EurexOTC Clear for Interest Rate Swaps IMA Clearing House Day 12 th November, 2013

EurexOTC Clear forInterest Rate Swaps

IMA Clearing House Day

12th November, 2013

www.eurexclearing.com 2

Agenda

• Overview of Eurex Clearing Services and EMIR Status

• Client Asset Protection and Collateral Management

• Risk and Default Management Process

Appendix

• EurexOTC Clear - Service Details

• Clearing Process and Reporting

• Governance, Risk and Default Management

www.eurexclearing.com

Eurex Clearing governance overview

Supervisory Board• Independent external members

• Market participants

• Home regulator participation

• Risk Committee2 Supervisory Board members

6 Clearing Members

6 Clients

Home Regulator participation

BaFin (home regulator)

FCA*

Regulatory Oversight

* Eurex Clearing is „Recognised Overseas Clearinghouse“. This status will be obsolete once Eurex Clearing is reauthorized under EMIR

** Application to become „Derivatives Clearing Organization“*** Application to become EMIR compliant CCP

Executive Board• Chief Risk Officer, Chief Operating Officer, Treasury

(all on board level) • Credit, Compliance and Chief Technology Officer

are directly reporting to Executive Board

Advisory Committee for Executive Board and Supervisory Board

CFTC**

Advisory Committees

Default Related Committees

Disciplinary Committee

Service Related Committees

• Derivatives Clearing• OTC Product / Buy-

Side Working Group• Cash Equity Clearing • Repo & Bonds

Clearing

• Default Management Committees

• (internal) Emergency Committee

• 3

College of regulators***

ESMA***


Eurex Clearing is an integrated multi asset class clearing house

EUR 229bn notional

outstanding in May 2013

European market leader in long-term interest rate futures and options – 2.2mn contracts with

a notional of EUR 285bncleared every day

Equity

Interest Rate

Index

Repo / GC Pooling

Securities Lending

Equities

Bonds

Commo-dity & others

Eurex Clearing

Swaps

Dividend

Credit

Bund/Bobl/SchatzFutures & Options

4

Cross Margins between ETD and IRS May

2014

Ability to re-use GC Pooling

collateral for Initial Margin

Consultation on Buyside

Variation Margin (BSVM)

We will continue to integrate our products and services, not only across Eurex Clearing but across Eurex and Clearstream to provide sustainable capital and operational efficiencies


5

EurexOTC IRS product overviewProduct expansion decided in close consultation with OTC Product Committee

Additional products and features;• Zero coupon swaps• Compounding – flat & straight• Variable notional – Amortizing & roller coaster• Variable spreads & fixed coupons• Linear Interpolation, front and back stubs• Negative interest rates• IMM Roll dates

Products scheduled for November 2013;

• Data from http://www.bis.org/statistics/derstats.htm

Type Currencies Maturity Supported types Other characteristics

IRS EUR, GBP, USD Up to 50 years Plain vanilla (fixed/float)Basis / tenor (float/float)

Front end stubs, forward starts

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

USD and CHF (LIBOR) 1m, 3m, 6m

CHF Up to 30 years

OIS EUR, GBP, USD, CHF Up to 3 years Plain vanilla (fixed/float)

FRA EUR, GBP, USD, CHF Up to 2 years Plain vanilla (fixed/float)

Type Currencies Maturity Supported types Other characteristics

IRS JPY Up to 30 years Plain vanilla (fixed/float)Basis / tenor (float/float)

LIBOR 1m, 3m, 6m

FRA JPY Up to 2 years Plain vanilla (fixed/float)

http://www.bis.org/statistics/derstats.htm

http://www.bis.org/statistics/derstats.htm


Costs and benefits for the buy-side are primarily driven by CCP netting and collateral efficiencies

Netting and default fund efficiencies for clearing members will likely affects buy-side firms via more competitive spreads and costs for clearing

Netting efficiency

Default fund efficiency

Collateral efficiency

• 1

• 2

• 3

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

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

Higher netting efficiency lowers capital and funding requirements

Higher default fund efficiency lowers capital and funding requirements

Higher collateral efficiency lowers funding requirements

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

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

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

Source: Eurex Clearing, Oliver Wyman analysis


Saving

s on

a b

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ne C

CP

Additio

nal c

ost e

fficien

cies

Saving

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Eur

ex C

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g

Quantitative case studies show that an integrated cross-product CCP with a broad collateral spectrum like Eurex Clearing can increase the cost efficiency of central clearing substantially

7

Saving

s on

a b

aseli

ne C

CP

Additio

nal c

ost e

fficien

cies

Saving

s on

Eur

ex C

learin

g

~2.6-2.7 bps+90-100%

~1.4 bps

Fixed income mutual fund

1

3

~30-40 bps

-10 bps

Fixed income hedge fund

1

2

Cost efficiency drivers

Netting efficiency

1

Default fund

efficiency

2

Collateral efficiency

3

Cross-product exposure netting and cross-margining

Integrated default fund structure reflecting segregation

Large eligible collateral spectrum, re-use of assets & central bank acc.

2

3

Cost savings for the buy-side in Europe may run up to EUR 4-9 BN compared to EUR 9-14 BN on an integrated CCP like Eurex Clearing based on the case study results and estimated amounts outstanding of OTC interest rate derivatives in

Europe of EUR ~140 TN1


Status EurexOTC Clear for Interest Rate Swaps

8

Eurex Clearing handed-in its application for re-authorization on 1 August 2013 and received confirmation of completeness by BaFin on 11 th October 2013

Final decision from BaFin about granting or refusing authorization is expected lastest beginning of Q2 2014

ESMA confirmed that clearing members have to offer segregation models across all business lines upon CCP re-authorization

21 Clearing Members (CM’s) already offering client clearing and quoting prices for execution

Fee waiver on new Clearing Members and Registered Customers (RC’s) admitted by year end

Until end of 2013 25-30 CM’s and 30 RC’s are expected to be on-boarded

Eurex Clearing has a ready to use asset based individual segregation service; launched in August 2011

Significant efficiency improvements since launch offering capital efficiencies, removal of transit risk and removal of double funding

• Regulatory

framework

• Service offering

and members

hip


Agenda




Appendix





Eurex Clearing’s overview of omnibus and individual client segregation models according to EMIR Article 39

NCM 1 positions

Proprietary positions

Margin requirement

NCM 2 collateral

pool

Undisclosed client

positions

Clearing Member

Margin requirement

all clients

Margin requirement

NCM 1

RC 2positions

NCM 2positions

Margin requirement

of NCM 2

Margin requirement

of RC2

Collateral for Client omnibus segregated account/ Collateral allocation by value in

proprietary account

RC 2 collateral

pool

Proprietary collateral account

Proprietary 39(2) Omnibus Client Segregation 39(3) Individual Client Seg

Proprietary Business Client Business

RC 1 positions

Margin requirement

RC 1

Individual Clearing ModelElementary Omnibus Clearing Model

UK CASS Omnibus Clearing Model

DefinitionsNCM – Non-Clearing MemberRC – Registered Customer

Segregation services offered

across products

and asset classes


Assessment of segregation and porting under EMIR

Tagged asset

Individual physical custodian account

Gross

Allocated value

Allocated asset

Net Allocated value/asset

Om

nib

us

seg

reg

atio

nE

MIR

39(

2)

Pos Coll

Margin Segregation Porting RiskOperationalsimplicity

Capitalcharge*

Eurex Clearing services

4 %

4 %

Ind

ivid

ual

se

gre

gat

ion

EM

IR 3

9(3)

2 %

2 %

LIVE**Elementary Omnibus as

NCM or Registered Customer

Very likely

Unlikely

None

High

Easy

Complex

Fellow

Customer

Liqui-

dation

Replace-

ment

Transit

Gross LIVE Individual Clearing

Model

LIVE**Elementary Omnibus &

UK CASS Omnibus

11

*Subject to an open consultation and final rule making in Basel III

**The Elementary Omnibus Clearing Model is live today and will be amended during December 2013 to implement legal changes to fulfil EMIR segregation and portability requirements. Multiple collateral pools for ECM planned for H1 2014

The UK CASS Omnibus Clearing Model is live.

