Amendments to the legal framework of Eurex Clearing AG with respect to the introduction of the ISA Direct Indemnified Model (legal term: “ISA Direct Indemnified Provisions”) – Consultation

1.  Introduction   

This circular contains information with respect to the service offering of Eurex Clearing AG (Eurex Clearing) and introduces amendments to the legal framework of Eurex Clearing regarding the introduction of the ISA Direct Indemnified provisions as well as naming harmonization from Basic Clearing Member provisions to ISA Direct provisions. Further, a clarification has been added in Chapter I Part 1 Number 14.1 of the Clearing Conditions to reflect mandatory statutory liabilities of Eurex Clearing pursuant to Art. 82 of Regulation (EU) 2016/679 and in case of guarantees assumed by Eurex Clearing. Thus, the legal framework of Eurex Clearing will be amended as follows:

A.  Amendments to the Clearing Conditions Chapters I, IV, VIII, Appendices 5, 7, 10 and 11

B.  Amendments to the FCM Default Rules, FCM Regulations Chapter I and Chapter II

C.  Amendments to the Price List of Eurex Clearing AG

D.  Amendments to Ancillary Clearing Documents:

E.  Amendments to General Terms and Conditions to the Agreement on Technical Connection to the Clearing EDP of Eurex Clearing AG 

The amendments to the legal framework of Eurex Clearing as aforementioned fall within the scope of Special Provisions of the Clearing Conditions and are hence subject to a consultation process (Consultation). The Consultation will end with the expiry of 13 June 2022 (Consultation Period). The planned effective date of these amendments is 15 July 2022, depending on the outcome of the Consultation which will be communicated in a separate Eurex Clearing circular.

2.  Required action

The amendments to the legal framework of Eurex Clearing outlined in part 1 and attached to this circular are subject to a Consultation which will end with the expiry of 13 June 2022.

Eurex Clearing herewith invites all Affected Customers to submit comments on the proposed changes and amendments within the Consultation Period.

3.  Details of the initiative

Eurex expands client scope of direct buy-side access to cleared repo market by introducing the ISA Direct Indemnified model which allows for additional clients, in particular mutual funds beyond already eligible clients under the ISA Direct model, access to the centrally cleared European repo business. With the extension of Eurex Clearing’s direct buy-side access models, a naming harmonization will be introduced and legal terminology is changed from Basic Clearing Member provisions to ISA Direct provisions.

The ISA Direct Indemnified Model which complements Eurex Clearing’s buy-side offering uses core elements of the ISA Direct Model with an indemnity provided by a clearing agent (cf. illustration below) with admission criteria and risk management framework being adapted to reflect the characteristics of the model. 

Firms accessing Eurex Clearing under the ISA Direct Indemnified Model, and their counterparty dealer banks, will now be able to benefit to an even larger degree from the capital, risk management and operational advantages that come through direct access to repo clearing at Eurex. 

Alongside the introduction of the ISA Direct Indemnified Model, Eurex has recently published a whitepaper on "Capital efficiencies through direct access repo clearing models for the buy-side". This paper provides a case study that explores how Eurex’ repo clearing models offer dealer banks opportunities for balance sheet leverage and risk-based capital optimization, consequently leading to better execution terms for the buy-side.

The upcoming launch of ISA Direct Indemnified is just the latest stage in Eurex’ efforts to widen access to its established and highly liquid secured funding and financing markets. Giving a greater range of market participants direct CCP access delivers tangible efficiencies to those involved, and stable cleared repo markets also support broader financial stability and monetary policy transmission objectives.

Overview of the ISA Direct Indemnified Model:

The ISA Direct Indemnified Model uses core elements of the ISA Direct Model with an indemnity provided by a Clearing Agent and brings the buy-side firm (“ISA Direct Indemnified Clearing Member”) in a direct contractual relationship with the CCP (Eurex Clearing) facilitated by an Indemnifying Clearing Agent. The model will be initially introduced for the clearing of Repo transactions concluded at Eurex Repo GmbH according to Chapter IV of the Clearing Conditions and the prerequisite for a firm to act as a Clearing Agent is to be a General Clearing Member for the clearing of Repo transactions.

The Clearing Agent provides mandatory services (default fund contribution, default management (DMP) obligations as well as an indemnity) and optionally certain operational services, e.g. cash- or collateral management for the ISA Direct Indemnified Clearing Member.

Further information on the ISA Direct Indemnified Model will also be published on the Eurex Clearing website ISA Direct – Direct Clearing membership for the buy side.

For further information on the ISA Direct Indemnified Model please contact your direct Key Account Manager under client.services@eurex.com.

