EurexOTC Clear for IRS – EMIR QCCP ABBL November 20 th 2014

EurexOTC Clear for IRS – EMIR QCCP

ABBLNovember 20th 2014

www.eurexclearing.com

EurexOTC Clear IRS November 2014 - ABBL

• Requirements and Implications of being a Clearing Member.

• Segregation Models, levels of protection and portability

• Process of trade novation and calling of margin

• Cost Implications for Banks as Clearing Members versus Client

• Trading / Pricing implications of frontloading

• CCP Differentiators

• Key contacts

• Appendix

Agenda

2



3

Members of the Clearing HouseEurex Clearing offers a flexible account structure to allow the Clearing Member (CM) to differentiate between own trades and trades of their customers

Eurex Clearing

ClearingMember

Proprietary AccountA-Account(s)

(non-seg Clients)NCM / RC

1NCM / RC

n

Proprietary Account A-Account(s)

A1 A9

May clear only for himself, his clients and for market participants that are part of affiliated companies. Direct Clearing Members*

Are market participants in trading systems cleared by the clearing house who have no contractual relationship with the clearing house. A Clearing Member carries out their clearing. NCMS may opt to use segregation models offered by Eurex Clearing

Non Clearing Members (NCMs)*

General Clearing Members

May clear its own transactions, those of its customers, as well as those of trading participants that do not hold a clearing license.

Registered Customers (RCs)

Do not have a trading license for any Eurex market. They can become Registered Customers (RC) to benefit from the various Client Asset Protection models offered by Eurex Clearing. Registered customers are not direct participants, but are known by Eurex Clearing.

Non Disclosed ClientClients that are not known to Eurex Clearing and whose positions are held in the A1 to A9 omnibus client accounts (non-seg clients)

A1 A9

*DCM and NCM not valued for OTC



4

Access to the service for Clearing MembersGeneral Clearing Members (GCM) may clear their own transactions and those of their RC/NCMs and clients that do not hold a clearing license

Membership criteria

Liable equity

• Access to the clearing system infrastructure of Eurex Clearing as well as being a user of an approved trade source (ATS).

• Default management obligations.

• Cash accounts, EUR or CHF and USD cash accounts are required, also a GBP account if clearing

swaps in GBP.

• Evidence of a pledge account at CBF or SIX SIS for deposit of securities collateral.

• Each Clearing Member must meet the minimum liable equity capital requirements of Eurex Clearing,

being the largest of the following amounts;

• 20 percent of the 30-day average of additional margin plus futures spread margin

• 20 percent of the 250-day average of additional margin plus futures spread margin

• EUR 30 million

Requirements

Clearing fund

Description

• Each Clearing Member must make a contribution to the Clearing Fund of Eurex Clearing, being the

largest of the following amounts;

• 7 percent of the 30-day average of the initial margin requirement

• 7 percent of the 250-day average of the initial margin requirement

• DCM: EUR 1 million; GCM 5 million



5

Access to the service for clientsEurex Clearing will provide a variety of options for clients to connect indirectly to the service

Access type Requirements

Registered Customer/

Non Clearing Member

• To become a Registered Customer/ Non Clearing Member, the legal entity must have concluded a tripartite agreement with a Clearing Member and Eurex Clearing AG.

• As such, the primary relationship is between the client and the Clearing Member. Clearing Members are entitled to set their own eligibility criteria for clients.

Non Disclosed Clients

• No direct relationship with Eurex Clearing AG.

• The primary relationship is between the client and the Clearing Member, therefore Clearing Members are entitled to set their own eligibility criteria for clients.



The safety of the CCP through its lines of defense is a key criteria in deciding where to clear

Values as of September, 2014* Monthly average collateral value after haircut

Eurex Clearing’s lines of defense are crisis proven – default fund has never been used

Lines of Defence before Eurex

Clearing’s capital sum up to more

than € 9 bn

Remaining equity of EurexClearing AG

Assessments to the Clearing Fund

Approx. € 289 m, Eurex Clearingthus fully EMIR compliant

Min. € 1.0 m (DCM) or € 5.0 m (GCM)

Total collateral held at Eurex Clearing approx. € 48.35 * bn

Close-out of all positions

Approx. € 3.4bn

€ 50 m

Position netting

Collaterals of Memberin default

Clearing Fund contributionof Member in default

Dedicated amount of EurexClearing AG

Clearing fund contributionof other Members

Coverage in normal market conditions (Lehman/ MF Global)

Coverage in extreme market conditions

Max 2 assessment limit liability of CM to 3x prefunded clearing fund contribution

Eurex Clearing lines of defense

Parental Guarantee€ 700 m guaranteed by Deutsche Börse AG

6



Remaining Capital of Eurex Clearing

Parental Guarantee

Max 2 Assessments per Clearing Member

Eurex Clearing Lines of Defense

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

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.

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



Further enhancement of Eurex Clearing’s Default Waterfall

8

• As of 1 December 2014, Eurex Clearing implements possibility to close liquidation group (LG)* at the end of the default waterfall.

˗ Main reason for possible closure of LG is to ensure that failure of one LG does not automatically trigger the entire CCP to be wound down or to enter into recovery or resolution.

˗ Closure of a LG qualifies as additional recovery option for Eurex Clearing.

˗ As part of implementation of closure of LG, Eurex Clearing deletes termination right as final step of DMP.

• To facilitate closure of LG at end of the default waterfall:- Eurex Clearing sub-divides all financial resources across LGs, starting from the first clearing fund assessment. No

changes are implemented with respect to pre-funded clearing fund contributions.

- If the financial resources earmarked for a specific LG prove to be insufficient to cover all losses in such LG, Eurex Clearing terminates and cash-settles all transactions within this LG across all Clearing Members. All other LGs remain unaffected.

- Eurex Clearing fully pays out all claims resulting from the closure of LG and returns any remaining clearing fund contributions and margin collateral allocated to this LG to respective Clearing Members.

- Respective claims become due on day of closure of the LG and are to be paid as soon as reasonably possible.

- Cash-settlement is based on last available settlement prices for all transactions within respective LG.

- In Individual Clearing Model, cash-settlement of transactions between Eurex Clearing and Clearing Member automatically results in cash-settlement of corresponding transaction between Clearing Member and ICM-Client.

Possibility to close Liquidation Group at end of Default Waterfall

* A LG comprises products with similar risk characteristics, i.e. products of the same asset class.



End of default waterfall

• Resources are ear-marked, starting from first assessment. • Eurex Clearing may close one LG once all resources for such

LG would be exhausted; all other LGs remain unaffected.

Structure of Default Waterfall

9



Obligation Description

P

r

i

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f

a

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l

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NominateDMC Member

Clearing members participating in a Default Management Committee (DMC) need to nominate one DMC Member and one DMC Deputy, assisting the clearing house in supporting the hedging, Independent Sale and auctions during the Default Management Process in case of a clearing member default and for regular default simulations. Representatives from affiliated NCMs and RCs can be nominated as well.

Participation in fire-drills Clearing members are obliged to participate in regular fire-drills. The fire-drills are intended to test and evaluate the DMP, including (for example) pricing of portfolios.

Provide contact details To assist with communication, Eurex Clearing requires all clearing members to supply an appropriate DMP contact and DMP contact details.

D

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Providing market access to obtain best prices

Eurex Clearing expects non-defaulted clearing members to support the risk reduction process by providing the clearing house with competitive prices for hedge transactions or during an Independent Sale.

Bidding in auctionsNon-defaulted clearing members are obliged to participate in the competitive auction process and submit prices for the hedged portfolio. NCMs, RCs and clients can participate in the auctions as well, thus fulfilling the bidding obligations of their clearing members (as applicable).

Taking on client positions from defaulted clearing

member

Whilst clearing members are not legally obliged to take on clients from a defaulted clearing member they are expected to assist in the execution of the DMP. Clearing members therefore should work with clients seeking a new clearing member and, providing that the take-on of the client would not significantly impair the clearing member’s own business objectives, be prepared to take on the client(s) trades and collateral in a streamlined and timely manner.

