Transaction Management of OTC Derivatives

The trade amendment functionality enables changing/adding the internal client references and/or splitting trades within the current account to establish new trades whose aggregated notional amount is equal to the original trade's. If a trade is split, the process is subject to acceptance by the Clearing Member (if Disclosed Direct Client with System Access is the requester). All splits will be rebooked within the current account. An incremental risk check is not needed and hence not applied.

If a client trade executed on a specific approved trading source (ATS) is not automatically novated due to a negative incremental risk check (i.e., insufficient collateral available), the Take-up functionality can be used by the Clearing Member to decide on either take-up or rejection of the client trade(s).

A Clearing Member (CM) or a Disclosed Direct Client (DC) with System Access can request a full or partial transfer of trades to another CM.

This Post Trade Event needs approval from both involved Clearing Members and trades must pass the incremental risk check (performed on a trade-by-trade basis).

Upon request, Eurex Clearing will automatically attach a 'MTM Adjustment' to the transfer which offsets the trade value, enabling the trade transfer without the need to fund the Net Present Value (NPV).

A Clearing Member (CM) or a Disclosed Direct Client (DC) with System Access can request the full or partial transfer of trades within the CM’s accounts. This includes the CM’s proprietary and agent accounts, as well as all accounts of its DCs. This Post Trade Event requires the approval of the involved CM and a successful incremental risk check (performed on a trade-by-trade basis).

Upon request, Eurex Clearing will automatically attach a 'MTM Adjustment' to the transfer which offsets the trade value, enabling the trade transfer without the need to fund the Net Present Value (NPV).

Eurex Clearing allows Clearing Members (CM) to process trade or account transfers for multiple trades as a portfolio, with no limit on the number of trades that can be transferred at once. At least two trades are required to initiate a portfolio transfer. The incremental risk check is performed at portfolio level. Upon a successful incremental risk check, existing trades will be terminated, and new trades with a unique portfolio ID assigned will be generated to distinguish them from regular trades and other portfolio transfers.

Upon request, Eurex Clearing will automatically attach a 'MTM Adjustment' to the portfolio transfer which offsets the trade value, enabling the trade transfer without the need to fund the Net Present Value (NPV).

At any point in time after successful novation, the owner of a trade can request a full or partial termination of a trade. After a positive risk check and acceptance by the counterparty, the trade will be terminated. It means that the notional of a trade will be reduced or the trade will be terminated in full and will not exist anymore. A trade termination is technically impracticable if a Post Trade Event (PTE) – which results in a new trade ID, – has been performed on this trade.

Netting/Accumulation services are offered with differing available levels for Interest Rate Swaps (IRS) and Non-Deliverable Forwards (NDFs).

Supported Netting Levels as part of the OTC Clearing service are (a) Basic, (b) Fee and (c) Rate Blending.

a) The basic netting allows Clearing Members (CM) the possibility to choose swaps and condense them into a swap with lower notional. Eligible positions are swaps with future matching terms (i.e., identical terms) and differ only in the notional of the trades.

b) In some trading venues, an upfront fee for offsetting trades or fixed payments over the lifetime of a swap can be entered. For those cases, the netting level b) Fee netting can be employed resulting in netted swaps and fees. Swaps to be netted must have identical terms, but their notional may differ.

c) Rate Blending level, as the name suggests, allows for netting swaps with different fixed rates. Two/several swaps get netted at their fixed leg in order to form a new swap with a new fixed rate. Possible spreads must coincide to allow for netting at the floating legs.

The setting/modification of netting parameters can be performed by CMs via the EurexOTC Clear GUI, where they can choose between various levels of netting.

To exploit further potential for notional reduction in addition to the internal risk-free netting of Eurex Clearing, the OTC Service offers risk-based netting (i.e., multilateral portfolio compression) in collaboration with external partners. Portfolio compression targets the reduction of the OTC derivatives portfolio with respect to the number of trades and notional value. As of now, the OTC Clear service supports the following compression functionalities for OTC Clearing Members and Disclosed Clients:

• Downscaling – Reduction of trade nominal by considering netting effects within a portfolio
• Upscaling – allows for more flexibility compared to Downscaling where the resulting trade after compression can have a larger notional,
• Trade Revision – allows for not only changing the notional but is used to change the coupon, spread or direction of a trade,
• Trade Refactoring – Similar to the Trade Revision functionality, but also allows for changes in the start date, end date and start date business day convention of the affected trades (only available for Clearing Members).

In general, it improves the leverage ratio and reduces the overall cost of capital through (partial) termination of offsetting trades within member-defined risk tolerance levels.

Disclosed Direct Clients with a member ID have the possibility to switch their Clearing Member (CM) and to transfer all open trades within this process. Further information and details about the Clearer Change process is described in the OTC Clearer Change Overview. The document can be found in the Member Section:
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