qualified back office staff - deutsche börse · pdf file4.2.2.4 exercise and assignment...

Qualified Back Office Staff Preparation Material for the Back-Office Test Eurex Clearing AG May 2017

© Eurex Clearing 2017

Deutsche Börse AG (DBAG), Clearstream Banking AG (Clearstream), Eurex Frankfurt AG, Eurex Clearing AG (Eurex Clearing) as well as Eurex Bonds GmbH (Eurex Bonds) and Eurex Repo GmbH (Eurex Repo) are corporate entities and are registered under German law. Eurex Zürich AG is a corporate entity and is registered under Swiss law. Clearstream Banking S.A. is a corporate entity and is registered under Luxembourg law. U.S. Exchange Holdings, Inc. is a corporate entity and registered under U.S. American law. Eurex Frankfurt AG (Eurex) is the administrating and operating institution of Eurex Deutschland. Eurex Deutschland and Eurex Zürich AG are in the following referred to as the "Eurex Exchanges". All intellectual property, proprietary and other rights and interests in this publication and the subject matter hereof (other than certain trademarks and service marks listed below) are owned by DBAG and its affiliates and subsidiaries including, without limitation, all patent, registered design, copyright, trademark and service mark rights. While reasonable care has been taken in the preparation of this publication to provide details that are accurate and not misleading at the time of publication. DBAG, Clearstream, Eurex, Eurex Clearing, Eurex Bonds, Eurex Repo as well as the Eurex Exchanges and their respective servants and agents (a) do not make any representations or warranties regarding the information contained herein, whether express or implied, including without limitation any implied warranty of merchantability or fitness for a particular purpose or any warranty with respect to the accuracy, correctness, quality, completeness or timeliness of such information, and (b) shall not be responsible or liable for any third party's use of any information contained herein under any circumstances, including, without limitation, in connection with actual trading or otherwise or for any errors or omissions continued in this publication. This publication is published for information purposes only and shall not constitute investment advice respectively does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. This publication is not intended for solicitation purposes but only for use as general information. All descriptions, examples and calculations contained in this publication are for illustrative purposes only. Eurex and Eurex Clearing offer services directly to members of the Eurex Exchanges respectively to clearing members of Eurex Clearing. Those who desire to trade any products available on the Eurex market or who desire to offer and sell any such products to others or who desire to possess a clearing license of Eurex Clearing in order to participate in the clearing process provided by Eurex Clearing should consider legal and regulatory requirements of those jurisdictions relevant to them, as well as the risks associated with such products, before doing so. Trademarks and Service Marks Buxl®, DAX®, DivDAX®, eb.rexx®, Eurex®, Eurex Bonds®, Eurex Repo®, Eurex Strategy WizardSM, Euro GC Pooling®, EXTF®, FDAX®, FWB®, GC Pooling®, GCPI®, MDAX®, ODAX®, SDAX®, TecDAX®, USD GC Polling®, VDAX®, VDAX-NEW®, Xetra® and XTF Exchange Traded Funds® are registered trademarks of DBAG. All MSCI indexes are service marks and the exclusive property of MSCI Barra. ATX®, ATX® five, CECE® and RDX® are registered trademarks of Vienna Stock Exchange AG. IPD UK Annual All Property Index is a registered trademark of Investment Property Databank Ltd. (IPD) and has been licensed for the use by Eurex for derivatives. SLI®, SMI®, SMIM® and VSMI® are registered trademarks of SIX Swiss Exchange Ltd. The STOXX® indexes, the data included therein and the trademarks used in the index names are the intellectual property of STOXX Limited, Zurich, Switzerland and/or its licensors which is used by Eurex Frankfurt AG under license. Eurex derivatives based on the STOXX® indexes are in no way sponsored, endorsed, sold or promoted by STOXX and its licensors and neither STOXX nor its licensors shall have any liability with respect thereto. Korea Exchange, KRX, KOSPI and KOSPI 200 are registered trademarks of Korea Exchange Inc. Taiwan Futures Exchange and TAIFEX are registered trademarks of Taiwan Futures Exchange Corporation. Taiwan Stock Exchange, TWSE and TAIEX are the registered trademarks of Taiwan Stock Exchange Corporation. The names of other companies and third party products may be trademarks or service marks of their respective owners.

Eurex Clearing - Handbook Version 4.0

Preparation Material for the Back-Office Test

May 2017

Table of Contents of 93

Table of Contents

Table of Contents 3

Abbreviations 6

Product Codes 8

Amendments to Preparation Material 9

1 Introduction 10 1.1 Structure of the test, question types and evaluation 10 1.2 Contact/Registration 11

2 Product Overview 12 2.1 Equity Options 13 2.2 Equity Index Options 14 2.3 Equity Index Futures 15 2.4 Fixed Income Derivatives 16 2.5 FX Derivatives 18 2.6 Position Limits 19 2.7 Sample Questions 20

3 Clearing Conditions 21 3.1 Clearing Membership and Clearing Member’s Clients 21 3.2 Clearing License 22 3.3 Client Asset Protection (Clearing Models) 23 3.4 Internal Accounts 25 3.5 Multiple Clearing Relationships 26 3.6 Clearing of Futures Contracts 27 3.6.1 Clearing of Fixed Income Futures Contracts 27 3.6.2 Clearing of Index Futures Contracts 28 3.7 Clearing of Options Contracts 28 3.7.1 Clearing of Index Options Contracts 29 3.7.2 Clearing of Options Contracts on Fixed Income Futures Contracts 29 3.8 Clearing of Off-Book Trades (Eurex Trade Entry Services) 31 3.8.1 Clearing of Alternative Contract Specifications 31 3.9 Sample Questions 32

4 Transaction Management 33 4.1 Clearing Systems 34 4.1.1 Overview Member Interfaces 34 4.1.2 Accounts and Account Structure 35 4.1.3 Entitlement 36



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4.1.4 Transaction and Position ID 37 4.2 Transaction and Position Management 38 4.2.1 Transaction Management 38 4.2.1.1 Transaction account transfer 40 4.2.1.2 Open/close adjustment 41 4.2.1.3 Transaction Adjustments 41 4.2.1.4 Transaction Separation 42 4.2.1.5 Give ups 43 4.2.1.6 Average Price Processing 46 4.2.1.7 Transaction management for preliminary priced trades 47 4.2.2 Position Management 48 4.2.2.1 Position Close-out/Re-opening 49 4.2.2.2 Rule-based automatic close out 50 4.2.2.3 Position Account Transfers 50 4.2.2.4 Exercise and Assignment 52 4.2.2.5 Notification and Allocation 56 4.2.2.6 Automatic conversion of flexible contract positions 59 4.2.2.7 Four Eye Principle 60 4.3 Reports 61 4.4 Sample Questions 65

5 Risk Management 67 5.1 Overview 67 5.2 Internal Margin Accounts and Collateral Pools 68 5.3 Prisma 69 5.3.1 General Principles 69 5.3.2 Margin Types 71 5.3.2.1 Backward-looking components 71 5.3.2.2 Forward-looking components – Initial Margin (for all products) 75 5.3.3 Cross Margining within Liquidation Group fixed income derivatives 76 5.4 Pre-Trade Risk Controls 77 5.4.1 Advanced Risk Protection 77 5.4.2 Stop Functions 82 5.4.2.1 Stop Button (@X-tract Clearing GUI) 83 5.4.3 Transaction Size Limits 84 5.5 Post-Trade Controls 86 5.5.1 Trade Confirmation Broadcast 86 5.5.2 Enhanced Risk Solution 86 5.5.3 Reports 87



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5.6 Sample Questions 88

6 Collateral Management 89 6.1 Overview 89 6.2 Reports 92 6.3 Sample Questions 93



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Abbreviations of 93

Abbreviations

Term Description

ATM At-the-money

BCM Basic Clearing Member

BU Business unit

CASS FCA’s Clients Assets Sourcebook (requirements relating to holding client assets and client money)

CBF Clearstream Banking Frankfurt

CCP Central Counterparty

CM Clearing Member

CSD Central securities depository

CTD Cheapest to deliver

DAX Deutscher Aktienindex (German equity index)

DCM Direct Clearing Member

ECM Elementary Clearing Model

EoD End of day

ETC Exchange-traded commodity

ETF Exchange-traded fund

EU European Union

eXas Electronic Exchange Admission Service

FCA Financial Conduct Authority (regulator of the financial services industry in the United Kingdom)

FSP Final Settlement Price

FWB Frankfurter Wertpapierbörse (Frankfurt Stock Exchange)

GCM General Clearing Member

GU Give-Up

GUI Graphical User Interface

HITT Historical Trade Transfer

ICM Individual Clearing Model

ISIN International Securities Identification Number

ITM In-the-money



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Abbreviations of 93

Term Description

LTD Last trading day

MtM Mark-to-market

NCM Non-Clearing Member

OTC Over the counter (trades negotiated off-exchange)

OTM Out-of-the-money

QCS Qualified Clearing Staff

QBO Qualified Back-office Staff

RBM Risk Based Margining

RC Registered Customer

RTGS Real-time gross settlement

SMI Swiss Market Index

SNB Swiss National Bank

T7 Eurex Exchanges Trading System

TARGET2 Trans-European Automated Real-time Gross Settlement Express Transfer System

TES Eurex Trade Entry Services (trades negotiated off-book)

TSL Transaction size limit



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Product Codes of 93

Product Codes

In the following table some main product codes are listed.

Code Product

ODAX DAX Options

OESX EURO STOXX 50 Index Options

FDAX DAX Futures

FESX EURO STOXX 50 Index Futures

FGBL Euro-Bund Futures

FGBM Euro-Bobl Futures

FGBS Euro-Schatz Futures

FGBX Euro-Buxl Futures

OGBL Options on the Euro-Bund Futures

OGBM Options on the Euro-Bobl Futures

OGBS Options on the Euro-Schatz Futures



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Amendments to Preparation Material of 93

Amendments to Preparation Material

Date Version Chapter Changes

May 2017 4.0 3.4.1 3.8 4 4.2.1.6, 4.2.1.7, 4.2.2.2, 4.2.2.6 4.2.2.7 5.3

Removal of MCR product group restrictions for Eurex Derivatives Adjustment due to changes in the Clearing Conditions Added following C7 release 3.1 changes: Average Pricing, Transaction Management for preliminary priced trades Rule-based automatic close-out Automatic conversion of flexible contract positions Modified: 4-eye principle for position management Added small changes to Prisma



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Introduction of 93

1 Introduction

The handbook was developed to help you prepare for the Back-Office Test. It summarizes the relevant content from different sources covered in this test. It describes the different services of the clearing process and is complemented with sample questions for the test. The sources of information for specific topics are referenced where relevant to provide the reader with access to more detailed information which may be of interest, but is not required for this test. The current version can be downloaded via: www.deutsche-boerse.com/qcs_qbo Please note that there will be regular updates.

1.1 Structure of the test, question types and evaluation

The Back-Office Test is carried out using a computer program, which randomly selects 30 questions from a question pool for each examination candidate. The test is offered in German and English.

There are three different types of questions: • True/False (TF) 2 points • Single choice (SC) 2 points • Multiple choice (MC) 4 points

SC/MC questions that are not answered will consequently not be assessed (0 points). In case of MC questions, either one or several answers could be correct and must be marked to obtain the maximum score of 4 points. The following evaluation method is used: • For marking the correct answer and not marking the wrong answer one point is given • For marking the wrong answer and not marking the correct answer one point is subtracted So the result could be 4, 2 or 0 points; a negative score will not be given. The following table provides an overview of the number and types of questions to be selected for each topic:

Topic TF SC MC No. of questions

1.0 Product Overview 3 2 0 5

2.0 Clearing Conditions 3 1 0 4

3.0 Transaction Management (including Graphical User Interface (GUI))

8 4 3 15

4.0 Risk Management 0 3 1 4

5.0 Collateral Management 0 1 1 2

Total 14 11 5 30

Participants need 75% of the maximum points to pass the test and have 20 minutes to complete the test.

http://www.deutsche-boerse.com/qcs_qbo



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Introduction of 93

1.2 Contact/Registration

We would like to point out that according to the Clearing Conditions for Eurex Clearing AG (“Clearing Conditions”) each Non-Clearing Member is required to register at least one Qualified Staff Member in the Back-Office (QBO). One possibility to provide proof of the qualification is the passed Back-Office Test. Further information can be found under www.deutsche-boerse.com/qcs_qbo or please contact: Capital Markets Academy of Deutsche Börse Group Phone: +49 69 211 13767 Fax: +49 69 211 13763 Homepage: http:// deutsche-boerse.com/cma E-Mail: [email protected] To register as QBO please use the Electronic Exchange Admission Service (eXas). eXas can be found in the member section on the website of Eurex Clearing or under the following link: www.member.eurexclearing.com. For questions about access to the Member Section of Eurex Clearing, please contact the Member Section Team at +49-(0) 69-2 11-1 78 88 or by e-mail to [email protected]. For any questions regarding the features of eXAS, please call the following Member Services & Admission teams:

Location Phone E-Mail Zurich +41-(0) 43-430-72 60 [email protected] Paris +33 (0) 155- 27-67 67 [email protected] London +44 (0) 207-8 62-71 65 [email protected] Chicago +1-312-5 44-11 50 [email protected] Frankfurt +49 (0) 69-2 11-1 16 40 [email protected]

http://www.deutsche-boerse.com/qcs_qbo

mailto:[email protected]

http://www.member.eurexclearing.com









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Product Overview of 93

2 Product Overview

A Clearing License for derivatives transactions authorizes Clearing Members to clear their own and customer business executed on the Eurex Exchanges. In consultation with the Eurex Exchanges, Eurex Clearing determines which derivatives transactions shall be included in the clearing. Products from nine asset classes are tradeable on Eurex Exchanges and included in the clearing process:

• Interest rate derivatives • Equity derivatives • Equity index derivatives • Dividend derivatives • Volatility index derivatives • Exchange Traded Funds derivatives • Commodity derivatives • Property derivatives • FX derivatives

For these products a wide range of futures and options is offered. Conditions for all futures and options are defined in the Contract Specification for Futures Contracts and Options Contracts at Eurex Deutschland and Eurex Zürich (https://www.eurexchange.com/exchange-en/resources/rules-regulations). Future: A future is a standardized contract between two parties. The parties agree to exchange a defined quantity of an underlying asset at an agreed price at a fixed point of time in the future. Option: An option is a standardized contract between two parties. The buyer of an option purchases against payment of the option price (premium) the right to buy (call) or sell (put) a defined amount of a certain financial product at an agreed price within a certain period of time or on a specific date in the future. In the following selected Eurex products are introduced in more detail. A survey on all products is available on www.eurexchange.com/products. Futures and options contracts admitted to trading on the Eurex Exchange can also be entered as Off-Book Trades via the Eurex Trade Entry Services. The detailed provisions are specified in the Conditions for Utilization of the Eurex Trade Entry Services of Eurex Clearing (see also chapter 3.8).

https://www.eurexchange.com/exchange-en/resources/rules-regulations)

http://www.eurexchange.com/products



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2.1 Equity Options

Equity options are contracts negotiated between a seller, or option writer, and a buyer, or option holder, based upon the exchange of securities at a given price, called the strike or exercise price. There are two types of equity options: call options and put options. Call options grant the buyer the right to purchase a security at a given time based upon the established strike price. Those who buy call options are hoping that the price of the security will rise by the time they follow through with their purchase. When a contract for a call option is agreed, the buyer can choose to follow through with the purchase at the specified time or opt out, but the seller is obligated to honor the transaction, i.e. make delivery of the security at the agreed price, if the buyer exercises his/her right. Put options grant the buyer the right to sell a security at a given time based upon the established strike price. Those who buy put options are expecting that the price of the security will fall by the time they follow through with their sale. When a contract for a put option is agreed, the buyer can choose to follow through with the sale at the specified time or opt out, but the seller is obligated to honor the transaction, i.e. take delivery of the security at the agreed price, if the buyer exercises his/her right.

