New access models for the buy side
ISA DIRECT
London, May 9 2016
Matthias Graulich,
Chief Strategy Officer,
Member of the Eurex Clearing Executive Board
Why ISA Direct – Responding to Change
1
2
Capital Rules
Concentration
▪ Increasing regulatory pressure on capital requirement
– RWAs and Leverage Ratio (LR)
– Net Stable Funding Ratio (NSFR), Liquidity Coverage Ratio (LCR)
– Increase margin, haircut and collateral requirements
▪ Traditionally CCPs direct membership was limited to banks
▪ Clearing member exits and limited new entrants driven by capital rules
▪ Increasing concentration on a fewer number of clearing firms offering
client clearing
▪ ISA models already increased the porting likelihood over traditional
3
OSA models
Porting
▪ However, operational obstacles and increased capital requirements
are significant challenges to effectuate porting under the traditional
client clearing arrangements
In order to unlock the full benefit of central clearing, sell- and buy-side participants
need to unlock capital-, margin-and collateral efficiencies
www.eurexclearing.com
2
Overview of ISA Direct model
ISA Direct model combines elements of direct clearing membership and the traditional service
relationship in client clearing, tailored specifically for the buy side.
Traditional client clearing
Client
ISA direct model
ISA Direct
client
Clearing
Member
Direct contractual
relationship
Clearing
Agent
Transaction
management
Cash
management
Collateral
management
Optional transaction processing services between
Client and Clearing Member resp.
ISA Direct client and Clearing Agent
• Default fund contribution
• Default management obligation
Clearing agent and clearing member core tasks
www.eurexclearing.com
3
Scope: Participants & Asset Classes
Who can become an ISA Direct Client?
Insurance & Financial Service Companies
Pension Funds
Investment Funds
▪
Domiciled in a member state in the
European Union or in Switzerland
▪
Domiciled in a member state in the
European Union or in Switzerland
▪
Domiciled in a member state in the
European Union or in Switzerland
▪
▪
Subject to local insurance or banking law
▪
▪
Subject to pension act
▪
▪
Subject to local investment fund law
Supervised by the local competent
authority, governmental ministry or
governmental institution
Who can become Clearing Agent?
Eurex Clearing Members
▪
Any General Clearing Member of Eurex
Clearing for the respective market
Supervised by the local competent
authority, governmental ministry or
governmental institution
Supervised by the local competent
authority, governmental ministry or
governmental institution
What Asset Classes are covered?
OTC IRS
Summer 2016
Secured funding and
financing - Repo
Secured funding and financing –
Securities Lending
Future release
Listed derivatives
www.eurexclearing.com
4
Significant benefits around efficiency and safety
Core benefits of ISA Direct
1
2
3
4
Reduction of capital requirements for banks
Improved conditions for the buy-side
Enhanced segregation and portability
New business opportunities
Increasing safety
and robustness via
reduced concentration
and improved portability
Additional benefits of ISA Direct across Asset Classes
5
6
7
Cross product margining
Single collateral pool
Interlinking derivatives and securities finance
www.eurexclearing.com
5
ISA Direct membership builds on the existing ISA
segregation of Eurex Clearing
Traditional Client Clearing
ISA Direct
Segregation Models
Easy migration from ISA to ISA Direct possible
OSA
24%
Clearing Member (CM) relationship facilitates
switch to a Clearing Agent (CA) relationship
Technical connection / reporting infrastructure
Client Member ID and production setup with
existing CM re-usable under CA structure
Transaction and position account structure setup
at Eurex Clearing
ISA
Existing cash account setup with CM / CA
76%
Ø
103 Registered Customers on-boarded
Ø
25 Registered Customers currently in
onboarding process
( )
Collateral account infrastructure at Clearstream
Banking
( )
Account infrastructure for settlement of Repo
transactions
Clearing Agent agreements
ISA is the preferred model chosen by
clients of Eurex Clearing to date
Prove of ISA Direct admission requirements
www.eurexclearing.com
6
ISA Direct service milestones
▪
▪
Opinion in regards to capital rules (RWA and Leverage ratio)
Opinion confirms capital benefits of ISA Direct membership
Available on Eurex
Clearing Member Section
▪
▪
A comprehensive risk management framework has been established in
order to identify and manage credit, concentration and wrong way risks
ISA Direct model fully confirmed by Risk Committee
Achieved Q4 2015;Q1
2016
Regulatory
Review
▪
▪
Regulatory review under EMIR has been conducted on ISA Direct
No regulatory objections on ISA Direct
Achieved Q1 2016
Clearing Rules
▪
▪
▪
Creation of legal framework in cooperation with sell- and buy-side
Clearing Conditions published and official consultation period finished
Legal framework final and ready before Go-Live
Circular 042/16 ; 30 Mar
▪
Creation of new bilateral clearing agent agreement in cooperation with
sell- and buy-side and external legal council
Target availability:
June 2016
▪
Conduction of individual onboarding workshops to ensure smooth
migration process
Onboarding of pilot clients and Clearing Agents
Functional simulation to ensure operational readiness
Ongoing since Nov 2015
Capital Opinion by
E&Y
Risk Committee
Client agreements
Testing &
Simulation
▪
▪
Finalized
www.eurexclearing.com
Target effectiveness:
June 2016
Started March 2016
Target start in June 2016
Work in progress on track
7
Onboarding Incentive Program
OTC IRS
2016
REPO
2017
30 SEPT
30 NOV
31 MAR
30 JUN
30 SEPT
31 DEC
Early Mover Phase
Pilot Phase
General
31 JUL
No admission and license fees1/5
1) On-boarding finalized and
first trades conducted3
2) Limited to 10 ISA Direct
Members/ 5 Clearing
Agents4
Full Fee Waiver2
Request your
Declaration
Full Fee Waiver6
to Participate
Full Fee Waiver2
On-boarding finalized and first trades conducted3
Full Fee Waiver6
1 No license fees for ISA Direct Members, no admission fee for all admitted ISA Direct Members and Clearing Agents in 2016 and 2017; 2 No booking and maintenance
fees for ISA Direct Members; no securities collateral charge applies; 3 Minimum cumulated volume of 25 mn EUR under the ISA Direct model for OTC IRS; 4 Selection
on a first come first serve basis, participation conditions to be defined; 5 Grant a fee waiver for Annual Fee, Infrastructure Fee and Admission Fee, in line with Repo DCM
membership; 6 No Repo Clearing and Trading fee for ISA Direct Member; Counterparty pricing not waived
www.eurexclearing.com
8
Thank you
Clients, Products & Core Markets
U.K. Representative Office
Westferry House
11 Westferry Circus, Canary Wharf
London, E14 4HE
United Kingdom
T +44-20-78 62-72 66
Eurex.ClearingRelations@eurexclearing.com
Eurex Repo Sales & Relationship Management
T +49-69-211-140 40
sales@eurexrepo.com
www.eurexclearing.com
9