Regulatory Overview & Trends
Derivatives Market Trends in Turbulent Times
March 12, 2012
March 12, 2012
Regulatory overview
Regulators/politicians aim to correct flaws highlighted by
financial crisis
 Inadequate supervision
Weaknesses in
supervision,
regulation, and
accounting
standards
 Conflicts of interest,
moral hazard issues in
financial institutions/
CRAs
 Lack of diligence
Wrong
incentives
and behavior
Ineffective
risk management
practices
 Known arbitrage opportunities in
regulation (Basel I)
 Unforeseen impact of policies
(fair value accounting)
 "Laissez-faire" policy
 Insufficient or ineffective
methodology, capability,
processes in financial
institutions
 Shortcomings vs. "good
practice" in financial
institutions/CRAs
No
"wrong regulation"
but unregulated
areas
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March 12, 2012
Regulatory overview
Rethinking regulatory structure –
What do financial markets need?
Imperatives
Safety
Integrity
Efficiency
Innovation
Guiding principles
Deficiencies
 Excessive bilateral exposures
and insufficient collateralization
 Individual responsibility
for risk taking
 Insufficient risk valuation and
risk management capabilities
 Avoidance of
excessive exposures
 Interconnectedness
and complexity
 Separation of risk taking
and risk management
 Lack of transparency
 Optimum market transparency
 Operational inefficiencies
and limited legal certainty
 Manageable
market complexity
Objective - Reduce systemic risk to increase financial market stability
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March 12, 2012
Regulatory overview
Legislative proposals initiated by European Commission
(EU COM) to enhance financial stability and integrity
1
2
Review of the
Markets in Financial
Instruments
Directive
(MiFID Review)
European Market
Infrastructure
Regulation
(EMIR)
Policy
initiatives in
response to
G20 recommendations1
4
Financial
Transaction Tax
(FTT)
1
3
CPSS-IOSCO
Principles
Graph focuses on individual initiatives
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March 12, 2012
Regulatory overview
Timelines show regulatory effort still ongoing
2012
Major External
Drivers
 G20 agreement
sets the political
benchmark
 Parallel policy
initiatives on
national,
European and
global level
 New supervisory
structure
1
2013
EMIR
2
3
2014
MiFID Review
CPSS-IOSCO
Principles
4
FTT
Other
 Securities Law Directive
 Short Selling
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 Capital Requirements Directive
 Central Securities Depository Legislation
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March 12, 2012
Regulatory overview
1
EU developments on EMIR
Core aspects of EMIR:
EMIR process entering the final phase
 Clearing obligation for
standardised OTC
derivatives
 Reporting obligation for
all derivatives
 Supervision and
authorization of CCPs
 Risk management,
organizational, and
conduct of business
requirements for CCPs;
 Authorization,
supervision, and
organizational
requirements for trade
repositories
Today
15 September
2010
EU COM publishes
proposal
on a regulation for
OTC derivatives,
CCPs and trade
repositories
5 July 2011
EU Parliament
Plenary voted
on EMIR
4 October 2011
ECOFIN1 agreed
on general
approach
9 February
2012
Trilogue2
negotiations
agreed on final
compromise
Summer 2012
EMIR enters into
force 20 days after
publication in the
Official Journal of
the European Union
Executive summary:
 G20 Leaders call: all standardized OTC derivative contracts should be traded on exchanges or electronic
trading platforms where appropriate, cleared through central counterparties, and reported to trade repositories
by end-2012
 In response the EU Commission published a proposal on EMIR
 European politicians welcomed the compromise reached on 9 February 2012 stating that EMIR is a big step towards a
more transparent and safe market for OTC derivatives and stressed that the new EU legislation will contribute to
financial stability by reducing the risk of a future financial crisis
 Some articles of EMIR will be applicable immediately, while others require the development of technical
standards by the ESMA with other relevant authorities by 30 September 2012
1
2
Economic and Financial Affairs Council
EU Commission, EU Parliament, Council of the European Union
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March 12, 2012
Regulatory overview
2
EU developments on MiFID Review
Core aspects of MiFID
Review:
 Developments in market
structure issues,
including organized
trading facilities for OTC
derivatives
 Pre- and post-trade
transparency (equities
and non-equities
markets)
 Data consolidation
Two-year Review ahead
Today
20 September
2010
20 October
2011
EU COM open
Legislative proposal
hearing as official for Level 1 directive
start of the MiFID
Review
In the course
of 2012
Adoption of
Level 1 directive
In the course
of 2013
Adoption of
Level 2 measures
As of late 2014,
beginning of
2015
National
implementation
 Access to financial
infrastructures and
index benchmarks
 Measures for
commodity derivatives
markets
Executive summary:
 Review of core rules foreseen anyway acc. to Art. 65 MiFID
 Transaction reporting
 Financial market crisis (focus on: OTC markets, market integrity and transparency, investor protection)
 Investor protection/
provision of investment
services
 Microstructural issues (algo trading, co-location, sponsored access, tick sizes)
 Interaction with other regulatory initiatives (in particular EMIR)
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March 12, 2012
Regulatory overview
3
EU developments on CPSS-IOSCO Principles
Core aspects of CPSSIOSCO Principles for
financial markets
instruments (FMI) review:
 Proposal report aims to
harmonize and
strengthen existing
international standards
for CSDs, SSSs, CCPs
and TRs, as from G20.
