Eurex passes global fire drill with excellent results
August 2, 2017

Eurex Clearing reports that it has once again demonstrated the reliability and quality of its default management process. During the last week of April, Eurex Clearing, LCH Swapclear and CME simulated the default of a major participant – based on the Brexit market conditions as of 24 June 2016.

At Eurex Clearing, the defaulted member's portfolio represented one of the largest clearing members with open positions in listed equity (index) derivatives, pending cash equity settlements, as well as open interest rate swaps and listed fixed income derivatives transactions.

During the fire drill, the equity derivatives portfolio was sold completely by the third day, the swaps auctions were successfully finalized on day four and five. Of the 52 auction participants, only one member failed. "This result shows the high level of commitment and proficiency which market participants have achieved after several years of regularly drilling the process as part of mandatory auction participation," says Thomas Laux, Chief Risk Officer at Eurex Clearing.

The exercise also proved Eurex Clearing's timeframes to be adequate and realistic. "All processes worked as expected in the assumed timeline, and our CCP was rebalanced in time," Laux added. "This means that they are easily manageable by members, even under extreme circumstances."

The fire drill demonstrated the advantages of hedged auctions in the default management process. "This is the most critical element of the entire process as the transfer of risk happens during hedging and not in the auctions," says Laux. "Once hedged, the positions can be auctioned in order to ultimately achieve a matched book."

Eurex says that market participants have voiced strong concerns regarding non-hedged auctions. Since hedging requires skilled internal staff, Eurex Clearing has traders within the team in addition to calling in Default Management Committees.

Eurex's risk management and the reliability of the default management process attract volume, especially on the over-the-counter side. Since the start of the year, the notional outstanding in EurexOTC Clear grew by 90 percent, and reached nearly EUR 1.6 trillion in July. On the trading side, equity derivatives volumes went down on a year-on-year basis due to an ongoing low volatility environment. However, volumes in the Eurex fixed income segment recorded a growth of 19.3 percent compared to July 2016.





This site, like many others, uses small files called cookies to customize your experience. Cookies appear to be blocked on this browser. Please consider allowing cookies so that you can enjoy more content across globalcustody.net.

How do I enable cookies in my browser?

Internet Explorer
1. Click the Tools button (or press ALT and T on the keyboard), and then click Internet Options.
2. Click the Privacy tab
3. Move the slider away from 'Block all cookies' to a setting you're comfortable with.

Firefox
1. At the top of the Firefox window, click on the Tools menu and select Options...
2. Select the Privacy panel.
3. Set Firefox will: to Use custom settings for history.
4. Make sure Accept cookies from sites is selected.

Safari Browser
1. Click Safari icon in Menu Bar
2. Click Preferences (gear icon)
3. Click Security icon
4. Accept cookies: select Radio button "only from sites I visit"

Chrome
1. Click the menu icon to the right of the address bar (looks like 3 lines)
2. Click Settings
3. Click the "Show advanced settings" tab at the bottom
4. Click the "Content settings..." button in the Privacy section
5. At the top under Cookies make sure it is set to "Allow local data to be set (recommended)"

Opera
1. Click the red O button in the upper left hand corner
2. Select Settings -> Preferences
3. Select the Advanced Tab
4. Select Cookies in the list on the left side
5. Set it to "Accept cookies" or "Accept cookies only from the sites I visit"
6. Click OK

Eurex Clearing reports that it has once again demonstrated the reliability and quality of its default management process. During the last week of April, Eurex Clearing, LCH Swapclear and CME simulated the default of a major participant – based on the Brexit market conditions as of 24 June 2016.

At Eurex Clearing, the defaulted member's portfolio represented one of the largest clearing members with open positions in listed equity (index) derivatives, pending cash equity settlements, as well as open interest rate swaps and listed fixed income derivatives transactions.

During the fire drill, the equity derivatives portfolio was sold completely by the third day, the swaps auctions were successfully finalized on day four and five. Of the 52 auction participants, only one member failed. "This result shows the high level of commitment and proficiency which market participants have achieved after several years of regularly drilling the process as part of mandatory auction participation," says Thomas Laux, Chief Risk Officer at Eurex Clearing.

The exercise also proved Eurex Clearing's timeframes to be adequate and realistic. "All processes worked as expected in the assumed timeline, and our CCP was rebalanced in time," Laux added. "This means that they are easily manageable by members, even under extreme circumstances."

The fire drill demonstrated the advantages of hedged auctions in the default management process. "This is the most critical element of the entire process as the transfer of risk happens during hedging and not in the auctions," says Laux. "Once hedged, the positions can be auctioned in order to ultimately achieve a matched book."

Eurex says that market participants have voiced strong concerns regarding non-hedged auctions. Since hedging requires skilled internal staff, Eurex Clearing has traders within the team in addition to calling in Default Management Committees.

Eurex's risk management and the reliability of the default management process attract volume, especially on the over-the-counter side. Since the start of the year, the notional outstanding in EurexOTC Clear grew by 90 percent, and reached nearly EUR 1.6 trillion in July. On the trading side, equity derivatives volumes went down on a year-on-year basis due to an ongoing low volatility environment. However, volumes in the Eurex fixed income segment recorded a growth of 19.3 percent compared to July 2016.



Free subscription - selected news and optional newsletter
Premium subscription
  • All latest news
  • Latest special reports
  • Your choice of newsletter timing and topics
Full-access magazine subscription
  • 7-year archive of news
  • All past special reports
  • Newsletter with your choice of timing and topics
  • Access to more content across the site