Contract Settlement Day Contract Size (Trading Unit)

Minimum Price Change (Tick Size)

Standard t+2 100* 0.01*

* Depending on the underlying, contract sizes and tick sizes can differ. Due to corporate actions contract sizes can differ from the standard contract size. Current contract sizes can be found on www.eurexchange.com > Products > Equity Derivatives > Equity Options. Settlement Physical delivery of underlying shares takes place two business days after the exercise day: Last Trading Day Last Trading Day (LTD) is the third Friday, for Italian equity options the day before the third Friday, of each expiration month, if this is an exchange day; otherwise, the exchange day immediately preceding that day. Daily Settlement Price The Daily Settlement Price is established by Eurex. The Daily Settlement Prices for equity options are determined through the binomial model according to Cox/Ross/Rubinstein. If necessary, dividend expectations, current interest rates or other payments are taken into consideration. Further details are available in the Clearing Conditions.

http://www.eurexchange.com



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Exercise Equity options can be exercised either American or European-style: Standard – American-style: Equity options can be exercised until the end of the Post-Trading Full Period (20:00 CET) on any exchange day during the lifetime of the option. For further information on exercising see chapter 4.2.2.4 and for information on the different Post-Trading Period sub-phases introduction of chapter 4. Exceptions – European-style: Equity options with group ID DE14, CH14, FI14, FR14 and NL14 can only be exercised on the last trading day until the end of the Post-Trading Full-Period (20:00 CET). Option Premium The premium, which is the price of the option, is payable in full in the currency of the respective contract on the exchange day following the day of the trade.

2.2 Equity Index Options

Elements of the contract specifications for the EURO STOXX 50 Index Options (OESX) and DAX Options (ODAX) are described here as examples.

Product ID Close of Trading on LTD

Contract Value (Multiplier) in EUR

Minimum Price Change

Points Value in EUR

OESX 12:00 CET 10 0.1 1.00

ODAX 13:00 CET 5 0.1 0.50

Settlement Cash settlement is payable on the first exchange day following the Final Settlement Day. Last Trading Day and Final Settlement Day The Last Trading Day is the third Friday of each expiration month if this is an exchange day; otherwise the exchange day immediately preceding that day. Final Settlement Day is the Last Trading Day. Daily Settlement Price The Daily Settlement Price is established by Eurex. The Daily Settlement Prices for equity index options (as well as Weekly Options) are determined through the Black/Scholes 76 model. If necessary, dividend expectations, current interest rates or other payments are taken into consideration.



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Final Settlement Price (FSP) The Final Settlement Price is established by Eurex on the Final Settlement Day of the contract. The FSP for EURO STOXX 50 Index Options is based on the average of the respective STOXX index values calculated between 11:50 and 12:00 CET. For DAX options it is determined by the value of the respective index, based on Xetra intraday auction (starts at 13:00 CET) prices of the respective index component shares. Exercise European-style; an option can only be exercised on the Final Settlement Day of the respective option series until the end of the Post-Trading Full Period (20:30 CET). For further information on exercising see chapter 4.2.2.4 and for information on the different Post-Trading Period sub-phases introduction of chapter 4. Option Premium The premium is the price of the option. As these products are quoted in points, the premium equals the points multiplied with the value of a point and is payable in full in the currency of the respective contract on the exchange day following the day of the trade.

2.3 Equity Index Futures

Elements of the contract specifications for the EURO STOXX 50® Index Futures (FESX) and DAX® Futures (FDAX) are described here as examples.

Product ID Close of Trading on LTD

Contract Value (Multiplier) in EUR

Minimum Price Change

Points Value in EUR

FESX 12:00 CET 10 1 10.00

FDAX 13:00 CET 25 0.5 12.50

Settlement Cash settlement, payable on the first exchange day following the Final Settlement Day. Last Trading Day and Final Settlement Day Last Trading Day is the third Friday of each maturity month if this is an exchange day; otherwise the exchange day immediately preceding that day. Final Settlement Day is the Last Trading Day.



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Daily Settlement Price (related to FESX and FDAX products) The Daily Settlement Prices for the current maturity month are derived from the volume-weighted average of the prices of all transactions during the minute before 17:30 CET, provided that more than five trades transacted within this period. For the remaining maturity months, the Daily Settlement Price for a contract is determined based on the average bid/ask spread of the combination order book. Final Settlement Price The Final Settlement Price (FSP) is established by Eurex on the Final Settlement Day of the contract. The FSP for the FESX is based on the average of the respective STOXX Index values calculated between 11:50 and 12:00 CET. For the FDAX it is determined by the value of the respective index, based on Xetra intraday auction (starts at 13:00 CET) prices of the respective index component shares.

2.4 Fixed Income Derivatives

Elements of the contract specifications for the Euro-Bund Futures (FGBL), Euro-Bobl Futures (FGBM) and Euro-Schatz Futures (FGBS) are described here as examples. Notional short-, medium- or long-term debt instruments issued by the Federal Republic of Germany with remaining terms and a coupon of:

Product ID

Close of Trading on LTD

Remaining Term (Years)

Contract Values (Multiplier) in EUR

Coupon (Percent)

Minimum Price Change Tick Size Tick Value (Percent) (EUR)

FGBL 12:30 CET

8.5 to 10.5 100,000 6 0.01 10

FGBM 12:30 CET 4.5 to 5.5 100,000 6 0.01 10

FGBS 12:30 CET 1.75 to 2.25 100,000 6 0.005 5

Settlement A delivery obligation arising out of a short position may only be fulfilled by the delivery of certain debt securities issued by the Federal Republic of Germany, with a remaining term on the Delivery Day within the remaining term of the underlying. Debt securities issued by the Federal Republic of Germany must have an original term of no longer than 11 years and must have a minimum issue amount of EUR 5 billion.



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Delivery Day The tenth calendar day of the respective quarterly month, if this day is an exchange day; otherwise, the exchange day immediately succeeding that day. Notification Clearing Members with open short positions must notify Eurex on the Last Trading Day of the maturing futures which debt instrument they will deliver. Such notification must be given by the end of the Post-Trading Full Period. For further information on notification please see chapter 4.2.2.5. Last Trading Day Two exchange days prior to the Delivery Day of the relevant maturity month. Close of trading in the maturing futures on the Last Trading Day is at 12:30 CET. Daily Settlement Price For German fixed income futures, the Daily Settlement Price for the current maturity month is derived from the volume-weighted average of the prices of all transactions during the minute before 17:15 CET (reference point), provided that more than five trades transacted within this period. For the remaining maturity months, the Daily Settlement Price for a contract is determined based on the average bid/ask spread of the combination order book. Final Settlement Price The Final Settlement Price is established by Eurex on the Final Settlement Day at 12:30 CET based on the volume-weighted average price of all trades during the final minute of trading provided that more than ten trades occurred during this minute; otherwise the volume-weighted average price of the last ten trades of the day, provided that these are not older than 30 minutes. If such a price cannot be determined, or does not reasonably reflect the prevailing market conditions, Eurex will establish the Final Settlement Price.



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2.5 FX Derivatives

Clearing services for FX futures and FX options on twelve currency pairs traded on Eurex Exchanges (EUR/USD, EUR/CHF, EUR/GBP, GBP/USD, GBP/CHF, USD/CHF, AUD/USD, AUD/JPY, EUR/AUD, EUR/JPY, USD/JPY and NZD/USD) are offered. Effective 12 September 2016, Eurex Clearing will offer clearing services for six additional currency pairs (AUD/USD, AUD/JPY, EUR/AUD, EUR/JPY, USD/JPY, NZD/USD) for FX Futures and FX Options introduced at Eurex Exchange. The FX derivatives are physically delivered through the multi-currency settlement system Continuous Linked Settlement (CLS). CLS mitigates settlement risk in FX transactions of its participants by settling two legs of a FX transaction simultaneously. Once a transaction is settled in CLS, it is final and irrevocable. Eurex Clearing requires CMs to have a CLS connectivity in place. This can be achieved either by an own CLS Settlement Membership or through a CLS third-party service provider. As a technical requirement it is necessary to install a so-called “RMA service” (SWIFT Relation Management Application) and a “SWIFT Closed User Group”. CMs receive the relevant Eurex Clearing reports and SWIFT messages with the related currency pairs for settlement within the CLS system. FX futures that have not been closed out before expiration and FX options that have been exercised and assigned at expiration date will result in physical settlement of currencies once per month on a payment vs. payment basis in CLS. The delivery and expiration will take place on the third Wednesday of the contract month with settlement on the third Friday, i.e. on T+2 days after the last trading day. Eurex Clearing settles the payment instructions in CLS using a CLS third party service provider. This means Eurex Clearing forwards its instructions via SWIFT message to its third party service provider who, after checking the agreed requirements, will forward the instructions to CLS in the morning of S-1. Simultaneously, Eurex Clearing also sends the corresponding CM instructions to the CM for further processing via Swift message. The CM has to instruct the corresponding instruction into CLS promptly to ensure that Eurex Clearing instructions match with the corresponding CM instructions in CLS by 23:00 CET on S-1. Given only matched instructions can settle in CLS any unmatched instructions will be rejected by 00:00 CET on S-1/S by CLS.

Without this infrastructure, CMs and their associated NCMs are not allowed to trade FX products.



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2.6 Position Limits

A position limit is the maximum number of futures or option contracts in a particular product that may be held by one Exchange Participant for one of its customers or for its own account. The Board of Management of Eurex Deutschland or Eurex Zürich may set or alter position limits in order to ensure orderly futures and options trading and to avoid risks for the spot markets. If several positions relating to the same position limit form a total position, every Exchange Participant involved may hold the respective positions for its own account or for a customer only if the total position does not exceed the position limit. An Exchange Participant may not engage in any transactions if 1. this would result in exceeding a position limit, 2. the position limit has already been exceeded, and if the transaction leads to a further increase in the relevant position or in the total position, or 3. there are indications of an excess according to Nr. 1 or an increase according to Nr. 2. If a position limit is exceeded or if, in the opinion of the Management Board of Eurex Deutschland or of Eurex Zürich, there are indications of a position limit having been exceeded, each Exchange Participant holding the relevant position or parts of the relevant total position for its own account or for the account of one of its customers is obligated to immediately reduce the relevant position or the relevant parts of the total position by such an amount as is necessary to discontinue the exceeding of the position limit.



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2.7 Sample Questions

2-001 Eurex Exchanges offer on-exchange trading for an extensive range of products as well as a service for

entering off-book trades. True False Correct answer: True

2-002 How many exchange days prior to the Delivery Day is the Last Trading Day of the Euro-Bund Futures?

A: 1 B: 2 C: 3 D: 10 Correct answer: B

2-003 The close of trading for equity index futures on the Last Trading Day is consistent with the close of trading

for equity index futures on any other exchange trading day. True False Correct answer: False

2-004 What is the fundamental difference between equity options and equity index options trading at the Eurex

Exchanges? A: The choice of exercise price is less important for the equity index option than for the equity option. B: The underlying instrument has less effect on the equity option than on the equity index option. C: Equity index options are exercised European-style, while equity options are mostly exercised american-style. D: Potential profits and losses of equity index options are more calculable than potential profits and losses of equity options. Correct answer: C

2-005 Clearing Members with open short positions in Euro-fixed income futures must notify Eurex on the last trading day of the maturing futures which debt instrument they will deliver. True False Correct answer: True



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Clearing Conditions of 93

3 Clearing Conditions

Chapter II of the Clearing Conditions of Eurex Clearing defines the conditions for clearing of transactions (derivatives transactions) concluded at Eurex Deutschland and Eurex Zurich (Eurex Exchanges).

3.1 Clearing Membership and Clearing Member’s Clients

Three types of memberships are offered by the clearing house: • General Clearing Member (GCM): Also referred to as Clearing Members (CMs). Can offer clearing

services to company affiliated or non-affiliated Non Clearing Members (NCMs) and Registered Customers (RCs). Furthermore, a GCM can act as a Clearing Agent on behalf and for the account of a Basic Clearing Member.

• Direct Clearing Member (DCM): Also referred to as Clearing Members (CMs). A DCM can offer clearing services to company affiliated NCMs only and RCs.

• Basic Clearing Member (BCM): BCMs can be insurance companies, financial institutions, pension funds or investment funds. The principal client relationship moves from the Clearing Member directly to the CCP, with the Clearing Member acting as the Clearing Agent, who will provide mandatory core functions (default fund contribution and default management obligations) and optional service functions. A BCM must appoint a General Clearing Member to act as its Clearing Agent. The Basic Clearing Member maintains legal and beneficial collateral ownership (more details are provided in chapter 2.2.1 of the Preparation Material for the Clearer Test). This direct access is called ISA Direct Model. ISA Direct is initially offered for EurexOTC IRS Service and Eurex Repo Select Finance.

Clearing Member’s clients are differentiated into disclosed and undisclosed clients. Disclosed clients are known to Eurex Clearing. A disclosed client has entered into a tripartite agreement with Eurex Clearing and its Clearing Member (GCM and DCM only) and has own position accounts. The following to types exist: • Non-Clearing Member (NCM): NCMs are Trading Participants without own clearing license. Non-

Clearing Member trades are cleared by the clearing house through a Clearing Member. • Registered Customer (RC): RCs are not Trading Participants of Eurex Clearing cleared markets, but are

customers of Trading Participants or Clearing Members. They have an own member ID and are set up as NCMs. Registered Customer trades are cleared by the clearing house through a Clearing Member.