 First proposal is CCP
risk-centric, which is
generally less adapted
to the CSD and other
FMIs.
 Proposal robustly
enhances the way in
which FMIs should
identify and understand
and manage their risks.
And how these are
transmitted and also
determine the third-part
sources of risks.
CPSS-IOSCO Principles process entering the final phase
Today
10 March 2011
29 July 2011
CPSS and IOSCO CPSS and IOSCO
release the public consultation closing
the revised
date
Principles
consultative
document
In course of
2011
Continued
discussions on the
consultation’s
results, and on the
assessment
methodology
Mid March
2012
Expected release
of revised
Principles, and
assessment
methodology to
consultation
As of 2013
Applicability of the
CPSS-IOSCO
Principles to FMIs
world-wide
Executive summary:
 Enhanced transparency and external involvement in FMIs Governance arrangements
 New requirements to cover credit exposure “fully with a high degree of confidence”
 New requirements for segregation and portability, normally a CCP concept, being imposed to CSDs
 Operational risk provisions focused primarily on FMI “system availability” aspects
 New principle requires FMIs to identify and manage risks to the extent possible arising from indirect
participants, including credit and liquidity risks of indirect participants
1
Council of the European Union
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March 12, 2012
Regulatory overview
4
EU developments on FTT
Core aspects of FTT:
Future process still unclear
 Incentives to evade the
tax by moving business
into unregulated
markets
 Enforceability (nearly)
impossible
 Increase of transaction
costs
 No prevention against
speculation
 Tax incidence on
investors
 Impacts on the
real economy
Today
22 February
– 19 April
2011
17 June 2010
Council1 puts
transactions tax
back on G20
agenda
EU COM is
launching public
consultation on
taxation of the
financial sector
28 September
2011
EU COM
publishes draft
directive and
impact
assessment
25 February
2012
EU Parliament
publishes draft report
on EU Commission
proposal and
suggests
amendments
Spring 2012
Ongoing
discussion in EU
COM, Council and
EU Parliament
Executive Summary:
 Political motivation to make financial industry pay for the costs of the financial crisis
(especially in Germany and France)
 Ongoing discussions on the introduction of a FTT on an global / European / Eurozone or national level
 EU COM has published a draft proposal from an FTT but is facing strong opposition from UK
 France and Germany are unilaterally pushing ahead – France even announced introduction of its own FTT
1
Council of the European Union
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March 12, 2012
Company profile and development
Regulatory overview
436 Eurex members in 30 countries
8.343 registered traders
Host system
Access point (number of connected members in brackets)
Additional member sites
Direct exchange connection
Applying for direct exchange
connection
Ireland (5)
Finland (7)
Sweden (4)
Estonia (1)
Denmark (2)
UK (98)
Netherlands (28)
Canada (2)
USA (85)
Belgium (3)
Luxembourg (3)
Japan (0)
Germany (76)
Czech Republic (1)
Austria (5)
France (29)
Switzerland (30)
Bermuda (2)
Taiwan (5)
Croatia (1)
Portugal (1)
Spain (15)
China (HK) (4)
Italy (11)
Greece (5)
UAE (Dubai) (2)
Gibraltar (4)
Singapore (3)
Cyprus (2)
Israel (1)
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Australia (1)
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March 12, 2012
Company profile and development
Regulatory overview
Eurex is in the top 3 derivatives markets worldwide
Traded
co ntracts
(in millio ns)
1999
Traded
co ntracts
(in millio ns)
2010
3200
3000
2800
2600
450
400
350
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
300
250
200
150
100
50
0
Eurex
CBOT
CBOE
CME
Matif/
Monep
Liffe
CME
Group
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Eurex
Group
NYSE
Euronext
NSE
BM&F
Bovespa
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March 12, 2012
Eurex Products
Regulatory overview
Eurex product range: a truly European portfolio
Equity Derivatives
Equity Index Derivatives (Futures*
and Options)
Options
Dividend Derivatives
EXTF® Derivatives
Futures
Interest Rate Derivatives
Volatility
Index Futures
Credit Derivatives
Fixed Income Market
Euro-Inflation Futures*
Money Market
Commodity Derivatives
CO2 Derivatives*
Dow Jones-UBS
Precious Metal*
Power Derivatives
Agricultural Derivatives*
Weather Derivatives*
Property Derivatives*
USA
* Available for trading in the U.S.
