Bloomberg and the Union of Arab Securities Authorities Roundtable Dubai September 2016

Bloomberg & The Union of Arab Securities Authorities Rountable

7 – 8 September 2016

What are CCPs and how do they operate under new European regulations?

www.eurexclearing.com

Bloomberg & The Union of Arab Securities Authorities Rountable September, 2016

2

Agenda

• EMIR Mandatory OTC Clearing Timetable

• Role of CCP’s & Risk Management

• Client Asset Segregation & Protection

• OTC IRS & ETD Cross Margining Efficiencies

• ISA Direct Clearing Model – Direct Access for the Buy Side

• Securities Lending & Repo CCP

http://www.eurexclearing.com



33© Oliver Wyman

Scope

Frontloading

The clearing obligation takes effect on:

• June 21, 2016 for Category 1• December 21, 2016 for Category 2• June 21, 2017 for Category 3• December 21, 2018 for Category 4

Description Implementation status

Additional Points

• The RTS includes a three-year phase-in mechanism to deal with intragroup transactions.• It also allows funds to calculate the aggregate average outstanding gross notional amount of non-

centrally cleared derivatives individually at a fund level for calculating the threshold used to determine the clearing category of such entity.

Regulatory update: EMIR Mandatory Clearing

• Interest Rate Swaps (fixed to float, basis, FRA’s and OIS swaps phased in for 4 counterparty categories

• Category 1 entities have a phase-in period of six months;• Category 2 entities a phase-in of 12 months;• Category 3 entities a phase in of 18 months; and• Category 4 entities a phase-in of 36 months.

The frontloading obligation takes effect:

• February 21, 2016 for Category 1• May 21, 2016 for Category 2

• The frontloading obligation will only apply to Category 1 and Category 2 entities.

• Frontloading doesn’t apply to non-financial counterparties (NFCs).

• the minimum remaining maturity for Category 3 entities has been set at a level to exclude all trades from the frontloading requirement.

3

EC published G4 rates clearing obligation in the Official Journal on 1st December 2015 – The RTS will come into force on 21 December 2015




4

Agenda










5

CCP services improve soundness of market infrastructure and strengthen market integrity

Reduced systemic risk• CCP takes over counterparty risk through

trade novation

• CCP enforces strict risk control and adequate collateralisation of open positions

• Automatic multilateral netting reduces gross risk exposure

Benefits of multilateral clearing with Central Counterparty

1 Increased transparency• Awareness of concentration risk

• Independent position valuation by neutral institution

• Early warning function by daily mark-to-market

Efficiency gains• Full automation and straight-through

processing reduces manual errors

• Efficient use and management of collateral

• Increased capital efficiency by reduced balance sheet exposure

Bilateral trading & clearingCurrent OTC market structure- 1:n relationship

Bilateral trading & multilateral clearingCCP market structure - 1:1 relationships between CM and CCP

B

C

A

E

D

OTCCCP

FA

FD

CB

E

2 3




There are two basic models to trade OTC derivatives

BilateralOTC model

Centrally clearedOTC model

Description • Bilateral models are the traditional form of OTC transactions and take place between two parties

• Two parties enter a OTC transaction and bear the counterparty credit risk of each other

• During the life of the trade the parties exchange variation margins (VM) to account for market value changes

• In most instances initial margins (IM) to account for potential future exposure (PFE) have to be exchanged

• In a centrally cleared OTC transaction, a central counterparty (CCP) steps in between the two parties

• The initial arrangement between the two parties is replaced by two agreements on identical economic terms (“novation”), each with the CCP and one of the parties

• As a result the CCP administers the transactions, manages the collateral and also the counterparty credit risk

• Both parties have to post initial and variation margins to the CCP

6

Schematic illustration Party A Party B

Bilateral agreement

CCPBilateral

agreement

Party A Party BX

Bilateralagreement




Eurex Clearing Lines of Defence

Eurex Clearing’s guiding principle in a default situation is to minimize the effect on the Lines of Defence and to stabilize the markets

7

• Eurex Clearing provides a multi-level security system

− First the collateral and the Clearing Fund contribution of the member in default are utilized.