10

Overview of clearing members’ responsibilities within the Default Management ProcessResponsibilities within the process start prior to a default situation



11

Pro

cess

st

ep

De

scrip

tion

Covered by:

• Define hedging for defaulting portfolios

• Hedge portfolio based on management decision

Margin and clearing fund contribution of defaulted clearing member

Timeline corresponds to assumed period in risk calculation within Eurex Clearing Prisma

Set-up/ client Transfer

Preliminary Measures

• Client position and collateral transfer

• Convention of Default Management Committee

• Close-out netting per framework agreement

• Portfolio and market evaluation

• Handling as required for short maturity positions, e.g. by rolling

• Technical preparation

• Preparation of portfolio for liquidation

• Selling the portfolio independently if it is small or special

Asset Class Resolution

• If Auction results in remaining positions

a) Eurex Clearing will hold the positions and charges any losses resulting from them to non-bidders, or

b) Non-bidder agrees to enter into respective transactions with Eurex Clearing

• Mandatory participation in auctions for all clearing members holding clearing licenses with respect to all positions held in the auctioned portfolio

• NCMs, RCs and clients are able to bid as well, fulfilling the CM’s bidding obligation

• Economically reasonable bid for a minimum of auction units required

• Penalty fee and clearing fund juniorization if not fulfilled

Hedging

Remaining Lines of Defense

Independent Sale

Auction perliquidation group

The new Default Management Process reflects best practice and complies with market expectations and regulatory guidelinesOverview of future Default Management Process framework



• In case of a default, the current DMC Members

– make themselves available within a short period of time,

– identify suitable hedging strategies for the defaulted member’s portfolio,

– assist in transferring segregated clients to solvent clearing members and

– support the execution of auctions, and advice on auction parameters

Obligations during a clearing member default

• Clearing members can volunteer to participate in any DMC. In case of insufficient number of volunteers, Eurex Clearing nominates additional clearing members based on

• The CM has to nominate a DMC Member and a DMC Deputy (members serve for 2 years) and to provide CVs to prove that the nominees have sufficient knowledge and expertise. Representatives from affiliated NCMs and RCs can be nominated

Default Management Committees (DMCs)

• Each DMC is continuously defined, but only temporarily convened in case of a clearing member default or for regular default simulation exercises.

• One DMC for each liquidation group to advise, assist, and provide recommendations to Eurex Clearing to define hedge strategies and organise auctions.

Role of the DMC

12

Each Default Management Committee supports the Default Management Process

Nomination of DMC

Members



Eurex Clearing conducts auctions with mandatory participationby clearing members active in the respective liquidation group

13

Auction format for liquidation group Equities Derivatives

Auction Participant

AuctionFormat

• Two-way, one-off, sealed bid, multi-unit, pay-as-you-bid auction with respect to identical auction units.

• Best bid wins the amount of auction units that it was provided for at the given price.• A bid is economically reasonable if the price spread between the two prices submitted

is within the given maximum spread, and any economically reasonable bid is accepted.

• Mandatory participation for all clearing members − holding the necessary clearing license to acquire the portfolio,− have been active in the liquidation group during the last 3 months prior to default

and− have the necessary infrastructure in place to process the products.

• Each auction participant is requested to bid at least for an individually defined minimum amount of auction units, depending on the initial margin of the auction participant relative to the overall initial margin in the liquidation group.

• The sum of the minimum amounts across all relevant clearing members exceeds 100% of the auction portfolio.

• Clients can participate in auctions with permission of a clearing member (bids are considered for the minimum bid size calculation).



The legal framework is built upon three major documents ensuring the enforceability of the Default Management Process

14

Legal framework for DMP

Chapter I Part 1 Number 7.5 of the

Clearing Conditions constitutes the

legal framework for all components

of the Default Management Process.

Chapter I Part 1 Number 6 of the

Clearing Conditions constitutes the

legal framework for the General

Clearing Fund.

Default Management Auction Rules

(DM Auction Rules) constitute the

legal framework for the auction

process regarding participation, pre-

auction procedure, bidding

procedure, determination of auction

price and auction format.

Default Management Committee

Rules (DMC Rules) constitute the

legal framework for the

implementation of Default

Management Committees regarding

composition, procedures, legal

relationship, general duties and

liabilities of DMCs.

Default Management Committee Rules

Default Management Auction RulesClearing Conditions









• Key contacts

• Appendix

Agenda

15



Disclosed Client (NCM / RC)

No

Undisclosed client

Only to known clients

ValueAsset

Yes

Individual Segregation Account (ISA)

Multiple Omnibus Segregation

Account (OSA)

Standard Omnibus

Segregation Account (OSA)

Type of client position account?

Fellow customer risk acceptable?

Type of collateral protection?

Type of segregation

16

Client Asset Protection Decision TreeEurex Clearing offers Clearing Models which satisfy EMIR segregation and porting requirements providing different levels of protection.

Our Clearing models Individual Clearing Model

Elementary Clearing models

*Net Omnibus Clearing model

*Offers CASS Protection



17

1717

Agency position accounts

CM propriet

ary account

RC/NCMposition

accounts

Individual Segregated AccountsOSA by Value

RC/NCMposition accounts

RC/NCM collateral

pool

CCP MR per P

account

CCP MR per A

account

CCP MR per

RC/NCM

CCP MR per

RC/NCM

Po

sit

ion

a

cco

un

tsM

arg

in

ca

lcu

lati

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Eu

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Cle

ari

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C

oll

ate

ral

po

ols

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 OSAsRequires OSA by asset and is available under CASS


RC/NCMposition

accounts

CCP MR per A

account

CCP MR per

RC/NCM

Collateral pool for all OSA by asset

clients

Collateral pool for all OSA under CASS

clients


CCP MR per

RC/NCM

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



MOSA collateral pool by asset

MOSA collateral pool under CASS

CCP MR per A

account

CCP MR per A

account

* The OSA by asset and OSA under CASS models are operationally identically. 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 and not via

separate collateral pools in the Eurex Clearing system

When OSA by asset is chosen, a separate collateral pool is opened at Eurex Clearing. Specific securities

and cash are designated to the collateral pool for all OSA by asset clients and/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 affiliated 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 OSA

Overview of Segregation Models at Eurex Clearing



18

Standard OSAs

Standard OSAs provide segregation between a Clearing Member’s client and house business. Within a Standard OSAs, all of the Clearing Member’s clients (excluding ISA clients) are grouped together with one collateral pool. There are three variants of the standard OSA;

Omnibus segregation options at Eurex Clearing

Positions

Separate positions accounts are maintained to segregate proprietary (P-/M-Account), client (A-Account) and NCM/RC

positions. This applies to all standard OSAs

Collateral

OSA by Value - One collateral pool (cash and securities) with pro rata allocation by value (as a percentage) to proprietary

and client positions automatically in the Eurex Clearing System based on margin requirements

OSA by Asset - Allocation of securities collateral by Clearing Member in SWIFT instructions to CBF, SIX SIS Ltd., CBL

accounts Allocation of cash collateral by Clearing Member through pool ID

OSA under CASS - Operationally identical to the OSA by Asset model but client money is held under UK CASS rules.

Eurex Clearing will acknowledge that this cash pool is held on trust by the Clearing Member and will therefore not be

subject to set off (as required by CASS 7.8.2R



19

Standard OSA

• 4% capital charge (in Eurex Clearing’s view)

• Porting is possible where all clients (undisclosed and NCM/RCs) agree to port to a single replacement Clearing Member.

• Inherent in this clearing model are fellow customer, liquidation, replacement and transit risks

• Omnibus segregation is offered to both disclosed and undisclosed clients

• Undisclosed client positions can be segregated into one or more positions accounts (A1-A7) – i.e. net omnibus segregation

• Disclosed clients have their own position accounts (and can execute listed derivative and OTC transactions), which are maintained on a gross-position keeping basis but net initial margin (net IM per a position account). This set-up effectively allows gross margining for disclosed clients, with a single commingled collateral pool – i.e. gross omnibus model

Standard OSAs and client type

Characteristics



20

Legal overview of OSA under CASS

• Eurex Clearing’s CASS Net Omnibus Clearing model allows CMs located in the United Kingdom to apply the Client Assets (CASS) rules in relation to their undisclosed omnibus clients, Registered Customers (RCs) or Non-Clearing Members (NCMs)

• Functionally and operationally is comparable to the ECM by asset model but allows the CM to be CASS Compliant. The model allows the omnibus segregation of customer positions and margin and it is available for Eurex Exchange transactions, European Energy Exchange, and OTC IRS transactions

• Upon application by a Clearing Member, Eurex Clearing will provide a trust acknowledgement letter as required by CASS 7.8.2R

• For undisclosed clients, the Model is a traditional net omnibus clearing model, for NCMs and RCs, the model operates as a gross omnibus model for that client

• Considered to be a client transaction account at the CCP

• For either the net or gross omnibus set up, the model segregates and would only port the value of the collateral segregated within one commingled collateral pool

• 4% capital charge (in Eurex Clearing’s view)

• Porting possible, but only all clients together to one Clearing Member

• Inherent in this clearing model are fellow customer, liquidation, replacement and transit risks

Attributes of CASS Omnibus Clearing Model

Introduction



21

Default Management Process for Standard OSAs

• Two separate Difference Claims will be calculated, one Difference Claim for – Proprietary positions– A-Account, NCM and RC positions

• The A-Account, NCM and RC clients can choose whether they want to be ported to a new Clearing Member until 1pm on the business day immediately following default.