Non-disclosed customers do not have a direct legal relationship with Eurex Clearing.



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3.2 Clearing License

A Clearing License is required in order to participate in the clearing of derivatives transactions at the Eurex Exchanges; Eurex Clearing grants such Clearing License upon written application. In this section only the requirements for the amount of own funds and the contribution to the Default Fund are mentioned. For further details regarding the prerequisites for Clearing Licenses please refer to chapter 2.5 of the Preparation Material for the Clearer Test. Own funds Clearing Members must show evidence of a certain minimum level of own funds. The level depends on the status of the Clearing Member (General Clearing Member, GCM or Direct Clearing Member, DCM) as well as upon the markets that each member clears. Minimum capital requirements are additive for multiple licenses in different asset classes.

Market General Clearing Member minimum in EUR mn

Direct Clearing Member/ minimum in EUR mn

Eurex Exchanges 30 7.5

Irrespective of the minimum amounts of own funds specified above, the actual amount of own funds that Eurex Clearing requires their Clearing Members to demonstrate and maintain is equal to the higher amount of: • 20 percent of the 30-day average of the Initial Margin requirements or • 20 percent of the 250-day average of the Initial Margin requirements

Contributions to the Default Fund Eurex Clearing maintains a Default Fund in order to protect market participants in the event of a CM default. Just like the capital requirements the level of contribution to the Default Fund depends on the status of the Clearing Member (GCM or DCM) as well as upon the markets that each member clears.

Dynamic contribution to Default Fund in EUR million

GCM min. (1)

DCM min. (2)

Maximum of

5 1 • 7 percent of average initial margin requirement (30 days) • 7 percent of average initial margin requirement (250 days) • or column (1) or (2), respectively

Contributions to the Default Fund can be provided in cash and/or in securities accepted by Eurex Clearing. Eurex Clearing may re-evaluate and adjust the contributions requirement for each Clearing Member any time and will at least do so by the end of each month. The total margin requirement includes all products and asset classes cleared by the Clearing Member at Eurex Clearing.

Chapter 5 gives an overview on the different margin types.



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3.3 Client Asset Protection (Clearing Models)

In the event of a Clearing Member (CM) default transparency and legal certainty with respect to the treatment of client (non-disclosed customers, NCMs, RCs) positions and margin collateral are important. Portability of positions and collateral are essential for clients of a defaulting CM to continue their trading activities. Clients have different options as to how their positions and margin collateral are held and posted by their CM at Eurex Clearing, depending on each individual client's needs. As a CCP authorized under the European Markets Infrastructure Regulation (EMIR), Eurex Clearing offers both omnibus and individual segregation to Clearing Members and their clients. Omnibus segregated accounts (OSA): Client positions (non-disclosed customers, NCMs and RCs) are isolated from the proprietary positions of the CM and covered by one or more (multiple) collateral pools. Individual segregated accounts (ISA): Positions of each single NCM or RC are isolated from other customer and proprietary positions of the CM and covered by an own individual collateral pool. Eurex Clearing’s Clearing Conditions use different naming conventions:

Market Standard Terminology

Eurex Clearing naming conventions

Clearing Conditions Chapter I General Provisions

OSA Multiple OSA (MOSA*)

Elementary Clearing Model (ECM) Part 2

OSA under CASS (Client Assets Sourcebook)

Net Omnibus Model (NOCM) Allows CMs located in the UK to apply the CASS** rules when providing OSA

Part 4

ISA Individual Clearing Model (ICM) Part 3

* multiple collateral pools ** UK Financial Conduct Authority's Client Asset Sourcebook (CASS) rules to protect client money and safe custody assets. Currently not every model is available to all markets cleared by Eurex Clearing. Also the availability of a model and its specific features depends on the compliance with the individual rules set out by the respective local jurisdiction of the CM.

The Elementary Clearing Model can be used by all CM clients (non-disclosed customers, NCMs, RCs).

The Net Omnibus Clearing Model is a segregated solution which is available for all clients and enables a CM in the United Kingdom (UK) to settle NCM/RC transactions under the UK Client Assets Sourcebook (CASS) in the Financial Conduct Authority Handbook. The CM is solely responsible for compliance with the rules of the Client Assets Sourcebook (CASS).

The Individual Clearing Model is a segregated solution for NCMs and RCs only.



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Main Features Elementary Clearing Model (ECM)

Net Omnibus Clearing Model (NOCM)

Individual Clearing Model (ICM)

General set-up Client positions are held on separate position accounts and collateral is allocated to proprietary and client positions Value based – Pro rata Asset based – assignment to one collateral pool or to several collateral pools (MOSA) Collateral is held for a group of clients, i.e. cannot be assigned to individual clients

Analogue ECM asset based but for non-disclosed clients positions are hold on the A9 account and on dedicated NCM/RC accounts Collateral is held for a group of clients, i.e. cannot be assigned to individual clients

Dedicated accounts for positions and individual segregated collateral pools Securities collateral accounts remain within the account structure of the CM but are clearly labeled to hold collateral for the purpose of the segregated client

Legal agreement Offered for all client types Non-disclosed customers conclude agreement on CM level NCM/RC conclude tripartite agreement: Eurex Clearing-CM-NCM/RC

Analogue ECM Only for NCMs/RCs NCM/RC conclude tripartite agreement: Eurex Clearing-CM-NCM/RC

Legal structure for provision of collateral (cash and non-cash)

Title transfer of cash Pledges of non-cash collateral to Eurex Clearing

Analogue ECM (Double) Title transfer of cash and non- cash collateral

Portability of positions and collateral

Available if all clients of a collateral pool agree to be ported and a single alternative CM accepts the transfer

Analogue ECM Full portability to a replacement CM or a possibility to become an Interim Participant



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3.4 Internal Accounts

Each CM has a certain number of internal transaction accounts (position accounts) for the posting of their transactions. For the members own business (proprietary transactions) two P-transaction accounts (P1, P2) and two M-transaction accounts (M1, M2), which are also used for Market Making, are offered. With respect to customer-related transactions an A-transaction account (A1) for the entire agent business of a CM is available. Further A-accounts (A2-A9, flexible accounts) can be provided upon request. Non-Clearing Members and Registered Customers have two P- and two M-transaction accounts as well as one A-transaction account or on request more (flexible) A-accounts available provided that they also conduct customer business. Otherwise they do not have A-transaction accounts.

Whereas positions in the relevant customer account (A) and in the own accounts (P) are held on a gross basis, positions in Market Maker accounts (M) are held on a net basis. When entering orders for the transaction accounts held on a gross basis “opening” (to open a new position) or “closing” (for closing an existing position) indicator must be entered. In contrast to trading on the M-transaction accounts regardless of which aforementioned indicators are entered, the account nets automatically. For each internal transaction account a fee account and a premium account is held for each currency on member level. For options transactions, a corresponding internal premium account is kept for each account of each Clearing Member; the premiums for all options transactions that need to be cleared for this Clearing Member are recorded in the premium account for each account. Premium accounts are settled daily. Eurex Clearing makes the balance of any premium account available in the system for the Non-Clearing Member or Registered Customer, respectively, and the Clearing Member responsible for the clearing of such account.

Figure 3-1: Account Structure



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Transaction/Position Adjustment

Own Accounts (P1, P2) – on gross basis

Customer Accounts (A-Accounts) – on gross basis

Market Maker Accounts (M1, M2) – on net basis

Open /close adjustment

yes yes Not necessary

Position Close-out/ re-opening

yes yes Not necessary

Transaction Separation

yes yes yes

Transaction Account Transfer (internal trade transfer)

Yes between P and A or within P

Yes between A and P or within A

Yes but not within M

Account Transfer (position transfer within a member)

Yes to all internal transaction accounts

Yes to all internal transaction accounts

yes

Such adjustments are permitted only for the purpose of ensuring that transactions are correctly recorded in the relevant customer accounts. A customer position will not be closed with another customer position. Adjustments to opening and closing transactions in the relevant customer account are permitted only to the extent required for the proper maintenance of the account or pursuant to instructions of the customer in accordance with the provisions of the Clearing Conditions. If a transaction or position is specified as a closing transaction (closing trade), without there being sufficient open transactions or positions in the own or customer account, a new transaction will automatically be opened in the own or customer account equivalent to the number of contracts that could not be closed. Transaction adjustments can be entered before, during or after the trading period of each trading day, depending on the functions of the Eurex trading platform used. They are permitted with respect to transactions executed on the respective trading day and the both preceding trading days. The timetable for the specific product groups can be found on www.eurexchange.com > Trading > Trading Calendar > Trading Hours.

3.5 Multiple Clearing Relationships

Multiple Clearing Relationships (MCR) is an optional service which offers a Non-Clearing Member (NCMs) the possibility to enter into a Clearing Agreement with up to three Clearing Members for the clearing of Eurex Transactions. This is accomplished by allowing a Non-Clearing Members to use a maximum of three Member IDs – one primary Member ID and two additional Member IDs. A Clearing Member, in its capacity as a Non-Clearing-Member, may also clear products through another Clearing Member in case they are not cleared by itself. For more information on MCR, please refer to Eurex Clearing circular 144/16 or to chapter II of the Clearing Conditions.

http://www.eurexchange.com



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3.6 Clearing of Futures Contracts

Eurex Clearing is a contracting party to all payments and physical deliveries arising out of the settlement of Eurex futures contracts. Clearing Members must fulfill their payment obligations in accordance with the instructions of Eurex Clearing. For each futures contract, profits and losses (i.e. Variation Margin) arising out of open positions on any business day will be determined at the end of the Post-Trading Period on the basis of the daily settlement price. Eurex Clearing determines the daily settlement price according to the current market conditions of the respective contract and under consideration of its risk assessment.

3.6.1 Clearing of Fixed Income Futures Contracts

Delivery and Payment Procedures All matching payments are settled with physical delivery directly between the Clearing Members and Eurex Clearing on the second business day after the notification day. The Settlement Claims are settled via a Settlement Location and the payments are settled via the respective account determined by the respective Settlement Location. All Clearing Members and Eurex Clearing must ensure that the transaction can be handled in the Gross Delivery Management (please see also handbook for Clearer Test, chapter 4) on that business day when the delivery notice is given. All Clearing Members must ensure their ability to effect deliveries and payments by having sufficient credit balances in their account at the respective custody institution and on the respective cash accounts. Fulfillment, Delivery A delivery obligation arising out of a short position in a Euro-denominated fixed income futures contract may only be performed with debt securities as determined by Eurex Clearing (a detailed list can be found in Chapter 2, Part 2, Number 2.3.4 of the Clearing Conditions). Two business days prior to the tenth calendar day of a quarter month (Notification Day), the Clearing Members with open short positions must indicate the type of bonds they will deliver to Eurex Clearing after transaction closing until the end of the Post-Trading Full Period. Existing delivery notifications can be changed until the closing of the Post-Trading Full Period. If a delivery notice is not made in time, Eurex Clearing determines the bonds to be delivered by the Clearing Member. The actual amount of notified debt securities have to be confirmed by Clearing Members vis-à-vis Eurex Clearing one day prior to the delivery day. After the end of the Post-Trading Period on the Notification Day, Eurex Clearing allocates to the Clearing Members with open long positions the bonds notified for delivery, using a selection procedure that ensures the neutrality of the allocation process. The Clearing Members will be informed on the next business day as to which bonds were allocated to them and at what tender. For further information please refer to chapter 4.2.2.5 Notification and Allocation. Failure to deliver In the event that a Clearing Member fails to deliver the bonds to be delivered notified by it on the delivery day according to the instructions of Eurex Clearing during the delivery times determined for the delivery day, Eurex Clearing is entitled to take the following measures: • Eurex Clearing is entitled to obtain by means of securities lending the notified bonds and deliver them

to the Clearing Member which did not receive delivery in time.



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• Eurex Clearing is entitled to designate from the basket of deliverable bonds other than those notified as bonds to be delivered and to deliver such bonds to the Clearing Member which did not receive delivery in time to fulfill the obligations of the Clearing Member which has failed to deliver the bonds designated by Eurex Clearing. Eurex Clearing is entitled to obtain the notified bonds by means of securities lending and deliver them to the Clearing Member which did not receive delivery in time.

• In the event that the bonds to be delivered are not delivered to Eurex Clearing as part of the standard transfer arrangement of the respective Settlement Location by the fifth Business Day after the delivery day, Eurex Clearing is entitled to make a replacement purchase with respect to the undelivered bonds.

Eurex Clearing will deliver the bonds acquired through such replacement transaction to the Clearing Member which did not receive delivery in time. In case a Clearing Member does not deliver in time interest and penalties will be calculated.

3.6.2 Clearing of Index Futures Contracts

Payment Procedures All payments are made on the business day following the final settlement day. All Clearing Members must ensure their ability to effect payments on the due date thereof by having sufficient credit balances in their respective accounts. Fulfillment, Delivery Open positions from the last trading day of a contract are balanced on the final settlement day by means of a net payment credited to or debited from the internal cash account of the Clearing Member. Such payment equals the difference between the final settlement price of such contract and such contract's daily settlement price on the business day preceding the last trading day. For positions opened on the last trading day, the booking amount equals the difference between the final settlement price and the traded price.

3.7 Clearing of Options Contracts

The following general provisions apply for all options contracts unless specific rules deviating from the general provisions apply to the respective options contracts. Eurex Clearing is a contracting party to all deliveries and payments arising out of the exercise and assignment of options contracts. Clearing Members must, in accordance with instructions of Eurex Clearing, make deliveries and payments in respect of exercises and assignments of positions for the clearing of which they are responsible. Eurex Clearing will inform each Clearing Member of the options contracts assigned to it on the morning of the Business Day after exercise. The following provisions apply to the procedures for deliveries and payments: All physical deliveries of securities and payments are concurrently performed between the Clearing Members and Eurex Clearing through Eurex Clearing on the second business day after the exercise of the option; this also applies if the exercise is not assigned to the writer until the business day following exercise. Physical deliveries of securities are to be made through a Settlement Location, and payments are made through the corresponding account determined by such Settlement Location.