− After the defaulter’s contributions are exhausted, an assigned dedicated amount of Eurex Clearing is applied, before non-defaulting clearing members’ Clearing Fund contributions, and remaining capital of Eurex Clearing are used.

• Each clearing member’s contribution to the Clearing Fund is based on a minimum contribution and a dynamic component, accounting for the individual clearing member’s risk situation.

• There is one segmented Clearing Fund for listed and OTC business.

• Following a realization of any Clearing Fund contributions of non-defaulted clearing members, such clearing members are asked to provide assessments to their contributions.

• Clearing members’ total liability is limited as they have to provide a maximum of two assessments per capped period. Remaining Capital

of Eurex Clearing

Parental Guarantee

Max 2 Assessments per Clearing Member

Eurex Clearing Lines of Defense

Clearing Fund Contribution of Other Clearing Members

Dedicated Amountof Eurex Clearing

Clearing Fund Contribution of Clearing Member in Default

Collateral of Clearing Member in Default

Position Netting




Key focus of stress testing is sizing the Default FundDefault Fund size is determined regularly based on a “cover 2” scenario

Default Fund contribution is the highest amount of:• 7% of average IM requirements (30 days), or• 7% of average IM requirements (250 days), or• GCM: EUR 5 m, DCM: EUR 1 m

8

• The Default Fund contribution of a Clearing Member is determined as a percentage of the Initial Margin requirement

• A quarterly recalibration of the Default Fund and a regular review of the adequacy of the Default Fund size and methodology take place

• Results are presented to senior management and the Risk Committee

• Sufficiency of the Default Fund to cover the 2 largest defaulting Clearing Members simultaneously with market stress is validated daily

• Both historical and hypothetical scenarios are used for Default Fund dimensioning

• If stress test results indicate that the Default Fund is not sufficient then:

– Global percentage can be recalibrated, or

– Member-specific actions can be taken

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Hypothetical scenarios Historical scenariosDefault Fund




9

Eurex Clearing’s guiding principle in a default situation is to minimize the effect on the lines of defense and stabilize the markets

Remaining Capital of Eurex Clearing AG

Parental Guarantee

Max 2 assessments per CM

Clearing Fund Contribution of Other Members

Dedicated amountof Eurex Clearing AG

Clearing Fund Contribution of Member in Default

Collateral of Member in Default

Position Netting

Eurex Clearing provides a multi-level safety system Lines of defense

• First the collaterals and the clearing fund contribution of the member in default are utilized.

• After the defaulters contribution is exhausted assigned dedicated amount of Eurex Clearing AG is applied before non-defaulting clearing members contribution and remaining capital of Eurex Clearing AG.

• The contribution to the Clearing Fund is based on a minimum contribution and a dynamic component accounting for the individual clearing member’s risk situation.

• Following a realization of any contributions to the Clearing Fund of the non-defaulted clearing members, such clearing members are asked to provide assessments to their contribution.

• Clearing members’ total liability is limited as they have to provide maximum two assessments per capped period.

• The creation of liquidation group specific clearing fund segments (CFS), within the single common clearing fund.

• CFS are determined for each liquidation group. A CFS is a partition of the single clearing fund according to the relative weights of the initial margin of the Liquidation Groups.

• When liquidating a particular Liquidation Group, only the respective CFS can be used to cover losses, unless there is a known surplus from other, already completed Liquidation Groups.

Segmentation of the clearing fund

Remaining Capital of Eurex Clearing AG

Parental Guarantee

Max 2 assessments per CM

Clearing Fund Contribution of Other Members

Dedicated amountof Eurex Clearing AG

Clearing Fund Contribution of Member in Default

Collateral of Member in Default

Position Netting

Lines of defense




Default Management Process reflects best practice and complies with market requirements and regulatory guidelines

10

Overview of Default Management Process

•Preliminary Measures

• Convention of Default Management Committees to support Eurex Clearing throughout the whole DMP

• To protect client assets, positions and collateral are transferred wherever possible

• Portfolio and market evaluation in preparation of liquidation

• Handling positions that expire shortly

•Hedging

• Hedging of the defaulted clearing member’s portfolio is executed as early as possible, to limit losses immediately

