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Simplification of Client Segregation Models

Simplification of Client Segregation Model Structures & Client On-boarding

To maintain the highest segregation standards, while simplifying the on-boarding efforts for Clearing Members and their clients, Eurex Clearing introduced amendments to its client segregation models that became effective as of 28 January 2019. As part of the transition period, the following three measures will have an impact on Clearing Members during 2019:

  1. The Elementary Clearing Model (ECM) by Asset Allocation Method will become the standard omnibus segregation option. Clearing Members in ECM by Value have to migrate to ECM by Asset Allocation Method by 2 January 2020
  2. The Individual Segregated Account (ISA) Provisions will become Eurex Clearing’s standard individual segregation model for all Disclosed Direct Clients. The Individual Clearing Model (ICM) will cease to exist. All ICM clients have to migrate to ISA by 2 January 2020
  3. Triparty Clearing Agreements are no longer required. Automatic termination of triparty agreements for clients in ECM will take place on 2 January 2020

1. Switch to ECM Asset Based Allocation Method

Eurex Clearing has streamlined the options within the omnibus client clearing offering in order to reduce maintenance effort and complexity, which are both costly and time-consuming. Going forward, only ECM by Asset Allocation Method will be offered. With ECM by Asset Allocation Method, Clearing Members are required to segregate client assets in a separate collateral pool. With this setup, each Clearing Member, rather than Eurex Clearing, determines which assets are delivered to Eurex Clearing specifically for proprietary margin and client margin. Additionally, Clearing Members have the option to set up multiple collateral pools for different client groups.

As of 28 January 2019, new Clearing Members are only on-boarded under ECM by Asset Allocation Method. The migration to ECM by Asset Allocation Method affects Clearing Members, but it will not affect the Clearing Members’ clients, as they remain omnibus segregated. As of 2 January 2020, the report CD043 – ECM: Value Based Alloc. Method will be discontinued.

Action item for Clearing Members:

The migration must take place by 31 December 2019 latest. Eurex Clearing strongly recommends that Clearing Members plan this change prior to the beginning of October 2019 due to frozen zones around releases planned for November 2019. Clearing Members will need to submit a new Clearing Agreement. Eurex Clearing has published the Quick Reference Guide which includes details for Clearing Members to Switch to ECM by Asset Allocation Method. Please get in touch with your Key Account Manager Clearing to kick off the migration process.

2. Migration of ICM Client to ISA

Eurex Clearing has simplified the framework for individual segregation of clients’ positions and assets by extending ISA to establish it as the standard individual segregation model for all Disclosed Direct Clients. By the end of 2019, only ISA will be offered as the framework for individual segregation. Under ISA, Eurex Clearing no longer requires a triparty clearing agreement or sets out any requirements for client clearing arrangements (no Eurex Clearing-specific appendix to market standard documentation required). This significantly simplifies the Know-Your-Customer (KYC) processes when on-boarding new clients/ migrating existing clients.

By the end of 2019, Eurex Clearing plans to discontinue ICM (Chapter I Part 3). Eurex Clearing strongly recommends, that Clearing Members plan this change prior to the beginning of October 2019 due to frozen zones around releases planned for November 2019. All clients currently setup under ICM will need to migrate to ISA if they would like to continue to have individual segregation. The clients current technical setup can be maintained as is for the migration to ISA.

Action items for Clearing Members and their clients:

  1. Clearing Members need to check whether amendments to their client clearing documentation are required
  2. Clearing Model Change Agreement with Eurex Clearing and client must be submitted
  3. In case a client has direct system access to Eurex Clearing, a Connection Agreement must be submitted

We highly recommend that Clearing Members work through the following documents to ensure a smooth migration:

3. Termination of the Triparty Clearing Agreements

Eurex Clearing has harmonized the contractual documentation also for omnibus segregated clients by no longer requiring a triparty clearing agreement in ECM. Existing triparty agreements will be automatically terminated on 2 January 2020. The removal of triparty clearing agreements simplifies the KYC processes when on-boarding new clients.

Action items for Clearing Members and its Clients:

  1. Clearing Members need to check whether amendments to their client clearing documentation are required
  2. In case a client has direct system access to Eurex Clearing, a Connection Agreement must be submitted

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If you have any questions or require further information, please contact client.services@eurexclearing.com.