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Eurex Clearing determines the daily settlement price according to the true market conditions and under consideration of its risk assessment according to different procedures. For further information regarding these procedures please refer to the individual contract specifications or to the Clearing Conditions. In case the determination of the daily settlement price of a contract according to the individual regulations mentioned in the respective contract specifications is not possible or if the price so determined does not reflect the true market conditions, Eurex Clearing determines the settlement price at its equitable discretion. In case the determined daily settlement price does not reflect the true market conditions at the close of trading, Eurex Clearing may change the daily settlement price.

3.7.1 Clearing of Index Options Contracts

Payment, Settlement All payments are made on the business day following the exercise day; this also applies if the exercise is not assigned to the writer until the Business Day following the exercise day. All Clearing Members must ensure their ability to effect payments on the due date thereof through sufficient credit balances in the TARGET2 account or appropriate similar account. Option Premium The balance of the option premiums (Net Premium) to be paid by the Clearing Members pursuant to the Eurex Contract Specifications and to be reimbursed by Eurex Clearing is payable by the time specified by Eurex Clearing on the business day following the conclusion of the transaction, but generally prior to the commencement of trading at Eurex Exchanges on such Business Day. Cash Settlement Exercised and assigned options positions are settled by means of a compensating payment credited to or debited from the internal cash account of the Clearing Member. The cash settlement is equal to the difference between the exercise price of the option series and its final settlement price.

3.7.2 Clearing of Options Contracts on Fixed Income Futures Contracts

The clearing of options contracts is subject to the following rules up to the assignment of the exercised option pursuant to the regulations for the clearing of options contracts, in line with the opening of the futures position pursuant to the regulations for the clearing of futures contracts. Option Premium The premium payment is not made through a one-time payment after the purchase of the option; instead it is part of the daily settlement process during the duration of the option position based on a mark-to-market valuation of the position on each exchange day. The valuation is made on the day on which the transaction is entered into on the basis of the difference between the option price and the daily settlement price and thereafter on the basis of the difference between the daily settlement prices of the current exchange day and the preceding exchange day. Daily Settlement prior to Exercise For each contract, profits and losses (Variation Margin) arising out of open positions on any business day will be determined at the end of the Post-Trading Period. For open positions from the previous business day, the amount to be debited or credited equals the difference between the daily settlement prices of the contract in question on the relevant business day and on the previous business day. For transactions on the relevant business day, the amount to be credited or debited equals the difference between the price at which the transaction was concluded and the daily settlement price of the contract for such business day.



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Procedure for Exercise of Options The exercise of an option on fixed income futures results in the creation of a corresponding position in the fixed income futures for the option buyer as well as the seller to whom the exercise is assigned. The position is established after the Post-Trading Full Period of the exercise day, and is based on the agreed exercise price. Call option On behalf of the NCM/CM that exercises a call option, Eurex Clearing opens, subsequent to the Post-Trading Full Period on the exercise day of the respective option, a corresponding long position in the underlying futures contract with the stipulated exercise price. On behalf of the NCM/CM to which the exercise of a call option is assigned, Eurex Clearing opens a corresponding short position in the underlying futures contract with the stipulated exercise price. Put option On behalf of the NCM/CM that exercises a put option, Eurex Clearing opens, subsequent to the Post-Trading Full Period on the exercise day of such option, a corresponding short position in the underlying futures contract with the stipulated exercise price. On behalf of the NCM/CM to which the exercise of a put option is assigned, Eurex Clearing opens a corresponding long position in the underlying futures contract with the stipulated exercise price. Cash Settlement – Futures Position The difference between the exercise price of the exercised and assigned option and the daily settlement price of the underlying futures contract on the exercise day is settled in cash. The amount of such cash settlement is credited to or debited from the internal cash account of the Clearing Member.



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3.8 Clearing of Off-Book Trades (Eurex Trade Entry Services)

Off-Book trades in futures contracts and options contracts eligible at Eurex Deutschland and Eurex Zürich can be entered via the Eurex Trade Entry Service. Details are determined in the Conditions for the Utilization of the Eurex Trade Entry Services of Eurex Clearing (General Conditions for Participation).

Eurex Clearing carries out the clearing of Eurex Off-Book Trades for the following trade types:

- Block Trades - Exchange for Physicals for Financials (EFP-F), - Exchange for Physicals for Index-Futures/FX-Futures (EFP-I), - Exchange for Swaps (EFS), - Vola Trades - Trade-at-Market-(TAM)

Off-Book Trades between Eurex Clearing and a Clearing Member will be included in the clearing service by way of novation. Companies admitted to trading on Eurex Deutschland and Eurex Zürich, which participate either directly or indirectly in the clearing procedure for transactions concluded on the Eurex Exchanges and which have accepted the General Conditions for Participation are authorized to use the Eurex Trade Entry Services and participate in the clearing by Eurex Clearing of Off-Book Trades.

3.8.1 Clearing of Alternative Contract Specifications

Via the Eurex Trade Entry Services it is also possible to trade futures and options contracts that deviate from Eurex Contract Specifications provided that such alternatives have been admitted in Part 3 of the Eurex Contract Specifications. Only Alternative Contracts in line with the modalities of Part 3 of the Eurex Contract Specifications are accepted for clearing. It is possible to trade Alternative Contracts that deviate with regards to:

- the exercise type, - the type of fulfilment and - the terms

For Alternative Contracts in accordance with the Eurex Contract Specifications the respective final settlement price shall be determined by Eurex Clearing in accordance with the applicable provisions for the calculation of the final settlement price of the respective underlying contract. In case the determination of a final settlement price of a contract according to these regulations is not possible or if the price so determined does not reflect the true market conditions, Eurex Clearing may determine the final settlement price at its equitable discretion.



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3-001 Eurex Clearing assigns the German government bonds, which have been notified for delivery to Clearing

Members with open long Euro-Bund Futures positions in the following manner: A: First in - First out (FIFO) B: Last in - First out (LIFO) C: Highest in - First out (HIFO) D: by using a selection procedure that ensures the neutrality of the allocation process. Correct answer: D 3-002

All internal transaction accounts are held on a net basis. True False Correct answer: False 3-003

The amount of own funds that has to be demonstrated by a Clearing Member is calculated without dynamic component. True False Correct answer: False 3-004

For Alternative Contracts which could be entered via the Eurex Trade Entry Services all contract specifications are negotiable. True False Correct answer: False



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Transaction Management of 93

4 Transaction Management

Eurex Clearing’s Transaction Management service for the derivatives positions is available during the trading hours of Eurex Exchanges. The clearing process is divided into several phases analog to the trading day. The trading day at Eurex Exchanges runs from 07:30 – 22:30 CET.

Figure 4-1: Main Phases of a Trading Day The Post-trading period has different sub-phases: • Post-Trading Full • Post-Late 1 • Post-Late 2 and • Post-Trading Restricted. For back-office staff it is important to know, that system related transaction management can be performed throughout the exchange trading day, until the start of Post-Trading Restricted Period with the following exceptions: In the Post-Late1 phase, the entry of TES trades (Eurex Trade Entry Services – see chapter 3.8) is prevented. All other system features supported in Post-Trading Full Period are available. In the Post-Late 2 phase, give-ups and take-ups (see chapter 0) cannot be performed any more. This phase applies for American-style equity options on every exchange day, for equity and equity index options with European-style as well as for interest rate options on the last trading day only. Members are able to reverse give-up transactions which are effective immediately, whereas take-up transactions cannot be accepted with the start of the Post-Late 2 phase. Therefore, in this phase, intraday position changes within one member will no longer be possible, so that members can base their exercise decision on a final long position. In the Post-Trading Restricted Period only data inquiries are possible. Exercises of options are only possible until the start of the Post-Trading Restricted Period (unless an earlier deadline is stipulated in the contract specifications) and therefore no longer accepted. Once the batch process begins, data inquiries are no longer available.



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4.1 Clearing Systems

This chapter provides an overview of Eurex clearing systems, the accounts and account structure within the C7 clearing system, the entitlement roles in C7 and the function of transaction- and position IDs.

4.1.1 Overview Member Interfaces

C7 is Eurex Clearing’s state-of-the-art clearing system. Members can use the web based C7 Derivatives Clearing GUI for all transaction and position management functions in all accounts. The Account Overview window on the C7 Derivatives Clearing GUI allows Members to view a list of all of their accounts; Clearing Members can view the accounts of their Non-Clearing Members and Registered Customers accordingly. The Eurex Clearing FIXML Interface also fully supports transaction and position management on all accounts. Standard and flexible contracts are fully integrated. There are no differences in the processing of transaction and position management functionality.

Figure 4-2: Member interfaces

In addition, the Eurex Clearing Classic system serves maintenance services such as collateral management, reference data maintenance, member relationship maintenance, e.g. give-up auto-accept and risk monitoring maintenance. For these functions the @X-tract GUI is available via WebTrading. Reports are solely distributed via the Common Report Engine.



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4.1.2 Accounts and Account Structure

All accounts A1-A9, P1, P2, M1, and M21 are available for full transaction and position management. Additionally, C7 provides members with the option to extend the number of their agent accounts. The account names of these additional accounts are alphanumeric and can be up to 20 uppercase characters long. The request to setup extend agent accounts must be submitted by Clearing Members for their Non-Clearing Members/Registered Customers. Figure 4-3: Account Structure C7

Client accounts (A) and principal accounts (P) are held gross. M-position accounts are market maker-accounts and held net. Eurex Trade Entry Service (TES) off-book trades can only be entered on Eurex Clearing Classic accounts (A1 - A9, M1, M2, P1, P2). Once these trades are successfully approved by all sides and booked on the clearing layer, they can be moved to any available account via account transfer.

1 In addition, there are give-up-accounts (G1/G2).



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4.1.3 Entitlement

C7 uses an entitlement mechanism to grant members and users access to functionality in the system, such as transaction and position management. The C7 entitlement model uses roles as a basis. The roles are assigned to a member and the Member’s Service Administrator can assign the roles to the other users. User setup itself requires usage of the @X-tract GUI. The roles themselves contain privileges. Every privilege defines access to a specific activity (e.g. “Add Give-up”). A request entered by a User can only be processed if the corresponding privilege is assigned to the user/member. The following roles are supported: Position and Transaction Manager: This role represents the rights to perform transaction and position management related activities (e.g. “Add Give Up”, “Approve Give Up”). Clearing Manager: This role represents the rights for a User of a Clearing Member performing clearing activities (e.g. “Notification Management)

Service Administrator: This role represents the necessary entitlement for administration activities (e.g. “User Entitlement Update”). In addition, all roles are available as “view only” providing the right to perform inquiries. To provide a user with a right, this right must be initially assigned to the member to which the user belongs. Eurex Clearing defines the maximum entitlements of a member (e.g. based on the member type) and assigns the roles to the member accordingly. The member (Service Administrator) can define and maintain the entitlements for the other Users. While assigning roles to users, the member can modify the settings of the privileges contained in it with regards to entitlement level and account. The following four Entitlement Levels are available in the system: Figure 4-4: Entitlement levels

Entitlement levels define if a certain activity can be performed with or without the approval of a second user i.e. if a Four-Eyes principle check is required or not. The user initiating the action for which the Four-Eyes principle is required needs to have at least the entitlement level 1. The activities related to Manual Exercise, Abandon and Position Transfer with cash (entry and approval) may be subject of the Four-Eye principle process and thereby require the approval of the approving user at the time of initiation of request.



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4.1.4 Transaction and Position ID

In C7, transactions are identified by a unique transaction ID. The ID is a variable length alphanumeric string with up to 19 characters. The ID is globally unique across the clearing system, will not be changed for the lifetime of the transaction and will not be re-issued2. Each transaction also carries a 10-digit numeric suffix which increases with each adjustment. The transaction ID can be used as a filter criterion in transaction inquiries on the GUI. For regulatory reporting purposes, C7 assigns a unique, variable-length, alphanumeric ID to each position. The ID is up to 11 characters long. Each transaction in the same instrument and account is booked to the position ID established when the first such transaction is reported. The position ID can be used as a filter criterion in position inquiries on the GUI. C7 does not require the order ID to make a record unique. GUI, FIXML Interface, and XML Reports (where applicable) displays the T7 order ID as reference to the trading layer,

2 Until all possible combinations of the 19-character alphanumeric string have been used.



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4.2 Transaction and Position Management

CMs are able to inquire their own and their NCMs positions real-time. Each Exchange Participant (CM and NCM) can enter adjustments to transactions (transaction adjustments) and to positions, which are already in an account (position adjustments).

4.2.1 Transaction Management

This document uses the terms “transaction”, “transaction adjustment” and “transaction management” for any transaction in clearing. The term “trade” is only used in the context of a new on-exchange-trade or a new TES trade. Transactions are adjustable for a limited period of time, known as the transaction duration. The limit is set to allow adjustments on T=trade date, T+1 and T+2. The base date for the calculation of the transaction duration is the trade date, as set by the trading system.

C7 provides the following transaction adjustments: • Transaction account transfer • Open/close adjustment • Transaction adjustment e.g. to adjust text fields • Transaction separation • Give-up/take-up • Average Price Processing - Merge and De-merge

C7 processes transaction adjustments in two steps. In the first step, a transaction is generated that inverse-books/reverses the original transaction. The second step is an adjusted transaction, which is then booked. C7 allows a practically unlimited number of adjustments to one transaction and rejects adjustments that would lead to errors. Transactions that are part of a pending give-up process cannot be adjusted, and the respective quantity is blocked from position adjustments such as exercise or close-out. Reversed transactions cannot be adjusted3. Clearing Members can only perform transaction adjustments for their own transactions, not those of their Non-Clearing Members, unless an outsourcing agreement is in place. Transaction adjustments not changing the position are booked position-neutral. This applies e.g. to general transaction adjustments like adjustments of text fields and transaction separations.

3 If a transaction becomes subject to a mistrade reversal, C7 will reverse the transaction and all adjustments that have been applied to the same.



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The Transaction Overview window is the starting point for transaction adjustments. The window can be accessed from the Transaction Management menu in the main menu and shows detailed information of transactions.

Figure 4-5: Transaction Overview

Below the filter area there is a number of buttons to perform certain transaction adjustments or initiate further functionality. The following functions are only available for active transactions. Figure 4-6: Buttons for active transactions



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4.2.1.1 Transaction account transfer

Members can transfer transactions to another account. However, this transfer is only possible within their own accounts. The re-booking of a transaction to a market maker account is not possible. General Clearing Members can transfer transactions to and from accounts of their Registered Customers. The transfer of adjustable transactions between own accounts can be initiated in the Transaction Account Transfer window. Use:

1. Selection of transactions in the Transaction Overview window 2. Clicking on the Act Transfer button (see figure 4-6) 3. The Transaction Account Transfer window opens and the adjustment can be conducted.

