The auction process described in this section is applicable if Eurex Clearing has to sell a bond which was underlying a terminated Special Repo or GC Pooling transaction. Please note, that a different process applies in case Eurex Clearing has to purchase a respective bond.
In the Bond Liquidation Group, Eurex Clearing conducts multi-unit-auctions, and accepts the highest price per auction unit as winning price for such auction unit. Please note that Eurex Clearing does not define any minimum prices for auctions in the Bond LG.
Usually, a dedicated auction is held for each ISIN to be liquidated. However, in exceptional cases Eurex Clearing might also auction a (hedged) bundle of bonds, if doing so is advisable from a risk perspective.
To define which Clearing Members have to participate in an auction in the Bond LG, Eurex Clearing has sub-divided the universe of bonds which may underlie Special Repo or GC Pooling transactions into so-called Bond Clusters.
In addition to the defined Bond Clusters, Clearing Members are requested to disclose towards Eurex Clearing which currencies they are active in within in the Bond LG.
Clearing Members have to participate in auctions only for those bonds, which are assigned to Bond Clusters they have been active in during the last three months, and which are denominated in a currency which they have trading capacities for. The involvement of pure GC Pooling cash providers is determined based on their Bonds Trading Sheet.
If a Clearing Member fails to support the CCP in a default situation, namely in a bonds auction to which it is invited, its Default Fund contribution may be juniorized, i.e. may be utilized prior to those of other Clearing Members.
When evaluating a Clearing Member's overall support during the Default Management Process, its activity during auctions is taken into account.
If a Clearing Member does not submit a valid bid in an auction to which it is invited, and if the losses realized in the Bond Liquidation Group cannot be fully covered by the defaulted Clearing Member’s resources, the Member’s default fund contribution is juniorized. A bid is only valid if it is not below the reference price. With respect to each auction, Eurex Clearing defines the reference price as the worst winning bid minus 0.5 times the risk parameter.
If a Clearing Member fails to provide bids for its individually defined minimum amount of auction units, and if the losses realized in the Bond Liquidation Group cannot be fully covered by the defaulted Clearing Member’s resources, such member is subject to a monetary fine. The amount of the fine depends on the relative size of the Clearing Member in the Bond Liquidation Group but is in any case capped at EUR 5 mn. Any amounts received by Eurex Clearing as monetary fine during the Default Management Process are added to Eurex Clearing’s own contribution to the default fund, the so called Dedicated Amount.
If Eurex Clearing has to buy a bond, which was underlying a terminated Special Repo or GC Pooling transaction, Eurex Clearing invites all Clearing Members to participate in a respective bond purchase. The participation in such purchase is on a voluntary basis, and Clearing Members can also offer to sell parts of the total quantity needed by Eurex Clearing.
For each bond that has to be bought, Eurex Clearing defines a maximum price it is willing to pay and discloses this price to its Clearing Members.
Only if all attempts to purchase a bond in the market fail, Eurex Clearing may, in line with the Clearing Conditions, perform a cash-settlement, at the pre-defined maximum price.
The process of Eurex Clearing entering into Special Repo or GC Pooling transactions, which replace those transactions terminated with the defaulted Clearing Member, is always conducted via independent sales. Participation in these independent sales takes place on a voluntary basis.