• Hedged portfolio is likely to receive better prices in the auction

•Independent Sale

• If the portfolio is small or only few clearing members are active in the involved products then bilateral or on-exchange trades can ensure a timely liquidation

• Mutual clearing fund will not be utilised, unless all clearing members have the chance to provide a price in the auction

•Auction

• Participation in auctions is mandatory for those clearing members who are capable from an operational and risk perspective to process the respective portfolio

• Clients are allowed to bid via their clearing member

• Clearing fund juniorisation and penalty fee set incentives for competitive bidding

Holding period serves as basis for risk calculation within Eurex Clearing




Overview of major areas within CCP Risk Management

11

Counterparty Assessment

• Eurex Clearing has strict criteria for counterparties to guarantee that clearing members, payment banks, treasury counterparts have sufficient credit quality and financial strength

• Credit assessments are repeated on a regular basis

Margining

Stress Testing• Additional post-default backings are available to cover risks beyond the margin confidence level• The adequacy of the Clearing Fund size, Eurex Clearing’s total financial resources and liquid

financial resources is verified by means of stress tests

• Margin requirements are aimed to cover potential losses arising during the default management process according to the “defaulter pays” scheme

• Margin requirements are monitored and enforced intraday

Collateral and Member

Monitoring

Default Management

Process

• Eurex Clearing only accepts secure, liquid and accessible collateral with low credit risk• A comprehensive risk management framework has been established in order to identify,

manage and control credit, concentration and wrong way risks

• When a Clearing Member goes into default, one of Eurex Clearing’s principle objectives is to protect customers and minimize harm to clients and their positions

• Losses to the CCP’s lines of defense and the disruption of the wider market are minimized

Eurex Clearing’s Risk Management Framework




• Aligned default management process across a Clearing Member’s positions

• Positions deemed suitable for simultaneous liquidation arelogically assigned to the same Liquidation Group

• Risk offsets are only granted within the same Liquidation Group(e.g. Equity, Commodity or Fixed Income)

Consistency

4

2

3Central benefits• Adjustments to enable stable margin requirements: concentration,

uncertainty in correlations, model adjustments if compressionis used

• Flooring for stability: Stressed period scenarios and dynamic volatility scaling to at least long run volatility percentiles

Stability

• More accurate risk netting effects than legacy risk models

• Higher capital efficiency for customers through risk calculation on a portfolio basis

Capital Efficiency

• Reduced time-to-market for new productsFlexibility

1

5

• Cross-product scenarios enable consistent way to account for portfolio correlation and diversification effects

• Risk covered at high confidence level through margin calculation consisting of a

− Mark to market component − Forward looking component − Adequate liquidation time horizon

Accuracy

Eurex Clearing employs a state-of-the-art margin methodSeveral benefits are derived through the methodical cornerstones of Eurex Clearing’s portfolio margining model methodology, PRISMA

12




1313© Oliver Wyman

Cost efficiencies may vary substantially across CCPs along 3 key drivers

13

An integrated cross-product CCP with a large eligible collateral spectrum entails the highest efficiency potential for customers

Netting efficiency

Default fund efficiency

Collateral efficiency

1

2

3

• Multilateral risk netting may be complemented by cross-product exposure netting (& cross-margining) between OTC, exchange-traded and cleared repo transactions

• Netting of positions in liquidation groups for initial margin and balance sheet netting of exposure at default under a single legal CCP construct

Higher netting efficiency lowers capital and funding requirements

Higher default fund efficiency lowers capital and funding requirements

Higher collateral efficiency lowers funding requirements

• Required default fund contributions depend on the risk characteristics of the CCP

• CCPs with significant existing exposures across products under a single netting agreement and strong segregation services tend to lead to lower default fund contribution and capital requirements

• CCPs with a large spectrum of eligible collateral, re-use of other assets (e.g. GC pooling) and central bank access mitigate funding issues for clients




Solutions: Optimising Transaction Economics

14

§ Single legal cross product netting set

§ Capital efficient clearing models across securities finance, repo and derivatives