Characteristics, risk profile, operational complexity and porting likelihood per model

This overview represents Eurex Clearing‘s own models and its view of the model characteristics


Individual Clearing Model: Full asset segregation• Eurex Clearing launched the Individual Clearing Model in August 2011 and has made significant investments to

enhance collateral management to realise scalable efficiencies

• Legal model is based upon a double title transfer collateral arrangement and security interests to allow Eurex Clearing to deal directly with a client following insolvency of the Clearing Member

• Documentation: Market standard client clearing documentation, (ISDA/FOA, FOA or the German Banking Association, or the Clearing Member’s proprietary documentation may be used in conjunction with Eurex Clearing’s ICM Annex. The client is required to enter into a Participation Agreement with Eurex Clearing. Alternatively, Eurex Clearing’s triparty agreement may be used with any client documentation.

RC 1 collateral account

RC 1positions

Margin requirement

of RC 1

• Porting: immediate porting is available upon default. The client would receive their actual segregated collateral and have a range of porting options to suit individual client requirements

• Positions accounts : Individual positions accounts per client (maintained on a gross-basis). Clients may be a legal entity (for example, a bank or broker-dealer offering indirect client clearing), or the client can be a fund manager, a fund itself, or a fund segment

• Margin Requirement : The margin calculation is performed per client. Clearing Members will receive individual margin reports, cash payments will be netted

• Collateral : A client may opt for full physical segregation where they hold a sub-account at the CSD for their benefit, or a CM can use asset tagging, where an omnibus sub-account which is held for the benefit of all clients and assets are tagged and individually booked for the client at the CCP level; direct delivery of assets and cash into CCP account possible


Individual Clearing Model: Options in Clearing Member default for Registered Customers and NCMs

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 begins

B. Immediate re-establishment under new relationship (back up Clearing Member)

C. become an Interim Participant and have positions and collateral 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


Elementary & UK CASS Omnibus Clearing Models• Eurex Clearing historically offered separate client position accounts for position maintenance, accounting and

recording purposes but required the Clearing Member to provide its own collateral to cover those positions. Under EMIR, Eurex Clearing will also be required to record the value of collateral covering the positions separately and calculate a separate Difference Claim. Amended Clearing Conditions were published in November 2013, reflecting these amendments and Eurex Clearing will implement functional changes in December 2013. Clearing Members will not be impacted unless the Clearing Member opts to have an additional sub-account at the CSD level for collateral covering client positions

• Legal model - transfer of title in cash and a pledge of securities from Clearing Member to Eurex Clearing

• Any documentation may be used

• Porting is not likely, but a separate Difference Claim will be created

Positions accounts• Omnibus position account for non-disclosed clients (net)• Individual clients may adopt this model (from any jurisdiction) and

have segregated positions from other clients and gross margins but not collateral (see the ICM model)

Margin Requirement• Margin calculated per position account. Clearing Members will

receive individual margin reports, but payments netted

Collateral• ECM collateral can be held in the CM‘s main pledge account or in

a separate sub-account for the benefit of clients• UK CASS Omnibus collateral held in a separate CSD subaccount

NCM 1 positions

Undisclosed client

positions

Collateral for Client omnibus segregated account/ Collateral allocation by value in proprietary account

Omnibus Client Segregation

RC 1 positions

Margin requirement

all clients

Margin requirement

NCM 1

Margin requirement

RC 1

The UK CASS Omnibus Clearing Model is functionally the same as the Elementary model, but the Difference Claim would be protected under the UK Client Money Trust.


Elementary Clearing Model: Key elements of portability and the Default Management Process

Portability + Default Management• Collateral assigned to client positions is treated as client collateral• Porting includes (i) client positions and (ii) collateral assigned to client positions• The porting prerequisites are satisfied if - all clients agree on a single new Clearing Member (CM)- a new CM agrees to assume all client positions and client collateral and confirms that all clients, NCMs and

RCs have designated it as their new Clearer- confirmation is provided by T+1 at 1.00 p.m.- any (additional) required margin or variation margin that Eurex Clearing is entitled to, but has not received

from the defaulting CM, is provided by the new CM• Porting is effected by (i) a transfer of all rights, obligations and legal title to all client positions and client

collateral to the new CM and (ii) Eurex Clearing making the appropriate changes to its accounts and records• If porting not possible, position liquidation will be handled according to the default management process and

excess collateral will be returned to the insolvency administrator for the account of the CM and clients• Omnibus segregated clients under ECM will not be offered an option to become an interim participant• Separate difference claims will be calculated for client positions (A-Account, NCMs, RCs) and proprietary

positions based on the separate Standard Agreements• Eurex Clearing is entitled to set-off any difference claim against the CM for client business against any

difference claim owed to the CM for proprietary business, hence house margin covers client margin shortfalls (but not visa versa)


Eurex Clearing`s eligible collateral list covers roughly 25,000 ISINs

Note: A detailed list of the acceptable ISINs and haircuts can be found at http://www.eurexclearing.com/risk/parameters_en.html

Fixed income in EUR Fixed income in CHF Equities

ECB eligible marketable assetsECB liquidity classes I-IV

Swiss National Bank (SNB) Repo eligible EUR denominated DAX, EURO STOXX 50® constituentsDAX Ex products, iShares DJ EURO STOXX 50® Other stocks as announced by Eurex Clearing AG

Exchange listing and price (except bills)

Exchange listing and price CHF denominatedSMI constituentsXMTCH on SMI productsOther stocks as announced by Eurex Clearing

Types of Securities• Government and Short Term

Issues (Bubills) Bonds• State Issues• City and Municipality Bonds• State Agencies• Corporates and Other Bonds• Bank Bonds

Types of Securities• Federal Bonds and Bills (GMBF), Loan obligations• Kantonal obligations, Bonds, Bills (GMBF)• City and Municipality Bonds• State Agencies• Corporates and other Bonds• Bank Bonds, Mortgage Bonds

(Pfandbriefzentralen), no ABS

Fixed income in foreign currencies Cash Other

Government bonds in USD, GBP, DKK, NOK, SEK, AUD, CAD, JPY EUR, GBP, USD, CHF

Xetra Gold Certificates denominated in EUR

Exchange listing and price

16


Further collateral management enhancements are already scheduledInitiative Description Timeline

