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EurexOTC Clear Release 10.0: Amendments to the Clearing Conditions and FCM Regulations of Eurex Clearing AG

Release date: 25 Oct 2019 | Eurex Clearing

No. 097/2019 EurexOTC Clear Release 10.0: Amendments to the Clearing Conditions and FCM Regulations of Eurex Clearing AG

Eurex Clearing Circular 097/2019

1. Introduction

This circular contains information about changes and amendments to the Clearing Conditions of Eurex Clearing AG (Clearing Conditions) and the FCM Regulations of Eurex Clearing AG (FCM Regulations) with respect to the following topics of EurexOTC Clear Release 10.0:

A.    Decommissioning of 12M GBP LIBOR
B.    Changes to the Variation Margin formula
C.    Introduction of €STR and €STR-Euribor basis swaps
D.    Editorial changes and additional clarification regarding fallbacks of permanent index cessation

The amendments to the Clearing Conditions and the FCM Regulations will become effective as of
18 November 2019.

2. Required action

Clearing Members, Basic Clearing Members, Disclosed Direct Clients of Eurex Clearing AG, FCM Clearing Members, vendors and all other affected contractual parties should take the amendments to the Clearing Conditions and FCM Regulations of Eurex Clearing AG into account.

3. Details

A.  Decommissioning of 12M GBP LIBOR 

Eurex Clearing will discontinue the product offerings with the reference interest rate of the 12M GBP LIBOR due to the illiquidity of the curve. Accordingly, the Stub Periods will be allowed up to 7M in case the currency is British pound (GBP).

To reflect the changes and amendments, the following provisions of the Clearing Conditions and FCM Regulations shall be amended as outlined in the Attachments 1 and 2:

  • Chapter VIII Part 2 Number 2.1.5.1 of the Clearing Conditions
  • Chapter VIII Part 4 Number 4.1.5.1 of the Clearing Conditions
  • Chapter II Part 2 Number 2.1.5.1 of the FCM Regulations

B.  Changes to the Variation Margin formula

Eurex Clearing will adopt changes to the Variation Margin formula for transactions covered by Chapter VIII of the Clearing Conditions and Chapter II of the FCM Regulations, respectively. With these changes, next-day cashflows (fees and coupons) will be discounted in the Variation Margin calculation in order to ensure cash flow flatness in case of a post-trade event.

For trades in a given trade currency, Variation Margin will also be calculated on currency payment calendar holidays if these are business days according to the TARGET calendar. 

The following provisions of the Clearing Conditions and FCM Regulations shall be amended as outlined in the Attachments 1 and 2:

  • Chapter VIII Part 2 Numbers 2.1.7 and 2.2.1 of the Clearing Conditions
  • Chapter VIII Part 3 Numbers 3.1.7 and 3.2.1 of the Clearing Conditions
  • Chapter VIII Part 4 Numbers 4.1.7 and 4.2.1 of the Clearing Conditions
  • Chapter II Part 2 Number 2.2.1 of the FCM Regulations

C.  Introduction of €STR and €STR-Euribor basis swaps

In order to facilitate the transition from EONIA to €STR, Eurex Clearing accept the following €STR-based products:

  • Euro overnight index swaps (fix for float) referencing the €STR benchmark (up to 50 years)
  • Eligibility of overnight interest swaps (OIS) denominated in euro with a spread on the floating leg of the trade (the spread is treated as simple interest above the self-compounding floating rate)
  • €STR-Euribor (up to 50 years) basis swaps and EONIA-Euribor basis swaps (float for float)

All cleared OTC derivatives referencing the €STR benchmark will reside under a common EONIA-based discounting and Price Alignment Interest (PAI) regime like all other OTC derivatives denominated in euro.

The content of the daily distributed interest rate sensitivity report CC233 will be enhanced for OIS denominated in euro by splitting the sensitivity to EONIA into a discounting and forwarding value. This allows to estimate the impact of a shift in discounting levels for EONIA-based OIS as well.

To ensure transparency, and alongside productive reports (under EONIA-based discounting), reports containing trade level net present values (NPVs) and interest rate DV01s (rate deltas) based on €STR as the discount curve will be published for information purposes.

To reflect these changes and amendments, the following provisions of the Clearing Conditions and FCM Regulations shall be amended as outlined in the Attachments 1 and 2:

  • Chapter VIII Part 2 Numbers 2.1.5.1, 2.2.5 and 2.2.7 of the Clearing Conditions
  • Chapter II Part 2 Numbers 2.1.5.1, 2.2.5 and 2.2.7 of the FCM Regulations

D.  Additional clarification regarding fallback of permanent index cessation and further minor changes

Effective 2 October 2019 and as announced with Eurex Clearing circular 085/19, Eurex Clearing implemented trigger events and a fallback waterfall in case an index ceases to exist permanently. A subsequent clarification will be added to provide explicitly, in line with bilateral market practice, that an index recommended by the central bank or the regulatory supervisory of the index administrator may be used.

Eurex Clearing will adopt further minor changes, among others, to streamline the product-specific terms for certain swaps.

The following provisions of the Clearing Conditions and FCM Regulations shall be amended as outlined in the Attachments 1 and 2:

  • Chapter VIII Part 1 Number 1.8.2 of the Clearing Conditions
  • Chapter VII Part 2 Numbers 2.3.2, 2.3.3, 2.3.4, 2.3.5, 2.4.2 and 2.4.3 of the Clearing Conditions
  • Chapter II Part 1 Number 1.8.2 of the FCM Regulations
  • Chapter II Part 2 Numbers 2.3.2, 2.3.3, 2.3.4, 2.3.5, 2.4.2 and 2.4.3 of the FCM Regulations

All of the amendments above will become effective on 18 November 2019.

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:

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:

  • 1 – Amended sections in Chapter VIII of the Clearing Conditions
  • 2 – Amended sections in Chapter II of the FCM Regulations

Recipients:

All Clearing Members, Basic Clearing Members, Disclosed Direct Clients of Eurex Clearing AG, FCM Clearing Members, vendors and all other affected contractual parties

Target groups:

Front Office/Trading, Middle + Back Office, IT/System Administration, Auditing/Security

Contact:

client.services@eurexclearing.com

Related Eurex Clearing circular:

071/19

Authorized by:Heike Eckert