§ Advanced netting and compression reduce gross notional and balance sheet usage

§ Eurex Clearing Prisma: Live cross-product margining

§ Full fixed income rates curve across listed and OTC

§ Most comprehensive equity/index derivatives coverage

§ Product innovation continuously complementing fixed income and equity product range

§ Largest spectrum of eligible collateral

§ Collateral transformation tools to increase the effective supply of collateral

§ Collateral enhancement tools enable additional returns

§ Superior client asset protection models

§ Robust default management process with strong lines of defense, increased dedicated amount of ECAG

§ Central bank access for investment and liquidity purposes to ECB and SNB

Integrated CCP model

Eurex Clearing AG is the only fully integrated QCCP maximising capital, margin and collateral efficiencies across instruments

Safety & robustness

Margin efficiency

Capital efficiency

Collateral efficiency




Key Challenges

Component Cross-product netting benefit Derivatives Securities financing

Listed OTC Repo Sec lending

Capital

RWA• Netting of exposure at default across

different products under a single legal CCP construct

Leverage Ratio

• Netting of LR exposure across different derivatives and different securities financing transactions under single legal CCP construct

Collateral & Liquidity

Demand (Margin)

• Netting of positions in liquidation groups for initial margin across products

• Variation margin netting across all cleared products

Cross-product netting: enables participants to reduce exposures across derivatives and securities financing transactions

15

Standardized EAD calculation

Standardized EAD calculation

Internal EAD modelling approach

Derivatives exposure

calculation

Sec financing exposure

calculation

Margin netting across derivatives

Cross-product netting opportunity

Enabled byEurex Prism

aEnabled by an integrated

legal CC

P construct




16

Agenda










17

Segregation and portability has become increasingly important because of client demand & regulation

EMIR article 39 requires CCPs and Clearing Members to offer at a minimum omnibus and individual segregation models.

After the Lehman and MF Global defaults, the demand for segregation increased as clients have faced issues around uncertainty of porting, double funding, mutualisation of client and CM risks from co-mingling of assets and potential misuse of client collateral.

Individual models are intended to secure the positions and the collateral assets at all times in the event of default of a Clearing Member or other clients of the clearing member.

Some local investment laws require asset managers to segregate assets at the fund level to prevent co-mingling of positions and assets between the clearing broker, other clients and funds of the same fund company.

Both buy-side and sell-side clients are requesting protection from additional risks including transit and liquidation risk.

ESMA finally provided clarity that individual client segregation requires that the actual assets of the client are segregated and available for porting. Models which merely segregate the value of collateral due to the accounts of clients, 'do not meet the requirement to offer individual client segregation’ (ESMA Q&A 5 August 2013).




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1818

Agency position accounts

CM Prop

account

RC/NCMposition

accounts

Individual Segregated

Accounts (ISA)OSA by Value

RC/NCMposition accounts

RC/NCM collateral pool

CCP MR net for all

P & M accounts

CCP MR per A

account

CCP MR per

RC/NCM

CCP MR per RC/NCM

Posi

tion

acco

unts

Mar

gin

calc

ulat

ion

Eure

x C

lear

ing

Col

late

ral

pool

s A single collateral pool is maintained which dynamically

records proprietary and OSA by value client collateral

OSA by Asset And /or OSA under CASS*

Multiple OSAs*Requires OSA by asset and is available under CASS


RC/NCMposition

accounts

CCP MR per A

account

CCP MR per

RC/NCM

Collateral pool for OSA by asset

Collateral pool for OSA under CASS


CCP MR per A account

CCP MR per

RC/NCM

MOSA collateral pool by asset

MOSA collateral pool under CASS

MOSA collateral pool by asset

MOSA collateral pool under CASS

CCP MR per A account

* Securities collateral under omnibus segregation is held under pledge whilst ISA collateral is full title transfer to Eurex Clearing**The OSA by asset and OSA under CASS models are operationally identical. The only difference is the later affords clients CASS protection.