Figure 4-7: Transaction Account Transfer



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4.2.1.2 Open/close adjustment

Members may change the open/close flag for a specific transaction by performing an open/close adjustment via the Transaction Open Close Adjustment window. Use:

1. Selection of transactions in the Transaction Overview window 2. Clicking on the O/C Adjust button (see figure 4-6) 3. The Transaction O/C Adjust window opens and the adjustment can be conducted.

Figure 4-8: Transaction O/C Adjustment

4.2.1.3 Transaction Adjustments

The general transaction adjustment e.g. is used to modify text fields or member and beneficiary information for cooperation products (KRX & TAIFEX). Additionally, the transaction adjustment can be used to re-activate records in third party systems not supporting a transaction history beyond the current day. Transaction adjustments can be entered in the Transaction Adjustment window.



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4.2.1.4 Transaction Separation

Members may split one transaction into several smaller ones via transaction separation. Separations are booked as position-neutral adjustments, i.e. the long/short quantities are “0”. Technically, the amount of splits is unlimited; functionally the amount of splits is limited by the transaction quantity. Active transactions can be separated into two or more parts via the Transaction Separation window. Use:

1. Selection of transactions in the Transaction Overview window 2. Clicking on the Separation button (see figure 4-6) 3. The transaction can be split in the Transaction Separation window.

Figure 4-9: Transaction Separation



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4.2.1.5 Give ups

Members can transfer transactions to other members via give-up. The following conditions must be met for a transaction to be available for give-up:

• The transaction is “to open” • The source account is not held net (i.e. give-up from an M account is not possible) • The transaction duration has not expired • The contract has not expired

Each give-up process receives a unique process ID, which is independent of the transaction ID. All give-up/take-up requests by Exchange Members require the approval of their respective Clearing Member. Clearing Members may specify auto-approve per Exchange Member; auto-accept is configurable in the Member Relationship Overview window on the @X-tract GUI. The give-up Clearing Member can approve at any time (i.e. it can be the first, second, or third action in the process). The take-up Clearing Members can only approve after the take-up Exchange Member has claimed/taken-up the transaction. If the data entered by the give-up Clearing Member is not correct the take-up acceptance will be rejected by the system. All fees, premiums etc. are paid by the receiver of a give-up. Figure 4-10: Give-up process flow

The initiating member can cancel the give-up process as long as the status is “pending” (i.e. not all approvals have been entered yet, and it has not been rejected by any of the Clearing Members). Give-up processes are not modifiable pursuant entry.



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Should a modification (e.g. of text fields) become necessary, the process needs to be cancelled and submitted anew. Note that the system will assign a new, unique process ID. Approvals are only valid for a given process ID; when a new process is started, approvals need to be submitted again. Take-ups can be processed for accounts that are held gross or net, but take-up to a net account (M account) is only possible when the source account on the give-up side is an agent account4. Pending give-up processes are not cancelled during a booking cut (EOD processing), but will automatically be reallocated on the next business day if the conditions for give-up (see above) are still met and additionally the following is true:

• No capital adjustment took place for the product. • The respective position is larger or equal than the number of designated contracts. That might not be

the case if short positions have been reduced due to an assignment or if a position transfer was processed.

Transactions can be marked for automatic give-up processing upon order entry/off-book trade approval by specifying account “G2” and the take-up Member on the trading layer. C7 processes incoming “G2” trades in two steps: First, it books the trade to the A1 or P1 account, as available. In a second step, the system will automatically trigger a give-up process. This is subject to the same validations and entitlement checks as any give-up initiated by the member (i.e. it may fail if incorrect information was provided, e.g. a wrong take-up Member ID). Workflow broadcasts will be sent as for any other give-up process and the process can be cancelled by the give-up side if required. A give-up is initiated from the Transaction Overview window. After clicking the Give-up Button (see figure 4-6) several transactions can be given up in the Give-up Maintenance window at the same time. Figure 4-11: Give-up Maintenance

4 In the current account structure that means that a give-up/take-up from P account to M account is not possible.



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All transactions involved in a give-up process are listed in the Give-up Overview window. In this window, the give-up can be approved, refused or cancelled. The window displays pending, confirmed and cancelled/rejected give-up requests. Figure 4-12: Give-up Overview

Pending take-up requests are listed in the Take-up Overview window where they can be approved or refused by the designated Clearing Member. The designated Exchange Member can take-up transactions in this window. The window displays pending, confirmed and cancelled/rejected give-up requests. Figure 4-13: Take-up Overview



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4.2.1.6 Average Price Processing

Average price merge The average price processing functionality allows merging of multiple transactions into one transaction with an average price calculated by Eurex Clearing. The price of the merged transaction is determined using a volume-weighted average calculation and is rounded to seven digits. Figure 4-14: Average Price - Merge

The creation of average priced transaction is available

• for transactions with the same trade date • for transactions of the same instrument, account and equal side(buy/sell) • for transactions “to open” • for either on-exchange or bilateral off-book, or multi-lateral off-book transactions, i.e off-book transactions can only be merged with other off-book transactions of the same bi-/multilateral type • for transactions that are adjustable, i.e. the transaction duration has not expired and they are not part of another pending workflow. • if the transactions were not part of a previous average price merge.

Average pricing is not available for • Cooperation products (Eurex-KRX cooperation, Eurex-Taifex cooperation) • Transactions with preliminary price

The merged, average priced transaction receives a new transaction-id (with suffix 0) and is available for transaction management including give-up. It, however, cannot be part of another average price merge.



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Residual handling During average pricing, a residual amount, which is the difference of cash flows, is possible. Either a positive or a negative residual can arise after the original transactions have been re-priced at the average. This residual amount remains attached to the new average priced transaction (suffix 0) and will not be moved with any adjustments on that transaction. Note that average pricing is not cash flow neutral. On the C7 Derivatives Clearing GUI, forecast values for the average price, residual and total quantity are displayed on the Average Price Merge window. De-merge Average priced transactions can be de-merged i.e. the original transactions can be re-established. The following conditions must be met for an average priced transaction to be available for de-merge:

• transaction must be adjustable, i.e. transaction duration has not run out and there is no pending give-up/take-up process

• transaction must be booked “to-open” • transaction must be booked to the account in which the average price merge took place

If an average priced transaction contains a trade that becomes a mistrade, the average price transaction is automatically de-merged before the (mis-) trade reversal is processed. Average price merge and de-merge can be initiated on both the C7 derivatives clearing GUI and via FIXML interface. Due to display restrictions, a maximum of 1000 transactions can be merged on the GUI. Via FIXML, the amount of transactions to be merged is practically unlimited.5Preliminary priced trades cannot be merged via average pricing.

4.2.1.7 Transaction management for preliminary priced trades

Trades in products with preliminary and final prices like variance futures trades, total return futures trades are reported in both preliminary and final state in C7. Once the trade price is final, the preliminary trade is automatically inverse booked and the trade is re-booked with the final price. Both preliminary and final priced trades are available for transaction management except that they cannot be merged via average pricing. Give-up is available for preliminary priced trades. If the allocation process is successfully finished before the final price arrives, the final price adjustment is performed on the active transaction. If the final price arrives for a transaction that is a part of a pending allocation process, this process is cancelled by the system and the transaction will be re-booked at the final price on the original (give-up) side. Should the transaction with final price still be given-up, the allocation process should be started anew by the give-up member. The final price booking is not position neutral anymore. Preliminary prices trades can be identified via the Preliminary Price Tag field on the Transaction Overview window, the Give-up Overview window, and the Take-up overview window.

5 Message size limits apply.



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4.2.2 Position Management

In case a transaction adjustment cannot be carried out any more because the trade is older than two business days, members can use the functions in the Position Overview window for position adjustments. This window offers also additional clearing functions and can be accessed from the Transaction Management menu in the main menu. Figure 4-15: Position Overview

Below the filter area there is a number of buttons to perform certain position adjustments or initiate further functionality. Figure 4-16: Buttons in the Position Overview window C7 provides the following position management features:

• Position close-out/re-opening • Position account transfer • External position transfer (with/without cash) • Exercise/assignments • Automatic exercise • Abandon/Unabandon • Notification/Allocation (via the menu item settlement)



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4.2.2.1 Position Close-out/Re-opening

Members can close-out and re-open positions manually. Close-outs are entered in the Position Close-out/Re-open window, which can be accessed from the Position Overview window by selecting a single position and clicking the Position Close-out/ Re-open button. The C7 Derivatives Clearing GUI also provides an upload functionality allowing members to process multiple position close-outs by importing a CSV file. The Position Close-Out/Re-open window contains a single quantity field. Also, only positive quantities are supported. The entry of either a close-out or re-open is determined by a radio button. Figure 4-17: Position Close Out/Re-open

Previously closed-out positions can be re-opened in the Position Close-out/Re-open window. The maximum amount available for re-opening cannot exceed the previously closed-out amount. Note that the re-opening of positions is not available indefinitely; the re-opening period is currently configured to 4 business days by Eurex Clearing. Any changes to the configuration will be communicated via circular with ample lead time. A distinction is made in the Eurex Clearing system between free and fee-liable position closing adjustments. • Free position closing adjustments:

Close out of option positions (with the exceptions of options on futures) and close out of futures and options on futures within the Zero Cost Quantity (ZCQ) range

• Fee liable position closing adjustments: Futures and future based options (future-style products) exceeding the ZCQ



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The Zero Cost Quantity (ZCQ) is the potential number of contracts that can be closed-out without late closing fees being charged. The ZCQ will be calculated6 and displayed for all products. Only futures and future-style products are considered for late closing fees, but flexible contracts are not considered.

4.2.2.2 Rule-based automatic close out

Members can optionally instruct the system to automatically close-out open positions during the end-of-day processing. This is done on account level and can be activated only for gross accounts. Automatic close-out equally reduces the long and short side of an open position. ZCQ applies to automatic close-out. Members can specify, per account, if they would like the system to close-out the maximum available long/short quantity or if it should only close-out up to the current zero-cost quantity. For products without late closing fees, the ZCQ is always ignored and the maximum quantity is closed-out. Fig 4-18: Automatic Close Out Maintenance

Automatic close-out can be configured in the Automatic Close Out Maintenance window (reachable from Account Overview) in the C7 derivatives clearing GUI. An upload functionality for bulk changes is available via the Upload Auto Close-Out Configuration window in File Upload menu. Configuration changes can be done intraday and are immediately effective. Members can also define automatic close-out rules during new account setup; the default settings are: Auto close-out is deactivated, use ZCQ is activated. Re-open of previously closed-out positions is available independent of the close-out trigger (manual or automatic).

4.2.2.3 Position Account Transfers

C7 provides internal and external position transfers. Internal Position Transfers

6 The calculation logic for the ZCQ is explained in the Eurex Clearing C7 3.0 Functional Release Notes.



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Positions can be transferred to a different account; partial transfers are supported. Internal position transfers are executed immediately. Internal position transfers (position account transfer) are entered in the Position Transfer Entry. The window can be accessed via the Position Overview window. Figure 4-19: Position Transfer Entry

The C7 Derivatives Clearing GUI also provides an upload functionality allowing members to process multiple position transfers by importing a CSV file. External Position Transfers Positions can be transferred to another member (external position transfer). All external position transfers are real-time and can optionally carry a cash amount. Just as give-up/take-up for transactions, external position transfers require the approval/acceptance of the initiating and receiving member, as well as their respective Clearing Members. External transfers are currently not supported for accounts held net. The total position quantity will only be reduced pursuant successful external transfer, i.e. when all approvals have been submitted. As long as the transfer process is pending, the designated quantities will be marked as such and displayed accordingly in the GUI, in addition to the total quantity. When the Clearing Member of the source and target accounts is the same, the Clearing Member will need to approve only once. Multiple approvals will not be required. Similarly, when the Exchange Member of the source or target account and the Clearing Member of that account are the same entity, the required approvals will be auto-populated, and the Member will not be required to approve multiple times. As long as there are outstanding approvals, the transfer will stay pending until:



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l end-of-day processing l the request is cancelled by the initiator or rejected/denied by one of the related parties When transferring a position, members have the choice to adjust the position transfer price and/ or to transfer a cash amount. Members can also use a position transfer request to transfer cash only. The cash will be booked (after approval for external position transfers) to the destination account with the next booking cut. Only cash amounts up to a clearing house defined limit (defined per currency) can be transferred. A cash amount can only be transferred for a specific instrument. External position transfers are also entered in the Position Transfer Entry window. Pending position transfers are listed in the Pending Transfer Overview window which is accessible from the Transaction Management menu. In this window, pending position transfers can be cancelled, approved or refused. Position transfer processes are not modifiable pursuant entry. Should a modification (e.g. of text fields) become necessary, the process needs to be canceled and submitted anew.

4.2.2.4 Exercise and Assignment

The following exercise scenarios are possible: • When a long call position in equity options is exercised, the holder exercises his or her right to

demand the delivery of the underlying against payment. When exercising a long put position, the holder uses his or her right to sell the underlying against payment.

• When exercising a long call position in options on futures, the holder uses his or her right to open a long position in the corresponding futures contract at the strike price. When exercising a corresponding put position, the holder uses his or her right to open a short position in the underlying futures contract at the agreed strike price.

• In the case of exercising a long call position or a long put position in index options, the holder uses his right to receive cash.

Options must be exercised by the NCM/CM holding the position. CMs can see the open positions of their NCMs but they are not able to perform exercises for them, unless clearing operations are outsourced to the CM. Exercise Members have the possibility to (manually) exercise option positions both via the Eurex Clearing FIXML Interface and the C7 Derivatives Clearing GUI. Basic information about options and the deadlines for exercises is also given in chapter 2. The Exercise Overview window allows Members to manually exercise open long positions and to enter exercise adjustments. The window can be accessed via the Position Overview window and offers a filter functionality allowing the user to filter for unexercised, exercised and abandoned positions using the appropriate checkboxes.



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Furthermore, the window offers a deferred underlying price feed to calculate the in-the-money amount. The checkboxes In-the-Money and Out-of-the-Money allow the user to filter based on the reference price. A dialog box informs the user in case he tries to exercise an out-of-the money option. If this warning is confirmed, the option is exercised anyway. The exercise of cash settled options that are out-of-the-money is rejected. Figure 4-20: Exercise Overview

The automatic exercise of positions in all types of option products is supported. The ITM Config for Automatic Exercise and the ITM Config Maintenance – Add Configuration window allow the member to inquire and maintain rules for the automatic exercise processing. Members can set in-the-money (ITM) amounts per product and account. Upon processing of the automatic exercise all positions that are sufficiently in-the-money and not abandoned are exercised. The minimum in-the-money-amount specifies the amount a contract (not the single share) has to be in-the-money to be automatically exercised. As a minimum-in-the-money amount for index options the exercise fee is defined. For all other option products, a default minimum in-the-money amount of 0.01 is defined. If no parameters were defined by the member, Eurex exercises ITM-options on the Last Trading Day taking the default parameters into account. Note that automatic exercise only applies on the last trading day, regardless of the option style (American/ European).