Direct Collateral Transfer

RC can directly deliver collateral to its segregated collateral pool at Eurex Clearing. Collateral withdrawals are to be requested via the CM who enters the same into Eurex@X-tract Clearing GUI. Eurex Clearing returns collateral directly to the RC‘s account

Later withdrawalof cash collateral

CMs can withdraw prefunded cash for ICM segregated collateral pools same day until late afternoon (EUR 2.30pm CET, CHF 1.30pm CET) upon receipt of ICM segregated client securities

Later EUR TARGET 2 depositsCut-off time for EUR TARGET2 deposit instructions via Eurex@X-tract GUI will be extended to 5pm CET (EUR euroSIC cut-off remains unchanged 2pm CET)

Connectivity to CmaXfor house collateral

CMs can connect to CBL’s triparty collateral management service CmaX allowing for auto-allocation of securities collateral for their house business, contribution to the Clearing Fund and potential shortfall of company capital requirements

Custodian segregation service(Client Custodian Gateway)

Internal collateral settlement process at the RC’s Custodian whereby CBL opens an account at RCs Custodian. Securities used as collateral (IM) of the RC remain within its Custodian. Collateral allocation will be performed via CmaX. CMs can apply their own eligibility. criteria/haircut (must be a subset of Eurex Clearing’s matrix), multiplier etc.

Q32013

Q42013 …

Q42014

Q32013

Q42013

Q12014

Q22014

Q32013

Q42013

Q12014

Q22014

Q32013

Q42013

Q12014

Q22014

Q32013

Q42013

Q12014

Q22014

17


Eurex Clearing provides information on positions, risk and market data directly to Registered Customers

18

• Eurex Clearing provides Registered Customers (RCs) information by the following means:

1. SFTP Access to Common Report Engine for Position, Risk and Market Data reports

2. EurexOTC Clear GUI to view positions, initiate and handle post trade events (optional)

3. EurexOTC FpML API access to retrieve positions updates, initiate and handle post trade events (optional)

EurexOTC Clear GUI

FpMLAPI

CommonReport Engine

SF

TP

PositionsRisk

Market Data1 2 3

• Please note that Eurex Clearing can also provide collateral information to its RCs

• For non-OTC business Non-Clearing Members have access to the @x-tract GUI to access position information


Agenda




Appendix





Margin Components

• Backward looking Variation Margin (VM) that evens daily P&L changes as well as Price Alignment Interest (PAI) that corresponds to the overnight interest on the cumulative VM

• Forward looking Initial Margin (IM) that matches the default management process (DMP) time horizon such that the DMP is reflected in accurate margins for each portfolio

• Risk model for IM is designed to be stable and robust using:

Filtered historical simulation risk factor scenarios (99% robust VaR)

Model error adjustments for correlation breaks and compressions

Permanent unfiltered scenarios taken from stress periods

Liquidity adjustments reflect concentrations and illiquidity of portfolios

• IM is supported by a dynamic clearing fund covering extreme, but plausible, events

Variation Margin & Price Alignment Interest

Fo

rwar

d l

oo

kin

gB

ackw

ard

loo

kin

g

n-day market risk component

Model error adjustments

Stress period VaR floor

Market risk

Liquidity adjustment

Initial Margin

4

+

OR*

1

Margin Components - overviewMargin methodology: Through a combination of margin components Eurex Clearing Prisma has been designed to be accurate, stable and robust

* Market risk equals the highest value of either ‘ 1+2’ or ‘3’

20

2

3

4

1

2

3

4


Fixed income derivatives x-margin service scheduled for May 2014 expected to deliver significant efficiencies across listed and OTC

Without cross margining With cross margining

IRS and fixed income futures/futures-style options are margined separately:• IRS with a 5 day liquidation horizon• Futures and futures-style options with a proposed two day

liquidation horizon

OTC IRSFI listed products

IR swapsFI futures /

futures-style options

2 day horizon 5 day horizon

Margin requirements:

Futures/future-style options OTC IRS

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

risk is reflected in lower margins*

IRS+FI

IR swaps

FI fut./options

Allocation of FI listed products

that hedge IR exposure

FI-only

FI futures / futures-style

options

2 day horizon 5 day horizon

Margin reduction by cross margining:

Cross margined portfolio

Overall initial margins for cross margined portfolios can be lower reflecting the overall risk reduction. Prototyping environment to simulate potential savings already available.

* Depending on portfolio diversity

21


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

Remaining Capital of Eurex Clearing AG

Parental Guarantee

Max 2 assessments per CM

Clearing Fund Contribution of Other Members

Dedicated amountof Eurex Clearing AG

Clearing Fund Contribution of Member in Default

Collateral of Member in Default

Position Netting

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

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

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

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

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

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

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

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

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

Segmentation of the clearing fund


Parental Guarantee



Dedicated amountof Eurex Clearing AG



Position Netting

Lines of defense


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 Default Management Process framework


Agenda




Appendix





EurexOTC Clear for IRS : current service scope

Currencies:

Types:

• Vanilla IRS (Fixed versus Floating) and Basis Swap (Floating versus Floating)

• OIS, FRA

• Zero Coupon, Compounding, Variable Notional

Structures:

• Spot, forward starts & stub periods, linear interpolation

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

• USD and CHF (Libor) 1m, 3m, 6m

Maturity:

• Up to 50 years

• CHF up to 30 years

EUR USD GBP CHF

Product description

• Fully transparent risk methodology and valuation with segmented clearing fund

• New portfolio margining model for IRS: optimal offsets within OTC IRS portfolio for higher capital efficiency

• OTC MarginCalculator

• X-Margining between listed & OTC in prototype environment

Risk management

• Wide range of eligible collateral including securities and cash, approx. 25,000 ISINs

• Re-use of GC Pooling collateral

Collateral Management

Flow Provider and interfaces• Trade entry via MarkitServ (Bloomberg in progress)• Post-trade management via API using WebSphere

MQ, AMQP or MarkitServ

• Individual Clearing Model for Registered Customers incl. asset managers

Live

To follow

• Omnibus segregation under the Elementary Clearing Model as well as U.K. CASS for U.K. Clearing Members

Client Asset Protection

25

GER ENG/WAL FRA NLD

SCO

IRE

SPA BELLUX

FIN SWI

AUT

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

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

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


EurexOTC Clear: Fees and on-boarding incentive program

Become a customer of EurexOTC Clear in 2013 and pay no fees* until January 2016

• For Clearing Members: all fees1 on their house account are waived• For Registered Customers (RC): all fees1 in their respective RC account are waived

Securities Collateral Management Charge• Securities collateral used to cover margin subject to a management charge of 5bp resp.

3bp for GC Pooling Re-Use• Securities collateral exceeding the margin requirement is not charged • Securities collateral management charge NOT applicable to RC’s in ICM

• 1 Until January 2016, there will be no OTC IRS clearing fees for all Clearing Members for their house account and Registered Customers on their respective RC accounts who are on-boarded until 31.12.2013 latest. Furthermore, there will be no admission fee in 2013 and no annual Clearing License fee until January 2016 for any newly admitted OTC IRS Clearing Member until the end of this year Provided that the annual Clearing License fee would be applicable only in regards to the remote IRS Clearing License.

