Amendments to the Securities Collateral Add-On Fee Scheme and Cash Ratio Right: Amendments to the Clearing Conditions and the Price List of Eurex Clearing AG

1.   Introduction

This circular contains information with respect to the service offering of Eurex Clearing AG (Eurex Clearing) and introduces amendments to the Clearing Conditions of Eurex Clearing AG (Clearing Conditions) and the Price List of Eurex Clearing AG (Price List) regarding the following topics:

A.    Amendments to the Securities Collateral Concentration Add-On Fee 

B.    Amendments to the Service Fees for Default Fund Contributions

C.    Increase of the GC Pooling re-use collateral fee

D.    Introduction of a Cash Ratio Right  

The amendments for topics A, C and D will come into effect as of 5 May 2023. 

The amendments for topic B will come into effect as of 1 August 2023. 

2.   Required action

There is no required action.

3.   Details of the initiative

A. Amendments to the Securities Collateral Concentration Add-On Fee

Central Counterparties (CCP) are obliged to maintain adequate levels of liquidity to comply with regulatory requirements. Cash margins represent the most relevant source of liquidity for a CCP. Eurex Clearing is one of the very few global CCPs to also have guaranteed access to the central bank refinancing facilities in its main product currency (euro). Nevertheless, such facility primarily addresses only default related liquidity requirements.

Against the background of changing market conditions, Eurex Clearing observes a trend of clients posting more securities collateral and at the same time reducing the cash balances held. In order to ensure continuous compliance with regulatory and operational liquidity requirements Eurex Clearing amends its collateral concentration add-on fee introduced with Eurex Circular 062/21 in 2021.

For many years, the cash ratio at Eurex Clearing was fluctuating around 50 percent, which is still the desired level of Eurex Clearing. Eurex Clearing closely monitors the collateral composition of their Clearing Members and observed that a trend towards stronger securities collateralization has accelerated in recent months. In order to ensure continued regulatory compliance and a healthy mix of cash and securities collateral across all clients Eurex Clearing intends to activate the concentration add-on fee and at the same time to simplify the approach as outlined in detail below.

Based on the new scheme, Eurex Clearing will apply a concentration fee of 10 basis points for Clearing Members with an overall cash ratio below 40 percent. 

Details:

Eurex Clearing is in favor of an economic incentive scheme, which allows Clearing Members still to actively monitor and steer their cash ratio and collateral composition according to their needs and preferences. Eurex Clearing will further continuously monitor the overall cash ratio and reserves the right to activate a mandatory cash quota for all Clearing Members in case the targeted level of the cash ratio is not achieved.

Determination of Cash Ratio and application of Concentration Add-on Fee:

The 40 percent cash threshold shall apply to all collateral pools on an aggregated level, but shall not be applied with respect to (i) client collateral pools only relating to OTC Interest Rate Derivatives Transactions and NDF Transactions, (ii) individual segregated client collateral pools that are actively using cross-margining (margin exposure for OTC IRD and ETD products) and (iii) ISA Direct Clearing Members.

The determination of the respective cash ratio on Clearing Member Level is calculated on a daily basis and considers the delivered cash collateral and margin requirement on all standard pools, omnibus collateral pools, Default Fund pools and ISA segregated collateral pools besides the outlined exceptions. While Supplementary Margin requirement is not considered in the denominator, the delivered cash is considered in the nominator for calculating the cash ratio.

If the 40 percent threshold on an aggregate level is breached, the collateral concentration add-on fee of 10 basis points per annum will be charged on the security collateral that is needed to cover the margin requirement. Additional securities collateral leading to an overcollateralization will not be affected and will not be considered in the concentration add-on fee calculation. Eurex Clearing will provide a new daily client report with detailed information that allows Clearing Members to monitor their cash ratios and collateral concentration fees. 