• Based on this decision the positions of A-Account, NCM and RC clients are either ported to a new Clearing Member or liquidated along with the Clearing Member’s positions

• Portability is only possible to one Clearing Member, i.e. all A-Account, NCM and RC clients need to be ported to the same Clearing Member

Portability of positions is facilitated by a transfer to the new Clearing Member

Alternative 1: In case of allocation by value, the portion of the collateral that is transferred to the new clearing member is determined by the ratio of the margin requirement of the NCM/RC and A-Account positions relative to the overall margin requirement.

Alternative 2: In case of allocation by asset (sub account/pool ID) the collateral allocated to the NCM/RC/A-Account positions is transferred to the new Clearing Member.

Key elements of the model to fulfil requirements for omnibus client segregation

Portability

Collateral

Positions



22

Default Management Process in the Multiple Omnibus Segregated Accounts

• Each multiple omnibus segregated account constitutes a separate standard agreement, which means a Difference Claim (i.e. a net set-off amount) will be calculated per multiple omnibus collateral pool

• All of the clients collectively within a multiple omnibus segregated account (any combination of A-Account, NCM and RCs) may port to the same back-up/Transferee Clearing Member

• A back-up Clearing Member may be specified in the documentation

• Porting Requirements must be fulfilled by 1pm CET on the business day after the default occurs.

• Based on whether the Porting Requirements are fulfilled or not, the positions of A-Account(s), NCM and RC clients are either ported to a new Clearing Member or terminated and the calculation of the Difference Claim begins

Portability of positions is facilitated by a transfer to the new Clearing Member

The collateral allocated to the multiple omnibus collateral account is transferred to the new Clearing Member

Close-out, porting and timelines

Portability

Collateral

Positions



23

Individually Segregated Accounts (ISA)

• The ICM provides Clearing Members with:

– full physical segregation of actual assets

– very likely porting

– compatibility with industry standard and bespoke CM documentation

• 2% capital charge. Eurex Clearing provides Capital Requirement Directive opinions to clients on the Member Section of the website

• Segregation and porting of clients actual collateral

• Porting window can be extended to 5 days under our interim participation concept

• The ICM will have a higher degree of operational complexity because Clearing Members will individually segregate clients at the CCP level (therefore offering the greatest level of protection envisaged under EMIR).

• Eurex Clearing will not charge additional fees based upon segregation model chosen.

Attributes

Eurex clearing introduced the ISA in August 2011



24

Individual Clearing Model – legal structureInsolvency protection and portability is achieved through close-out netting and pledges

• In case of a CM’s insolvency or expiry of the grace period of other pre-defined trigger events, a cash settlement taking the evaluation of all covered transactions and actual delivered collateral will take place (close-out netting)

EurexClearing

ClearingMember

NCM

2 Receivable pledges from CM to client and from CM

to ECAG

2

Difference claim

following close-out netting

Difference claim

following close-out netting

11

Close out netting and receivable pledges

• The close-out netting is processed between Eurex Clearing and the CM and equally between CM and NCM/RC

• Due to the established pledges, Eurex Clearing is obliged to pay a positive final result of the close-out netting to the NCM/RC without involvement of the defaulting clearing member

Transfer of legal

title Margincollateral

Transfer of legal

title

EurexClearing

Margincollateral

Margincollateral

ClearingMember

Non-ClearingMember

The Individual Clearing Model ensures segregation of collateral via transfer of title

Asset segregation is achieved by a title transfer mechanism where the NCM/RC passes through collateral via its Clearing Member to Eurex Clearing.



25

Individual Clearing Model – alternatives in a default situationThe handling of segregated clients after close-out netting

Individual Clearing Model

There are three options an NCM/RC can choose from:

A. to receive a final pay out of the cash settlement amount; the liquidation process beginsB. Immediate re-establishment under new relationship (back up Clearing Member)C. to become an Interim Participant and have the positions and collateral be transferred to a technical clearing member ID

Valuation Day + 1

Assumption: If the trigger event is identified prior to 17:23 CET, valuation day equals termination date. If the trigger event is identified after 17:23 CET, Valuation day is D+1.

Valuation Day Valuation Day + 2 Valuation Day + 3 Valuation Day + 4 Valuation Day + 5

Immediate re-establishment

Interim participation

Pay out

Close-out netting of positions

07:00 – 22:30 CET A

B

C



26

CM old

Close-outNetting

Close-outNetting

Interim participation

Max. 5 day period

ECAG ECAG ECAG

CM newIP

NCM/RC NCM/RC

Individual Clearing Model – Interim Participant solutionTransfer of client positions and collateral via the unique Interim Participant status

• The interim period can last up to 5 business days and can be extended by Eurex Clearing.

• The IP is assigned to a technical CM ID in the Eurex® system.

• The Interim Participant may only execute trades on a restricted basis as outlined in the Clearing Conditions.

• If the Interim Participant doesn’t fulfil its obligations during the interim period Eurex Clearing can suspend it according to the Clearing Conditions with immediate effect and start the close-out netting. The same happens after the interim period and if no new Clearing Member was found.

• Eurex Clearing does not have the power to enforce a transfer to a non-defaulting Clearing Member.

• All outstanding payments related to the positions reopened.

• Sufficient coverage for any margin shortfall.• Coverage of Clearing Fund contribution for the interim

period.• Confirmation of its financial solvency and technical ability

to maintain its position.

Characteristics

Legal requirements



27

The fund manager set-up

Reduced operationally and documentation effort for fund managers

• Eurex Clearing has developed a specific approach to facilitate the onboarding of fund managers. The Fund Manager Set-Up allows the asset management company to sign on behalf of an unlimited number of funds (when the funds have no legal personality)

• This approach results in documentation efficiencies and reporting benefits. In this approach the fund manager becomes a technical RC but each fund remains the legal counterparty, essentially each fund has it’s own ISA

Fund Manger

Fund 1 Position Account




• Whilst the position accounts of the fund manager set-up remains constant independent of the model used, collateral may fall under omnibus or individual segregation



Examples of the fund manager set up in omnibus and individual segregation

FM FM

Standard Omnibus Segregated Account Multiple omnibus collateral pools

Segregated multiple omnibus collateral pool for FM only

One collateral pool for all OSA by asset clients

CCP MR per

RC/NCM


…

CCP MR per

FN

Fund N

CCP MR per

F1

CCP MR per

F2

F1 F2

…

CCP MR per

F1

CCP MR per

F2

CCP MR per

FN…

… Fund NF2F1

RC/NCMposition

accounts

CCP MR per A

account

FM

…

F1SegPool

F2SegPool

FNSegPool

Individual Segregated Accounts

CCP MR per

F1

CCP MR per

F2

CCP MR per

FN…

F1 F2 Fund N

Mar

gin

ca

lcu

lati

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P

osi

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Cle

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Co

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po

ols

Each fund its individually segregated, with it’s own collateral pool holding

collateral solely for the purpose of that fund

The fund’s positions remain individually segregated in their own position account but there is no longer one collateral pool per a position account. The collateral

belonging to all funds sits in the omnibus collateral pool. This exposes the client to fellow customer risk as all of the CMs clients sit in the same collateral pool i.e. clients in the A1 – A9 accounts and any RCs or NCMs that the CM may

have

The CM may open a multiple collateral account for the sole purpose of the fund manager. Positions remain individually

segregated but the collateral sits in a omnibus collateral pool. This pool holds collateral only for the fund manager so fellow customer risk

exists only between the funds and not the CMs other clients.

Segregation options for the fund manager



29

Master fund Structure for Eurex OTC IRS

Fund Manager

MF1SegPool

CCP MR per

MF1

MF1

Mar

gin

ca

lcu

lati

on

P

osi

tio

n

acco

un

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Eu

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Cle

arin

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Co

llat

eral

po

ols

MF2SegPool

CCP MR per

MF2

MF2

MF3SegPool

CCP MR per

MF3

MF3

MF4SegPool

CCP MR per

MF4

MF4

Master Fund 1 – Position Account

Segment 1 – MW BIC 123





• Each master fund contains a number of segments which might be (externally) managed by different asset managers. Separate reporting is therefore necessary for each segment for management or performance measurement purposes

• As it is the master fund that is the legal identity, individual segregation is not required on the fund segment level but on the master fund level. In Eurex Clearing’s structure, each master fund sits in it’s own position account with its own collateral pool i.e. each master fund has its own ISA

• Each segment has an individual individual MarkitWire ID (MW BIC) which is used by the respective segment asset manager for entering OTC IRS trades at MarkitWire. It is the MW BIC that is used to identify each segment within the master fund position account.

