Service Navigation

Auction process for Bond Liquidation Group

Auction process for Bond Liquidation Group (LG)

The auction process described in this section is applicable if Eurex Clearing has to sell a bond which was underlying a terminated Eurex Bonds, Special Repo or GC Pooling transaction. Please note, that a different process applies in case Eurex Clearing has to purchase a respective bond.

In the Bond Liquidation Group, Eurex Clearing conducts multi-unit-auctions, and accepts the highest price per auction unit as winning price for such auction unit. Please note that Eurex Clearing does not define any minimum prices for auctions in the Bond Liquidation Group.

Usually, a dedicated auction is held for each ISIN to be liquidated. However, in exceptional cases Eurex Clearing might also auction a (hedged) bundle of bonds, if doing so is advisable from a risk perspective.

 

Bond Clusters

To define which Clearing Members have to participate in an auction in the Bond Liquidation Group, Eurex Clearing has sub-divided the universe of bonds which may underlie Eurex Bonds, Special Repo or GC Pooling transactions into so-called Bond Clusters.

Activity in Bond Clusters as basis for auction participation.

 

In addition to the defined Bond Clusters, Clearing Members are requested to disclose towards Eurex Clearing which currencies they are active in within in the Bond Liquidation Group.

Clearing Members have to participate in auctions only for those bonds, which are assigned to Bond Clusters they have been active in during the last three months, and which are denominated in a currency which they have trading capacities for. The involvement of pure GC Pooling cash providers is determined based on their Bonds Trading Sheet.

Definition and assignment of auction units

For each bond, Eurex Clearing sub-divides the overall size of the bond into multiple identical auction units. 

Subsequently, Eurex Clearing informs each Clearing Member active in the relevant Bond Cluster of the minimum number of auction units such member has to provide a bid for. Each Clearing Member's minimum number of auction units depends on its relative size (in terms of margin requirement) in the relevant Bond Cluster. In addition, Clearing Members may always provide bids for more than their minimum number of auction units. 

A Clearing Member who only conducts GC Pooling transactions in which it exclusively acts as cash provider, has no direct influence on the bonds assigned to itself and on the resulting margin requirement. To take this into consideration, a respective member’s participation requirement for auctions is solely derived from its Bond Trading Sheet, and a factor of 0.5 is applied to its margin requirement when determining its minimum number of auction units.

Failure to comply with bidding requirement

If a Clearing Member fails to support the CCP in a crisis situation, (parts of) its clearing fund contribution may be juniorized, i.e. may be utilized prior to those of other Clearing Members.

When evaluating a Clearing Member’s overall support during the Default Management Process, its activity during all independent sales and auctions is taken into account. 

With respect to each auction, Eurex Clearing determines the weighted average of all prices at which auction units were sold in the respective auction. This average price minus 0.5 times the applicable margin parameter for the respective bond, is defined as reference price for the respective auction. Any Clearing Member who submitted a bid above or equal to the reference price, receives credits. Any Clearing Member who submitted a bid below the reference price, receives debits. In an independent sale, only the winning Clearing Member receives credits.

Only if a Clearing Member’s debits exceed its credits, and if the losses realized in the Bond Liquidation Group cannot be covered in full by the defaulted Clearing Member’s resources, parts of such Member’s clearing fund contribution are juniorized. 

If a Clearing Member fails to provide bids for its individually defined minimum amount of auction units, and if the losses realized in the Bond Liquidation Group cannot be covered in full by the defaulted Clearing Member’s resources, such member is subject to a monetary fine. The concrete fine depends on the relative size of the Clearing Member in the Bond Liquidation Group but is in any case capped at EUR 5 mn. Any amounts received by Eurex Clearing as monetary fine during the Default Management Process are added to Eurex Clearing’s own contribution to the clearing fund, the so called Dedicated Amount.

If (parts of) a Clearing Member’s clearing fund contribution are juniorized, a potential monetary fine is reduced by the juniorized amount. 

Purchase of underlying bonds

If Eurex Clearing has to buy a bond, which was underlying a terminated Eurex Bonds, Special Repo or GC Pooling transaction, Eurex Clearing invites all Clearing Members to participate in a respective bond purchase. The participation in such purchase is on a voluntary basis, and Clearing Members can also offer to sell parts of the overall quantity needed by Eurex Clearing. 

For each bond that has to be bought, Eurex Clearing defines a maximum price it is willing to pay and discloses this price to its Clearing Members.

Only if all attempts to purchase a bond in the market fail, Eurex Clearing may, in line with regular business procedures, perform a cash-settlement, at the pre-defined maximum price. 

Replacement Special Repo or GC Pooling transaction

The process of Eurex Clearing entering into Special Repo or GC Pooling transactions, which replace those transactions terminated with the defaulted Clearing Member, is always conducted via independent sales. Participation in these independent sales takes place on a voluntary basis.