Become a customer of EurexOTC Clear until 31 December 2013

No fees1 for your OTC IRS business until January 2016 bis Januar 2016

Incentive

Prerequisites

26


EurexOTC Clear for IRS fee modelsCompetitive fees for all clients, high turnover and directional based on a linear model without price jumps

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

Maintenance Fee

Maintenance fee per million notional per day in trade currency 0.007

* Booking fee discount for back loading will apply** Calculated on a daily basisNote: Fee’s are always billed in the trade currency

High turnover fee model

Booking Fee*

Booking fee in trade currency (per million) 0.10

Booking fee cap in EUR € 30.00

Booking fee floor in EUR € 10.00

Maintenance Fee

Maintenance fee (in basis points) of initial margin requirement ** 10 bps

A fee calculator is available on request

Volume rebate scheme for standard fee model for RCs current in development


Overview of Exchange Traded Derivatives ProductsA wide range of Derivatives products are available for clearing, both Exchange Traded and via Eurex OTC facilities

Exchange Traded Derivatives

• Interest rate derivatives

• Equity derivatives

• Equity index derivatives

• Dividend derivatives

• Volatility index derivatives

• Exchange Traded Funds derivatives

• Inflation derivatives

• Commodity derivatives

• Weather derivatives

• Property derivatives

Eurex OTC* (EurexOTC Trade Entry)

• EurexOTC Block Trade facility

• EurexOTC Vola Trade facility

• EurexOTC Flexible Contracts facility

• EurexOTC Exchange for Physicals (EFP and EFPI) facility

• EurexOTC Exchange for Swaps (EFS) facility

• Multilateral Trade Registration facility

• * These are Exchange localised products


29

Individual Clearing Model - segregated account overview and difference claim (DC) calculations

Clearing Member

EC

AG

CB

F

ICM Asset Tagging

NCM1

A1P1

RC1

A1P1

RC1 seg pool

NCM1 and RC1 have assets tagged to their respective pools within a single

account

MR P1

MR A1

MR P1

MR A1

OTC Flex Acc Structure

Fund Manager

F1 F2 Fund X

MR FX

MR F2

MR F1

Seg pool FX

Seg pool F2

Seg pool F1

F3

MR F3

Seg pool F3

Each fund’s assets are tagged within one CSD account

F4

MR F4

Seg pool F4

F5

MR F5

Seg pool F5

Acc F4

….

….

…

Acc F5

Acc FX…

Physically individually segregated accounts

NCM1 seg pool

ICM Full physical seg

NCM2

A1P1

RC2

A1P1

RC2 seg pool

RC2 seg account

MR P1

MR A1

MR P1

MR A1

NCM2 seg pool

NCM2 seg

account

Asset tagging

DC calculations under the Flex Accts can be at Fund level, otherwise DC is calculated at NCM/RC level

Ma

rgin

C

alc

ula

tio

nC

oll

ate

ral

Po

sit

ion

sN

on

-Ca

sh

C

oll

ate

ral


30

Tagging as a second collateral management alternative reduces overhead & operational effort

• Under the new tagging set-up, one external CSD account* is mapped to multiple internal collateral pools opened for segregated customers (funds/segments) in the ECAG system

• Therefore, the CBF account will be linked to several collateral pool IDs under one CM, by using an additional reference/flag (“Client Reference ID”)

• The collateral at the CBF level is aggregated into a single account, while the collateral is held segregated in the ECAG system for each customer in the corresponding individual pool ID

• The solution does not apply to the CMs proprietary collateral

Account: 61111

Account: 62222

Account: 63333

Pool ID: 1111

Pool ID: 2222

Pool ID: 3333

Multiple CBF accounts Eurex collateral pools

Account: 61111

Pool ID: 1111

Pool ID: 2222

Pool ID: 3333

Single CBF account Eurex collateral pools

Ref. ID 1

Ref. ID 2

Ref. ID 3

Option 1: Individual physical collateral accounts Option 2: Asset tagging

*This example is for CBF-International accounts within Creation platform (a 6-series account)


Eligible Collateral and Haircuts

Collateral Type Currency Admission Criteria Security Sub-GroupSecurity Type

Code

Minimum Haircut

Yield ShiftYield Shift =

(Market Price Risk + Credit Risk) x Liquidity Risk

Yield Shift

Market Price Risk

Credit Risk

Liquidity Risk

Bond Collateral

EUR, DEM

1) Marketable assets as announced by ECB2) ECB Liquidity Classes I-IV3) Issuer <> Clearer or seg. NCM if applicable4) Exchange listing & price (except Bubills)5) Admissible proportion of the issued capital is 25%

Government and Short Term Issues (Bubills) Bonds BBUN 3.1% 0.8% 0.80% 0.0% 1.00

State Issues BLAN 3.1% 0.8% 0.80% 0.0% 1.00

City and Municipality Bonds BSTA 5.5% 1.6% 0.80% 0.6% 1.16

State Agencies BAGE 5.9% 1.6% 0.80% 0.6% 1.15

Corporates & Other Bonds BIND, BOTH 13.7% 3.9% 0.80% 2.0% 1.39

Bank Bonds BBAK 13.7% 3.9% 0.80% 1.8% 1.49

CHF

1) SNB Repo eligible2) Issuer <> Clearer or seg. NCM if applicable3) Exchange listing & price4) Admissible proportion of the issued capital is 25%

Federal Bonds and Bills (GMBF), Loan obligations BCNF 3.1% 0.8% 0.80% 0.0% 1.00

Kantonal Obligations, Bonds, Bills (GMBF) BCAN 3.1% 0.8% 0.80% 0.0% 1.00

City and Municipality Bonds BSTA 5.5% 1.6% 0.80% 0.6% 1.16

State Agencies BAGE 5.9% 1.6% 0.80% 0.6% 1.15

Corporates & Other Bonds BIND, BOTH 13.7% 3.9% 0.80% 2.0% 1.39

Bank Bonds, Mortgage Bonds (Pfandbriefzentralen) BBAN 12.0% 3.3% 0.80% 1.8%

1.28

USD, GBP, DKK, NOK, SEK, AUD, CAD, JPY1) Exchange listing2) Admissible proportion of the issued capital is 25%

Government Bonds

BAUS, BABP, BADK, BANK, BASK, BAAD, BACD, BAJY

3.1% 0.8% 0.80% 0.0% 1.00

EUR, CHF, USD, GBP, DKK, NOK, SEK, AUD, CAD, JPY

1) Marketable assets as announced by ECB2) ECB Liquidity Classes I-IV3) Exchange listing4) Admissible proportion of the issued capital is 25%

High Yield Government Bonds BBSL 16.0% 4.8% 0.80% 2.6% 1.40



Italian Government Bonds BABS 14.9% 4.3% 0.80% 2.6% 1.25



Portuguese / Irish Bonds BPOS 30.0% 11.0% 0.80% 5.1% 1.86

31


Cash collateral

• Secured placement to the extent possible (reverse repo is the preferred instrument)• Minimum counterparty rating of A- *• Minimum security rating of AA- *• Issuer must be government, agency or supranational• Placement tenor restricted; majority to be invested with a tenor of 1 business day

• 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

A strict policy determines re-investment of provided cash collateral

ECAG passes on interest earned from cash investments

Treasury policy

• *credit rating from S&P, Moody's and Fitch. Lowest rating applies


Overview of Eurex Inflation Swaps Clearing Product Scope

33

Initial Offering April 2014 Comments

Product Type Zero Coupon Inflation Swap Later extension to Asset / Real Rate Swaps

UnderlyingsHICPxT (Euro-Zone)FRCPI (France)UKRPI (UK)

US-CPI

Start DatesSpot starting (EUR/French: T+2d, UK: T+0d) Past starting (for novated trades)

Forward starting swaps not in scope

Max. MaturitiesUKRPI: 50YHICPxT / FRCPIx: 30Y

Later extension in 2014 to US-CPI: 50Y

Indexing Lags 2 - 12 whole months

Index Levels Monthly and daily interpolation

Market Data via Reuters RICs

Member quotes for Par-Swap Rates (intra-day)Member quotes for (additive) SeasonalityOfficial Inflation Index values from Bloomberg


Solution Concept: Buy-Side Variation Margin (BSVM)

• Offer competitive repo market rates for secured financing and investment of net balance of accrued margin credits and debits (including charges and returns for collateral transformations required to access commercial and central bank refinancing sources).