• Initial margin is calculated net per a position account i.e. on the master fund level. Therefore each master fund benefits from risk offsetting between different segments within one master fund. The master fund can however calculate hypothetical margin per MarkitWire BIC by using the CC208 report)



Client Clearing Documentation – ECAG’s ICM clients can choose their documentation approach

30

Eurex Clearing Documentation (ECD)

Your own documentation Market Standard Client Clearing Documentation (CCD)

• Triparty agreement provided by Eurex Clearing

• Existing agreement governs the relationship between Eurex Clearing, Clearing Member, & RC/NCM for the Individual Clearing Model across all asset classes

• In use by members since the ICM was launched in 2011

• Eurex Clearing allows Individual Documentation based on market standard client clearing documentation such as the BdB CRV, FOA Module, or ISDA/FOA Addendum

• Eurex Clearing will rely upon trade association netting opinions and will obtain extension opinions to ensure that the Eurex Clearing specific annex terms to the client documentation are compliant with each other

• The Clearing Member’s documentation should comply with the eligibility criteria laid out in the clearing conditions

• CM agrees to representations and indemnities in the Participation Agreement

Clearing Agreement under Eurex Clearing AG

Documentation (ECD)Participation Agreement under Client Clearing Documentation (CCD)

1 2 3



31

Direct Transfer of Collateral – Overview

• As part of our Individual Segregation Clearing Model (ICM), we have launched the Direct transfer of collateral under the ICM in November 2013. With this service:

• Segregated ICM client will be able to transfer collateral directly to Eurex Clearing

• Direct transfer of collateral does not change the legal concept of double title transfer, meaning as soon as the collateral is actually delivered and credited to the Margin Account at Eurex Clearing, this transfer fulfils the ICM segregated client’s obligation towards its CM and the CM’s obligation towards Eurex Clearing

• Transformation will still be possible, but it will remain outside Eurex Clearing’s ICM model

• Direct collateral transfer is an optional service and can be chosen for cash and/or security collateral

• Direct collateral transfer applies to initial margin requirements

• Direct collateral transfer will not impact the interest income process for cash collateral and security handling fee for posted security collateral



32

Overview of the Client Custodian Gateway A solution whereby Clearstream Banking Luxembourg and Eurex Clearing jointly offer, in

collaboration with Global Custodians, a collateralization model that: Allows Registered Customers and NCM’s to satisfy margin requirements for their

segregated collateral business under the Individual Clearing Model (ISA/ICM) while keeping securities at their existing Custodian

Reduces operational effort for all involved parties in the margining process by providing a high-degree of automation for the collateral allocation, withdrawal and substitution process

Reduces / shortens time for movement of securities and reduces manual intervention Provides the necessary control and safety for Clearing Member towards the RC’s and

NCM‘s Assumes compliance with EMIR requirements for Omnibus and Individual Segregation

Model (Article 39) as well as safekeeping of collateral assets (Article 47.3) Offering is currently focused on OTC IRS but will be extended across all asset classes cleared

Creation of an attractive value proposition to market actors through Leveraging the Buy-Side clients’ existing infrastructure and business relationships with Clearing

Members, (I)CSDs and Global Custodians in the design of the joint solution Extension of the Client Custodian Gateway to include additional service offerings such as

Securities Lending and Tri-Party Repo

Solution Concept: Client Custodian Gateway



As of August 2014 (http://www.eurexclearing.com/clearing-en/risk-management/risk-parameters/)

33

Admissible Securities Collateral









• Key contacts

• Appendix

Agenda

34



Trade Capture & Novation Flow

Deal submitted

Eligibility Check

CM take-up trade?

Risk Check

Collateral to Novate?

Update to ATS

Legal CCP Novation

by reporting

Reporting

n y

n

Process Repeat

y

AT

SE

urex

Cle

arin

gC

M

• Eurex Clearing continuosly novates trades during opening hours between 08.00-22.00 CET

• ATS (Approved Trade Source) submits allocated, affirmed and released eligible deals for clearing

• Eurex Clearing checks if the trade is eligible

• Clearing Member takes-up the trade for clearing

• ECAG performs a Incremental Risk check i.e. calculates margin requirements and incremental portfolio increase

• Eurex Clearing verifies if pending deals can be covered by available collateral

• If sufficient Collateral ECAG novates the trade:

– Trade status updated in ATS

– Trade novated upon ‘OTC Trade Novation’ report distributed (event driven)

• If sufficient Collateral is not available, the trade returns to incremental ‘Risk check’.

• After Clearing cut-off, remaining pending as well as new deals submitted during closure from ATS are queued for processing next day

• Eurex Clearing issues daily overnight Margin Call covering the entire portfolio risk.

Three times a day, ECAG will issue a margin call for any trades that have not novated due to missing collateral: 12:00, 14:00 & 18:00. A direct debit will take place 1h after the call. Any trades not novated by closure (22:00) are included in the End-Of-Day overnight Margin calls

Take-upAccept/ Reject

35

Tra

ding Registered

ClientClearing Member

Dealer



Intraday MarginingReal-time market monitoring and collection of extra collateral if needed

Increasing risk breaching intraday

credit thresholds

Start of Trading End of Tradingt t + 30min

1st Margin Call issued30mins left to reduce shortfall by trading, position management or

pledging collateral

2nd Margin Call issued(1) Cancellation or

(2) announcement of final margin call amount,

followed by cash debit

t + 60min

Margin Call Collateral Shortfallresolved

1. Eurex Clearing monitors the member’s risk exposure seamlessly on a real-time basis during daily business hours (7.00am – 10.30pm CET)

2. An intraday margin call is issued by phone and confirmed by fax transmission as soon as the individual member’s threshold (intraday margin call limit) is exceeded

3. Eurex Clearing communicates - The amount of the intra day margin call- The timeframe

4. An intra day margin call payment can be avoided by reducing the risk position within 30 minutes after the margin call issue by- Closing transactions- Trading activities (to reduce risks)

5. If the risk position is not reduced within 30 minutes after the margin call issue, Eurex Clearing issues an intraday margin call payment by phone and fax

36



Initial Margin (IM) • Calculated per account in clearing currency using portfolio margining • IM = Market Risk (MAX(FHS,SP***)) + Correlation Break Adjustment + Liquidity Adjustment • Reported EOD: CC050* (Daily Margin EOD), CC060* (Daily Margin Requirements, at pool id level) and CC204** (Overall

Margin Report)• Can be covered by securities or cash in any currency intraday and end of day• Eurex Clearing will always first utilize securities collateral to cover IM and return excess cash

Variation Margin (VM)• Calculated per trade in product currency and summed at account level• VM = MtMT – MtMT-1

• Reported Intraday: CI050* (Daily Margin Intraday), NOT IN CI140* (Variation Margin Intraday)• Reported EOD: CC203** (Variation Margin Report), CD010* (Daily Cash Account CM)• Can be covered intraday by securities or cash and must be settled EOD in cash in the product currency

Price Alignment Interest (PAI) • Interest on the cumulated Variation Margin• PAI = = MtMT-1 * OIS rate * Day count (EUR 1/360, GBP 1/365) * Day Difference• Reported EOD: CC203** (Variation Margin Report), CD010* (Daily Cash Account CM), one figure as VM• Calculated using the benchmark overnight rates per currency (e.g. EONIA for EUR, SONIA for GBP) and is settled daily in

the product currency

Definition of TermsInitial Margin, Variation Margin and PAI

*) Eurex Classic Report **) EurexOTC Clear Report ***) FHS=Filtered Historical Simulation, SP=Stressed Periods

37



Intraday Margin Calculation and Margin Calls (1/3)Margin Requirements are determined throughout the day

Full Portfolio Recalculations

• A full portfolio recalculation will evaluate each portfolio with the latest market data and result in up-to-date IM requirements per account and intraday VM requirements per trade

• Market data used for the scheduled full recalculations intraday and end of day are distributed after the full recalculations via the Common Report Engine to enable CMs to recalculate the margin requirements

• Intraday full recalculations are scheduled every day at the following times in addition to the end of day full recalculation:

• 09:00, 11:00, 13:00, 15:00, 17:00, 19:00, 21:00 CET

• Additional full portfolio recalculations can be triggered manually by Eurex Clearing

Market Data Updates and Incremental Risk Checks

• New market data is received by Eurex Clearing every 10 minutes. Incremental Risk Checks for trades submitted for clearing and post trade events use the latest available market data

• The incremental risk check will determine the VM for the trade and the additional IM for the trade in the specific account as IM uses portfolio margining

• Eurex Clearing will distribute the market data after each portfolio recalculation

38



Intraday Margin Calculation and Margin Calls (2/3)

39

Intraday Margin Calls are based on total margin requirements and collateral

Margin Requirement Determination

• A positive intraday VM will be deducted from the IM within the same account to determine the total margin requirement for the account. In case the positive intraday VM is larger than the IM in a specific account the excess positive VM can not be used to reduce margin requirements in other accounts

• Margin requirements for segregated RCs are calculated separately

• Margin requirements from OTC business will be aggregated with margin requirements from the listed business on account as well as CM and segregated RC level to arrive at the total margin requirements per CM and segregated RC

Determination of margin shortfalls and surpluses

• Eurex Clearing will determine if the total margin requirements of segregated RCs are covered by the sum of that RC‘s collateral.