In exceptional cases, if a Clearing Member can prove to Eurex Clearing that it will have plausible issues to be able to comply with the new requirements as of the go-live date of the collateral concentration add-on fee, Eurex Clearing may grant specific Clearing Members an extended transitional period before Eurex Clearing will actually begin to charge the add-on fee.

The go-live date for the application of the collateral concentration fee and for the availability of the new report will be communicated via a separate Eurex Clearing circular.

The following provision of the Price List will be amended as outlined in Attachment 1: 

• Number 9.2 of the Price List 

B. Amendments to the Service Fees for Default Fund Contributions

The securities over-collateralization charge for Default Funds Contribution will be removed for the purpose of harmonization of the service sees for Default Fund Contributions. 

Eurex Clearing will activate the amendments to the Service Fees for Default Fund Contributions with effect as of 1 August 2023.

The following provision of the Price List will be amended as outlined in Attachment 2:

• Number 9.3 of the Price List

C. Increase of the GC Pooling Re-use collateral fee

Eurex Clearing will increase the GC Pooling Re-use collateral fee from currently 5 basis points to 7.5 basis points effective as of 1 January 2025.

Note that the collateral fee rate for securities delivered via GC Pooling Re-use functionality for collateralizing Repo transactions will remain at 0 basis points.

The following provision of the Price List will be amended as outlined in Attachment 1: 

• Number 9.2 of the Price List

D. Introduction of a Cash Ratio Right

As a further measure, the amendment of the Clearing Conditions foresees the right for Eurex Clearing to introduce a mandatory Cash Ratio. 

With this change, Eurex Clearing will be entitled to implement a specific Cash Ratio provided that Eurex Clearing determines that the implementation of such Cash Ratio is required to enable Eurex Clearing to (i) comply with its regulatory obligations to have access to adequate liquidity and (ii) to ensure that Eurex Clearing is able to perform a prudent liquidity risk management.

The introduction of the right itself does not lead to any direct impact on the Clearing Members. However, such measure might be activated if other measures such as the economic incentives as outlined under part A. of this circular are not deemed sufficient to sustain Eurex Clearing’s liquidity requirements due to regulatory obligations and risk management standards.

In case of activation, Eurex Clearing will determine a reasonable start date as of which Eurex Clearing will begin to request the delivery of additional Cash Margin, if the relevant Clearing Member does not comply with the Cash Ratio. In such cases, Eurex Clearing will furthermore be entitled to reject redelivery requests with respect of cash margin provided that the amount of Cash Margin is needed to comply with the Cash Ratio.

The decision to activate a Cash Ratio will be taken by the Executive Board in its reasonable discretion. When determining the applicable Cash Ratio, Eurex Clearing will use best efforts to find a fair and proportionate size of the Cash Ratio taking into account the interests of all Clearing Members.

In connection with the implementation of the Cash Ratio under Number 3.2.6, certain provisions previously contained in Number 3.2.4 will be merged into the new Number 3.2.6. The remaining Number 3.2.4 will continue to govern the replacement/rejection of certain affected Eligible Margin Assets.

Eurex Clearing will publish any activation of the Cash Ratio including all relevant details via electronic circular and on the Eurex Clearing website www.eurex.com/ec-en/.

The amendments to the Clearing Conditions will come into effect as of 5 May 2023.

The following provisions of the Clearing Conditions will be amended as outlined in Attachment 3: 

• Chapter I Part 1 Numbers 3.2.4 and 3.2.6 of the 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 prior to the relevant effective date(s) as stipulated in this circular. In case of an objection by the respective contractual party pursuant the preceding sentence, Eurex Clearing AG is entitled to terminate the respective contract (including a Clearing Agreement, if applicable). Instead of submitting an objection, the respective contractual party may submit in writing to Eurex Clearing AG comments to any amendments of the legal framework of Eurex Clearing AG within the first 10 Business Days after the publication of the amendments. Eurex Clearing AG shall assess whether these comments prevent the published amendments from becoming effective taking into account the interests of Eurex Clearing AG and all contractual parties. 

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.

Further information