OPERATIONS FORUM Eurex Clearing AG Central Counterparty Solution August 3 rd 2006 London Deutsche...

OPERATIONS FORUM

Eurex Clearing AGCentral Counterparty SolutionAugust 3rd 2006London

Deutsche Börse AG / Eurex Clearing AG

Agenda

Gruppe Deutsche Börse – Overview Value Chain

Role of Eurex Clearing AG

Clearing Functionality at Eurex Clearing AG– Eurex Risk Management – CCP Functionality– Clearing Services for Irish Stock Exchange

Future Extension of the Eurex Clearing Functionality

Information Trading Clearing Settlement Custody

– Streaming data feeds

– Physical terminals

– Indices

– Operate open electronic order books

– Connectivity to international trading members

– Verification of trade-related information

– Central counterparty (CCP)

– Risk Mgmt.

– Delivery of securities

– Financing services

– Securities lending & borrowing

– Physical custody of securities

– Related services, e.g. tax, corporate actions, income

InformationServices

FWB EurexClearingHouse

Clearstream Banking(Frankfurt and Luxemburg)

Eurex

IT services and software development (DB Systems)

Cash and Fixed Income market as well as Derivatives market instruments are subject to the value chain of Gruppe Deutsche Börse (GDB)

Gruppe Deutsche Börse –Overview Value Chain

Agenda





Eurex Clearing AG provide sustainable Benefits

CounterpartyRisk Reduction

Processing Efficiency

Standardised post-trading approach Post-trade functionalities for trade management (e.g.

give-up / position transfers / trade split) Netting of settlement instructions and volumes, STP-

processing Reduction of back office complexity Reduction in fails and financing needs

Eurex Clearing AG becomes legal counterparty to all trades

Reduction in counterparty and credit risk due to multilateral netting and decreased probability of counterparty default

Counterparty risk reduction until settlement for equities / bonds, underlying derivatives obligations, or until maturity for derivatives / repos


Agenda





Eurex Risk Management

AdmissionMargin

CollateralIntra Day Risk Management

Lines of Defense

The risks of Eurex Clearing AG can be differentiated into three groups:Counterpart RiskSystemic RiskOperational Risk

Coverage of the Counterpart Risk*

* Systemic Risk and Operational Risk not considered in this presentation

Derivatives

Bonds

Repos

Equities

Capital*

CAPITAL REQUIREMENTS AND PAYMENTS INTO GUARANTEE FUNDS GCM (DCM)

125 (12.5)

50 (5.0)

175 (17.5)

25 (2.5)**

Guaranty fund

Total 5 (1)

in Mio. EUR

Additional admission requirements Financial institution located within the European Union or Switzerland Securities Pledge Account at CBF or SIS Cash Account at BuBa or SNB

* Minimum amounts, capital is dynamic (dependent on the risk) ** always additive

Eurex Risk Management – Admission Requirements

Model is Eurex Risk Based Margining

Margin requirements are calculated on level exchange member (NCM)/account type

(client/proprietary)

Calculation is based on current market prices -intraday-

or settlement prices -close of business-

Margin requirements are only applied on the net position of a specific series/ security

Intraday Risk Management Permanent online monitoring of current positions based on exchange member

(NCM)/account type level

Alerts are triggered approx. every 10 minutes

Eurex Risk Management – Eurex Risk Based Margining

PremiumMargin

Variation Margin

It must be deposited by the writer of an option, it covers the potential loss that could occur if the writer were forced today to liquidate the position

It is continuously adjusted, i.e. if prices fluctuate so that the potential loss upon liquidation increases, the writer will be obliged to deposit additional premium margin based on settlement prices

For those products which are handled on a mark-to-market basis, Eurex Clearing AG books the trading-day profits and losses of all open positions held in an account

Principal Elements of Risk-Based Margining I


AdditionalMargin

Future Spread Margin

Additional Margin serves to cover through the next trading any potential additional costs that could arise if the positions had to be liquidated immediately.

Additional margin is imposed on traditional and future-style options as well as on non-spread futures

Long or short positions which have expiration dates that are not identical,can be offset against each other (spreading)

Counterbalanced positions through time-spread orders are subject of Futures Spread Margin

Futures Spread Margin has the purpose of covering that risk until the next trading day

Current Liquidating Margin addresses the realized loss at the end of day

Long positions are valuated at the last exchange priceCurrent Liquidating

Margin

Principal Elements of Risk-Based Margining II


Eurex calculates different types of margin

Bonds/ Repos

Equities

Timeframe: yesterday to todayTimeframe: yesterday to today Timeframe: today to tomorrowTimeframe: today to tomorrow

