Eurex Clearing
1. Introduction
This circular contains information with respect to amendments to the Clearing Conditions of Eurex Clearing AG (Clearing Conditions) and the FCM Regulations of Eurex Clearing AG (FCM Regulations) regarding the following topics:
A. | Extension of maximum remaining term for various EurexOTC Clear derivatives |
B. | Support of variable notional for OIS & OIS-legs in basis swaps |
C. | Discounting switch from Effective Federal Funds Rate (EFFR) to Secured Overnight Financing Rate (SOFR) for USD-denominated EurexOTC Clear derivatives |
D. | Introduction of USD as a new clearing currency for the LSOC OTC IRD clearing model |
E. | Support of transfer large numbers of OTC Transactions as a portfolio |
F. | Editorial changes and additional clarification regarding OTC Account Transfers |
The above-mentioned amendments save for certain amendments under item D. will come into effect as of 17 October 2020.
The amendments under item D. with regard to Chapter I Part 1 Number 6 of the Clearing Conditions are subject to a Consultation. The Consultation will end on 26 October 2020. The planned effective date of these amendments is 19 November 2020, depending on the outcome of the Consultation which will be communicated in a separate Eurex Clearing circular.
2. Required action
Clearing Members, Basic Clearing Members, Disclosed Direct Clients, FCM Clearing Members, vendors and other affected contractual parties should take the amendments to the Clearing Conditions and FCM Clearing Conditions into consideration.
The amendments to Chapter I Part 1 Number 6 of the Clearing Conditions under item D. are subject to a Consultation which will end with the expiry of 26 October 2020 (“Consultation Period”).
Eurex Clearing herewith invites all Affected Customers to submit comments on the proposed changes and amendments within the Consultation Period.
3. Details
A. Extension of maximum remaining term for various EurexOTC Clear derivatives
With EurexOTC Clear Release 11.0, the Transaction Type-specific novation criteria of Eurex Clearing will be enhanced to allow for various EurexOTC Clear derivatives including IRS, Basis Swaps, FRA and OIS the extended maximum remaining term (from the date of novation to the termination date).
For details on the maximum allowed maturities for the respective products, please refer to the EurexOTC Clear Product List available in the Member Section of Eurex Clearing.
To reflect the changes, the following provisions of the Clearing Conditions and FCM Regulations will be amended as outlined in the Attachments 2 and 4:
B. Support of variable notional for OIS & OIS-legs in Basis Swaps
Eurex Clearing will offer enhanced clearing eligibility to support variable notional in OIS transactions denominated in EUR, USD, GBP, CHF and JPY as well as variable notional on OIS-legs in SOFR-USD LIBOR basis swaps, SOFR-EFFR basis swaps, EURIBOR-EONIA basis swaps and EURIBOR-€STR basis swaps.
To reflect the changes, the following provisions of the Clearing Conditions and FCM Regulations will be amended as outlined in the Attachments 2 and 4:
C. PAI, PAA and Discounting switch from EFFR to SOFR for all USD-denominated OTC Interest Rate Derivative Transactions and Swap Transactions
As part of the transition for all USD-denominated EurexOTC Clear derivatives from Effective Federal Funds Rate (EFFR) to SOFR as the new risk-free rate and as previously communicated, Eurex Clearing will implement for OTC Interest Rate Derivative Transactions and Swap Transactions (i.e. IRS) the PAI, PAA and discounting switch from EFFR to SOFR as follows:
1. Transition of the Price Alignment Interest (PAI) and Price Alignment Amount (PAA) and the discounting regime based on EFFR to SOFR in a single step for all USD-denominated OTC Interest Rate Derivative Transactions and Swap Transactions.
2. Compensation for changes in the present values of all affected derivatives induced by the transition by a USD cash credit or debit (e.g. via one-time cash fee instructions on trade level). To mitigate profit-and-loss impacts (positive and negative), resulting from variation margin changes induced by the discounting switch, a mandatory and automatic USD cash debit or credit will be instructed as a fee, ensuring that the discounting switch does not create winners and losers.