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Figure 4-21: ITM Config Maintenance – Add Configuration window

In order to exclude an option position (total or partial) from automatic exercise, Members can use the Exercise Overview window (Abandon tab). The quantity to be abandoned can be adjusted by filling in the Abandon Qty Change field. It can be increased or decreased by entering a positive or a negative value. If a positive value is entered, it may exceed the current open long position. However, a negative value must not exceed the previously abandoned quantity. Note that only expiring positions can be abandoned on expiration Assignment Once an option is sold, there exists a possibility for the option writer to be assigned to fulfill his or her obligation to buy or sell shares of the underlying equity on any business day. For American-style options where exercise can happen on any trading day, assignment is also possible on any trading day. To ensure a fair distribution of assignments, Eurex Clearing uses a random procedure to assign exercise notices to the accounts maintained by each Clearing Member. In turn, the assigned Clearing Member must use a random allocation method to allocate those notices to individual accounts, which have the short positions on those options. The following assignment scenarios are possible: • In the case of equity and exchange-traded fund options, the assignment of a call position obliges the

seller of a call option to deliver the underlying against payment. • In the case of equity and exchange-traded fund options, the assignment of a put position obliges the

seller of a put option to accept delivery of the underlying against payment. • In the case of options on futures, the seller of a call option is obliged to take a short position in the

corresponding futures contract. • In the case of options on futures, the seller of a put option has to take a long position in the

corresponding futures contract. • In the case of options on an index, the seller of a call option is obliged to settle in cash. The exercised long and open short positions are netted within all P and M accounts per member, i.e. if a member with open short positions in a series has exercised positions also, as many open short positions as possible are assigned internally. If exercised long positions still exist after this internal assignment, they are randomly assigned to the remaining open short positions of the same series.



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The Exercise Assignment Overview window on the C7 Derivatives Clearing GUI displays exercised positions and assigned positions per options contract. It can be accessed via the Settlement menu.

Figure 4-22: Exercise Assignment Overview

NCMs/CMs receive assignment information before the batch starts. Assignments are binding.



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4.2.2.5 Notification and Allocation

Holders of short positions in physically settled products (Fixed Income Futures, e.g. Euro-Bund Futures) indicate their choice of deliverable from a basket via notification on the expiry date. Notification is done by Clearing Members only. NCMs, their clients and the clients of a Clearing Member have to notify the respective Clearing Member. The Clearing Member then notifies Eurex Clearing. The Clearing Member is free to notify Eurex Clearing of the securities provided by clients and NCMs, or to choose other securities for delivery from the basket of deliverables bonds announced by Eurex Clearing. The notification process is only available for open short positions that have a basket of deliverables and needs to be performed via the C7 Derivatives Clearing GUI. A single position can be notified by using multiple securities out of the basket of deliverables (partial notifications), e.g. a position of 100 can have 2 securities notified for delivery with a quantity of 50 each. Once the notification process is completed, the clearing house allocates the deliverable to the holders of the other side of the respective position – the allocation process. Deletion of a notification can be achieved by entering a new notification request with a negative value of the already requested quantity on the day of the notification entry and before allocation. Also, quantity changes can be done by entering new notification requests with either a positive or negative quantity to add to the already requested one. Note:

• The holder of short positions in fixed income futures contracts is obliged to indicate the bonds which are to be delivered

• NCMs, their clients and the clients of a CM notify the CM. The CM then notifies the clearing house • The notification (delivery notice) is made on the last trading day of the futures contract, n trading days

before the delivery day (n is the settlement period of the product). Delivery day is the tenth calendar day of the month. If this is not a trading day, the delivery is carried out on the next trading day

• Futures trading on the last trading day ends at 12:30 CET. • The notifications have to be entered until end of post-trading on the last trading day. • CMs can notify any of the securities listed on the report RPTCE038 DELIVERABLE BOND for

delivery. • Eurex Clearing ensures that there is a delivery notice for each open short position. If a CM does not

fulfil its obligation to submit a delivery notice despite a request by the clearing house, Eurex Clearing determines which bonds to deliver

• Deliveries are made versus payment through the CSD (central securities depository)



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The Notification Overview window on the C7 Derivatives Clearing GUI displays open, notified, and designated short positions. It is accessible from the Settlement menu. Figure 4-23: Notification Overview

In the Notification Detail Overview window, the notification for a selected position can be maintained.



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The Notification Detail Overview window can be accessed via the Details button in the Notification Overview window. It displays details about the notification of a futures position and allows submitting a notification or notification adjustment for the selected position. Figure 4-24: Notification Detail Overview

The securities nominated in the notification process are randomly allocated by the clearing house to the holders of the long position in physically settled products. CMs are informed of the allocations on the same business day. The notified and assigned securities are displayed on the GUI as well communicated via reports. For more information about the allocation procedure, please refer to chapter 3.6 Clearing of Futures Contracts.



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As soon as the allocation process for futures and the assignment process for options has been completed, the deliverable positions can be inquired in the Deliverable Position Overview window. The table shows the underlying which has to be delivered or will be received. Historical data can be inquired for 5 business days. Figure 4-25: Deliverable Position Overview

4.2.2.6 Automatic conversion of flexible contract positions

Under certain circumstances, flexible contracts require a conversion. C7 supports both automatic flex-to-flex and flex-to-standard conversions. Any such conversion leads to the re-booking of the position and will be reflected on the C7 Derivatives Clearing GUI and in reports. Example: Generation of new standard series in the system may create a standard contract that has identical parameters to an already existing flexible contract (e.g. identical strike price). In that case, positions in flexible contracts are converted to positions in the new standard series.



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4.2.2.7 Four Eye Principle

Members may optionally specify that activities related to Manual Exercise, Abandon and Position Transfer with cash (entry and approval) are subject to the Four-Eye principle process. Requests requiring approval by a second user are displayed on the Four-Eye Principle-Clearing window, accessible via the Four-Eye principle menu. The overview window shows the number of pending request per type (exercise, abandon, position transfer); the approval needs to be performed on detail windows (one per type); which are accessible from both the overview window and the menu. Figure 4-26: Four Eye Principle



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4.3 Reports

Reports Description Availability

CB750 Give-up Trades Overview

This report shows all give-up trades in chronological order. It lists all predesignated, designated and rejected give-up trades. Give-up trades accepted by the recipient as take-ups are also listed. This report shows detailed information on the approval workflow for give-up trades. The trades given up are listed in order by receiving member, currency, account, product and series. The following totals are calculated:

- Sum of all take-up trades

- Sum of all pending trades at the end of the day

- Sum of all deleted give-up trades.

In addition, the report contains information on flexible contracts.

CMs and NCMs

CB751 Take-up Trades Overview

This report shows all take-up trades in chronological order. It lists all predesignated, designated and rejected take-up trades. This report shows detailed information on the approval workflow for give-up trades. The trades given up are listed in order by receiving member currency, account, product and series. The following totals are calculated:

- Sum of all take-up trades

- Sum of all pending trades at the end of the day

- Sum of all deleted give-up trades.

In addition the report contains information on flexible contracts

CMs and NCMs



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CE710 Contract Expiration

This report provides information related to option series with a time till expiry of not more than ten trading days. The report contains:

- The In- or Out-of-the-money value per unit

- Positions, which are held in this series at the end of the day

- The amount reflecting how far a long position of a series is in-the-money.

The report contains detailed information about expiring option series per member, currency and account. The total amounts of the long and short positions as well as the in-the-money amount are listed. On the expiration day the final position after automatic exercises but before the contract expiration is shown.

CMs and NCMs

CE770 Exercise and Assign Overview

This report lists exercised long positions and assigned short positions of stock options contracts. It contains information about the daily exercises and assignments in each series, arranged by clearing member, currency, product type, exchange member and account type. There is also a list of delivery instructions resulting from the exercise process.

The data is sorted by exchange member and underlying. Cash settlement only contains an amount when the payment is made in cash.

CMs and NCMs

CE771 Option on Future Exercise Assign Overview

This report provides information on exercised long positions and assigned short positions of options on futures. It provides information about the daily exercises and assignments in each series, arranged by exchange member, account type and underlying futures contract

CMs and NCMs

CB702 Cash Settled Contracts Overview

This C7 report shows the cash settled contracts on the expiry day, detailing the profits and losses produced by these contracts. The cash settlement amount of the net position is calculated by evaluating the strike prices for exercised options against the final settlement price. The individual results are added for each currency, per contract, product and account.

CMs and NCMs



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CB731 Settling Futures Positions Overview

This report contains the open long and short positions of Bond and FX/stock futures contracts which expire in the current month. This report is produced daily during the delivery month until the day of notification.

It contains the open long and short positions. It provides the totals per exchange and clearing member.

CMs and NCMs



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CE038 Deliverable Bonds

Details the calculation of conversion factors and invoice amounts for deliverable bonds of all traded fixed income futures contracts. CMs can select the bonds shown in this report for delivery. Settlement price and invoice amount are only displayed for deliverable securities of the current delivery month. This report is produced when a contract expires and another contract month is listed.

CMs and NCMs

CE775 Notification/ Allocation Information

This report provides information on deliveries resulting from notification or allocation notice (per reference number). The contracting party is listed for internal deliveries (either a non-clearing member or a clearing member proprietary account). The contracting party is not displayed on the report for external deliveries that are carried out through the CSD. As a complementary report to the delivery list, it supports the CSD concerning the release of deliveries and serves as a basis for internal deliveries to the CSD.

CMs only

CB715 Average Pricing

This report shows details about Average Pricing or De-merge transactions. For each average pricing transaction, the report shows all related transactions as well as the result volume weighted average price.

CMs and NCMs



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4-001 In the Eurex Clearing system all NCMs/CMs can inquire into daily position movements as well as view their current positions in any account. True False Correct answer: True 4-002 External position transfers are "real-time". True False Correct answer: True 4-003 To split a transaction in C7 done 1 or 2 days ago it is necessary to... A: perform a HITT (historical trade transfer) first and then a transaction separation. B: just do a trade separation. C: call Eurex Exchanges and ask to reverse the transaction and reopen it correctly D: just amend it in the internal back office system of the Clearing Member. Correct answer: B 4-004 Which of the following answers concerning give-ups are correct? A: All give-up/take-up requests by Exchange Members require the approval of their respective Clearing Member. B: Only transactions in status "to open" may be used in a give-up. C: Give-ups may be conducted from every source account. D: Clearing Members may specify auto-approve per Exchange Member. Correct answer: A|B|D 4-005 Who bears the transactions fees for an accepted transaction given-up from an A-account? A: The NCM/CM performing the transaction. B: The NCM/CM taking up the transaction. C: The NCM/CM giving up the transaction. D: It will be split between the two involved NCMs/CMs. Correct answer: B



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4-006 In principle Non-Clearing Members can take-up transactions without the acceptance of their Clearing Members. True False Correct answer: False 4-007 The deadline for exercising equity options is identical for the majority of Eurex equity options regardless of their home country. True False Correct answer: True 4-008 In case a member has not defined minimum in-the-money-amounts for certain options, Eurex Clearing will automatically exercise them in line with the default parameters. True False Correct answer: True 4-009 Which statement concerning the exercise of stock options is correct? A: Only In-the-money options may be exercised. B: All Eurex stock options may only be exercised on the last trading day. C: The exercise has to be conducted by the exchange member holding the position. D: Automatic exercise cannot be abandoned for stock options. Correct answer: C 4-010 Non-Clearing Members are able to carry out notifications and allocations of futures contracts themselves. True False Correct answer: False



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Risk Management of 93

5 Risk Management

Eurex Clearing stands between buyers and sellers and enables involved parties to make decisions fully independently of each other and mitigate counterparty risk to a single contractual partner. To be more precise, only Clearing Members may be a counterparty of Eurex Clearing in a transaction. As a result, legal relationships are concluded between Eurex Clearing and a given Clearing Member, and in turn between that Clearing Member and the respective NCM/RC. For more information about the general clearing structure please refer to the Preparation Material for the Clearer Test, chapter 2 and 3.

5.1 Overview

Eurex Clearing built on a sound framework of safeguards to protect all customers, the clearing house and the overall marketplace. In order to ensure this high degree of security, Eurex Clearing protects itself against the risk of default by any of its members. In general requirements for clearing membership establish clearly defined conditions with respect to the creditworthiness of members participating in the clearing process. This is a key component of the protection provided by Eurex Clearing. Basically the protection is based on: • Capital requirements (own funds) • Contributions to the Default Fund • Margin requirements

The requirements for own funds and the contribution to the Default Fund are described in chapter 0.

Margin Requirements The mainstay of Eurex Clearing’s security system is margin i.e. cash or securities which must be deposited by Clearing Members as collateral for a given position/exposure. The amount specified for such should not be excessive, but it also may not be set at a level that is too low. System-based Risk Controls Eurex Clearing offers both the clearing house and its member’s powerful, user-friendly tools to help them proactively control risk. This includes a wide range of pre-trade and post-trade risk controls. To a large extend these tools can be based on different margin requirements. All members have access to Eurex Clearing`s data and tools, which enable them to set limits to prevent excessive exposure as well as to respond quickly if an incident occurs. Post-trade controls ensure that members have a clear picture of their overall risk profiles throughout the trading day. The tools used to proactively control the risk are described later in this chapter.



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5.2 Internal Margin Accounts and Collateral Pools

Margining is conducted on account level. Eurex Clearing calculates margin requirements on a daily basis per member ID. CMs are responsible for the margin payments for themselves and their clients (non-disclosed customers, NCMs and RCs). Based on the CM internal positions accounts (see chapter 3.4) margin requirements are always calculated for each account separately. An exception for margining purposes is that the P-and M-accounts of a member are taken together (indicated in the Eurex Clearing System as PP).

Depending on the Clearing Model under which the position is cleared margin requirements are covered by one or more omnibus collateral pools (Elementary Clearing Model or Net Omnibus Clearing Model, figure below shows one collateral pool) or by one dedicated collateral pool (Individual Clearing Model).

Figure 5-1: Segregation at a Glance

In case of a margin shortfall a margin call is initiated by Eurex Clearing. Margin calls are always called against the CM however margin calls arising from shortfalls on client pools are calculated and instructed separately. More details are provided in chapter 6.5 of the Preparation Material for the Clearer Test.



