position belongs.

Details are set out in the respective Eurex Circular in advance of each expiry.

B. Commodity Derivatives (BCOM Derivatives)

Position limits for commodity derivatives are set by the competent national authority (NCA) in accordance with Art. 57 et seq. MiFID II and national implementing law (e.g. § 54 German Securities Trading Act). Position limits for commodity derivatives are finally set by the respective NCA; and position limits shown in Eurex' systems are non-binding and shown for information purposes only.

• For position limits set by Bafin as NCA, see the overview on Bafin's website

• For commodity derivatives at Eurex, currently, only the Bafin General Order, dated 07.09.2022, WA 14-Wp 7410-2022/0003, is relevant.

Eurex applies this Bafin General Order to all commodity index derivatives where commodities covered by the Bafin General Order have a weight of more than 50 percent in the composition of the underlying index (cf. ESMA,Q&A on MiFID II and MiFIR commodity derivatives topics, ESMA70-872942901-36, Question/Answer 21, applied mutatis mutandis).

Currently, the Bafin General Order therefore is applied to the following Eurex products on Bloomberg Commodity Indices (BCOM):

• Bloomberg Agriculture Futures (FCAG),
• Bloomberg Grains Futures (FCGR),
• Bloomberg Livestock Futures (FCLI),
• Bloomberg Softs Futures (FCSO),
• Bloomberg Ex Energy Futures (FCXE).

As set out in Art. 57 MiFID II and § 54 German Securities Trading Act, position limits on commodity derivatives apply to both physically settled and cash-settled products.

Position limit application for commodity derivatives:

Due to MiFID II requirements, commodity position limits differentiate between a position limit for the front month (next expiry) and a separate position limit for all back months combined (all further expiries).

As set out by ESMA, Q&As on commodity derivatives, ESMA70-872942901-36, Q&A on position limits No. 6 and 9:

• Commodity position limits apply to a net long and/or net short position
• Common position limit per underlying commodity and expiry (i.e. a single position limit applies for futures and options on the same underlying commodity, conversion is carried out via delta equivalence as set out in ESMA Q&A 1276). (This is currently not relevant at Eurex because no commodity options covered by MiFID II position limits are tradable at Eurex.)
• The position limit calculation follows the methods set out in MiFID II, §§ 54 et seq. German Securities Trading Act and the Delegated Regulations supplementing MiFID II such as Delegated Regulation (EU) 2022/1302. In particular, the net position per entity is decisive, and certain positions for entities within a group are aggregated in accordance with Art. 3, 4 Delegated Regulation (EU) 2022/1302. As set out in Art. 57 MiFID II and Article 7 et seq. Delegated Regulation (EU) 2022/1302, certain positions do not count towards a position limit. In case of a potential exceedance of a position limit, Eurex will request further information from the Admitted Company so that such an exemption may be invoked.

C. Equity Derivatives and ETP Derivatives

Position limits for equity derivatives and exchange-traded product (ETP) derivatives such as exchange-traded funds (ETFs) and exchange-traded commodities (ETCs) are set by the Eurex Management Board based on § 11 Eurex Exchange Rules:

For equity derivatives, the position limit is generally set to the contract quantity equivalent of 25% of the free float of the respective underlying.

For ETP derivatives, the respective position limit is based on the underlying’s liquidity:

This methodology takes into account the underlying’s liquidity depending on the ETP type, as follows:

liquidity_metric_c,t  by ETP type:

• Fixed Income:  Amount_Outstanding
• Equity:  Free_Float x Market_Cap
• Swap Based (Commodity):  Aggregated_Open_Interest
• Physical ETF (Crypto / Metals):  Total_Market_Cap

The so calculated position limit will then be converted to a contract-number based position limit taking into account the contract size and current price of the relevant derivative(s).

(Please note that this is a new calculation method for ETP derivatives that deviates from the current approach that is based on the ETP’s size. This new calculation method will be used beginning with the next time reassessment of ETP derivative position limits following this Eurex Circular.)

Position limits are frequently updated to reflect changes in free float (for equity derivatives) and the underlying’s liquidity (for ETP derivatives).

Position limit application for equity and ETP derivatives:

For equity and ETP derivatives, the relevant position limit permanently applies across to the long positions of an Admitted Company or (end) client in all physically settled Eurex derivatives referencing the same underlying equity or ETP:

• Netting is applied within futures positions on the same underlying and separately within options positions (European as well as American) on the same underlying, through the offsetting of corresponding long and short positions.
• No netting is applied between futures and options on the same underlying, so that the futures and options long positions on the same underlying are aggregated and compared to the relevant position limit.
• For options, only call option positions are taken into account for the purpose of position limit compliance.
• Positions resulting out of standard contracts and flex contracts (= “additional contract versions” according to No. 3.2.1 Eurex Contract Specifications) are taken into account for the purpose of the position limit calculations, if they are settled physically.

Effective Date

The streamlined position limit regime will become effective with its publication.

Further information