• Shortfalls from segregated RCs are covered by the CM’s proprietary collateral. If segregated RCs’ shortfalls exceed the CM’s margin surplus (or if the CM also has a margin shortfall) an overall margin shortfall on CM level exists. Segregated RCs’ surpluses can not be used to cover other shortfalls

Direct Debits for pending IRS trades: • For any trades that has not novated due to insufficient collateral, we produce a ‘Preliminary OTC Margin Call Report’

at 12:00, 14:00, 18:00 CET• Direct Debits will be instructed one hour later (13:00, 15:00, 19:00 CET) • Prior the Direct Debit we will recalculate Margin Requirements. If the amount is lower, we will debit that amount. If it is

higher, we will only debit the amount specified Margin Call report.

Novation Report: • The Trade Novation Report CI200 will be sent every hour as legal novation of trades



Intraday Margin Calculation and Margin Calls (3/3)Intraday Margin Calls can be fulfilled with cash and securities collateral

Issue of intraday Margin Call• A Margin Call can be issued when the member has an overall margin shortfall. • A call followed by a Fax is made to the CM. • The CM has the option to cover the call with non-cash collateral or enter risk reducing trades. This has to be done

within 30 min. After the 30 min the Margin Call has to be settled in cash.• The Margin Call has to be settled within 60 minutes • Cash received from an intraday Margin Call will be booked on the prop. account

Failure to meet a Margin Call• In case a Margin Call is not met a trigger event “Failure to provide margin” is active• The member has the chance to resolve the trigger, in case the trigger is not resolved the CM will be set to default

40



• Client Asset Protection

• Default Management

• Collateral Reductions and Efficiencies through Cross Margining

• Collateral Optimisation & Transformation


• Key contacts

• Appendix

Agenda

41



42

Introduction

The Capital Requirements Regulation (Regulation (EU) No 575/2013 – “CRR”) includes certain privileges as regards the own funds requirements for CCP-cleared transactions

• Exposure values from CCP-cleared transactions can be calculated on a net basis if covered by an eligible netting agreement

• Under further preconditions, reduced risk weights can be applied (i.e. 0%, 2%, 4%)

• No-recourse clause (Art 306(1)(c) CRR)

• Bankruptcy remoteness (Art 306(2), Art 305(2)(a) CRR)

• Segregation (Art 305(2)(a) CRR)

• Porting (Art 305(2)(c) CRR)

When looking at own funds requirements for CCP-cleared transactions, the following exposures need to be distinguished

• Clearing Member`s (“CM”) exposure to CCP

• CM`s exposure to its Clients

• Client`s exposure to its CM

Eurex Clearing AG (“ECAG“) comissioned an English law and a German law legal opinion which address the exposure calculation and the application of the reduced risk weights in relation to each of its clearing models ( “CRR-Opinions”)

• This presentation provides an overview of the own funds requirements of CMs and their Clients in relation to transactions cleared through ECAG



43

Overview on own funds reduction options under the CRR regarding ECAG-cleared transactions (1/4)

• ECAG holds a licence pursuant to Art 14 European Market Infrastructure Regulation (Regulation (EU) 648/2012) and thus is a “Qualifying CCP” pursuant to Art 4 (88) CRR

• According to Art 306(3) CRR (CM`s exposure to CCPs), Art 304(1) CRR (CM`s exposure to clients) and Art 305(1) CRR (Client`s exposure to CM), the own funds requirements for CCP-cleared transactions shall be calculated pursuant to Sections 1 to 8 of Part 3 Title II Chapter 6 CRR

• This reference includes the provisions under Art 295 to 298 CRR which provide for the recognition of contractual netting arrangements leading to the calculation of the exposure value on a net basis

• Close-out netting arrangements under the Clearing Conditions comply with the requirements stipulated by Art 296, 297 CRR and qualify as eligible netting arrangements

• ECAG`s close-out netting arrangements also include any title transfer collateral

• the collateral provider`s exposure for the return of collateral provided by way of full title transfer (covering both: Margin and Variation Margin) will be treated as individual transaction within the meaning of Art 296(1)(a) CRR

• consequently, any “Redelivery Claim” established under the ECAG’s Clearing Conditions forms part of the Difference Claim

• the general risk weight for the exposure arising from the relevant Difference Claim is 2% (Art 306(1)(a) CRR)

ECAG qualifies as Qualifying

CCP

Eligible Netting

Arrangements



44

• Since ECAG is a Qualifying CCP, the general risk weight for the CM`s trade exposure to ECAG is 2% (Art 306(1)(a) CRR); the trade exposure is calculated on a net basis and considers any title transfer collateral delivered by the CM

• Art 306(2) CRR provides the possibility to apply a 0% risk weight to the exposure arising from the collateral provided to ECAG by the CM; as title transfer collateral is considered within ECAG`s close-out netting arrangements, such reduction only applies to collateral other than title transfer arrangements (i.e. pledges under ECAG`s Elementary Clearing Model)

• Art 306(1)(c) CRR allows the application of a 0% risk weight in relation to exposures arising from client transactions provided that the CM is not obliged to reimburse its client in case of ECAG`s default

• According to Art 304(1) in connection with Art 295 et seq. CRR, CM`s exposure to Client could be calculated on a net basis

• Clearing Conditions do not provide for close-out netting provisions in case of a Client default

• CM and client are free to agree on such clauses in their client clearing documentations

• Art 304 CRR does not provide for any reduced risk weights for CCP-cleared transactions


CM’s exposure to ECAG

CM’s exposure to

Client



45

• Individual Clearing Model

• Under the requirements stipulated by Art 305(2) CRR, Client is entitled to calculate its own funds requirements in accordance with Art 306 CRR with a risk weight of 2%

• Under ECAG`s Individual Clearing Model, Client`s positions and assets are (i) individually segregated from the positions and assets of the CM and other clients of the CM and (ii) bankruptcy remote in case of an insolvency of the CM or of its clients

• ECAG`s Clearing Conditions facilitate the transfer of the client`s positions and collateral to another CM in the event of the CM`s default or insolvency

• ECAG provides an English law and German law legal opinion confirming that the client bears no losses on account of the insolvency of CM or of any of the CM`s clients

• ECAG qualifies as Qualifying CCP

• As any collateral under the Individual Clearing Model needs to be delivered on a title transfer basis, any exposure arising in relation to Segregated Margin and Segregated Variation Margin will be included in the netting arrangement


Client’s exposure

to CM



46

• Elementary Clearing Model (Net Omnibus Clearing Model)

• Art 305(3) CRR could provide a privilege for the exposure calculation under Omnibus Segregation Models which states:

• When Client is not protected from losses in case CM and another client of CM jointly default

• All the other conditions under Art 305(2) CRR are met

• Client may calculate its own funds requirements for its exposure to CM pursuant to Art 306 CRR, subject to replacing 2% with a 4% risk weight under Art 306(1)(a) CRR

• BUT: interpretation of Art 305(3) CRR not entirely clear

• Art 305(3) CRR expressly requires that “…all the other conditions set out in paragraph 2 are met…”, which also includes the provision of Art 305(2)(a) CRR which requires that the relevant clearing model provides for individual segregation

• Due to these inconsistencies, no conclusive statement can be made as to whether ECAG`s Elementary Clearing Model and Net Omnibus Clearing Model fall under the scope of application of Art 305(3) CRR

• ECAG submitted a formal request to the European Banking Authority (EBA) asking for guidance whether and under which conditions omnibus segregation models may benefit form the 4% reduced risk weight pursuant Art 305(3) CRR


Client’s exposure

to CM



47

General overview of Capital Requirements Regulation on the treatment of trade exposures to CCPs

1) Non CRR eligible client segregation solution

CMClient CCP

Client exposure risk weight: min 20% + CVA charge

CM exposure risk weight: min 20% + CVA charge

Risk weight: 2%

CMClient CCP

Client exposure risk weight: 2% to 4%

CM exposure risk weight: min 20% + CVA charge

Risk weight: 2%

2) CRR provisions offer opportunities to receive reduced risk weights for segregated clients

CRR eligible client segregation solutions will translate into risk weight reductions: 2% for individual segregation and 4% for omnibus segregation

CM exposures with qualified CCPs will receive 2% risk weight

Non CRR eligible client segregation solutions will not translate into risk weight reductions

