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Fixed Income LG and Equities Derivatives LG
In the Fixed Income and the Equities Derivatives Liquidation Group, auctions are the most relevant liquidation measure whereas an independent sale rather constitutes an alternative to an auction, to efficiently liquidate “small” or “special” portfolios. Assuming a Clearing Member defaults, who holds a significant portfolio in one Liquidation Group and only very few transactions in another Liquidation Group. Liquidating such few transactions via an independent sale rather than an auction ensures that both Eurex Clearing and the non-defaulted Clearing Members can focus on those parts of the liquidation that are most relevant from a risk perspective.
As a guideline, Eurex Clearing classifies a portfolio as “special”, if less than five non-defaulted Clearing Members are active in the respective Liquidation Group. A portfolio can be classified as “small”, as long as the defaulted Clearing Member did not belong to the top 50 percent of Clearing Members in the respective Liquidation Group, in terms of initial margin.
In the Bond Liquidation Group, independent sales are the most relevant liquidation measure. Eurex Clearing intends to conduct independent sales on a single ISIN or transaction basis. However, if advisable from a risk perspective an independent sale could also be conducted with respect to a (hedged) bundle of positions or transactions.
In each independent sale, Eurex Clearing discloses towards its Clearing Members the full size of the ISIN to be liquidated, and Clearing Members are encouraged to provide prices for this full size of the respective bond. However, in exceptional cases Eurex Clearing might also accept prices for a smaller portion of the overall size available.
To ensure the best possible preparation for a default situation, all Clearing Members who are active in the Bond Liquidation Group, are required to inform Eurex Clearing about their trading capabilities, by providing a so- called Bonds Trading Sheet.
Conducting an independent sale
As part of an independent sale, Eurex Clearing can liquidate positions either on exchange via the order book, or by bilaterally contacting potential counterparties and conducting back-office to back-office transactions. An independent sale will never be mandatory for any party contacted by Eurex Clearing. In each respective situation members can decide whether they want to enter into respective transactions with Eurex Clearing and at what price.
Eurex Clearing does not conduct an independent sale, if the costs resulting from such activities could not be borne by the defaulted Clearing Member’s resources. Clearing fund contributions of non-defaulted Clearing Members are only utilized to compensate for losses, if all Clearing Members have the chance to participate in a respective auction.
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