OSA by value is the default segregation model at Eurex

Clearing. Segregation is achieved through reporting on

the books and records of Eurex Clearing rather than on the CSD

level

When OSA by asset is chosen, a separate collateral pool is opened at Eurex Clearing and an account on

the CSD level. Specific securities and cash are designated to the collateral

pool for all OSA by asset clientsand/or OSA under CASS.

When OSA by asset is chosen, CMs have the option to open multiple omnibus collateral pools at Eurex Clearing. This enables CMs to group clients together. It is possible to have multiple

collateral pools protected under UK Client money rules (OSA under CASS) or not (OSA by

asset).

Full physical segregation of positions and

collateral per client.



CM calls each client on a gross basis and can either post net or gross to Eurex Clearing. For the CM, disclosed clients (RC/NCM) are gross margined

Standard Omnibus Segregated Accounts (OSA)

Overview of Segregation Models at Eurex Clearing




The Individual Segregated Account structure provides the highest level of protection and porting likelihood

19

• No fellow customer risk• Highly likely porting• Actual assets protected• Allows full segregation at sub-fund

• 2 percent risk weight for trade and collateral exposures• Asset tagging (optional)• Direct transfer of collateral (optional)• Later cash withdrawals for EUR and CHF

• All actual assets provided to Eurex Clearing are protected against the default of another market participant

• This differs from value-based models where only a value equivalent is protected instead of the client‘s actual assets

• Should there be a default, clients can choose to port immediately to a Replacement Clearing Member or become an Interim Participant, directly facing Eurex Clearing until a Replacement Clearing Member is identified and accepts the port.

• Alternatively, clients can elect to closeout and directly receive their collateral back

Safe

tyEf

ficie

ncy

Protection of assets and portability ensures

• No replacement risk

• No liquidity risk

• No liquidation risk in case of a Clearing Member default

Positionaccount

Collateralaccount

Cl Client

Cl1

ISA




20

Agenda










21

Conceptual working of portfolio and cross margining Portfolio margining accounts for netting effects and cross margining determines the optimal combination of listed fixed income products with OTC IRSPortfolio margining Cross margining

Euro Stoxx 50 futures (short)

DAX futures (long)

Margin reduction byportfolio margining:

Portfolio margining benefit

• Cross margining allows for offsets between products with different holding periods

• Eurex Clearing offers cross margining for OTC IRS (5 day holding period) and listed fixed income (FI) products (2 day holding period)

• Listed FI positions are transferred to the OTC IRS split such that the reduced risk is reflected in lower margins

IRS + FIAllocation of

FI listed productsthat hedge IRS exposure

FI only

Listed FI OTC IRS

Total (without cross margining)

Cross-marginedportfolio

Margin requirementsMargin requirements

• Portfolio margining is applied to products within the same liquidation group and with the same holding period, e.g. Euro Stoxx 50 and DAX futures




Lower costs through cross margining OTC and listed positions

Without cross margining With cross marginingIRS and fixed income futures/futures-style options are margined separately:• IRS with a 5 day liquidation horizon• Futures and futures-style options with a proposed two day liquidation

horizon

OTC IRSFI listed products

IR swapsFI futures /

futures-style options

2 day horizon 5 day horizon

Margin requirements:

Futures/future-style options OTC IRS

If IRS and futures positions are hedged: • Futures are transferred to the IRS split such that the reduced risk is

reflected in lower margins*

IRS+FI

IR swaps

FI fut./options

Allocation of FI listed products

that hedge IR exposure

FI-only

FI futures / futures-style

options

2 day horizon 5 day horizon

Margin reduction by cross margining:

Cross margined portfolio

Overall initial margins for cross margined portfolios can be lower reflecting the overall risk reduction* Depending on portfolio diversity

22




23

Agenda










Concentration of risk in the US OTC Derivatives Clearing Business 1 Challenges

TOP 5~70%

TOP 10 ~95%

1 Source: http://www.cftc.gov/MarketReports/FinancialDataforFCMs/index.htm - *as of 30.09.2015

• Concentration is increasing. US market structure is likely to arise in Europe as well

• Limited balance sheet capacity of many clearing brokers and poor economics for client clearing

• Porting of clients in crisis massively at risk given constraints of clearing brokers to pick up clients