* CVA = Credit Valuation Adjustment



48

Capital Requirements Regulation offers opportunities to market participants to receive reduced risk weights (1/2)

Difference claim exposure

Collateral exposure

a) Pledged collateral

b) Title transferred collateral

0% Risk weight

2% Risk weight CMs Difference claim exposure with ECAG will receive a risk weight of 2%

Pledged collateral is bankruptcy remote from ECAG, thus no capital charge will apply

Title transferred collateral would receive a risk weight of 2%, but is legally treated as transaction and thus already included in difference claim exposure

CCPCM

Proprietary trade exposure

Financial intermediary trade exposure

1

2

Proprietary trade exposure1

2% Risk weight


a) Recourse

b) No recourse 0% Risk weight

2% Risk weight

Zero risk weight can be assigned to financial intermediary CM difference claim exposures to ECAG, if no-recourse clause is included in Netting Agreement (Art. 306(1)(c) CRR)

Pledged collateral is bankruptcy remote from ECAG, thus no capital charge will apply

Title transferred collateral would receive a risk weight of 2%, but is legally treated as transaction and thus already included in difference claim exposure (not subject to risk weighting if ‘no-recourse’ clause is included in Netting Agreement (Art. 306(1)(c) CRR)

Financial intermediary trade exposure2

Collateral exposure


b) Title transferred collateral 2% Risk weight

0% Risk weight



492) ECM/NOCM = Elementary Clearing Model / Net Omnibus Clearing Model

1) ICM = Individual Clearing Model

ICM1 trade exposure3

Capital Requirements Regulation offers opportunities to market participants to receive reduced risk weights (2/2)

Client CM

ICM1 trade exposure

ECM/NOCM2 trade exposure

3

4


Collateral exposure



n.a.

2% Risk weight ICM1 clients difference claim exposure with a CM for a trade cleared through ECAG will receive a risk weight of 2% (Art 305(2), Art 306 CRR)

In ECAG’s ICM client collateral is posted to ECAG via title transfer, thus no exposure out of pledged collateral will arise

Title transferred collateral would receive a risk weight of 2%, but is legally treated as transaction and thus already included in difference claim exposure

2% Risk weight

ECM/NOCM2 trade exposure4


Collateral exposure



4% Risk weight

4% Risk weight Omnibus segregation models may qualify for application of 4% risk weight for omnibus segregated client exposures

Interpretation of Art 305(3) CRR not entirely clear

ECAG has submitted a request to EBA asking for guidance on whether omnibus segregation models are covered by Art 305(3) CRR4% Risk weight





• Collateral Reductions and Efficiencies through Cross Margining

• Collateral Optimisation & Transformation


• Key contacts

• Appendix

Agenda

50



Key operational differentiators to be assessed between CCP’s

• Early return of cash removes double funding

• Early return of cash reduces counterparty risk and funding costs to the CCP

• Central bank access provides liquidity in a crisis and reduces systemic risk

Eurex Clearing Operational Differentiators

• Direct delivery of cash and securities removes operational cost for CM

• Over 25,000 eligible securities lowers funding costs of IM and DF

• GC Pooling allows re-use of securities to cover IM requirements

• Intraday return of cash removes double funding

• Single netted margin call across all asset classes

• Direct delivery of cash and securities means no transit risk

• Full protection of client excess allows pre-funding at no risk

• Full protection of clients own assets removes liquidation and replacement risk

• No mutualization of risks with fellow customers

Op

erat

ion

al e

ffic

ien

cies

Efficient collateral management

Portability and legal certainty

Central Bank access

• Portability of clients actual / own assets in CM default

• Ability to become Interim Participant allows 5 + days for porting

• Legal certainty for clients and Clearing Members domiciled in EU

• Legal certainty for porting, close-out netting and protection of assets at fund level

Protection and segregation

51



Key operational differentiators to be assessed between CCP’s

• 5 day MPOR applied to OTC IRS for both house and client accounts

• 0% capital risk weight for house collateral

• 2% capital risk weight for individual segregation

• 0.34% C Factor

• Lower DF means lower funding costs

• Lower IM means lower funding costs

• Over 25,000 eligible securities lowers funding costs of IM and DF

• GC Pooling allows re-use of securities

• Near real-time margins and intraday return of cash removes double funding

Eurex Clearing Cost Differentiators

• Cross asset class CCP with single legal netting lower EaD which lowers capital

• Cross product margins in Liquidation Groups

• Payment netting across asset class with a single margin call

• DF segmentation decreases total size of CF by 40%

• DF allocated as 7% of IM.

• Cross margins lowers IM by 20 – 40% and hence DF contribution

Cap

ital

an

d f

un

din

g e

ffic

ien

cies

Capital costs

Netting

Default Fund

Funding costs

52





• Cross Margining and Collateral Efficiency

• Differentiators

• Appendix – • Products and currencies

• Volumes

• Members

• Roadmap

• Important information on the public website

• Fee model

• Fee incentive

• Key contacts

Agenda

53



54

Mandatory Clearing Regulatory Technical Standard (RTS)

• Category 1: Clearing members (within Article 2(14) of EMIR), for at least one of the classes of OTC derivatives subject to the clearing obligation, of at least one authorised or recognised CCP. Mandatory Clearing will start 6 month after RTS most likely Q3 2015

• Category 2: Counterparties not included in Category 1 that belong to a group whose aggregate month-end average notional amount of non-centrally cleared derivatives over a certain three-month period is above €8 billion and which are financial counterparties (FCs) or Alternative Investment Funds (AIFs), as defined in Article 4(1)(a) of the Alternative Investment Fund Managers Directive (AIFMD), that are non-financial counterparties (NFCs) meeting the conditions referred to in Article 10(1)(b) of EMIR.Mandatory Clearing will start 12 month after RTS Likely Q1 2016

• Category 3: Counterparties not included in Category 1 or Category 2 that are FCs or AIFs, as defined in Article 4(1)(a) of the AIFMD, that are NFCs meeting the conditions referred to in Article 10(1)(b) of EMIR. Mandatory Clearing will start 18 month after RTS, most likely Q3 2016

• Category 4 covers NFCs meeting the conditions referred to in Article 10(1)(b) of EMIR and that are not included in Category 1, Category 2 or Category 3. Mandatory Clearing will start 36 month after RTS, most likely Q1 2018

On 1 OCT 2014 EMSA issued the final proposal to the EU Commission regarding the timeline and categories of firms for the clearing obligation



55

Mandatory Clearing Regulatory Technical Standard (RTS)

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

• Frontloading means that all swaps which are executed between the effective date of the RTS (earliest possible date) and the effective date of the clearing obligation have to be CCP cleared if the residual maturity of the trade at the date of the clearing obligation is at least 6 month.

• All such trades have to be "back-loaded" if not immediately cleared latest on the day of the clearing obligation.

• For the purposes of calculating the group aggregate month-end average notional amount, all of the group’s non-centrally cleared derivatives, including foreign exchange forwards, swaps and currency swaps, must be included.

• Suggested mandatory cleared product scope includes plain vanilla interest rate swaps, Overnight Index Swaps (IOS) and Forward Rate Agreements (FRA) denominated in EUR, USD, GBP and JPY

• Next steps: EU commission has a 1-3 month decision period, this is then followed by a 1-3 month(s) consideration and no-objection by the parliament leading to a effective date of the RTS between beginning of December 2014 and beginning of May 2015

The frontloading obligation effectively marks the start of mandatory clearing



5656© Oliver Wyman

We have seen a significant increase in new CM’s & RC’s • 38 OTC IRS Clearing Members and 54 Registered Customers admitted

• Over 100 Registered Customers currently onboarding

• Union Invest first major KVG live in Individual Segregation with approx. 100 underlying funds

Admitted Clearing Members:

56

http://www.kasbank.com/















http://www.bayernlb.de/internet/de/content/index.jsp

http://www.google.co.uk/url?url=http://www.bancaimi.com/bancaimi/en/capital-markets/commodities/riskad.html&rct=j&frm=1&q=&esrc=s&sa=U&ei=Yk4yVKP0A8XxaL7TgIgD&ved=0CBYQ9QEwAA&usg=AFQjCNFYFXvc7SB4VE5Y0vQoMMLdcn4Weg

http://www.google.co.uk/url?url=http://nl.wikipedia.org/wiki/Landesbank_Baden-W%C3%BCrttemberg&rct=j&frm=1&q=&esrc=s&sa=U&ei=2U4yVLiJHcPbaJv6gcgG&ved=0CBgQ9QEwAQ&usg=AFQjCNETm2r-3FLmH1zOR_qx-oUVc8ibew

http://www.google.co.uk/url?url=http://foundum.com/o/bankinter&rct=j&frm=1&q=&esrc=s&sa=U&ei=5l8-VJS8IYTgOKWYgPgN&ved=0CBwQ9QEwAg&usg=AFQjCNGp4UP7DCJc8agOYP12S99lyKIRnA



