EurexOTC Clear: Introduction announcement of EurexOTC Clear Release 12.0 including LIBOR conversion dress-rehearsal dates

Please note: The simulation date has changed to 19 October 2021.

1.    Introduction

With this circular, Eurex Clearing announces the production launch of EurexOTC Clear Release 12.0 on Monday, 22 November 2021.

In this context, the following highlights of OTC Release 12.0 are planned:

• Fallback pricing of Libor-referencing trades based on ISDA fallback methodology, 
• Conversion of GBP, CHF, and JPY trades referencing LIBOR benchmarks, 
• Rate blending enhancement for level 3 netting, 
• Clearing eligibility checker, 
• TriOptima client compression enhancements, 
• Bunched order identifier attribute addition, 
• ARNU name field update, 
• Changes to the EurexOTC Clear interfaces (GUI, Reports, FpML interface),
• Introduction of GBP/USD RFR XCCY Swaps. 

Please see a detailed list of the changes that are part of EurexOTC Clear Release 12.0 in section 3.A. below.

The timeline for the new OTC Release 12.0 is as follows:

Simulation start: 13 October 2021

To allow Clearing Members multiple testing possibilities, Eurex Clearing will perform two dress-rehearsals for LIBOR conversion at the following dates: 

1. from 19 - 21 October 2021 
2. from 9 - 11 November 2021.

Production start: 22 November 2021

Learn now more about EurexOTC Clear Release 12.0 on our dedicated initiative page under the following link: Support > Initiatives & Releases > EurexOTC Clear Releases > EurexOTC Clear Release 12.0. System documentation, circulars, timeline and much more information will be available there for you.

2.  Required action

Functions, services, and technical changes to be introduced with this Release might have an impact on the internal processes of Eurex Clearing Members which clear EurexOTC Clear products (hereafter: EurexOTC Clear Members). 

Therefore, it might be necessary for EurexOTC Clear Members to update their internal processes and technical interfaces (e.g. XSDs for EurexOTC Clear Reports, Eurex Clearing FpML Interface).

• In case of cooperation with back-office vendors, EurexOTC Clear Members should contact their third-party providers as soon as possible to ensure that the necessary adjustments can be made.
• Please check whether you have registered and/or updated your Release Contacts for EurexOTC Clear via the Member Section of Deutsche Börse Group website, under Release Contacts.
• In parallel, please subscribe to EurexOTC Clear circulars and newsflashes on our subscription website under the following link in order to remain updated, as any communication regarding OTC Release 12.0 will only be distributed via circulars and newsflashes:

Support > Information Channels > Circulars & Newsflashes > Subscription page 

3.  Details of the initiative

A. Changes to be introduced with EurexOTC Clear Release 12.0

• Fallback pricing of Libor-referencing trades based on ISDA fallback methodology
• Conversion of GBP, CHF, and JPY trades referencing LIBOR benchmarks
• Rate blending enhancement for netting level 3
• Clearing Eligibility Checker
• TriOptima client compression
• Bunched order identifier attribute addition
• ARNU name field update
• GUI enhancements to improve usability
• Report enhancements
• Introduction of GBP/USD RFR XCCY Swaps

Eurex Clearing has provided a description of the changes that will be introduced with EurexOTC Clear Release 12.0 (hereafter: OTC Release 12.0) in the Release Notes via the Member Section of Deutsche Börse Group under the following path:

Resources > Eurex Clearing > Documentation & Files > EurexOTC Clear > System Documentation > Overview

All changes will be reflected via documentation updates which will be published according to the attached “Eurex Clearing Member Communication Calendar”.

All documents that are updated as part of OTC Release 12.0 will be available in the Member Section of Deutsche Börse Group under the path mentioned above, under “System documentation”, at the appropriate time.

B. Overview of functional changes

Application of the ISDA fallback methodology for pricing OTC Cleared trades referencing LIBOR

With OTC Release 12.0, Eurex Clearing will implement the fallback pricing of LIBOR-referencing trades based on ISDA fallback methodology and using the fallback spread calculated and fixed by Bloomberg. This might have an impact on the net present values of the affected trades (all OTCClear trades referencing USD, CHF, GBP and JPY Libor) on the first day after the Release.

Conversion of GBP, CHF and JPY trades referencing LIBOR benchmarks

As stated in Eurex Clearing Newsflash as of 26 May 2021, Eurex Clearing introduced its intention to actively convert OTC Clear IRS and basis swaps referencing CHF, GBP, and JPY LIBORs before index cessation date. 

Please find the below table for more information about the LIBOR transition:

Due to previously limiting the eligibility of Forward Rate Agreements (FRAs) in CHF, GBP and JPY maturing beyond 1 October 2021, Eurex Clearing will not have any outstanding exposure in FRAs in the affected currencies and thus they will not be part of the planned conversion.

An important milestone for testing is performing the switches in the simulation environment. Hence, to allow Clearing Members multiple testing possibilities, Eurex Clearing will perform two dress-rehearsals at the following dates: 

• First dress-rehearsal of GBP, CHF and JPY trades referencing LIBOR benchmarks conversion process: 19 - 21 October 2021 
• Second dress-rehearsal of GBP, CHF and JPY trades referencing LIBOR benchmarks conversion process: 9 - 11 November 2021.

