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Failure handling

Failure handling

In order to increase settlement efficiency, we have developed robust solutions for dealing with failure handling. These include measures to accommodate late delivery processing as well as a buy-in and cash settlement models.

Late delivery processing

As a central counterparty, Eurex Clearing has the obligation to buy from the original seller and to deliver to the original buyer. If the original seller fails to deliver, Eurex Clearing starts a fail process in order to fulfill this obligation.

Depending on the markets and products cleared, different fail processes apply. The general contractual penalties are defined in Chapter 1, Part 1 of the Clearing Conditions.

Frankfurt Stock Exchange (Xetra®) – Failure to deliver:

  • General buy-in and cash settlement model is applied
  • Penalties are charged for late deliveries over dividend reference days (35.8 percent on net dividend)
  • Late settlements over corporate actions may cause claims and disclosure of counterparts
  • For equities that fall under the EU Short Selling Regulation daily fines for late deliveries will be charged from the first day of non-delivery onwards (0.2 bp of the undelivered equities’ value.

Eurex Exchange – Failure to deliver:

  • General buy-in and cash settlement model is applied
  • Deliveries out of exercises/assignments for equities:

    • Specific buy-in and cash settlement model for equities that fall under EU Short Selling Regulation is applied.
    • For equities that fall under the EU Short Selling Regulation daily fines for late deliveries will be charged from the first day of non-delivery onwards (0.2 bp of the undelivered equities’ value)
  • Deliveries out of notifications/allocation for bonds:

    • German government bonds:

      • 0.04 percent fines on volume not delivered until 14:15 CET, or 0.40 percent fines on volume not delivered until the respective Settlement Cut-Off Time. Otherwise 0.40 percent fines on volume per subsequent calendar day.
      • Additional charge of interest of delay (1 percent + ECB main refinancing rate on outstanding amount).
    • Swiss government bonds:

      • 0.85 percent fines on nominal value.
      • Additional charge of interest of delay (1 percent + SNB main refinancing rate on outstanding amount).
    • Other bonds:

      • 0.40 percent fines on volume not settled on the contractual settlement day per calendar day.
      • Additional charge of interest of delay (1 percent + ECB main refinancingrate on outstanding amount).
  • For shares that fall under the EU Short Selling Regulation daily fines for late deliveries will be charged from the first day of non-delivery onwards (0.2 basis points of the undelivered shares' value).

Eurex Bonds – Failure to deliver:

  • Buy-in and cash settlement model is applied
  • Eurex Clearing is entitled, or on request of the Clearing Member:

    • To perform buy-in attempts according to the buy-in schedule applicable as from the fifth day following the delivery date.

    • Fines for non-delivery:
      End of day default:

      • 0.025 percent of failed value, but not less than EUR 2,500 per day.
      • if failed value exceeds EUR 100 Mio, contractual penalty is calculated based on the effective overnight interest rate applicable to the relevant clearing currency, but not less than EUR 25,000 per day.

Eurex Repo Euro Market & GC Pooling – Failure to deliver:

  • Buy-in and cash settlement model is applied.
  • Failure to Deliver by the delivery day of the Front-Leg:
    Eurex Clearing is entitled, or on request of the Clearing Member:

    • to set present business day as advanced repurchase date of the term leg.
    • to offset obligations and settle the repo rate amount only.
  • Failure to Deliver by the delivery day of the Term-Leg:
    Eurex Clearing is entitled, or on request of the Clearing Member:

    • To perform buy-in attempts according to the buy-in schedule applicable as from the fifth day following the delivery date of the term-leg.
  • Failure to Deliver by the delivery day of the Cash-Leg:
    Eurex Clearing will assume the Clearing Member’ default according to Chapter 1, Part 1(7) of the Clearing Conditions:

    • only if a technical default can be excluded
    • consequently, the Clearing Member will be set on hold
    • positions will be closed out and remaining obligations will be covered by the margin collateral
  • Fines for non-delivery:

    • Euro Market and GC Pooling – end of day default:

      • 0.025 percent of failed value, but not less than EUR 2,500 per day.
      • if failed value exceeds EUR 100 Mio, contractual penalty is calculated based on the effective overnight interest rate applicable to the relevant clearing currency, but not less than EUR 25,000 per day.
    • GC Pooling– intraday default:

      • Clearing Member does not comply with its obligation to perform until 10:45 CET with regard to GC Pooling transactions in Euro or until 15:00 CET with regard to GC Pooling transactions in US Dollar or until 11:30 CET with regard to GC Pooling transactions in currencies other than Euro or US Dollar respectively, it may – irrespective of the above provision – be in intraday default. To the extent a Clearing Member is in intraday default, Eurex Clearing AG may charge an expense allowance of EUR 2,000 for each defaulting GC Pooling transaction.
      • Repo Transaction to cover its operative additional expenditure. Furthermore, Eurex Clearing may also invoice the Clearing Member – until such point in time on which the obligation to perform is fulfilled – for any interim financing costs incurred, up to the value of the STOXX GC Pooling EUR ON Index (“SGCPON”) plus 50 basis points p.a., in relation to the value of the underlying GC Pooling Transaction or the due cash amount respectively.

Buy-in and cash settlement model

The late delivery management model includes two components:

  • Buy-in: Eurex Clearing has implemented an auction process where offers are made. The new buy-in seller replaces the original seller.
  • Cash settlement: In case certain buy-in attempts are unsuccessful, a cash settlement may be initiated. In this case the failed seller is debited and the buyer is credited with a cash settlement amount. Hence there is no delivery of securities performed.

The following figure displays the buy-in or cash settlement schedule respectively, applicable to transaction concluded on Frankfurt Stock Exchange (FSE), Exercise & Assignments from Eurex Exchange derivatives transactions, Eurex Repo (optional) as well Eurex Bonds (optional), which do not fall under the EU Short Selling Regulation:

The following buy-in schedule applies for securities that fall under EU Short Selling regulation, i.e.

  • Rules published and supervised by ESMA
  • Applicable only for equities having their principal trading venue inside the European Union
  • Buy-in: Eurex Clearing has implemented an auction, where offers are given. The new Buy-in seller replaces the original seller
  • Cash settlement: In case a Buy-in is not successful the failed seller is debited and the buyer is credited with a cash settlement price. There is no delivery of securities
  • All other procedures remain unchanged

Contact

Eurex Clearing AG | London Office
Clearing Business Relations

T +44 207 8 62-76 56