Equity-,Index Options

Futures

Options onFutures

Additional MarginAdditional Margin Future Spread MarginFuture Spread Margin

Cash

Current Liquidating Margin

Current Liquidating Margin

Premium MarginPremium Margin Variation MarginVariation Margin


Principal Elements of Risk-Based Margining III

A permanent margin process covers net exposure with securities

Change of positions,

prices and volatility

Calculation of overall risk requirements after cross margining

Calculation of risk on

net exposure

Daily calculation of risk haircuts on deposited collateral

Comparison of margin requirement with collaterals

Debit or credit of securities*

*Credit only once a day

Intraday-Margining allows

monitoring every 10 minutes

Eurex Risk Management –Eurex Risk Based Margining

Lines of Defense have survived stress tests

0%

5.2%

5.7%

3.4%

85.6%

* Basis: 348 cases ** Assumption: Default of the member with the largest credit balance

Frequency of utilization during stress tests*

Underlying assumptions** Extreme market movements

Money market: +/– 0.5 points

Bonds: +/– 2 points Stock: +/– 25%

Varying scenarios (e. g. falling prices of stocks or bonds)

Eurex Clearing AG equity capital

General clearing funds

Eurex reserves

Contribution to clearing funds for defaulting members

Collateral of defaulting member

Closing out positions

Lines of Defense

Eurex Risk Management –Eurex Risk Based Margining

Agenda





CBF CBLSIS

Clearing

Trading

Settlement EB

EUR CHF GBP

Eurex Ex/ Ass / Not/ All

CrestCBF

Cash MarketEurexBonds

EurexRepo

Bond/ Repo Market

SISCBF

Integrating all markets at GDB Connecting different security depositories Reducing counterparty risk by effective risk & collateral management Reducing cross border settlements Offering service to additional markets outside Group Deutsche Börse (e.g. ISE)

Planned for begin of 2007

Market Participants

Eurex Clearing

CCP Functionality – Infrastructure

Xetra/Xetra OTC

FloorFWB

CCP Post Execution Functions

Inquiryof trades

(filter, details)

Blocking oftrades

Full andpartial release

of trades

Settlementforecast &

resultsoverview

Reporting

Makingfor gross/netprocessing

Linking ofTrades

(man./ autom.)

Basic functions

Optional functions

The CCP provides centrally the

full set of information (from time

of registration until settlement)

on gross trade basis

The CCP performs Corporate

Actions on pending trades

Forecast of security and cash

settlement online available

Optionally, disposition

management for settlement

available

CCP Functionality – Trade Management

B4

B1

B3

B2

S6

S1

S5

S2

S3

S4

Netting

S6

S1

S5

S2

S3

S4B4

B3

B2

B1

Surplus:Net delivery instruction to (i)CSD

Offsetting block: Cash settlement via cash correspon-dent

Settlement Netting significantly reduces the number of delivery instructions:

Principle– On the evening of S - 1,

Settlement Netting is performed for the first time, so that the generated delivery instructions will be available for (i)CSD settlement in the night time settlement run

Surplus– Generation of DVP instruction for

(i)CSDs (booking of surplus)

Offsetting Block– Booking of offsetting block

via cash correspondent (e.g. Deutsche Bundesbank)

Trades

CCP Functionality – Delivery Management

The introduction of the CCP netting algorithm led to a Settlement Netting efficiency of 96 % and Settlement efficiency increased from approx. 93% to 97% on the cash market

Agenda





Clearing

Trading

Settlement

Position data

Reference data

ECH offer Clearing Services to ISE:

Trades can be routed to CrestCo Irish system by members (as is)

CrestCo will support clearing services (e.g. trade validation & netting) as in today’s UK market

CrestCo will continue to provide settlement services

ECH will receive position data from CrestCo for margin calculation

Margin calls and collateral will be collected by ECH

Reference data will be exchanged between ISE, ECH and CREST

CBF/SISBuBa/SNB

Transaction data

CollateralMargin Calls

- Trade validation & enrichment- Position management- Corporate action processing- Tax reporting (e.g. SDRT)- Member reports/enquiries- Settlement

- Central Counterparty - Risk Management- Buying-In- Member Reporting

Settl. pricesMargin req.

The Irish Stock Exchange chooses Eurex Clearing House (ECH) as the central counter-party provider for equities and ETFs traded on the Xetra ISE trading platform

Clearing Services for Irish Stock Exchange

Agenda





New CCP Release planned for end of Q3/ 2007

Trade Management Services for Certificates & Warrants– Settlement of Certificates & Warrants via CCP infrastructure without involvement of

Eurex Clearing AG as Central Counterpart (CCP) offers a harmonized process for CCP and Non-CCP instruments

Multi Currency Clearing in the CCP– Offering of multi currency clearing for the various trading locations via the CCP of

Eurex Clearing AG

Open Repos & Variable Repos– Introduction of clearing and CCP services for open and variable repos traded at Eurex

Repo GmbH

Additional Post Trade Services for MiFID


OPERATIONS FORUM Eurex Clearing AG Central Counterparty Solution August 3 rd 2006 London Deutsche...

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