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Prisma

5.3.1 General Principles

Eurex Clearing calculates the margin requirement for exchange-traded derivatives (ETDs) using the margin method Prisma. Prisma and the Default Management Process (DMP7) are closely aligned. More precisely, the default management process is the basis of the portfolio-based margining method.

Within Prisma the margin requirement is calculated for a small number of liquidation groups in which offsetting effects can be taken into account to a much greater extend. A Liquidation Group combines all cleared products across all markets cleared by Eurex Clearing that share similar risk profiles. Liquidation Groups serve as a cornerstone of the Eurex Clearing Prisma portfolio-based risk management method. • Liquidation Groups are pre-defined (they exist irrespective of a Clearing Member default). • Portfolio risk margin offsets are only granted within these pre-defined Liquidation Groups. • Each Liquidation Group has a fixed holding period that reflects the time estimated to analyze, hedge

and liquidate the respective products. An expected holding period can be between two to five days, depending on the Liquidation Group and the products therein, and is at the same time the basis for margin calculation.

The total margin requirement is the sum of the margin requirements for the different liquidation groups. Whereas RBM is based on a two-day risk, the risk calculation within Prisma depends on the liquidation group and the number of days corresponds to the holding period assumed in the default management process. Prisma does not use any margin parameters that are based on historical volatility of the different (underlying) products. The risk evaluation concept is not based on single products (margin classes and groups). The risk is calculated using historical simulations.

7 The DMP is explained more detailed within chapter 7 of the Preparation Material for the Clearer Test.



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Currently available Liquidation Groups:

Liquidation Group CCY HP*

Equity Derivatives (EQ) • Equity Derivatives (Single Stocks) • Equity Index Derivatives • ETF Derivatives • Volatility Derivatives • Dividend Derivatives

EUR, CHF USD, GBP 3

Fixed Income Derivatives (FI) • Listed Fixed Income and Money Market Derivatives

(Eurex Exchange) • OTC Interest Rate Derivatives (e.g. Interest Rate

Swaps, EurexOTC Clear IRS)

EUR, CHF GBP, USD JPY, DKK, NOK, SEK PLN

2/5

Exchange Traded Commodity Index-Derivatives (PCM01) USD 3

Precious Metal Derivatives (PPM01) EUR, USD 3

GMX IRS Constant Maturity Futures (PGE01) EUR 2

Asian cooperation products such as KOSPI/ TAIFEX (PAC01) KRW, TWD 2

FX-Derivatives (PFX01) AUD, EUR GBP, JPY NZDUSD

2

Real Estate Derivatives (PPR01) GBP 3

Bonds (PBN01) • Eurex Bonds Transactions • Special Repo Transactions • GC Pooling Transactions (ECB Basket, ECB

Extended Basket and International Maximum Quality Basket)

EUR,CHF GBP, USD JPY, NOK, SEK, AUD, CAD,

2

*HP = Holding period days; 2 days for listed Fixed Income Derivatives that are not used for cross margining within the Fixed Income Liquidation Group. Further Liquidations Groups are in preparation and will be gradually migrated to Eurex Clearing Prisma.



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5.3.2 Margin Types

When determining appropriate margin requirements and risk offsets, Eurex Clearing considers mark-to-market margin – backward looking margin components – and initial margin – forward looking margin components.

Figure 5-2: Prisma Components

5.3.2.1 Backward-looking components

Current liquidating margin is calculated for bonds, repos, shares and securities lending transactions only. Premium margin and variation margin apply for Eurex Exchanges listed derivatives products. Premium Margin for Options (Traditional Options, Premium-styled Options) Premium margin must be deposited by the seller of an option, if the transaction results in an open position. It covers the potential loss that could be incurred if the seller was forced to liquidate the position today. The premium margin is continuously adjusted, i.e., if prices fluctuate so that the potential loss upon liquidation increases, the seller will be obliged to deposit additional premium margin Variation Margin (VM) Variation margin is calculated for futures and future-styled options. On a mark-to-market basis, Eurex Clearing settles the trading day’s profits and losses of all open positions held in a position account in cash. VM reflects the change in value of a portfolio, i.e. quantifies the daily and intraday mark-to-market fluctuations (MtM). VM is at any time a component that is taken into account for Margin Call calculations and can be covered by cash or securities collateral. EoD the daily profits and losses based on the daily settlement prices have to be settled in cash. This difference to other margin types is based on the principle that here it is not a matter of depositing collateral, but rather one of offsetting in cash the daily profits and losses in an account. Eurex Clearing calculates the profits and losses for every position account for all products in product currency. The bookings (debits and credits) are done on the next morning on the accounts of the respective clearing members. Variation margins are also booked for all segregated collateral pools. All respective amounts are shown on report CD010 (Daily Cash Account CM).



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In case a clearing member has positions in all product currencies, daily debits or credits on all different currency accounts are executed. Eurex Clearing debits the losses in all different product currencies on the accounts of all CMs with negative market values and credits the amounts on the accounts of all CMs with positive market values (pass-through payments) The EoD VM which is payable to Clearing Members will always be exactly equal to the VM receivable from Clearing Members (since Eurex Clearing will always be flat). Details: The owner of a long position that was purchased at a lower price than the daily closing price (settlement price) is credited with the difference between the two prices, whereas the owner of the related short position must pay that difference. When the variation margin for futures-styled options is determined, calculation of the appropriate credits and debits depends on how the value of a call or put position changed during the trading day. The variation margin procedure ensures that each position is revalued at the daily settlement price. The difference between today’s and the previous day’s closing price is offset by daily compensating payments. Thus, all that has to be done on the final settlement day is to value all open positions at their respective final settlement prices. In the case of futures-styled options, the final valuation is made at the settlement price on either the expiration date of the option or the day on which it is exercised.



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Sample Calculation of Variation Margin for DAX Futures (FDAX)

Contract FDAX March 17

Tick size 0.5 Points Tick value EUR 12.50

Position Long 10 contracts Bought at 10,676.5 points

Day 1 Day 2 Day 3

Daily Settlement Price 10,783.5 points 10,710.0 points 10,765.5 points

Day 1

Bought at 10,676.5

Daily Settlement price Day 1 10,783.5

Tick difference 214

Tick difference 214 Ticks x

Tick value EUR 12.50/Tick x

10 contracts =

Variation Margin EUR 26,750

Day 2



Tick difference -147

Tick difference -147 Ticks x


10 contracts =

Variation Margin EUR -18,375

Day 3



Tick difference 111

Tick difference 111 Ticks x


10 contracts =

Variation Margin EUR 13,875



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Future-Style-Margin

The premium margin associated with traditional options does not apply to options on futures. It can be ignored because a premium debit or credit for existing losses /profits takes place as a result of the daily settlement of unrealised profits and losses via the mark-to-market procedure, i.e. variation margin. A forward looking margin type (initial margin) always covers potential future losses Eurex Clearing could incur in a worst-case scenario. Sample of Future-Style Margin: Option on Euro-Bund Future Multiplier: 1,000 EUR/point

Day Price in Points

Difference Variation Margin Buyer

Variation Margin Seller

Day 1 Trade price 1.20

Day 1 Settlement price 1.10 0.10 -100 +100

Day 2 Settlement price 1.35 0.25 +250 -250

Options on futures are subject to futures-style premium posting. This means that upon exercise or expiration of a contract, the remaining unpaid balance of a portion of the premium is due in addition to the daily settlement of profits and losses. The advantage of this method is that the unrealized profits and losses on positions that result from marking-to-market are credited or debited on a daily basis. In applying this daily settlement of profits and losses, the calculation of credits and debits depends on how the value of a call or put position has changed. In order to finally arrive at the originally agreed upon options price when exercise or expiration of the contract occurs, the buyer must make one more premium settlement payment in the amount of the settlement price on the day of the exercise or, as it were, the final settlement price upon expiration. Again with this method of settlement, the maximum risk assumed by the buyer is limited to the amount of the options premium. The purchaser enjoys a clear advantage from a liquidity point of view because the mark-to-market process means that he does not have to pay the full amount of the options premium upon purchase of the option. Instead, initial margin is due, which can be deposited in the form of securities or cash. The writer, of course, does not receive the full amount of the options premium, but he also does not have to pay premium margin, rather only the variation margin plus initial margin which he, too, may deposit in the form of securities or cash. As a result, only a small amount of the writer’s liquidity is tied up. This creates a strong argument for the futures-style margin procedure, in which both sides benefit from the low level of liquid capital that must be committed.



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Summary of Margin Requirements

Position Variation Margin Initial Margin

Writer Yes Yes

Purchaser Yes Yes

Both, buyer and seller have to pay variation margin and deposit additional margin. The margin requirement for the buyer is limited to the options price (premium) agreed upon purchase of the option.

5.3.2.2 Forward-looking components – Initial Margin (for all products)

The Eurex Clearing Prisma margin methodology is based on a complete view of each Clearing Member’s portfolio and takes advantage of cross-correlation effects and accounts for hedging. In this way, it determines the initial margin requirement on a portfolio level as opposed to a product-by-product view. The Eurex Clearing Prisma initial margin calculation is the result of a simulation based, value-at-risk (VaR) methodology that uses: • Filtered historical scenarios • Stress period scenarios • Adjustments for simplifying model assumptions As the initial margin is a forward-looking margin component, it quantifies an estimate of future potential losses over the holding period of all Clearing Members’ Liquidation Groups at a predefined and appropriate confidence level. The initial margin is calculated by taking into account potential correlation and netting effects for positions within a Liquidation Group.

Figure 5-3: Prisma Methodology Overview



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The initial margin consists of the two main subcomponents market risk and liquidity risk. They are calculated using profit and loss distributions for the Liquidation Group based on a set of different scenario prices for the underlying instruments.

5.3.3 Cross Margining within Liquidation Group fixed income derivatives

The Liquidation Group fixed income derivatives contains products from two markets: IRS positions (EurexOTC IRS Clear Service) across all currencies (EUR, CHF, USD, GBP, JPY, DKK, NOK, SEK and PLN) and the allocated EUR and CHF fixed income/money market derivatives. Since May 2014 cross margining is possible between both markets. Eurex Clearing uses a Margin Optimizer process before calculating the individual margin components within the fixed income derivatives Liquidation Group. With this process the ideal portfolio structure of combined listed derivatives positions and swap positions is determined and, thereby enabling cross margining. Fixed income derivatives (e.g. Euro-Bund Futures) and money market derivatives (e.g. EURIBOR Futures) which hedge the interest rate risk of the IRS swap positions, are allocated to the IRS + FI Liquidation Group split which is correspondingly also called “IRS+FI split”. This allocation aims to reduce the interest rate sensitivities of the IRS portfolio as far as possible, so that the margin requirement will be reduced. Not allocated fixed income derivatives and money market derivatives stay within the Liquidation Group split FI with a holding period of 2 days.

Figure 5-4: Liquidation Group fixed income derivatives – Splits

The offset is calculated for different “maturity buckets”. At each step, initial margin is calculated for both the IRS+FI and FI-only splits, before and after allocating the fixed income and money market derivatives to the IRS+FI split. If the total initial margin of both splits is not reduced at this step, then the allocation is rejected and the algorithm continues with the next step.



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5.4 Pre-Trade Risk Controls

Pre-trade risk control functions are offered to Clearing Members and their Non-Clearing Members via different GUIs. Some of them can be used via the T7 trading system (Trader and/or Admin GUI) and some via the @X-tract Clearing GUI.

Figure 5-5:Pre-trade risk controls

Furthermore, a Clearing Member can subscribe to Non-Clearing Member order confirmation broadcasts in order to get a complete overview of its own as well as its clients orders (also possible for trade confirmation broadcast, see chapter 5.5.1).

5.4.1 Advanced Risk Protection

Eurex Clearing`s pre-trade risk controls are closely tied to the growing trend of direct market access and the potential risk arising from algorithmic trading tools. The tools offer members flexibility in setting intelligent limits that reflect their risk profiles. Eurex Clearing offers a pre-trade risk management service for Eurex Exchanges business including Eurex Trade Entry services that enable Clearing Members to define individual risk limits for themselves or their associated NCMs. In addition, any member can define its own risk limits, down to the trader subgroup level, for added control. However, when both a CM and an NCM set limits, the more restrictive limits will apply. The limits are based on actual calculations and result in various pre-trade actions without latency impact. Limits are evaluated against corresponding risk figures conveyed in real-time via the Enhanced Risk Solution (see also section 5.5.2) and any breach of a set limit can result in the restriction of further trading activity, as pre-defined by the Clearing Member or their associated NCMs. The Advanced Risk Protection functionality is also supported within Eurex Exchange’s T7 and can warn, slow or stop a participant if a pre-defined risk limit is exceeded, but the data setting (entry of all limits) has to be done in the Risk Monitoring Maintenance window of the @X-tract Clearing GUI.



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Defining Limits All members can select from four pre-defined measures (metrics). Each represents a different aggregate of risk values, described below:

Name Abbreviation Based on …

Total exposure TMR Total margin requirement

Profit and loss CULI Premium margin + current liquidating margin8 + variation margin + option premium

Cash flow CASH Variation margin + option premium

Market risk NDM Additional margin + futures spread margin

Available Actions This functionality encourages members to set risk limits in advance to proactively safeguard trading activities. Members specify which of three actions will be implemented when a breach of each level or risk limits occurs.

Level 1 (Alert only limit)

An alert message is broadcast to both the NCM and its respective CM

Level 2 (Slow down limit)

The system automatically slows down a member’s order/quote entry and order/quote modification by enforcing a minimum delay of between 250 and 5,000 milliseconds (member configurable) between non-delete transactions in any single product. (Slow down limit)

Level 3 (Full stop limit)

The member’s trading state is set to “Halt” which means all open orders and quotes are deleted and all further trading and clearing functions are prevented.

8 Current liquidating margin is not calculated for derivatives but in case a CM holds clearing licenses for different markets, current liquidating margin is calculated for bonds, equities, repos and securities lending transactions and will be calculated for this CM and is automatically included in the aggregate risk value CULI.



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The following graphic shows an example for the three levels:

Figure 5-6: Advanced Risk Protection Levels

Changing limits and timelines for settings in the Advanced Risk Protection service are based on the same data that is distributed via the Enhanced Risk Interface. This enables members to implement additional risk monitoring metrics that are more complex as well as tailor-made based on the same data source. Members can set risk limits using the @X-tract Clearing GUI. When members use the GUI to enter and/or change risk limits, the new limits become valid as of the next business day. Changes to other parameters (delay; Order/Quote Delete) are effective immediately.



