Centrally Cleared Derivatives
between the failed members would
Figure4: AfterNettingMarginCoverage
6
significantly reduce the risk to the
clearinghouse, other members and
their clients. Kolanovic and
Bharwani looked at two scenarios,
no correlation between the failed
firms and the failure was due to
exogenous circumstances so that
there would be a maximum netting
benefit between the failed clearing
members. The other situation
would be that the failed clearing
members held positions that did
correlate with each other and so
therefore the benefit of netting was
reduced. In this second scenario
Kolanovic and Bharwani assumed
Source: Counterparty Risk of Listed Derivatives, M.Kolanovic & A. Bharwani, JPMorgan.
a 50% correlation between clearing
members’ open positions. EurexFlexibleFutures&Options
7
–
Intermsoftenclearingmembersdefaultingsimultaneously, BringingOTCOnExchange
with random positions between members, the total margin Eurex’s Flexible Futures and Options facility allows
would cover roughly three times the expected loss and where institutional investors the flexibility of customised bilateral
there was a 50% correlation between members’ positions the OTC derivatives transactions with the benefit of a centralised
netting of positions would result in margins covering just clearinghouse and thereby a mitigation of counterparty risk.
under twice the expected loss (Figure 4). Netting of failed The OTC Flexible Options functionality enables the
clearing members’ positions significantly reduces the risk for customisationofmorethan800equity,equityindexandfixed
the clearinghouse of simultaneous member default. income options contracts traded on Eurex.
8
WhyEurexClearing? Eurex Flexible Options allow institutional investors to
EurexClearingistheleadingclearergloballyinthenovation customise Eurex options in terms of:
of OTC derivatives transactions onto an exchange:
•
Exercise Price – The selected exercise price can be defined
•
Since January 2005, 2,290 million contracts have been above the highest exercise price of the corresponding
cleared through Eurex Clearing’s OTC facilities. regular option series or may be the lowest exercise price or
•
In 2008, a monthly average of more than 75 million somewhere in between. Maximum exercise prices for
contracts have been traded – May 2008 saw a record Flexible Options are limited to 2.5 times the highest
volume of 99.38 million contracts transacted. available standard exercise price in the respective product.
•
Eurex Clearing provides OTC services in a wide range of
•
Expiration Date – The expiration date can be any
asset classes – equity, fixed income and carbon
7
(that is, exchangedaystartingfromthenextbusinessdayuntilthe
CERs and EUAs). longest currently active standard expiration date of the
•
Eurex Clearing is the only CCP globally that performs near standard contract.
time position margining in ten minute intervals
•
Exercise Style – American or European exercise can be
throughout the trading day. selected.
•
Highest payment and collateral standards – process
•
Settlement– Cash or physical settlement.
overnight margin payments in central bank money with
collateral pool complying with European Central Bank The Eurex Flexible Options screen facilitates the novation of
requirements as accepted for central bank credit facilities a bilaterally agreed OTC option position to Eurex Clearing.
with liquidation haircuts. The efficient STP nature of the transfer of the bilateral
•
Risk reports are provided every ten minutes. transaction to the clearinghouse allows for:
40 worldPower2009
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