• Access to continuous liquidity of dealer-to-dealer repo markets (and the Euro System (European Central Banks)) to conduct back-to-back re-financing and investment transactions to match liquidity demands, composition and term structure of transactions with customers; Re-usability of collateral securities provided by RC for re-financing and collateral transformation transactions;

• Minimize capital charges and balance sheet impact of collateral transformation and respective back-to-back secured funding and investment transactions by allowing for balance sheet netting of congruent back-to-back repo and reverse repo transactions with RC and inter-dealer-market participants, respectively;

• Complement the OTC IRS Clearing framework covering the actual clearing relationship between RC, CMs and the CCP with a corresponding Eurex Repo BSVM framework covering the collateralized funding and investment transactions, i.e., introduce the CCP function for back-to-back repo and reverse repo;

• The CCP-intermediated relation between RCs and CMs and, in turn, between CMs in the inter-dealer market segments of Eurex Repo allows for clearing all back-to-back transactions via a single CCP and, consequently, provides for balance sheet netting of the respective receivables and liabilities;

• 34

Registered Customer

(RC)

Clearing Member

(CM)

EurexOTCClear IRS

(CCP)

Net Position

Initial Margin

Net Position

Initial Margin

Buy Side Variation Margin (BSVM)

Variation Margin Variation Margin

Draft Concept

– Subject to Changes –


Value Proposition

Timely transfers of cash and securities

Portability of client assets

• Protection of the actual assets provided to us by either the CM or client

• Higher protection than individual segregation by value or omnibus by assets

• Individual account protection down to underlying funds or fund segments

• Robust legal construct

• Client choice to port or become an Interim Participant

• Porting without liquidation or replacement risk

Sa

fety

Full asset protection

• CM contractually required to pass through non-cash collateral without delay

• Book entry transfers of cash between CM account and client account

• Removal of transit risk

• Securities can be delivered to separate physical CSD accounts or tagged

• To be implemented in November 2013

Direct delivery

Legal documentation• Robust legal model with available legal opinions for CMs

• Agnostic client documentation approach

Eurex Clearing’s Individual Clearing Model has been enhanced over the last 2 years to provide the highest level of safety

• 35

optional


Value proposition

New features at Eurex increase efficiency and scalability and lower the operational costs of clearing

Collateral transformation

• Asset Tagging - Rather than maintaining a physical CSD account per individually segregated clients, CM’s can maintain one omnibus account at the CSD for the benefit of each individual client through asset tagging.

• CM has flexibility to provide collateral transformation services

• Client receives full suite of position and collateral reports from Eurex Clearing

Collateral operations

Eff

icie

nc

y

Large eligibility schedule

• Over 25,000 eligible securities (governments, corporates, equities)

• Can be used for Initial Margin and Clearing Fund

• Central Bank eligible securities reduces liquidity risks for CCP in a CM default

• No double funding with the late return of EUR and CHF (November 2013)

• CM’s receive back cash intraday on receipt of client securities/risk reducing trades

Cash cut-off times

Capital efficiencies

• Clients “look-through” to CCP under CRR/CRD IV

• Risk weight of 0% for Bankruptcy remote collateral and 2% if segregated

• Introduction of Default Fund scaling factor on contribution for ICM

• Cross margins lowers funding costs, lowers DF and lowers capital

Book entry cash• CM can perform book only cash transfers between the firm and client account

• Direct delivery increases operational efficiency, remove transit risk, avoids fees

• 36

New feature

New feature

New feature

New feature


Agenda




Appendix





Eurex Clearing provides a flexible solution via existing market infrastructure

Central BankTARGET2 / SNB

Trade WarehouseCentral Depository

Confirmed Trade

MarkitSERV/VCON Affirmation/Confirmation platforms

Affirmation/ Confirmation

Margin Payments Collateral

RiskManagement

PositionManagement Risk ManagementPosition Management

Eurex ClearingCCP

Trade Execution

Party AExecuting Broker

Client

Execution

Trade Submission

Existing market infrastructureFront to back processing

Near time clearing Direct access via affirmation/ confirmation platforms

Real time riskManage your risk and positions intra-day

Secure payment networksUtilisation of Central Bank money

Tra

de C

onfir

ma

tion

Collateral & Trade

Warehouse


OTC clearing workflow combines existing market infrastructure with proven Eurex Clearing service levels

High-level process flow

Bilateral OTC trade executed

Client affirms/ allocates & identifies Clearing Member

Matched trade(s) submitted for clearingEurex Clearing validates trade

Clearing Member(s) take-up

Eurex Clearing performs pre-novation incremental risk check• Eurex Clearing Accepts or Rejects trades• Trades booked with Eurex Clearing in respective

Clearing Member accounts• Trade status sent to Affirmation platform

Eurex Clearing • calculates Initial and Variation Margin• notifies Clearing Member of trades, positions,

margin and collateral requirements • maintains trades and respective lifecycle events

1

6

2

3

4

5

Allocation

• Clearing Member

A

Registered Customer

1

6

2

3

Allocation

Client

4

ExecutingBroker (EB)

• Clearing Member

B

• Clearing Member

(EB)

House Account

Affirmation Platform

Eurex Clearing5

4

Registered Customer

House Account House Account

39


Novation flow - Client clearingEurex Clearing will continuously novate trades during opening hours:08:00-22:00 CET.

Deal submitted

Eligibility Check

CM take-up trade?

Risk Check Collateral to

Novate?