Significant negative implications including domino effects can be expected in a crisis, as long as neither the capital rules nor the market structure changes

Derivatives market structure shows a strong concentration of risk to the Top 10 Clearing Brokers

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Credit Suisse

Morgan Stanley

J.P. Morgan

Citigroup Global

Barclays Capital

Wells Fargo Securities

Goldman Sachs

Merrill LynchDeutsche BankUBS

TOTAL Initial Margin: ~ 56 BN US $*

24


http://www.cftc.gov/MarketReports/FinancialDataforFCMs/index.htm



2525© Oliver Wyman

Overview of ISA Direct model

25

ISA Direct model combines elements of direct clearing membership and the traditional service relationship in client clearing, tailored specifically for the buy side.

Transaction management

Cash management

Collateral management

• Default fund contribution• Default management obligation

Client Clearing Member

ISA Direct client

Clearing Agent

Traditional client clearing ISA direct model

Optional transaction processing services betweenClient and Clearing Member resp.

ISA Direct client and Clearing Agent

Clearing agent and clearing member core tasks

Direct contractual relationship




ISA Direct – Direct Access for Client Clearing

26

ISA Direct client

Clearing Agent

CCPDirect contractual relationship

Provision of operational services* by Clearing Agent to ISA Direct client

• Default Fund contribution

• Bidding obligation

TransactionManagement

Cash Management

Collateral Management

The solutionISA Direct delivers a framework that isoperationally similar to a traditionalsegregated client clearing relationshipunder a different legal relationship.

1. Client becomes principal to the CCPand directly clears trades

2. Clearing Agent facilitates operationalservices*, and specific defaultobligations

3. ISA Direct clients have to meetadmission criteria equivalent toregular Clearing Members

In addition to improving market safety andintegrity, this results in a number of keybenefits to both parties:

Benefits for Clearing Agent• Capital costs substantially reduced (LR, RWA)• Allows maintenance of client relationship and delivery of

a range of clearing services• Increased default fund contributions for ISA Direct

Member and Eurex Clearing’s dedicated amount create layers of protection before loss mutualisation

Benefits for ISA Direct Client• No default fund contribution • Assets are segregated, securities under pledge• Collateral eligibility >17,000 ISINs• Porting issues removed, appointment of new Clearing

Agent in default scenario• Relieves concentration of CMs offering client clearing

New regulations are impacting costs and access to clearing for non members

*operational services can be performed by the Agent or the ISA Direct client




Derivatives: Capital costs for providing (client) clearing services can be substantially reduced via direct clearing models

Capital cost of clearing agent (bps of IM)

Clearing agent CCPClient

Exposure

IMDF

IM

Exposure

~80%+

Capital costs for providing default fund (only applies if clearing agent provides default fund, otherwise this is a direct

costs for the client)

27

Client clearing

Direct clearing

Leverageratio

RWA

Leverageratio

RWA

Banks can take on a range of roles, enabling them to retain and service client relationships

CCPClientExposure

IM

DF

Trading activityClearing

agent

Derivatives clearing models and corresponding annual capital costs for a clearing agentExample based on ~5 year duration, directional EUR IRS swap portfolio

~85%-95%+

~25-701

~14

~3

~3

1. Depends on final leverage ratio rule (use of SA-CCR with collateral offset leads to reduced costs of ~25 bps vs. ~70 bps based on current proposal with CEMNote: Requirements are foreseen to only allow direct access for clients of high credit quality (requiring credit assessments required for each new clearing license, discussed within the Eurex Clearing Credit Committee, signed-off by the Eurex Clearing Executive board)




28

Agenda










Lending CCP – our service for Securities Lending

The solutionEurex Clearing offers a CCP service for the securities lendingmarket, strengthening our commitment to reducing systemicrisk and ensuring the safety of the market overall. By retainingthe bi-lateral trading relationship, existing market relationshipsare preserved. It also delivers other key benefits:

• Efficient use of borrower’s capital (RWA, CVA, netting)• Agency and Principal roles for Lenders• Simplifies a multiple counterparty credit structure to a

single CCP relation• Operational efficiency via CCP managed post-trade

services• Enhanced default management protection by the CCP• CCP risk management approved by regulatory authorities• Re-use of existing infrastructure to allow for a wider

distribution of counterparts• Flexible collateral schedules allowing for optimization of

collateral Post trade functionality• Loan Deliveries, Mark-to-Marks, Re-rates, Recalls,

Returns, Buy-ins• Corporate Actions, dividend payments• Automated billing (lending fees & rebates)Principal collateral > 30,000 ISINs• Cash (EUR, USD), • Bonds, Equities and ETFs

Markets > 25,000 ISINs• Fixed income – European government, supra, corporate

bonds• Equities – coverage of key European markets• Exchange Traded Funds (ETFs)

Risk considerations and operational efficiencies are driving change

Securities lending market participants

Eurex Clearing Lending CCP

Bilateral market (OTC) Electronic SL trading platforms

Eurex Repo-SecLend MarketFlow Providers & Trade Capture Platforms

Central Securities Depositories International Central Securities Depositories

29




Lending CCP – Specific Lender License

30

The solutionThe Specific Lender License facilitates lending only participants (beneficial owners) the ability toremain as principal via a direct relationship with the CCP and the Agent Lender remains as anaccount operator as agent. It also delivers other key benefits:

• No requirement to clear through a GCM, pay margin or default fund contribution• Existing relationships with Lending Agents are maintained

• Agent Lender continues to arrange loans for CCP eligible transactions• Operational links with flow provider and CCP maintained by Agent Lender• Agent Lender reports loans and collateral through existing reporting set

• Simplifies multiple counterparty credit structure to a single CCP• Transparent and standardized risk management and default procedures approved by

regulators• Access a wider distribution of counterparts via one legal framework• Flexible collateral schedules allow optimization of collateral• Reduction of Agent Lender’s indemnification costs

Allowing Beneficial Owners to participate directly with a CCP

CCPs for Securities Lending deliver:

• Effective use of capital• Better terms• Credit intermediation• Risk mitigation• Increased utilization• Operational efficiency• Collateral optimization




GC Pooling Select – Invest and Finance

31

Direct clearing models link supply with demand in a capital efficient way

The solutionDirect CCP clearing models are thecatalyst to eliminate exposure betweenclient and bank in existing bilateral andtri-party models. As an integrated CCP,Eurex Clearing offers tailored clearinglicenses for buy side customers to gaindirect access to the repo CCP markets.

Eurex Clearing’s integrated securitiesfinancing service enables collateralavailability, liquidity and fluidity for allmarket participants.

GC Pooling Select Finance • Accommodates access to CCP cleared secured funding

and investments for buy side• By leveraging proven GC Pooling infrastructure buy side

clients are enabled to perform collateral transformation for cash margin coverage, specifically VM funding for pension funds and asset managers

• Delivered via the ISA Direct clearing membership, buy side participants can gain access via a Clearing Agent

GC Pooling Select Invest• Facilitates secured deposits and delivers a substantial

reduction in the credit and liquidity risks of lending unsecured

• is available for non-banks, such as corporates or insurance companies, wishing to invest cash on a secured basis with a CCP

• No default fund or initial margin• No access to clearing systems required

GC Pooling and Repo market: benchmark for secured funding and financing

GC Pooling and Repo Sell Side

GC Pooling Buy Side

EUR USDGBP*Select Invest

(EUR)Select Finance

(CHF, EUR, GBP**, USD)

Cash provider and cash taker

Banks, brokers, central banks, finance agencies, supranational organisations

Corporates, pension funds, asset managers, insurance companies

Net cash providerCash provider and cash

taker

Fully comply with Eurex Clearing’s clearing conditions

Unique set up:• No default fund• No initial margin• No access to clearing

systems required

ISA Direct clients:• Principal to CCP• Must meet admission

criteria equivalent CM• Clearing Agent

provides services

*GBP will be launched in Q216; ** GBP will be available under Select Finance in Q316

CHF

GC Pooling and RepoBuy Side




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Documents

Bloomberg and the Union of Arab Securities Authorities Roundtable Dubai September 2016