Quantitative analysis of clearing economics under the new capital rules/ Results show significant cost benefits of an integrated cross-product CCP like Eurex Clearing
Eurex Clearing, Europe’s leading clearing house, today published the study “The Future of Central Clearing – Maximizing capital and cost efficiency through an integrated cross-product CCP clearing service”. The study was supported by and commissioned to Oliver Wyman, a leading global management consulting firm.
The study reviews how new capital and collateral requirements impact derivatives and securities financing markets. The analysis shows that netting efficiency, default fund structure and collateral efficiency are core drivers for capital efficiency. Sell- and buy-side participants alike can substantially lower their capital and funding cost by actively pooling clearing business on an integrated cross-product CCP. Besides achieving savings from cross-margining OTC and listed derivatives, significant efficiencies may be realized from cross-product exposure netting, an integrated default fund structure and collateral management services.
“The decision how to optimally allocate exposures across CCPs is the critical driver for sell- and buy-side participants in order to maximize efficiencies. Our analysis provides for the first time a full in-depth quantification from the perspective of a market participant. The results show that Eurex Clearing’s approach to create an integrated cross-product offering allows substantial cost savings,” said Matthias Graulich, Chief Client Officer of Eurex Clearing.
New regulations to strengthen the safety and resilience of financial markets such as Basel III, Capital Requirements Directive IV (CRD IV) or EMIR increase capital and collateral requirements for derivatives and securities financing transactions. The study includes detailed case studies for typical portfolios of a global and a regional bank as well as for a mutual and a hedge fund and quantifies the cost components for interest rate derivatives, repo and securities lending exposures.
For these asset classes an integrated cross-product CCP structure with a broad collateral spectrum can deliver up to 4–5 billion euros incremental cost benefits to the European sell- and buy-side community combined.
Eurex Clearing is the hub for Euro-denominated equity as well as interest rate derivatives offering CCP services for Interest Rate Swaps, Bund, Bobl, Schatz and Euribor futures, as well as repo and securities lending transactions in an integrated clearing model. Starting on 26 May, Eurex Clearing will launch the second release of Eurex Clearing Prisma, the new portfolio based risk management system, allowing cross-margining of OTC and listed fixed-income derivatives.
Study can be found on the website