Update to MarkitWire

Legal CCP Novation

by reporting

Intraday reporting

n y

n

Process Repeat

y

Mar

kitW

ire

Eu

rex

Cle

arin

gC

M

• MarkitWire 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 will novate the trade:

– Trades put in status ‘Pending Legal Novation’

– Trades updated to “Cleared” Status in MarkitWire

– Trade novated on the hour upon ‘OTC Trade Novation’ report distributed

• 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 MarkitWire 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, 15:00 & 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

•40


Principles for Daily Clearing

Services

General

Allocations

Other

• Workflows for all participants and client types: inter-dealer brokered, dealer to dealer and dealer to client

• Buy-side clients can have multiple Eurex Clearing Members but only 1 CCP per trade

• Executing broker is typically a Eurex Clearing Member but may opt to be a Registered Customer

• Eurex Clearing will step into the trade and all associated payments including upfront fees

• Single block trade executed with allocations added per fund and relevant Clearing Member

• Trades must be fully allocated prior to MarkitWire sending the trade to Eurex Clearing

• Trades may partially clear i.e. some allocations accepted whilst other rejected

• MarkitWire allows continuous trade matching regardless of Eurex Clearing hours of operation

• Eurex Clearing accepts for trades daily from 08:00 CET until 22:00 CET

• Overnight reporting of trades, positions, margins, cash payments and all risk data for replication Daily Clearing

Post Trade Events and Netting

Description

•41

• After CCP novation Eurex Clearing remains the “golden record” of the trade throughout its lifetime

• Trade transfers, terminations (full or partial), netting and clearer changes may be performed

• Daily netting of risk neutral / offsetting trades can be performed on an account level or selective trade basis

• Backdated trades may be entered and accepted at any time during operating hours

• Margin calculator allow members to assess the impact of the simulated trades on the margin requirement

for themselves and clients

• Full business, technical and operational support is provided by dedicated specialist teams during opening

hours


PTE Event

Trade Transfer

Account Transfer

De-Clear

Trade Amendment

Termination

Re-book trade within CM‘s accounts (Initiated by RC or CM)

Netting/Accumulation

Reject

Split trades in smaller notionals without changing account Free text fields (e.g. indicating client in agent account) can change

The trade is completely terminated. Can be performed if no PTE (such as netting) has taken place and with the original counterpart.

A ‘De-Clear’ results in the trade becomes a bi-lateral trade again in MarkitWire. This can only be performed until Novation+1 (end of day) with the original counterpart and only if no PTE (such as netting) has taken place.

Netting: Close out of two risk neutral offsetting trades (including partial) Accumulation: Add up the notional of two equal trades

Trades can be rejected after ‘acceptance of take-up’ or other PTE

Transfer trade to other CM (full or partial)

• Description

Post Trade Events- OverviewEurex Clearing supports wide range of post trade events on cleared trades.

All PTE are available for ‘Dealer to Dealer’ as well as ‘Client Clearing’. They can be administrated either via the GUI or API. All PTE must be approved by the CM as well as pass any incremental risk checks.It is possible to enter fees in relation to Post Trade Events

•42


Eurex Clearing provides information on positions, risk and market data directly to Registered Customers

43

• Eurex Clearing provides Registered Customers (RCs) information by the following means:

1. SFTP Access to Common Report Engine for Position, Risk and Market Data reports

2. EurexOTC Clear GUI to view positions, initiate and handle post trade events (optional)

3. EurexOTC FpML API access to retrieve positions updates, initiate and handle post trade events (optional)

• EurexOTC Clear GUI

FpMLAPI

CommonReport Engine

SF

TP

PositionsRisk

Market Data1 2 3

• Please note that Eurex Clearing can also provide collateral information to its RCs

• For non-OTC business Non-Clearing Members have access to the @x-tract GUI to access position information


Agenda




Appendix





Ownership StructureEurex Clearing is part of Deutsche Börse Group

100%

* also an exchange under Swiss Law** exchange under public law according to German law

100% 100% 100% 79%

100%

EurexDeutschland**

56%

EurexClearing AG

U.S. ExchangeHoldings,Inc.

EurexRepo GmbH

EurexBonds GmbH

International Securities Exchange Holdings. Inc.

Eurex Frankfurt AG

Eurex Zürich AG* European Energy Exchange AG

Eurex Global Derivatives AG

50%

Deutsche Börse AG

100%

50%


Details on the EMIR compliant Risk Committee

• Advisory Council, i.e. ‘Beirat’ Legal Status founded by ECAG‘s Executive Board.

• The Risk Committee established according to Art. 28 EMIR advises– the Supervisory Board of ECAG– the Executive Board of ECAG

• According to Art. 28 EMIR:– 6 representatives of clearing members (thereof two representatives of OTC project

banks)– 6 representatives of clients of clearing members– at least 2 independent members of the Eurex Clearing Supervisory Board

• 4 meetings per year• Extraordinary meetings (or conference calls) if required

• Clearing Conditions Chapter 1, Part 1, Section 1.5 “Risk Committee”• Statues for the Risk Committee

Legal Status

Role

Composition

Frequency

Regulatory framework

• Further information on the Eurex Clearing website:• http://www.eurexclearing.com/clearing-en/about-us/corporate-overview/committees/risk-committee/

Executive Board Supervisory Board

EMIR Risk CommitteeSet-up

Advise towards


Details on the EMIR compliant Risk Committee

• Advising the Supervisory Board on any arrangements that may impact the risk management of the CCP, such as:

– a significant change in its risk model– the default procedures– the criteria for accepting clearing members– the clearing of new classes of instruments or– the outsourcing of functions

• Towards the Supervisory Board the Risk Committee is dealing with:– the internal policy framework and review– the liquidity plan (as part of the liquidity risk management framework)– the policy for the use of derivative contracts

• Towards the Executive Board the Risk Committee advises on:– any material revisions and adjustments to its [risk] models, their methodologies and the liquidity

risk management framework– any material revisions and adjustments to such policies, i.e. policies used to test the CCP‘s margin,

default fund and other financial resources methodologies and framework for calculating liquid financial resources

– the systems and pricing valuation models used

Function of the Risk Committee


Eurex Clearing Prisma

• Eurex Clearing plans to introduce portfolio margining combining its OTC and listed business.• Therefore in case of a Clearing Member (CM) default the liquidation will be on portfolio level and not on position level in

order to utilize offsets granted.

• Aim of the default management process is to transfer the clearing house’s risk exposure, inherited from a defaulting member, to others willing to overtake it

• The guiding principles of default management process are:– Minimize losses to the Clearing House’s lines of defense– Minimize the effect and disruption on the membership and the wider market

Ensuring consistency between default management process and risk margining method

Guiding principles - default management process

Guiding principles – margin methodology

• Greater capital efficiency

• Enhanced accuracy

• Increased robustness

• Consistent framework

• More flexibility

• More efficient risk aggregation across listed and OTC products

• The new method captures more risk factors and better reflects true risks

• Designed to avoid pro-cyclical margin requirements

• Consistent risk and default management framework for listed and OTC products

• Broader range of instruments covered with faster to time-to-market

New DMP introduced in November 2012

• EC Prisma Release 1 for equity and equity index derivatives launched in May

(member launch)


High-level properties of the Eurex Clearing Prisma margin methodology

• Filtered historical simulation scenarios - volatility filtered and rescaled scenarios from a rolling time window of the previous 750 business days.

• Stress period historical simulation scenarios - 250 permanent unfiltered scenarios of the most volatile periods within all historical data to ensure adequate flooring and reduced cyclicality

A high effective confidence level of 99.6 percent is achieved, compared to a confidence level of 99.8 percent in a normal distribution robust VaR approach.

