New access models for the buy side ISA DIRECT

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London, May 9 2016

Matthias Graulich,

Chief Strategy Officer,

Member of the Eurex Clearing Executive Board

New access models for the buy side

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Why ISA Direct – Responding to Change

1

2

In order to unlock the full benefit of central clearing, sell- and buy-side participants

need to unlock capital-, margin-and collateral efficiencies

Capital Rules

Concentration

Porting

▪ 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

3

▪ ISA models already increased the porting likelihood over traditional

OSA models

▪ However, operational obstacles and increased capital requirements

are significant challenges to effectuate porting under the traditional

client clearing arrangements

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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.

Transaction

management

Cash

management

Collateral

management

• Default fund contribution

• Default management obligation

Client

Clearing

Member

ISA Direct

client

Clearing

Agent

Traditional client clearing

ISA direct model

Optional transaction processing services between

Client and Clearing Member resp.

ISA Direct client and Clearing Agent

Clearing agent and clearing member core tasks

Direct contractual

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Scope: Participants & Asset Classes

Insurance & Financial Service Companies Pension Funds Investment Funds

Summer 2016

Future release Eurex Clearing Members

Listed derivatives

Secured funding and financing – Securities Lending

OTC IRS

Secured funding and

financing - Repo

Who can become an ISA Direct Client?

Who can become Clearing Agent?

What Asset Classes are covered?

▪

Domiciled in a member state in the European Union or in Switzerland

▪

Subject to local insurance or banking law

▪

Supervised by the local competent authority, governmental ministry or governmental institution

▪

Subject to pension act

▪

Subject to local investment fund law

▪

Any General Clearing Member of Eurex Clearing for the respective market

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Significant benefits around efficiency and safety

Increasing safety

and robustness via

reduced concentration

and improved portability

Core benefits of ISA Direct

Additional benefits of ISA Direct across Asset Classes

Reduction of capital requirements for banks

1 Improved conditions for the buy-side

2 Enhanced segregation and portability

3 New business opportunities

4

5 Cross product margining

6 Single collateral pool

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ISA Direct membership builds on the existing ISA

segregation of Eurex Clearing

Traditional Client Clearing

Segregation Models

76%

24%

OSA

ISA

Ø

103 Registered Customers on-boarded

Ø

25 Registered Customers currently in

onboarding process

ISA is the preferred model chosen by

clients of Eurex Clearing to date

ISA Direct

Easy migration from ISA to ISA Direct possible

Clearing Member (CM) relationship facilitates

switch to a Clearing Agent (CA) relationship

Client Member ID and production setup with

existing CM re-usable under CA structure

Technical connection / reporting infrastructure

Existing cash account setup with CM / CA

Transaction and position account structure setup

at Eurex Clearing

Collateral account infrastructure at Clearstream

Banking

Clearing Agent agreements

Prove of ISA Direct admission requirements

( )

Account infrastructure for settlement of Repo

transactions

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ISA Direct service milestones

Capital Opinion by

E&Y

Available on Eurex Clearing Member Section

▪

Opinion in regards to capital rules (RWA and Leverage ratio)

▪

Opinion confirms capital benefits of ISA Direct membership

Achieved Q4 2015;Q1 2016

Risk Committee

▪

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

Regulatory Review

▪

Regulatory review under EMIR has been conducted on ISA Direct

▪

No regulatory objections on ISA Direct

Circular 042/16 ; 30 Mar Target effectiveness: June 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

Target availability: June 2016

Client agreements

▪

Creation of new bilateral clearing agent agreement in cooperation with sell- and buy-side and external legal council

Target start in June 2016 Started March 2016

Testing & Simulation

▪

Conduction of individual onboarding workshops to ensure smooth migration process

▪

Onboarding of pilot clients and Clearing Agents

▪

Ongoing since Nov 2015 Achieved Q1 2016

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Onboarding Incentive Program

OTC IRS REPO

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

P il o t Ph ase E a rl y M o v e r Ph ase G e n e ral

Full Fee Waiver2 No admission and license fees1/5

2017

30 JUN

2016

Full Fee Waiver6

On-boarding finalized and first trades conducted3

1) On-boarding finalized and first trades conducted3

2) Limited to 10 ISA Direct Members/ 5 Clearing Agents4

Request your Declaration to Participate

30 SEPT 30 NOV 31 MAR 30 SEPT 31 DEC

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