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Prisma: Update of Liquidity Add-On parameters effective 15 June 2020

Release date: 14 May 2020 | Eurex Clearing

No. 042/2020 Prisma: Update of Liquidity Add-On parameters effective 15 June 2020

Eurex Clearing Circular 042/20

1. Introduction

After necessary preparation processes for market participants communicated in Eurex Clearing circular 007/20, Eurex Clearing has recalibrated the Liquidity Add-on as part of their regular calibration process. The recalibration reflects updated market volumes and behaviour of the add-on for growing positions.

The Liquidity Add-on parameter update is the second of two phases and concerns all products in PFI01. The reviewed parameters will take effect on 15 June 2020

Eurex Clearing provides the possibility to calculate impacts on margining using Cloud PME, where an additional environment was setup up with the updated parameters at the Cloud Prisma Margin Estimator.

Production start: 15 June 2020

2. Required action

No specific actions are required.

3. Details of the initiative

Concentration risks are covered as part of Eurex Clearing’s Prisma methodology with a dedicated Liquidity Add-on.

The Liquidity Add-on is designed to capture potential additional costs when liquidating portfolios, where the key features are:

  • The Liquidity Add-on depends on the relative size of positions as compared to observed market volumes
  • The Liquidity Add-on depends on the current level of market risk of the respective products

As part of a regular review of concentration risk handling in the risk methodology, Eurex Clearing has recalibrated the Liquidity Add-on with a focus on concentrated positions as well as observed market volumes. Model parameters affected are Market Capacities as well as the Liquidity Factor. 

Market Capacities reflect updated market volumes. The Liquidity Factor reflects updates on how the add-on increases with growing position sizes. 

The Liquidity Add-on review is structured in two phases: the first phase covered PEQ01 and smaller Liquidation Groups and now the remaining Liquidation Group PFI01 is updated. Eurex Clearing provides the possibility to calculate impacts on margining using Cloud PME, where an additional environment was setup up with the updated parameters at the Cloud Prisma Margin Estimator.

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 of Eurex Clearing AG.
 

Further information

Recipients:All Clearing Members, Basic Clearing Members, Disclosed Direct Clients of Eurex Clearing AG and vendors
Target groups:Front Office/Trading, Middle + Backoffice
Contact:Risk Exposure Management, T +49-69-211-1 24 52, F +49-69-211-1 84 40, e-mail risk@eurexclearing.com
Web:www.eurexclearing.com
Related circular:Eurex Clearing circular 007/20
Authorised by:Dmitrij Senko