• Concentration and illiquidity effects are captured• Market data inputs and resulting mark-to-market values and risk margins are monitored intraday• Multi-curve-valuation uses bootstrapping with OIS-based discounting and separate curves per underlying reset frequency• Curve inputs are LIBOR/EURIBOR rates, overnight index fixings, FRAs, tenor basis swaps and par swap rates with

maturities of up to 50 years in EUR, USD and GBP and 30 years in CHF

• Risk-adequate filtered historical VaR margin methodology

• Full transparency on Eurex Clearing Prisma

• Lookback: over previous 750 days + 250 stressed period days

• Liquidation period: 5 days

• Robust VaR (scaling from 95 percent to 99 percent quantile with fat-tailed t-student distribution) as basis for margin.

• EMWA volatility filtering with λ = 0.90 for 5-day returns.

• The model captures all material risk factors - positions in the portfolio are mapped to the exhaustive set of the relevant risk factors.

• Scenarios for risk factors are constructed in a way to ensure robust forward looking properties and stability of the model, based on the long look back, effectively covering 10 years of history.

Initial Margin = Max (Market risk + correlation break adjustment, scaled stressed period VaR) + liquidity adjustment


Example of EurexOTC IRS margin componentsSingle IRS payer swap (EUR)

Low High Low High Low High Low High Low High

10 mio 1 bn 10 mio 1 bn 10 mio 1 bn 10 mio 1 bn 10 mio 1 bn

Market Risk (FHS VaR)

Correlation Break Adjustment

Stressed Period VaR (scaled)

MRIM

Liquidity Adjustment 0.04% 0.05% 0.09% 0.13% 0.18% 0.29% 0.25% 1.74% 0.47% 4.08%

Total IM 0.59% 0.60% 1.50% 1.53% 3.68% 3.79% 6.02% 7.51% 12.01% 15.61%

Pay Fix

Maturity in Years

11.54%

10.11%

1.78%

9.76%

Initial Margin Components in % of Notional

Notional

2 5 10 15 30

0.55%

0.55%

0.09%

0.45%

5.77%

3.80%

0.81%

4.96%

1.40%

1.26%

0.09%

1.32%

3.50%

2.64%

0.53%

2.97%

0 5 10 15 20 25 30-5%

0%

5%

10%

15%

20%

High notional total IM

Stressed Period Market RiskCorrelation Break LiquidityTotal IM

Maturity in years

% o

f N

otio

nal

0 5 10 15 20 25 30-5%

0%

5%

10%

15%

20%

Low notional total IM

Stressed Period Market RiskCorrelation Break LiquidityTotal IM

Maturity in years

% o

f N

otio

nal

0 5 10 15 20 25 30-5%

0%

5%

10%

15%

20%

Low vs. high notional

Low Notional Total IM

High Notional Total IM

Maturity in years

% o

f N

otio

nal

• Pie charts show liquidity adjustment as percentage of total IM


EurexOTC IRS Clear MarginCalculator

Simulation environment – It is possible for CMs and their customers to load trades into MarkitWire UAT and submit them for clearing, once cleared they will be run through the margin calculation process and receive margin reports.

Weekly margin calculation – CMs and clients can submit portfolios of IRS and listed products. Inputs are in a predefined excel format and submitted via email. The process is weekly with inputs to be received on Thursday by 5 pm CET.

Two methods currently available to estimate margin amounts for OTC IRS

• Allow Non-Members to access the Web GUI • CMs and RCs can retrieve cleared trades to perform what-if analysis • Develop an API to allow Members to submit portfolio for calculation • Additional outputs • Save portfolios in the GUI to rerun / edit in future

• Web GUI for existing CMs only - based on the EurexOTC Clear GUI • A spreadsheet upload with a predefined format and a limited set of required and optional

fields • Validation of the data entered and enrichment • Submit a portfolio for margin calculation • Portfolio will use up-to-date market data • Outputs including VM, IM plus components and by trade MTM will be returned to the GUI

• Phase one (now live)

•Phase two

• Further enhancements for margin calculation


Cross Margin will deliver significant capital and funding benefits on go-live in May 2014

• In order to help Clearing Members and their clients to analyse cross margining benefits already before the implementation of Release 2.0, Eurex Clearing offers to carry out individual calculations for potential users of cross margining, based on the Prisma Risk Evaluation Prototype (PREP)

• For the PREP service, Members may send a mixed portfolio of listed and OTC products.

• PREP is capable of calculating initial margin figures for interest rate portfolios consisting of interest rate futures, options and interest rate swaps (including the product scope of Prisma release 1)

• Send the portfolio details via email to the dedicated e-mail address [email protected]

52

Formulate the effects of x-margin now using Prisma Risk Evaluation Prototype (PREP)

With cross margin

Initial margin netting

efficiency

FI futures / future-styled

optionsIR Swaps

OTC & ETD CCP OTC CCP ETD CCP

Margin

Margin reduction through cross asset class margining

Margin

Initial margin netting efficiency is dependent on the CCP netting capability across asset classes Total

margin

XMargin

IR Swaps

FI futures / future-styled options

Without cross margin


Introduction

Within Eurex Clearing Prisma a revised framework for the Default Management Process (DMP) launched on 13 November 2012

• Eurex Clearing has designed a revised DMP and extensively discussed it with the market participants

• The purpose of the revised DMP is to rebalance the clearing house by transferring the positions, inherited from a defaulting member, to others willing to take it over

• The new DMP is aligned with the new margin methodology and introduces five central components:

− Liquidation groups compile products which can be liquidated jointly at the same point in time i.e. complete liquidation group can be auctioned, hedged by Eurex Clearing and priced by clearing members in a reasonable period of time

− Each liquidation group will be handled separately in case of default (however, Eurex Clearing reserves the rightto jointly liquidate different liquidation groups if a joint liquidation is risk reducing)

− The DMP as well as the utilization of the Clearing Fund is conducted along the pre-defined liquidation groups.This creates liquidation group specific Clearing Fund Segments (CFS) within the common Clearing Fund.

− Default Management Committees (DMCs) made up of proven industry experts are setup to advise, assistand provide recommendations to Eurex Clearing during a default situation and on an ad-hoc basis.

− The main process component is an auction ensuring that Eurex Clearing is able to quickly establish a fairprice for the portfolios and to transfer them to buyers while minimizing market impact. NCMs, RCs and clients may participate in the auction in consent with their Clearing Members


Eurex Clearing assigns products according pre-defined criteriaLiquidation group criteria

54

• Only products which can be hedged together are in one liquidation group:− Positions in one liquidation group can be stabilized in case of a default by means of a

common pre-defined hedging strategy− Hedge-ability will be validated in regular default simulations and internal periodic reviews

Hedge-ability

• Products within a liquidation group allow for objective proximity:− Proximate products have a set of common risk factors

− Proximity represents market standard, regulatory and business understanding

• Products in one liquidation group follow the same liquidation process:− Only products which can be auctioned together are grouped in one liquidation group− Products with deviating liquidation procedures need to be assigned to separate

liquidation groups

Liquidation process

Proximity

Price-ability

• The liquidation group can be priced by the market participants:− Clearing Members are able to price all products the liquidation group in a certain period of

time− Price-ability will be validated in regular default simulations together with all clearing members


Each Liquidation group has a pre-defined holding periodLiquidation group composition

55

LG* Equity CCY HP**

1EQ (Index) Derivatives, EQ Single Stocks, OTC EQ Derivatives

EUR, CHF,USD, GBP

4

2 Dividend (Index) Derivatives EUR, CHF 5

3 Volatility (Index) Derivatives EUR 5

* LG = Liquidation group** HP = Holding period in days = Agreed with Risk Committee participants

