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OTC Derivatives: Amendments to the Clearing Conditions and to the FCM Regulations

Release date: 17 Jan 2020 | Eurex Clearing

No. 008/2020 OTC Derivatives: Amendments to the Clearing Conditions and to the FCM Regulations

Eurex Clearing Circular 008/20

1.    Introduction

As announced in Eurex Clearing circular 123/19, Eurex Clearing AG (Eurex Clearing) will implement technical and legal changes to the novation criteria for original OTC Interest Rate Derivative Transactions, original XCCY Transactions and original Swap Transactions. In order to facilitate a smooth production phase, Eurex Clearing has decided to advance the effective date for the respective changes from 17 February 2020 to 10 February 2020.

This circular contains information on the detailed validation and handling of the relevant OTC Transactions as well as the amendments to the Clearing Conditions of Eurex Clearing AG (Clearing Conditions) and the FCM Regulations of Eurex Clearing AG (FCM Regulations).

2.    Required action

Clearing Members, Basic Clearing Members, Disclosed Direct Clients, FCM Clearing Members, vendors and other affected contractual parties should take the amendments to the Clearing Conditions and FCM Clearing Conditions into consideration.

3.    Details

A. Changes to the novation criteria for documentation of original OTC Interest Rate Derivative Transactions, original XCCY Transactions and original Swap Transactions

Eurex Clearing is planning to support all master agreement types (i.e. ISDA, DRV, AFB/FBF, EMA, "Österreichischer Rahmenvertrag für Finanztermingeschäfte", etc.) for original OTC Interest Rate Derivative Transactions, original XCCY Transactions and original Swap Transactions in order to allow novation of such transactions. Instead, Eurex Clearing will validate if the field on the source of specifications (i.e. the field “Contractual Definitions”) applicable to the submitted transaction in the trade record submitted by the respective ATS specifies any of the following as the source of specifications applicable to the original transaction: 

  • The contractual definitions issued by ISDA (in particular, the 2000 ISDA Definitions and the 2006 ISDA Definitions),
  • The German Master Agreement for Financial Derivatives Transactions ("Rahmenvertrag für Finanztermingeschäfte", the “DRV”) or
  • The AFB/FBF Master Agreement.

If the field containing the source of specifications applicable to the original transaction is left blank, Eurex Clearing will accept original transactions that are submitted as based on any of the following master agreements: an ISDA Master Agreement, the 2017 ISDA/FIA Clearing Derivatives Execution Agreement, the 2006 Definitions, the DRV or the AFB/FBF Master Agreement.

B.  Treatment of Master Agreements and Contractual Definitions for novated OTC IRD and XCCY Transactions

The “Master Agreement” field on novated OTC IRD and XCCY Transactions is filled with the generic term “ECAG_CC”. Once bilateral trades are novated, the cleared trade is always populated with the term "ECAG_CC" to reflect the validity of the Clearing Conditions, regardless of the value in field “Master Agreement” of the bilateral (prenovated) trade. 

The filling of field “Contractual Definition” is for novated IRD and XCCY Transactions in accordance with the following rules: 

  • If the prenovated trade contains the value “ISDA2000”, “ISDA2006”, “AFB/FBF”, “ISDA2006Inflation” or “ISDA2008Inflation” in the field “Contractual Definition”, and a value other than “DRV” and “DERV” in the field “Master Agreement”, the field “Contractual Definition” of the cleared trade is populated with the value “ISDA2006-based”.
  • If the prenovated trade contains the value “DRV” or “DERV” in the field “Contractual Definition”, then, irrespective of the indicated Master Agreement, the field “Contractual Definition” of the cleared trade is populated with the value "DRV-based". 
  • If the prenovated trade contains the value “ISDA2000" or “ISDA2006” in the field “Contractual Definition” and the value “DRV” or “DERV” in the field “Master Agreement”, the field “Contractual Definition” of the cleared trade is populated with the value "DRV-based". 
  • If the prenovated trade contains a blank field “Contractual Definition” and the value “ISDA”, “ISDAFIA-CDEA”, “AFB/FBF”, “1992 ISDA” or “2002 ISDA” in the field “Master Agreement”, the field “Contractual Definition” of the cleared trade is populated with the value “ISDA2006-based”.
  • If the prenovated trade contains a blank field “Contractual Definition” and a value “DRV” or “DERV” in the field “Master Agreement”, the field “Contractual Definition” of the cleared trade is populated with the value “DRV-based”.

Please refer to Attachment 1 for the summary table containing the above-mentioned information.

The populated values will be shown in all reports and messages where the trade details are available in FpML format. 

The legal and technical implementation will become effective on 10 February 2020.

Member documentation will be updated with OTC Release 10.1, which is planned for June 2020.

C. Correction of certain terms used in Chapter II of the FCM Regulations

In Chapter II of the FCM Regulations, the term “OTC Interest Rate Derivative Transaction” is replaced by the correct term “Swap Transaction”, as used throughout the chapter. 

To reflect the changes and amendments, the following provisions of the Clearing Conditions and FCM Regulations will be amended as outlined in Attachments 2 and 3:

  • Chapter VIII Part 2 Number 2.1.5.2 (1) and (2) of the Clearing Conditions
  • Chapter VIII Part 4 Number 4.1.5.2 (1) of the Clearing Conditions 
  • Chapter II Part 1 Number 1.8.2 of the FCM Regulations
  • Chapter II Part 2 Number 2.1.5.2 (1) and (2) of the FCM Regulations

Attachments 2 and 3 are replacements for Attachments 6 and 7 of Eurex Clearing circular 123/19.

As of the effective date, the full version of the amended Clearing Conditions and FCM Regulations will be available for download on the Eurex Clearing website www.eurexclearing.com under the following link:

The changes and amendments to the legal framework of Eurex Clearing AG published by this circular are deemed accepted by each affected contractual party of Eurex Clearing AG, unless the respective contractual party objects by written notice to Eurex Clearing AG within the first ten (10) Business Days after publication. Any ordinary right of Eurex Clearing AG to terminate the respective contract (including a Clearing Agreement, if applicable) shall remain unaffected.

Unless the context requires otherwise, terms used and not otherwise defined in this circular shall have the meaning ascribed to them in the Clearing Conditions or FCM Clearing Conditions of Eurex Clearing AG, as applicable. 

Attachments: 

  1. Table: Treatment of Master Agreements and Contractual Definitions for novated OTC IRD and XCCY Transactions
  2. Amended sections of Chapter VIII Part 2 Number 2.1.5.2 (1) and (2) of the Clearing Conditions,
    Amended sections of Chapter VIII Part 4 Number 4.1.5.2 (1) of the Clearing Conditions
  3. Amended sections of Chapter II Part 1 Number 1.8.2 of the FCM Regulations,
    Amended sections of Chapter II Part 2 Number 2.1.5.2 (1) and (2) of the FCM Regulations

Recipients:

All Clearing Members, Basic Clearing Members, Disclosed Direct Clients, FCM Clearing Members, vendors and other affected contractual parties

Target groups:

Front Office/Trading, Middle + Backoffice, IT/System Administration, Auditing/Security Coordination

Contact:client.services@eurexclearing.com
Web: www.eurexclearing.com
Related circular:Eurex Clearing circular 123/19
Authorized by:Heike Eckert