Overview of Access Model Naming Harmonization:

With the introduction of the ISA Direct Indemnified Model, naming conventions related to Basic Clearing Member provisions and Specific Repo License will be renamed to ISA Direct provisions and ISA Direct Light provisions including all related terms. 

To implement the ISA Direct Indemnified provisions into the legal framework of Eurex Clearing, the following documents will be amended as outlined in the Attachments 1 – 18:

A.     Clearing Conditions Chapters I, IV, VIII, Appendices 5, 7, 10 and 11
B.     FCM Default Rules, FCM Regulations Chapter I and Chapter II
C.     Price List of Eurex Clearing AG
D.     Ancillary Clearing Documents:

E.     General Terms and Conditions to the Agreement on Technical Connection to the Clearing EDP of Eurex Clearing AG 

Pursuant to Chapter I Part 1 Number 17 of the Clearing Conditions, the proposed changes and amendments to the legal framework of Eurex Clearing outlined in part 1 and introduced in the Attachments 1 – 18 are subject to a Consultation which will end with the expiry of 13 June 2022.

Eurex Clearing herewith invites all Affected Customers to submit comments on the proposed changes and amendments within the Consultation Period.

During the Consultation Period, comments on proposed changes or amendments shall be only submitted through a web-based commenting service for which a registration form is available on the Eurex Clearing website www.eurex.com/ec-en/ under the following link:

Find > Forms > Clearing Derivatives > Consultation form

The form has to be duly signed and returned to Eurex Clearing via e-mail to SpecialProvisions@eurex.com, in order to obtain a User ID and Password together with a link for accessing the web-based commenting service.

To the extent that Eurex Clearing decides to implement any comments received during the Consultation, the so-amended version of the Clearing Conditions will be published after the Consultation.

The currently envisaged effective date of the changes is 15 July 2022. However, after the Consultation Period, Eurex Clearing will issue a separate circular to announce the concrete date on which the proposed changes (as the case may be, implementing comments received during the Consultation) will come into effect.

This announcement will be made with at least 15 Business Days’ notice (Regular Notification Period). However, if Eurex Clearing should receive a request for a Prolonged Notification Period from more than two Affected Customers during the Consultation Period, a Prolonged Notification Period as set out in the Clearing Conditions will be applied and Eurex Clearing will notify all affected parties accordingly.

Publication of amendments to the legal framework of Eurex Clearing

As of the effective date, the full version of the amended documents will be available for download on the Eurex Clearing website under the following link:

Rules & Regs > Rules and Regulations > 1. Clearing Conditions

The amendments to the legal framework of Eurex Clearing AG published by this circular are deemed accepted by each affected contractual party of Eurex Clearing AG, unless the respective contractual party objects by written notice to Eurex Clearing AG within the first 10 Business Days after publication. Any ordinary right of Eurex Clearing AG to terminate the respective contract (including a Clearing Agreement, if applicable) shall remain unaffected.

Unless the context requires otherwise, terms used and not otherwise defined in this circular shall have the meaning ascribed to them in the Clearing Conditions or FCM Clearing Conditions of Eurex Clearing AG, as applicable.

Attachments:

• 1 – Amended sections of Chapter I Part 1, Part 2 and Part 6 of the Clearing Conditions
• 2 – Amended sections of Chapter IV of the Clearing Conditions
• 3 – Amended sections of Chapter VIII Part 2, Part 3 and Part 4 of the Clearing Conditions
• 4 – Amended sections of Appendix 5 to the Clearing Conditions
• 5 – Amended sections of Appendix 7 to the Clearing Conditions
• 6 – Amended sections of Appendix 10 to the Clearing Conditions
• 7 – Amended sections of Appendix 11 to the Clearing Conditions
• 8 – Amended sections of the FCM Default Rules
• 9 – Amended sections of the FCM Regulations Chapter I
• 10 – Amended sections of the FCM Regulations Chapter II
• 11 – Amended sections of the Price List of Eurex Clearing AG
• 12 – Amended sections of the Statutes for the EMIR Risk Committee
• 13 – Amended sections of the Default Management Committee Rules
• 14 – Amended sections of the Default Management Auction Rules
• 15 – Amended sections of the Statutes for the FIC Board Advisory Committee
• 16 – Amended sections of the Statutes for the Disciplinary Committee
• 17 – Amended sections of the Disciplinary Procedures Rules Chapter I
• 18 – Amended sections of the General Terms and Conditions to the Agreement on Technical Connection to the Clearing EDP of Eurex Clearing AG

Further information