Deutsche Börse’s Eurex Clearing unit plans to offer processing of over-the-counter interest rate and equity derivatives by July, in line with regulators’ push to move more derivatives products through clearinghouses.
At present, the Eurex OTC Clear service guarantees so-called look-alike futures and options traded both on the Eurex derivatives exchange and over-the-counter. The company also owns Eurex Credit Clear for OTC credit default swaps. In 2010, Eurex Clearing processed 774 million contracts in OTC-traded products, the exchange says.
Eurex will compete directly with LCH.Clearnet, the world’s largest interest rate swaps clearinghouse with its new services.
Most interest rate and credit default swaps will be required to be processed by a clearinghouse later this year under new US regulations. Europe is also moving ahead with its own proposals.
“The further expansion of our product coverage is an important part of our strategic agenda enabling our customers to prepare for the new regulatory environment,” says Thomas Book, Eurex executive board member responsible for Eurex Clearing. “We will offer all clearing services in the relevant asset classes to our clearing members and buy-side clients to comply with new requirements.”
In addition to expanded product coverage, Eurex Clearing will introduce a new client asset protection service for its listed and OTC markets, which will be launched in Q2 2011 in close coordination with market participants. The service will offer full protection of client assets within the clearinghouse and allow for immediate portability of positions and assets in case of a clearing member default.
Eurex Clearing also plans to introduce a new risk methodology for the clearinghouse, which will be portfolio-based rather than instrument focused as in many current CCP risk management approaches. The new portfolio-based risk methodology will allow cross-margining between Eurex’s listed derivatives and OTC interest rate swaps and equity derivatives, with the exception of CDS.
“The new risk management approach will further contribute to the safety of the derivatives market, while delivering capital efficiencies to our clients by providing offsets particularly between Eurex’s listed derivatives and OTC-traded derivatives,” says Book.