Florida
Gulf
Please find the current trading hours on our website:
www.eurexchange.com > Trading > Trading Calender> Trading Hours
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March 12, 2012
Products
Regulatory overview
Distribution by asset class
(January – December 2011)
Index Products
(46.93%)
Equity Products
(22.10%)
Single
Stock
Futures
48.76%
Equity
Index
Futures
50.94%
Equity
Index
Options
49.06%
Stock
Options
61.24%
Interest Rate Derivatives
(30.97%)
Fixed
Income
Futures
87.17%
Fixed
Income
Options
12.83%
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March 12, 2012
Products
Regulatory overview
Development of benchmark index
futures and options at Eurex
Futures contracts (in millions)
500
432
400
333.4
327
372.2
408.9
300
213
200
100
37.8
11.514.34.6 14.7 5.1
20
121.7
116
86.4
7
27.2
8.96 29.2
8.1
140
32.7
8.6
50.4
40
11.4
14.3
49.2
17.6
40.1
12.1
41
11.6
45
13.5
0
2000
2001
2002
2003
2004
DAX®
2005
2006
2007
EURO STOXX 50®
2008
2009
2010
2011
SMI®
Options contracts (in millions)
450
400
350
300
250
200
150
100
44.1
31.9
19 3.1
50
8.2 3.5
0
2000
2001
400.9
369.2
300.2
251.4
284.7
150
4439.5
4.2
2002
90.8
71.4
62
53.6
42
42.2
3.95
3.6
4.1
2003
2004
DAX®
2005
104.9
91.8
61
3.9
2006
5.7
2007
EURO STOXX 50®
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95.9
5.6
2008
75.1
4.1
2009
67.6
4.2
2010
5.7
2011
SMI®
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March 12, 2012
Products
Regulatory overview
Development of benchmark fixed income futures
and options at Eurex
Futures contracts (in millions)
400
350
300
250
200
150
100
50
0
299
244
151
43
63
2000
178
338
320
258
240
191
159
123
141158
93 100
150
117
165167
109115
2001
2002
2003
2004
2005
2006
Euro-Schatz Futures
171181
Euro-Bobl Futures
2007
174
155
2008
236
232
181
126
106
141134
166
142
2009
2010
2011
Euro-Bund Futures
Options contracts (in millions)
50
44.4
41.8
45
39.3
39
38.2
40
33.3
35
30.9
28.4
27.3
26.5
26.3
30
22.1
25
20.4
19.1
18.1
17.7
17.317.2
16.2
16.2
20
15.1
15
11.7
11.5
15
10.5
10.1
9.810.8
8.95
8
7.8
7
6.2
10
4.5
5 1.952.4
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Options on Euro-Schatz Futures
Options on Euro-Bobl Futures
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Options on Euro-Bund Futures
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March 12, 2012
Regulatory overview
Contacts
Eurex Frankfurt AG
Head Office
Eurex
France Representative Office
Eurex
Hong Kong Representative Office
The Cube (visitors address)
Mergenthalerallee 61
65760 Eschborn
Germany
P: +49 69 211-13940
F: +49 69 211-14477
eurex.sales@eurexchange.com
17, Rue de Surène
75008 Paris
France
P: +33-1-55 27-6767
F: +33-1-55 27-6750
info.france@eurexchange.com
Room 1101, 11F
1 Duddel Street, Central
Hong Kong
P: +852-31 80-92 70
F: +852-31 80-94 60
asia-business@eurexchange.com
Eurex Frankfurt AG
Singapore Branch
Deutsche Börse Group
Tokyo Representative Office
Eurex Zürich AG
50 Raffles Place
#21-05 Singapore Land Tower
Singapore 048623
Republic of Singapore
P: +65 6304 5251
asia-business@eurexchange.com
3/F, Metlife Kabutocho Building
5-1, Nihonbashi Kabutochu, Chuo-ku, Tokyo
103-0026
Japan
P: +81-3-58 47-82 04
F: +81-3-58 47-79 01
asia-business@eurexchange.com
Selnaustrasse 30