5757© Oliver Wyman

CRD IV

Clearing demand

Liquidity

Collateral

End clients

New capital requirements introduced in Jan 2014

Mid tier European banks becoming direct CM’s and increasing Eurex activity

Liquidity provided by all major broker dealers

GC pooling collateral re-use and late return of Central Bank cash

Approx. 140 RC’s have qualified for the fee waiver and many starting to actively clear

Fee waiver No OTC IRS clearing fees until Jan 2016

Eurex Clearing volumes have increased significantly since the beginning of 2014

57

Outstanding Total turnover

EUR 40,105,436,212 54,682,823,582

CHF 30,597,100,000 31,397,100,000

USD 643,070,000 643,070,000

Total (EUR) 65,678,631,314 80,909,218,723

OctNov

Dec Jan Feb

Mar AprMay

JuneJuly

AugSe

p Oct0

10,000,000,000

20,000,000,000

30,000,000,000

40,000,000,000

50,000,000,000

60,000,000,000

70,000,000,000

CHFEURUSDTotal (EUR)



Currencies:

Types:

• Vanilla IRS (Fix vs Float)

• Basis swap (Float vs Float)

• OIS, FRA

• Zero coupon

• Compounding

• Variable notional

Structures:

• Spot, forward start & stub periods, linear interpolation

• EUR (EURIBOR) and GBP (LIBOR), 1m, 3m, 6m, 12m

• USD and CHF (LIBON) 1m, 3m, 6m

EUR USD GBP CHF

Product description

JPY

OTC derivative classes

Derivative classes

Current Product classes

Asset-class Type Underlying 1 Notional CurrencySettlement Currency

Maturity/Range of maturities/Tenor

Settlement conditions

Range of payment frequency

Interest Rate Fixed to Float EURIBOR EUR EUR 2D-50Y Cash 1M, 3M, 6M, 1Y

Interest Rate Fixed to Float LIBOR CHF CHF 2D-30Y Cash 1M, 3M, 6M

Interest Rate Fixed to Float LIBOR USD USD 2D-50Y Cash 1M, 3M, 6M

Interest Rate Fixed to Float LIBOR GBP GBP 2D-50Y Cash 1M, 3M, 6M, 1Y

Interest Rate Fixed to Float EURIBOR EUR EUR 2D-50Y Cash 1M, 3M, 6M, 1Y

Interest Rate Fixed to Float LIBOR CHF CHF 2D-30Y Cash 1M, 3M, 6M

Interest Rate Fixed to Float LIBOR USD USD 2D-50Y Cash 1M, 3M, 6M

Interest Rate Fixed to Float LIBOR GBP GBP 2D-50Y Cash 1M, 3M, 6M, 1Y

Interest Rate Basis EURIBOR EUR EUR 2D-50Y Cash 1M, 3M, 6M, 1Y

Interest Rate Basis LIBOR CHF CHF 2D-30Y Cash 1M, 3M, 6M

Interest Rate Basis LIBOR USD USD 2D-50Y Cash 1M, 3M, 6M

Interest Rate Basis LIBOR GBP GBP 2D-50Y Cash 1M, 3M, 6M, 1Y

Interest Rate Basis EURIBOR EUR EUR 2D-50Y Cash 1M, 3M, 6M, 1Y

Interest Rate Basis LIBOR CHF CHF 2D-30Y Cash 1M, 3M, 6M

Interest Rate Basis LIBOR USD USD 2D-50Y Cash 1M, 3M, 6M

Interest Rate Basis LIBOR GBP GBP 2D-50Y Cash 1M, 3M, 6M, 1Y

Interest Rate OIS EONIA EUR EUR 2D-3Y Cash 1M, 3M, 6M, 1Y

Interest Rate OIS TOIS CHF CHF 2D-3Y Cash 1M, 3M, 6M

Interest Rate OIS Fed Fund USD USD 2D-3Y Cash 1M, 3M, 6M

Interest Rate OIS SONIA GBP GBP 2D-3Y Cash 1M, 3M, 6M, 1Y

Interest Rate FRA EURIBOR EUR EUR 28D-2Y Cash 1M, 3M, 6M, 1Y

Interest Rate FRA LIBOR CHF CHF 28D-2Y Cash 1M, 3M, 6M

Interest Rate FRA LIBOR USD USD 28D-2Y Cash 1M, 3M, 6M

Interest Rate FRA LIBOR GBP GBP 28D-2Y Cash 1M, 3M, 6M, 1Y

Interest Rate Fixed to Float LIBOR JPY JPY 2D-50Y Cash 1M, 3M, 6M, 1Y

Interest Rate Fixed to Float LIBOR JPY JPY 2D-50Y Cash 1M, 3M, 6M, 1Y

EurexOTC Clear for IRS was launched in Nov. 2012 and was authorized as a QCCP on 10 April 2014

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http://www.flags.net/UNST.htm

http://www.flags.net/UNKG.htm



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Important Information on the public website• Eurex Clearing Company Profilehttp://www.eurexclearing.com/clearing-en/about-us/company-profile/

• Eurex Clearing Rules and Regulations: Clearing Conditionshttps://www.eurexclearing.com/clearing-en/resources/rules-and-regulations/136778/

• Admission documents and membership formshttp://www.eurexclearing.com/clearing-en/resources/forms/

• Eurex Clearing Price Listhttps://www.eurexclearing.com/clearing-en/resources/rules-and-regulations/

• List of admitted Clearing Membershttp://www.eurexclearing.com/clearing-en/resources/clearing-contacts/

• Production Newsboard http://www.eurexclearing.com/clearing-en/resources/production-newsboard/

• Risk Management Information on Lines of Defense, Default Management Process etc.http://www.eurexclearing.com/clearing-en/risk-management/

• Risk Parameters and Eligible Collateral http://www.eurexchange.com/exchange-en/market-data/clearing-data/risk-parameters/

• Information on C7, our new clearing architecturehttp://www.eurexclearing.com/clearing-en/technology/c7/

• Report Reference Manual http://www.eurexclearing.com/blob/clearing-en/136500-861464/1032542/3/data/Eurex_XML_Report_Reference_Manual_V211.pdf

http://www.eurexclearing.com/clearing-en/about-us/company-profile/

https://www.eurexclearing.com/clearing-en/resources/rules-and-regulations/136778/

http://www.eurexclearing.com/clearing-en/resources/forms/

https://www.eurexclearing.com/clearing-en/resources/rules-and-regulations/

http://www.eurexclearing.com/clearing-en/resources/clearing-contacts/

http://www.eurexclearing.com/clearing-en/resources/clearing-contacts/

http://www.eurexclearing.com/clearing-en/resources/production-newsboard/

http://www.eurexclearing.com/clearing-en/risk-management/

http://www.eurexchange.com/exchange-en/market-data/clearing-data/risk-parameters/

http://www.eurexclearing.com/clearing-en/technology/c7/

http://www.eurexclearing.com/clearing-en/technology/c7/

http://www.eurexclearing.com/blob/clearing-en/136500-861464/1032542/3/data/Eurex_XML_Report_Reference_Manual_V211.pdf



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EurexOTC Clear for IRS: Standard Fee Model

Booking Fee

Booking fee per million in trade currency 0.25

Maturity premium per million per year in trade currency

0.75

Fee cap (Booking fee + Maturity premium) per million in trade currency

18.00

* Effective 1 May 2014

Note: Fees are always billed in the underlying currency

Maintenance FeeMaintenance fee per million notional per day in trade currency

0.007

Booking Fee Rebates(Based on the cumulated cleared notional amount)

Up to 240 bn € cleared notional 0%

240 bn € to 720 bn € 15%

720 bn € to 1,500 bn € 25%

Above 1500 bn € 35%

Rebate program for Registered Customers

Maintenance Fee Rebates (Based on the outstanding notional amount)

Up to 240 bn € cleared notional 0%

240 bn € to 720 bn € 15%

720 bn € to 1,500 bn € 25%

Above 1500 bn € 35%

Backloading discount for booking fee: 70%

NEW*



• A strict policy determines re-investment of provided cash collateral • Eurex Clearing passes on interest earned from cash investments to its Clearing Members* on a

monthly basis after a deduction according to the currency:

• For clearing currencies EUR and CHF, 20 basis points are deducted • For margin currencies USD and GBP, 50 basis points are deducted

• Interest on cash collateral is calculated daily per collateral pool and settled monthly

• Interest on cash collateral is reported via CD230 Monthly Interest Report

Eurex Clearing passes on interest earned from cash investments

* In order to invest the cash overnight and associate investment returns with interest paid to Clearing Members there is an intraday cut off time after which cash is not included in the

interest calculation; for more details around cash cut off times, please refer to overview on the next page .