The published document “EurexOTC Clear – process and methodology of the FedFunds to SOFR discounting switch” describes the methodology behind the compensation and lists and describes all steps in the compensation process. It also specifies all Member and public reports that are relevant for the transition, enabling each Member to reconcile the compensation. The document is available in the Eurex Clearing Member Section, under the following path:
Risk & Collateral Management > Benchmark Transition Information > USD: FedFunds-SOFR Transition
For further information on the discounting switch, see Eurex Clearing Circulars 044/20 and 057/20, and Eurex Clearing Readiness Newsflash of 28 July 2020.
The EFFR-SOFR discounting switch will be performed during the weekend before Monday, 19 October 2020. Accordingly, Friday, 16 October 2020, will be the last Business Day with EFFR-based PAI/PAA and discounting; and Monday, 19 October 2020, will be the first Business Day with SOFR-based PAI/PAA and discounting.
Calculation of PAI and PAA for OTC FX Transactions and OTC XCCY Transactions as well as the discounting of such transactions is already based on SOFR since they have been made eligible for clearing at Eurex Clearing, hence, this PAI, PAA and discounting switch will not affect these transaction types. Nevertheless, the applicable PAI, PAA and discounting provisions for these transactions have been clarified.
To reflect the changes and amendments, the following provisions of the Clearing Conditions and FCM Regulations will be amended as outlined in Attachments 2 and 4:
D. Introduction of USD as a new clearing currency for the LSOC OTC IRD clearing model
Until now, USD has been admitted as margin and product currency at Eurex Clearing, but not as clearing currency. Based on client demand, USD will be introduced with EurexOTC Clear Release 11.0 as a new clearing currency for FCM Clearing Members under the FCM Regulations.
For the avoidance of doubt, the scope of currencies eligible as clearing currencies under the Clearing Conditions (EUR, CHF or GBP) will remain unchanged.
To reflect the changes, the following provisions of the Clearing Conditions and FCM Regulations will be amended as outlined in Attachments 1, 3 and 5:
E. Support of transfer large numbers of OTC Transactions as a portfolio
Eurex Clearing will enhance for its EurexOTC Clear service a new portfolio transfer functionality, which provides Members with the possibility to transfer large numbers of trades as a portfolio and calculating the risk on a portfolio level.
The details of the new portfolio transfer functionality are described in the “EurexOTC Clear Procedures Manual” corresponding to EurexOTC Clear Release 11.0.
To reflect the changes and amendments, the following provisions of the Clearing Conditions and FCM Regulations will be amended as outlined in Attachments 2 and 4:
F. Further minor changes to the Clearing Conditions and FCM Regulations
Further minor amendments will be introduced as outlined in the Attachments 2 to 4. Inter alia, the provisions for account transfers and trade transfers will be aligned by stating that also an account transfer takes places by way of novation.
To reflect the changes, in particular the following provisions of the Clearing Conditions and FCM Regulations will be amended as outlined in Attachments 2 to 4:
As of the effective date, the full version of the amended Clearing Conditions and FCM Regulations will be available for download on the Eurex Clearing website www.eurexclearing.com under the following link:
Rules & Regs > Rules and Regulations
The changes and amendments to the legal framework of Eurex Clearing AG published by this circular are deemed accepted by each affected contractual party of Eurex Clearing AG, unless the respective contractual party objects by written notice to Eurex Clearing AG within the first ten (10) Business Days after publication. Any ordinary right of Eurex Clearing AG to terminate the respective contract (including a Clearing Agreement, if applicable) shall remain unaffected.
Unless the context requires otherwise, terms used and not otherwise defined in this circular shall have the meaning ascribed to them in the Clearing Conditions or FCM Clearing Conditions of Eurex Clearing AG, as applicable.
Attachments:
Further information
Recipients: | All Clearing Members, Basic Clearing Members, Disclosed Direct Clients, FCM Clearing Members, vendors and other affected contractual parties |
Target groups: | Front Office/Trading, Middle + Back Office |
Contact: | client.services@eurexclearing.com |
Web: | Initiative page: EurexOTC Clear Release 11.0 |
Related circulars: | |
Authorised by: | Jens Janka |