The detailed booklet explaining the conversion from operational and methodological perspective will be published by 16 July 2021 in the Member Section of Deutsche Börse Group. The document "Eurex Clearing - Libor Trade Conversion Booklet" will be available in the  under the following path:

Resources > Eurex Clearing > Documentation and Files > Benchmark Transition Information > LIBOR Trade conversions

Rate blending enhancement for Netting Level 3

Trades that have the same netting attributes which are eligible for netting at Netting Level 3 will be as usual sorted by trade ID, and then pairwise netting is performed at Netting Level 3. In case the outcome is a single netted trade, it is then used to net with other trades with the same netting attributes. In case the outcome is 2 netted trades (using the exception handling algorithms), these trades are not used for further netting on a particular day. The reuse of single netted trades to net with other trades having the same netting attributes allows netting of more than 2 trades up to n (n denoting an arbitrary integer greater than 2) number of trades at Netting Level 3.

In addition, Zero Coupon Fixed Amount (ZCFA) Trades will no longer be nettable at Level 3 but at Netting Levels 1 and 2 only.

Clearing Eligibility Checker

On the MC-GUI, Clearing Eligibility Checker will be implemented which verifies the clearing eligibility criteria of trade loading according to the eligibility criteria specified in the EurexOTC Clear product list. In the new Clearing Eligibility Checker window, a user can enter all variables of a trade and receives immediate response, if the trade would be accepted in the OTC Clearing system. Initially this new service is available for Interest Rate Swap (IRS), Basis Swap, Overnight Index Swap (OIS), Zero-Coupon Inflation Swap (ZCIS) and Forward Rate Agreement (FRA) trades in the following currencies: EUR, USD, GBP, JPY, CHF, DKK, SEK, NOK and PLN. XCCY, FX and NDF products are currently not supported in the Clearing Eligibility Checker. 

TriOptima client compression

Multilateral Risk-constrained Client Compression including of end clients into existing compression cycles for EurexOTC Clear Members will be introduced. This enhancement will allow Clearing Members to include client accounts alongside with house accounts.

With OTC Release 12.0, technical readiness of TriOptima client compression will be achieved. Service go-live of the functionality will be announced before the relevant TriOptima compression cycle.

Bunched order identifier attribute addition 

For all bunched order transactions and corresponding allocations, a bunched order ID will be added after novation. The bunched order ID will be visible in a new tag called "buncherOrderId" in the trade notification messages and Member reports. With the new bunched order ID, the linking between the bunched order and its corresponding allocations is possible.

ARNU name field update

While setting up for Advanced Risk Netting Units (ARNUs), maximum allowed characters for a name will be changed from 32 characters to 20 (including the first 4 characters specified as ‘ARNU’). The name may only consist of alphanumeric uppercase characters; special characters are not allowed.

The usage of ARNU is optional, and Clearing Members can request the ARNU setup for their clients by contacting the responsible Key Account Manager.

Further GUI enhancements to improve usability

On the OTC Clear GUI, a Netting Forecast Functionality will make it possible to check in real-time if any particular set of trades is nettable and what the remnant trades will be. For nettable trades, a netting string assignment window has been integrated to allow for assigning strings to multiple trades. The user has the option to use system generated netting strings from the Forecast run. For the trades that are not nettable, Eurex Clearing will make the trade economics available that prevent the trade from successfully netting. 

A new column “Pre-Netting ID” will be added to the Trade Search Results and the Modify table. This column will be populated for the VERIFIED trades with the most recent value of the Pre-Netting ID generated during the execution of the intraday netting forecast runs, scheduled at 10:00 CET, 14:00 CET, 18:00 CET and 21:00 CET. In the Advanced Search on the Cleared Trades window, the search criterion “Pre-Netting ID” is added to the “Trade ID” search drop-down list. The netting string assignment of the VERIFIED trades has also been enhanced to assign strings up to 100 trades at a go. By default, the “Pre-Netting ID” will be suggested as a netting string in the assignment window.

Additionally, replacing download buttons by a Download Window, cancellation process for portfolio transfer, enhancement of the PTE authorization process and a netting parameters window will be introduced.

Report enhancements

A new simplified CSV format of the current CD203 netting forecast report will be introduced to make it easier to identify nettable trades. Intraday versions of the existing CD202 and CD203 reports will be introduced at 10:00 CET, 14:00 CET and 18:00 CET (Production only). The nettingID field of these reports will be renamed to preNettingID. This preNettingID field will be available on trade level in the OTC GUI and can be used when assigning netting strings.

The overview of the report code changes is as follows:
 

Further enhancements are:

• The "buncherOrderId" element will be visible in the following Member reports: Trade Novation Reports (CI200/CB200), Trade Daily Summary Reports (CI201/CB201) and Full Inventory reports (CB202/CB207).
• CI201 report for portfolio transfer trades.
• Variation Margin Classification in Variation Margin Reports (CI203/CC203/CC222).
• Amendment of CC221 "Parameter File" Report.

For further details, please refer to the “EurexOTC Report Manual for OTC Release 12.0”, which will be published by the beginning of September 2021 in the Member Section of Deutsche Börse Group.

Introduction of GBP/USD RFR XCCY Swaps

Eurex Clearing will introduce GBP/USD RFR XCCY swaps, i.e. GBP/USD XCCY swaps referencing the following Risk-Free Rates (RFRs): SONIA for GBP leg and SOFR for USD leg. 

Netting will be temporarily suspended for XCCY Swap trades with OTC Release 12.0 and will be enabled in early 2022.

Please also note the Bloomberg Disclaimer in Attachment 3.

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.

* This item will not meet Release 12.0 production date. Eurex Clearing will announce the new date in a future communication.

Attachments: 

1. Communication Calendar
2. EurexOTC Clear Release 12.0 Functional Release Notes
3. Bloomberg Disclaimer

Further information