8021 Zurich
Switzerland
P: +41-58 399-2942
F: +41-58 499-2466
info.switzerland@eurexchange.com
Eurex
London Office
Eurex
New York Office
Eurex
Chicago Office
One Canada Square, Canary Wharf
London, E14 5DR
United Kingdom
P: +44-20-7862-7222
F: +44-20-7862-7297
info.uk@eurexchange.com
60 Broad Street, 26th floor
New York, NY 10004
USA
P: +1 212 918 - 4828
F: +1 312 544 - 1579
info.usa@eurexchange.com
233 South Wacker Drive, Suite 2450
Chicago, IL 60606
USA
P: +1 212 918 - 4828
F: +1 312 544 - 1579
info.usa@eurexchange.com
Eurex Functional Helpdesks
Trading
P: +49 69 211-1 12 10
Eurex Technical Helpdesk
Clearing
P: +19 69 211-1 12 50
Technical
P: +49 69 211-1 12 00
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March 12, 2012
Regulatory overview
Appendix
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Regulatory overview
March 12, 2012
Company profile and development
Eurex ownership structure
Deutsche Börse AG
100%
Eurex Zürich AG *
56.14%
European Energy
Exchange AG
100%
Eurex Frankfurt AG
Eurex
Deutschland*
*entity of puiblic law
100%
100%
100%
U.S. Exchange
Holdings,Inc.
Eurex
Clearing AG
Eurex
Repo GmbH
79,44%
Eurex
Bonds GmbH
100%
International Securities
Exchange Holdings. Inc.
• Eurex Zürich AG is a public company and owned in equal parts by Deutsche Börse AG and SIX Swiss Exchange AG.
• Eurex operates the Eurex Exchanges, Eurex Clearing and the ECNs (Electronic Communication Networks)
Eurex Bonds and Eurex Repo.
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Regulatory overview
March 12, 2012
Eurex Clearing AG
Eurex Clearing offers central counterparty services
for multiple asset classes across multiple markets
Market Participants
Eurex Exchanges
(Derivates)
(OTC)
Frankfurt
Stock Exchange
(Equities)
Irish
Stock Exchange
(Equities)
Eurex Bonds
(Bonds, Basis)
Eurex Repo
(General Collateral,
Specials)
Energy
EEX
CO2 Emissions
(cooperation)
Eurex Clearing
National Central Securities Depositories
SIX SIS
International Central Securities Depositories
Clearstream Banking
Frankfurt / Luxembourg
Euroclear Bank
Euroclear UK & Ireland
For the Frankfurt Stock Exchange (FWB®), the Irish Stock Exchange and the European Energy Exchange Eurex Clearing
is Central Counterparty only for CCP eligible trades.
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Regulatory overview
March 12, 2012
Eurex Clearing AG
Eurex Clearing’s lines of defense provide default
protection to our members
Coverage
in normal
market
conditions
Position Netting*
• Losses resulting from a default of a Non
Clearing Member are covered by the
corresponding Clearing Member
Collaterals of member
in default**
Clearing fund contribution
of member in default
Coverage
in extreme
market
conditions
• In the event of Clearing Member
liquidation Eurex Clearing will support
Non Clearing Members to move
positions to an alternative Clearing
Member with the least amount of
impact to their business
Reserve fund of Eurex
Clearing
Clearing fund contribution
of other members
Liable equity of Eurex
Clearing
Letter of comfort
(DBG/SWX)
* Close-out of all positions results in a surplus or shortfall
** Collateral Sell-Out to cover potential shortfall
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