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Extension of the LSOC service offering of Eurex Clearing AG and amendments to the FCM Regulations

Release date: 26 Jul 2019 | Eurex Clearing

No. 074/2019 Extension of the LSOC service offering of Eurex Clearing AG and amendments to the FCM Regulations

Eurex Clearing Circular 074/19

1.    Introduction
This circular contains information with respect to the extension of Eurex Clearing’s LSOC (Legally Segregated Operationally Commingled) service offering and amendments to the FCM Regulations of Eurex Clearing (FCM Regulations) regarding the following topics:

A.    Go-live of LSOC Without Excess

B.    Extension of the swaps product currencies supported under the LSOC-models 

C.    Extension of fee waivers

The extension of the service offering and the amendments to the FCM Regulations will become effective as of 19 August 2019.

2.    Required actions
There are no required actions for the Participants. 

3.    Details of the initiative

A.    Go-live of LSOC Without Excess

In December 2018, Eurex Clearing launched its refined LSOC-framework which was functionality-wise limited to the offering of an LSOC-model requiring the daily submission of a Collateral Value Report (CVR) by the FCM Clearing Member, but also allowed the FCM Clearing Member providing excess margin for each FCM Clearing Member (LSOC With Excess). Eurex Clearing is now extending its offering to a pure LSOC Without Excess-model. 

Under LSOC Without Excess, the value of FCM Clearing Member collateral is equal to a customer’s (Initial) Margin Requirement (MR) in accordance with CFTC (the Commodity Futures Trading Commission) Rule 22.15, and it is determined by Eurex Clearing with locking the Legally Segregated Value (LSV) in Eurex Clearing's systems at the start of each business day with a value that is equal to the FCM Clearing Member's margin requirement. Thus, FCM Clearing Members using the LSOC Without Excess-model are not required to send a Collateral Value Report (CVR), and are not allowed to post any excess margin for a specific FCM Clearing Member on a day-to-day basis.

Intraday, if the relevant margin requirement for the relevant FCM Clearing Member decreases below the LSV locked in Eurex Clearing’s system, such excess margin is treated as belonging to that FCM Clearing Member. If the FCM Clearing Member's margin requirement increases above the LSV locked for such FCM Clearing Member, Eurex Clearing will firstly cover the margin shortfall with the FCM Buffer. In the event that the FCM Buffer is not sufficient to cover the shortfall, a margin call will be issued. If the margin call is met intraday, Eurex Clearing will increase the LSVs of the customers that generated the call.

For the end-of-day processing, Eurex Clearing introduces a different handling of the FCM Buffer under the LSOC Without Excess-model as compared to the LSOC With Excess-model: Eurex Clearing compares the values of all individual LSVs with the relevant margin requirement. The FCM Buffer is considered and transferred to cover shortfalls accordingly. If the value of the FCM Buffer is not sufficient, a margin call is issued for the outstanding value of the shortfalls.

Under the FCM Regulations, LSOC Without Excess was already introduced with the initial launch. In order to reflect the handling of the FCM Buffer and to clarify the processes related to the issuance of margin calls, the following provisions of the FCM Regulations will be amended as outlined in the Attachment:

•    Chapter I Numbers 6.3.1, 6.4.2, 6.4.3, 6.5.3, 6.5.4

B.     Extension of the swaps product currencies offered under LSOC 

The initial launch of LSOC only covered a limited swaps product currency scope, namely EUR, GBP and USD. The three product currencies were introduced on a LSOC-specific end-of-day settlement timeline, i.e. debit instructions are sent out at approximately 09:00 CET and they have to be funded by 10:00 CET at the latest.

Eurex Clearing is now extending the LSOC offering by CHF, DKK, JPY, NOK, and SEK denominated swaps products. 

CHF (T+1 currency) will be introduced on the LSOC-specific timeline, whereas DKK, JPY, NOK and SEK (T+2 currencies) will be supported on Eurex Clearing’s standard end-of-day settlement timeline. All relevant banks within Eurex Clearing’s payment bank infrastructure can be used. For more information, please refer to the following link on the Eurex Clearing website www.eurexclearing.com: 

C.    Extension of fee waivers

With Eurex Clearing circular 072/18, Eurex Clearing announced the introduction of the renewed LSOC framework as well as several fee waivers applying to FCM Clearing Members using LSOC, namely:

  • Fees for granting of a clearing license and admission as an FCM Clearing Member (No. 1 (1) (a) of the Price List of Eurex Clearing AG)
  • Annual fees for the license as an FCM Clearing Member (No. 1 (1) (b) of the Price List of Eurex Clearing AG)
  • Fees relating to an audit of an FCM Clearing Member (Chapter I, No. 2.3 (8) of the FCM Regulations).

All fee waivers will be maintained until further notice, except for fees relating to an audit of an FCM Clearing Member. Here, already admitted FCM Clearing Members will be charged for all secondary and subsequent audit activities. The costs for the initial risk assessment will remain waived.

The extension of the service offering as well as the corresponding amendments to the FCM Regulations will become effective on 19 August 2019.

As of the effective date, the full version of the amended FCM Regulations will be available for download on the Eurex Clearing website www.eurexclearing.com under the following link:

Unless the context requires otherwise, terms used and not otherwise defined in this circular shall have the meaning ascribed to them in the FCM Regulations of Eurex Clearing AG.

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.

Attachment: 

  • Amended sections of the FCM Regulations, Chapter I, Numbers 6.3.1, 6.4.2, 6.4.3, 6.5.3, 6.5.4 
Recipients:All FCM Clearing Members of Eurex Clearing AG
Target groups:Front Office/Trading, Middle + Back Office, IT/System Administration, Auditing/Security Coordination
Contact:client.services@eurexclearing.com
Related circular: Eurex Clearing circular 072/18
Web:www.eurexclearing.com
Authorized by:Heike Eckert