May 2017


Limits may be set using the Risk Monitoring Maintenance window.

Figure 5-7: Risk Monitoring Maintenance window - @X-tract

Only users of the Enhanced Risk Solution (see chapter 5.5.2) can make intraday changes to their risk limits. Changes initiated via this interface are effective only for the current day and will be overwritten with limits defined in the @X-tract Clearing GUI valid as of the next business day. If this override is not desired, the respective limit change must also be done via the @X-tract Clearing GUI.



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Release of a Member The release process is strictly manual and can only be carried out by the member which set the respective limit. It requires four-eye principle confirmation. If several action levels are triggered for one limit type, releasing a trigger causes the automatic release of all action level limits of the same type. Releases may also be executed by using the Risk Monitoring Maintenance window (see Figure 5-7: Risk Monitoring Maintenance window).

Step 1 Selection of triggered limit

The maintenance member may select any triggered limit

Step 2 Release

Press the Release button

Step 3 Confirmation

Confirmation that all limits of the selected type be released

During the release process, the following points should be kept in mind: • Release of individual limits of one type is not possible. • Both the Clearing Member’s and the Non-Clearing Member’s currently triggered limits must be

released separately by the respective limit owner. • A member set to HALT for exceeding a level 3 limit can only be re-activated through the release

process using the Limit Maintenance tab of the Risk Monitoring Maintenance window. An attempt to reactivate a member through any other window is rejected with an error message. Furthermore, release processing is triggered automatically following the deletion of a triggered limit. If the release is not successful, the limit is not deleted.



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5.4.2 Stop Functions

Figure 5-8: Overview Panic Cancel and Stop/ Release Actions

Panic Cancel and Stop/Release actions only affect the trading functionality in the order book of the affected users in T7. Eurex Trade Entry services are not affected - if a trader using the Eurex Trade Entry services must be stopped from trading, this is done via the Stop Button in the @X-tract Clearing GUI9. Risk control functions are available in T7 for trading members to stop a user or an entire business unit from trading. Clearing Members may stop one of their NCMs only via the @X-tract Clearing GUI, which will be automatically synchronized with T7. Stopped users can continue to view trading activity, but are not able to enter new orders or quotes. Only the Stop Function in the @X-tract Clearing GUI will be described in more detail in the following section.

9 T7 Trader and Admin GUIs currently do not differentiate between markets when performing Panic Cancel and Stop/Release functions for a user or business unit. If a user or business unit is cancelled or stopped, it is cancelled or stopped for all products the user might be allowed to trade in any market of T7. This limitation is valid for the start of T7.



May 2017


5.4.2.1 Stop Button (@X-tract Clearing GUI)

Although Eurex Clearing has robust pre-trade risk tools in place, emergency situations can occur. In this case it is important for members to be able to take immediate actions to prevent further exposure. Eurex Clearing provides all members with a stop button that they can use to “Halt” further trading on a member or more granular level, including specific trader IDs. Once a “Stop” is triggered, • further trading and clearing activities are prohibited, • the usage of Eurex Trade Entry services is also prohibited • open orders and quotes are deleted until the member or trader ID in question is manually reset. For „Stops“ and „Releases”, the Risk Monitoring Maintenance window within the @X-tract Clearing GUI is used.

Figure 5-9: Risk Monitoring Maintenance window - @X-tract

To perform a „Stop”, „Stop Trader” or „Release” action, the user selects the row in the table of the window with the details of the Exchange Participant for which the action should be performed. Depending on the member status, either the Stop Trader and Stop button only or the Stop Trader, Stop and Release buttons are enabled. For all Stops, Stop Traders and Releases the four-eye principle applies. A second user has to confirm the Stop/Release action. The Release button cannot used to release a stop triggered automatically by a level 3 limit breach (see chapter 5.4.1). In order to release an automatic stop, the user needs to release the triggered limit on the Limit Maintenance tab.



May 2017


Members are informed immediately about the stop or release action by messages in English and German in the Eurex system. The short forms of the messages are displayed in the Message Log window and highlighted in red.

When a Trading Member is stopped, the corresponding trading business unit in T7 is automatically stopped, and all orders and quotes within the business unit are deleted. If the stopped business unit is subsequently released, all users may resume trading activities. Previously deleted orders are not restored.

5.4.3 Transaction Size Limits

Clearing Members may pre-define per Non-Clearing Member on a product level the limits a given member may have in a specific product. The maximum quantity is defined per order. In case the Clearing Member assigns a quantity of zero for a specific product, the Non-Clearing Member is not permitted to enter orders for that product.

Figure 5-10: Product Assignment Maintenance window – @X-tract

The Product Assignment Maintenance window is used to assign product groups and individual products and to define the maximum order quantity for members. It supports the change of maximum order quantity as well as the assignment and de-assignment of product groups and products. The Product Assignment Maintenance window may also be used to determine Maximum Wholesale Quantities (also possible on user level). The Maximum Wholesale Quantity defines the maximum number of contracts (per product and per transaction) that can be entered via the Eurex Trade Entry Services.



May 2017


T7 will synchronize with these entries and create corresponding transaction size limits at the trading business unit level on a per product basis.

Figure 5-11: Synchronization between Architectures

In addition, transaction size limits for a specific user and product will be maintained by trading participants themselves in T7 (within the User Maintenance of the T7 Admin GUI), and the following values can be configured: • Maximum order quantity • Maximum calendar spread quantity Note that the maximum number of contracts for Eurex Trade Entry services will continue to be maintained via the @X-tract Clearing GUI and is not included in T7.



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5.5 Post-Trade Controls

Figure 5-12: Overview of Post-Trade Controls

5.5.1 Trade Confirmation Broadcast

In addition to giving Clearing Members the possibility to view order activity in real-time, Eurex Clearing also permits CMs to view confirmed trade history in real-time. Clearing Members can also subscribe to Non-Clearing Member trade confirmation broadcasts in order to get a complete overview of its own as well as its clients’ positions.

5.5.2 Enhanced Risk Solution

In addition to the basic risk management services, Eurex Clearing offers members the choice to subscribe to an optional interface called Enhanced Risk Solution. Through this interface, Eurex Clearing distributes real-time risk and position data for all exchanges and trading venues for which the clearing house offers it’s clearing services. Provision of real-time data allows members to monitor developments in risk and positions at the moment they happen, promoting more proactive risk management. It also facilitates the efficient use of collateral as the data enables risk managers to monitor margin surpluses and shortfalls as they occur, providing indications of potential intraday margin calls.



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5.5.3 Reports

Eurex Clearing provides Clearing Members with intraday and end of day reports. In general, all relevant margin and collateral reports are described in the Preparation Material for the Clearer Test. These reports are out of the scope for the Back-Office Test, but nevertheless the reports are important and various reports are available for Clearing Members and NCMs/RCs as well. A full description of all reports may be found in the Eurex XML Report Reference Manual on the Eurex Clearing website: www.eurexclearing.com > Technology > Eurex Clearing classic system > System documentation > Eurex Reports. Overview of Main Margin Reports

Report Description Availability

CC750 (CC050)

Daily Margin

This report deals with the daily margin requirements (or margin credit) for each exchange member. In addition to the margin components calculated within RBM, the premium and initial margin calculated within Eurex Clearing Prisma is included in this report. The Eurex Clearing Prisma figures are reported in separate margin classes, whereby each liquidation group will be reported in one margin class. The margin requirement is calculated based on the premium/current liquidating margin, futures spread margin and additional/initial margin. All margin components are listed in this report.

CMs and NCMs/RCs

CC760 (CC060) Daily Margin Requirements, at pool ID level

This report shows the daily margin requirement for all exchange and clearing members. The margin requirement is listed by account and totaled for each exchange and clearing member.

CMs and NCMs/RCs

Both reports are also available as Intraday Margin reports (CI050, CI060).

http://www.eurexclearing.com



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5-001 A Clearing Member has non-spread and spread positions within a margin class (RBM). Which of the following statements is true?

A: Because of spread positions the margin requirement will be higher (compared to a position without spreads). B: Because of spread positions the margin requirement will be lower (compared to a position without spreads). C: The spreads have no influence on the margining. D: For spreads the Clearing Member does not have to pledge any collateral. Correct answer: B

5-002 The forward-looking margin type within Prisma is called ... A: Variation Margin

B: Initial Margin

C: Current Liquidating Margin

D: Premium Margin

Correct answer: B 5-003 The Level 2 action within the Advanced Risk Protection is … A: an alert message. B: that the member's trading state is set to "Halt". C: a slowdown of a members order/quote entry. D: a deletion of all orders and quotes. Correct answer: C 5-004 For the Stop Button (@X-tract Clearing GUI); what happens in case a Stop action is triggered? A: Open orders and quotes are deleted. B: Open quotes are deleted. C: Further trading and clearing activities are prohibited. D: Eurex Trade Entry Services (TES) are still available. Correct answer: A|C



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Collateral Management of 93

6 Collateral Management

6.1 Overview

In general, the Clearing Member is responsible for delivering the appropriate amount of eligible margin assets in a timely manner for itself, its NCMs/RCs and clients to Eurex Clearing. A Clearing Member has flexibility and can satisfy margin and Default Fund requirements by depositing cash in different currencies, securities or commodities. Accepted securities and commodities are valued on a daily basis. The management of collateral is performed in the @X-tract Clearing GUI, for example in the Collateral Transaction Overview window or the Collateral Status Overview window. The collateral management process is described in more detail in the Preparation Material for the Clearer Test as it is largely the responsibility of the Clearing Member. Nonetheless, also Non-Clearing Members should be aware of admissible collateral, applicable limits on collateral, haircuts applied to collateral and security collateral fees. Figure 6-1: Eligible Collateral



May 2017


Eligibility criteria and limitations for collateral set by Eurex Clearing are developed to comply with regulatory requirements. Eurex Clearing has developed rules for eligible collateral defining exceptions and certain concentrations limits.

Eligibility Criteria

• Collateral needs to fulfill security, liquidity and accessibility criteria • Collateral is composed of highly liquid securities collateral as well as of central bank or commercial bank

cash collateral A wide range and different types of fixed income securities denominated in EUR are accepted, e.g. European Central Bank eligible marketable assets. Acceptable fixed income securities denominated in CHF are also accepted, e.g. SNB repo eligible securities. Government bonds in selected other currencies (USD, GBP, DKK, NOK, SEK, AUD, CAD, JPY) are also accepted. Acceptable equities in EUR denominated are DAX, Euro STOXX 50 constituents. Other stocks as announced by Eurex Clearing. In CHF denominated SMI constituents or other stocks as announced by Eurex Clearing are accepted. Other equities like US shares are not accepted. Accepted are also selected Exchange Traded Funds (ETFs) on different indices such as DAX or Euro STOXX 50. The full list of eligible collateral can be found on the Eurex Clearing website: www.eurexclearing.com > Collateral management > Securities collateral.

Limitations

• In principle own issues (i.e. securities issued by the collateral provider) and close link securities (i.e. securities issued by companies affiliated with the collateral provider) are not accepted. Exceptions are defined in Eurex Clearing circular 126/2014.

• Certain unsecured bank bonds are excluded. Details are defined in Eurex Clearing circular 1/2017. • Debt securities that have a remaining term of 15 calendar days • All financial instruments that are issued by Deutsche Börse Group (e.g. Deutsche Börse AG shares and

bonds, Xetra-Gold) are not accepted in order to eliminate potential macro-economic wrong way risk effects.

• Concentration Limits - At clearing house level:

- For bonds the admissible proportion of the issued capital is 25% - For equities the admissible proportion of the daily free float is 1 %

- At Clearing Member level: − Stock ratio in the collateral pool must not exceed a ratio of more than 30% as a threshold

Further limits and thresholds are described within chapter 6.1 of the Preparation Material for Clearer Test.




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Haircuts Haircuts are a percentage that is subtracted from the market value of an asset provided as collateral to account for the perceived price risk associated with holding that asset. The higher the haircut, the higher the perceived risk of the asset and the lower the value applied for that asset as collateral. Eurex Clearing applies dynamic and minimum haircuts to bonds and equity collateral in order to account for asset specific risk. Current haircuts are published on Eurex Clearing website: www.eurexclearing.com > Risk management > Risk parameters. Security Collateral Fee The fee applies to margin collateral only and will not be charged for securities collateral delivered for the Default Fund or own funds substitution purposes.

The security collateral fee is charged on a collateral pool level and is applied to all collateral pool types (Elementary, Net Omnibus or Individual Clearing Model). The security collateral fee is only charged on utilized security collateral. Any over-collateralization in the corresponding pool will not be charged. The fee will be calculated daily and invoiced monthly.




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6.2 Reports Overview of Main Collateral Reports

Report Description Availability

CD010 Daily Cash Account

Contains the details of balances and transaction amounts of the cash account.

CMs only

CD031 Daily Collateral Valuation

Contains data about the market value of the collateral in the different security deposit accounts, and the amount of cover value that is attributed to the collateral. The amount of cash deposited as collateral for the collection of interest is also shown under a separate ISIN for the accepted currencies.

CMs and NCMs/RCs

CD033 Collateral Composition

Shows the difference between the evaluated and limited collateral security value and the margin requirement.

CMs and NCMs/RCs

For NCMs/RCs under the Individual Clearing Model this report will contain data.

For NCMs/RCs under the Net Omnibus Clearing Model and the Elementary Clearing Model this report will always be empty.

CD042 Daily Settlement Statement

This report describes the daily settlements. It lists the necessary margin requirements, pledged cash and security balances and the cover credits and debits incl. the Permanent Cash Balance values. The "over/under" cover values by currency are converted into the member's clearing currency and summed to calculate the net margin profit or deficit. Also as intraday report available (CI042).

CMs and NCMs/RCs

For NCMs/RCs under the Individual Clearing Model this report will contain data.

For NCMs/RCs under the Net Omnibus Clearing Model and the Elementary Clearing Model this report will always be empty.



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6-001 What kinds of securities are not accepted as collateral in general by Eurex Clearing?

A: Own issues B: Close link securities C: Bonds D: Equities Correct answer: A|B 6-002

Which statement concerning collateral eligibility is correct?? A: Eurex Clearing accepts only cash collateral B. Eurex Clearing accepts cash and securities collateral C: Eurex Clearing takes no haircuts into account in case of securities collateral D: Gold and the financial product "Xetra Gold" are accepted as collateral Correct answer: B

qualified back office staff - deutsche börse · pdf file4.2.2.4 exercise and assignment...

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