Collateral Fee

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• Securities collateral used to cover margin requirement are subject to a handling fee of 5bp

• Any over-collateralization is not charged

• Securities collateral management charge does not apply to OTC IRS business of Registered Customers (segregated and non-segregated Registered Customers)

• The security collateral fee is calculated on a daily basis and settled monthly

• Security collateral fee is reported via CB235 Daily Security Collateral Fee Statement

Security Collateral Fee



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Emir readiness – benefit from our fee Incentive• On 10 April 2014 Eurex Clearing was granted authorization as a CCP under the European Market

Infrastructure Regulation (EMIR). In light of this we offered a number of incentive programs to help you become EMIR ready

• Who is the fee waiver for? Our new incentive program "EMIR Readiness" is targeted at all market participants who have not already been admitted as Clearing Member (CM), Registered Customer (RC) or who will not qualify for the full fee waiver incentive program.

• What does the program entail? If you are not part of our full fee waiver incentive program and plan to start the on-boarding process as a CM or RC in the coming months, our "EMIR Readiness" program offers you a discount of up to 75 percent on booking and maintenance fees until January 2016. To qualify you must complete the admission process by 19th December 2014.

• The following discounts apply: You will receive a 25 percent discount if on-boarding is completed (full admission) by 16 December 2014. This rebate will apply following full admission until January 2016.

• An additional 25 percent discount will be given if the accumulated cleared volume (measured since full admission) or the notional amount outstanding (measured on the last business day of each month) exceeds EUR 500 million.

• A further 25 percent discount if the accumulated cleared volume (measured since full admission) or the notional amount outstanding (measured on the last business day of each month) exceeds EUR 5bn.

• Please note that the additional discounts under (2) and (3) will only be available to Clearing Members and Registered Customers who have fulfilled the condition under (1). You can find more details on our website.



Eurex Clearing Sales & Relationship Management

Head of Section UK + Netherlands – Buy Side UK – Sell Side

Philip Simons

T +44 (0) 20 7862 7239M +44 (0) 782 414 [email protected]

Ricky Maloney


Byron Baldwin


Americas France, Luxembourg + Belgium Switzerland, Lichtenstein & Italy

Tim Gits

T +1 (0) 312 544 1091

[email protected]

Ebru Ciaravino

T: +33 (0) 1 55 27 67 68M: +33 (0) 6 85 93 13 [email protected]

Markus-Alexander Flesch

T +41 (0) 43 4 30 71 21M +41 (0) 79 5 70 02 [email protected]

Germany + Austria Germany + Netherlands Nordics

Andreas Stadelmaier


Matthias Kronenberger


Deborah Garlick


Client Solutions (Head of Unit) Client Solutions Securities Financing

Afriyie Ola Dimeji


Michael Hildebrand


Gerard Denham


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Contacts at Eurex Clearing

mailto:[email protected]









© Eurex 2014Deutsche Börse AG (DBAG), Clearstream Banking AG (Clearstream), Eurex Frankfurt AG, Eurex Clearing AG (Eurex Clearing) as well as Eurex Bonds GmbH (Eurex Bonds) and Eurex Repo GmbH (Eurex Repo) are corporate entities and are registered under German law. Eurex Zürich AG is a corporate entity and is registered under Swiss law. Clearstream Banking S.A. is a corporate entity and is registered under Luxembourg law. U.S. Exchange Holdings, Inc. and International Securities Exchange Holdings, Inc. (ISE) are corporate entities and are registered under U.S. American law. Eurex Frankfurt AG (Eurex) is the administrating and operating institution of Eurex Deutschland. Eurex Deutschland and Eurex Zürich AG are in the following referred to as the “Eurex Exchanges”. All intellectual property, proprietary and other rights and interests in this publication and the subject matter hereof (other than certain trademarks and service marks listed below) are owned by DBAG and its affiliates and subsidiaries including, without limitation, all patent, registered design, copyright, trademark and service mark rights. While reasonable care has been taken in the preparation of this publication to provide details that are accurate and not misleading at the time of publication DBAG, Clearstream, Eurex, Eurex Clearing, Eurex Bonds, Eurex Repo as well as the Eurex Exchanges and their respective servants and agents (a) do not make any representations or warranties regarding the information contained herein, whether express or implied, including without limitation any implied warranty of merchantability or fitness for a particular purpose or any warranty with respect to the accuracy, correctness, quality, completeness or timeliness of such information, and (b) shall not be responsible or liable for any third party’s use of any information contained herein under any circumstances, including, without limitation, in connection with actual trading or otherwise or for any errors or omissions contained in this publication. This publication is published for information purposes only and shall not constitute investment advice respectively does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. This publication is not intended for solicitation purposes but only for use as general information. All descriptions, examples and calculations contained in this publication are for illustrative purposes only.Eurex and Eurex Clearing offer services directly to members of the Eurex exchanges respectively to clearing members of Eurex Clearing. Those who desire to trade any products available on the Eurex market or who desire to offer and sell any such products to others or who desire to possess a clearing license of Eurex Clearing in order to participate in the clearing process provided by Eurex Clearing, should consider legal and regulatory requirements of those jurisdictions relevant to them, as well as the risks associated with such products, before doing so. Eurex derivatives are currently not available for offer, sale or trading in the United States or by United States persons (other than EURO STOXX 50 ® Index Futures, EURO STOXX 50® ex Financials Index Futures, EURO STOXX® Select Dividend 30 Index Futures, EURO STOXX® Index Futures, EURO STOXX® Large/Mid/Small Index Futures, STOXX® Europe 50 Index Futures, STOXX® Europe 600 Index Futures, STOXX® Europe 600 Banks/Industrial Goods & Services/Insurance/Media/Travel & Leisure/Utilities Futures, STOXX® Europe Large/Mid/Small 200 Index Futures, Dow Jones Global Titans 50 IndexSM Futures (EUR & USD), DAX®/MDAX®/TecDAX® Futures, SMIM® Futures, SLI Swiss Leader Index® Futures, MSCI World/Europe/Japan/AC Asia Pacific ex Japan Index Futures and VSTOXX® Futures as well as Eurex inflation/commodity/weather/property and interest rate derivatives). Trademarks and Service MarksBuxl®, DAX®, DivDAX®, eb.rexx®, Eurex®, Eurex Bonds®, Eurex Repo®, Eurex Strategy WizardSM, Euro GC Pooling®, FDAX®, FWB®, GC Pooling®,,GCPI®, MDAX®, ODAX®, SDAX®, TecDAX®, USD GC Pooling®, VDAX®, VDAX-NEW® and Xetra® are registered trademarks of DBAG. Phelix Base® and Phelix Peak® are registered trademarks of European Energy Exchange AG (EEX). All MSCI indexes are service marks and the exclusive property of MSCI Barra. RDX® is a registered trademark of Vienna Stock Exchange AG. IPD® UK Annual All Property Index is a registered trademark of Investment Property Databank Ltd. IPD and has been licensed for the use by Eurex for derivatives. SLI ®, SMI® and SMIM® are registered trademarks of SIX Swiss Exchange AG. The STOXX® indexes, the data included therein and the trademarks used in the index names are the intellectual property of STOXX Limited and/or its licensors Eurex derivatives based on the STOXX® indexes are in no way sponsored, endorsed, sold or promoted by STOXX and its licensors and neither STOXX nor its licensors shall have any liability with respect thereto. Dow Jones, Dow Jones Global Titans 50 IndexSM and Dow Jones Sector Titans IndexesSM are service marks of Dow Jones & Company, Inc. Dow Jones-UBS Commodity IndexSM and any related sub-indexes are service marks of Dow Jones & Company, Inc. and UBS AG. All derivatives based on these indexes are not sponsored, endorsed, sold or promoted by Dow Jones & Company, Inc. or UBS AG, and neither party makes any representation regarding the advisability of trading or of investing in such products.All references to London Gold and Silver Fixing prices are used with the permission of The London Gold Market Fixing Limited as well as The London Silver Market Fixing Limited, which for the avoidance of doubt has no involvement with and accepts no responsibility whatsoever for the underlying product to which the Fixing prices may be referenced.PCS® and Property Claim Services® are registered trademarks of ISO Services, Inc.Korea Exchange, KRX, KOSPI and KOSPI 200 are registered trademarks of Korea Exchange Inc. BSE and SENSEX are trademarks/service marks of Bombay Stock Exchange (BSE) and all rights accruing from the same, statutory or otherwise, wholly vest with BSE. Any violation of the above would constitute an offence under the laws of India and international treaties governing the same. The names of other companies and third party products may be trademarks or service marks of their respective owners.

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Documents

EurexOTC Clear for IRS – EMIR QCCP ABBL November 20 th 2014