LG Fixed Income CCY HP

4

Fixed Income Derivatives

EUR, CHF, GBP, USD

5Interest Rate Swaps

Bonds

LG Repo GC Pooling CCY HP

6 Repo GC Pooling Basket EUR, USD tbd

LG Commodities CCY HP

7

Power Derivatives

EUR, USD tbdEmissions Futures

Precious Metals Derivatives

Agriculture Futures

LG Property Derivatives CCY HP

8 Property Futures GBP tbd

LG Credit Derivatives CCY HP

9 Credit Default Swaps EUR tbd

LG Inflation Derivatives CCY HP

10 Inflation Derivatives EUR tbd

LG Weather Derivatives CCY HP

11 Hurricane Futures USD tbd

Assumption:Flexible Futures and Options will be assigned to the liquidation groupscontaining the respective underlying

LG Repo CCY HP

5 Special RepoEUR, USD,

CHFtbd




Lines of Defense

Eurex Clearing Lines of Defense


Dedicated own reserves of Eurex Clearing AG



Position Netting

56

• Eurex Clearing provides a multi-level security system − First the collaterals and the Clearing Fund contribution of the member in

default are utilized.− After the defaulters contribution is exhausted assigned reserves of

Eurex Clearing are applied before non-defaulting clearing members contribution and Liable Equity of Eurex Clearing.

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

• There is one segmented Clearing Fund for listed and OTC business (except CDS which is covered via a separate Clearing Fund)

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

• Clearing members’ total liability is however limited as they have the right to withdraw from the clearing house

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


With introduction of the new process a segmentation of the clearing fund along liquidation groups is introducedIntroduction Clearing Fund segmentation• With introduction of the new DMP, the segmentation of one clearing fund will be introduced. This creates liquidation

group specific Clearing Fund Segments (CFS), within the single common Clearing Fund.

• A CFS is determined for each liquidation group, which is a partition of the single Clearing Fund according to the relative weights of the Initial Margin of the liquidation groups

• The clearing member’s contribution to the clearing fund does not change compared to today

• The total clearing fund of the CCP is the sum of these segments

• In contrast to the mutualizing clearing fund concept, when liquidating a particular liquidation group, only the respective CFS can be used to cover losses, unless there is a known surplus from other, already completed liquidation groups

ExampleAssuming that the defaulted clearing member (“DM”) was active in two liquidationgroups:

− the fixed income− the equity liquidation group

When starting the liquidation of the fixed income liquidation group, the liquidationof the equity liquidation group has already been finalized without using anyassigned security layers

IM FI, DM + CFS FI, DM

Eurex Clearing Reserves FI

CFS FI, remaining

Eurex Clearing Equity Capital

Surplus Eurex Clearing Reserves (EQ)

Surplus DM’s contributions (EQ)

Surplus CFS (EQ)


• In case of a default, the current cycle of DMC members shall make themselves available withina short period of time

• Identify suitable hedging strategies for the defaulted member portfolio

• Assist in transferring segregated clients to solvent Clearing Members

• Support in determination of suitable auction formats and timings

Obligations during a CM

default

• Eurex Clearing nominates the Top 3 Clearing Members in each Liquidation Group 3 months prior to a DMC term (calendar year)

• Upon nomination the DMC member has to nominate a principal and deputy representative and provide CV’s to prove that the participants have sufficient knowledge and expertise to fulfil the required tasks within the DMC. Representatives from affiliated NCMs and RCs can be nominated as well

• DMC members and representatives have to accept the DMC rules prior to the DMC term

Default Management Committees (DMCs)

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

• One DMC for each liquidation group shall advise, assist, and provide recommendations to Eurex Clearing in defining hedging strategies and organisation of auctions

Role of the DMC

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Each Default Management Committee supports the organization of the default management process

Nomination of DMC Members


Contacts at Eurex Clearing

Eurex Clearing OTC Development

Head of Section Risk Management OTC IRS Buy Side

Philip Simons

T +44 (0) 207 862 7239M +44 (0) 782 414 1618

[email protected]

Alexander Rose

T +44 (0) 207 862 7246M +44 (0) 787 048 1168

[email protected]

Ricky Maloney

T +44 (0) 207 862 7612M +44 (0) 755 117 1212

[email protected]

OTC IRS OTC IRS OTC IRS

Alison King

T +44 (0) 207 862 7266M +44 (0) 782 443 7680

[email protected]

Afriyie Ola Dimeji

T +44 (0) 207 862 7218M +44 (0) 782 724 0086

[email protected]

Eva Barber

T +44 (0) 207 862 7267M +44 (0) 786 739 3423

[email protected]

OTC Development Business Support Business Support

Danny Chart

T +44 (0) 207 862 7239M +44 (0) 782 487 8132

[email protected]

Momcilo Stanic

T +44 (0) 207 862 7257

[email protected]

Charmaine Newman

T +44 (0) 207 862 7276M +44 (0) 787 688 6616

[email protected]

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Contacts at Eurex Clearing

Eurex Clearing Business Relations

Head of Section Equity Frankfurt Equity London

Jens Quiram

T +44 (0) 207 862 7268M +44 (0) 755 726 7009

[email protected]

Krasimira Rayanova

T +49 (0) 692 111 3021M +44 (0) 172 106 3380

[email protected]

Beth Jones-Williams

T +44 (0) 207 862 7277M +44 (0) 788 131 4590

[email protected]

Securities Lending Collateral Management Bonds and Repos

Gerard Denham

T +44 (0) 207 862 7634M +44 (0) 787 688 5276

[email protected]

Ferdina Yarzada

T +49 (0) 692 111 4162M +49 (0) 172 191 3781

[email protected]

Maximilian Dannheimer

T +44 (0) 207 862 7640M +44 (0) 755 117 0286

[email protected]

Exchange Traded Derivatives Client Asset Protection Paris Rep. Office (All Topics)

Cameron Teague

T +44 (0) 207 862 7233M +44 (0) 786 739 2557

[email protected]

Richard Wilding

T +44 (0) 207 862 7279M +44 (0) 782 414 2703

[email protected]

Florence Besnier

T +33 (0) 155 276 770M +33 (0) 610 327 420

[email protected]

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© Eurex 2013Deutsche 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 (other than EURO STOXX 50® Index Futures contracts, EURO STOXX® Select Dividend 30 Index Futures contracts, STOXX® Europe 50 Index Futures contracts, STOXX® Europe 600 Index Futures contracts, STOXX® Europe Large/Mid/Small 200 Index Futures contracts, EURO STOXX® Banks Futures contracts, STOXX® Europe 600 Banks/Industrial Goods & Services/Insurance/Media/Personal & Household Goods/Travel & Leisure/Utilities Futures contracts, Dow Jones Global Titans 50 IndexSM Futures contracts, DAX® Futures contracts, MDAX® Futures contracts, TecDAX® Futures contracts, SMIM® Futures contracts, SLI Swiss Leader Index® Futures contracts, Eurex inflation/commodity/weather/property and interest rate derivatives) are currently not available for offer, sale or trading in the United States or by United States persons.

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EurexOTC Clear for Interest Rate Swaps IMA Clearing House Day 12 th November, 2013