13 Oct 2017

Eurex Clearing

“Greater choice and competition”

Eurex Clearing CEO Erik Müller discussed the new Partnership Program with German financial daily Börsen-Zeitung. This excerpt gives some insight into the reasons behind the model.

Erik Müller
Erik Müller, CEO of Eurex Clearing, Deutsche Börse’s clearing house
What does Deutsche Börse/Eurex Clearing aim to accomplish with the Partnership Program?
(…) In collaboration with market participants, we developed an attractive offering with a fair distribution of rights and obligations that is aimed at establishing a liquid marketplace for interest rate swap clearing in the euro zone. This way, we share economic success and governance with our clients.

Why are you so interested in the market and how large is your share at this time?
With a daily volume of €3 trillion, the interest rate swap market is the world’s second largest financial market after the FX market. As far as currency goes, the euro is the second most important after the US dollar. (….) We are aiming for exponential growth, and see a good chance for that over the next 12 to 18 months.

The approach you propose almost sounds like Eurex Clearing is turning clients into shareholders?
That’s one way to look at it. Shareholders participate in economic success and have a say in matters. That is precisely the basis of our program too. However, we achieve this without issuing shares, as issuing shares in a CCP is not completely without problems. Banks have to back their equity holdings with capital, and pension funds are subject to other restrictions. In short, we wanted to create a program that is open to all client groups and that offers clear benefits for the market as a whole.

Why is Deutsche Börse offering this program now?
Our clients have to deal with considerable uncertainties in terms of the political and regulatory framework, particularly in the clearing business. (…) As a market operator, we are responsible for financial market stability and have decided to offer our clients a genuine partnership in interest rate swap clearing.

Which market participants have come on board and when does the program start?
We have developed the program in very close collaboration with key market players. Some of the major banks in this market, Bank of America Merrill Lynch, Citigroup, Commerzbank, Deutsche Bank, J.P. Morgan and Morgan Stanley, have already signalled their interest. There is also sizeable demand from other interested parties in the US, the UK and continental Europe. Registration for the program started on 9 October 2017. Early sign-up by 20 November 2017 promises clients additional benefits.

How likely is the program to succeed?
Success will depend on how strongly market participants commit to the program and view it as more than just insurance against political and regulatory developments. However, I am very confident, because this initiative uses clients and strengthens the entire financial market. It creates greater choice and competition, improves price transparency and reduces concentration risk.

What do Deutsche Börse shareholders say about this? Deutsche Börse has not necessarily shared its success with clients in the past.
The program is entirely consistent with Deutsche Börse’s strategic objectives – more growth and client focus. Nothing has changed in the financial medium-term goals for interest rate swap clearing – €50–70 million in revenue for Eurex in 2019. The program should, however, increase the likelihood of achieving these goals.

What role does Eurex Clearing AG play for Deutsche Börse?
In the derivatives segment (Eurex), Eurex Deutschland gives Deutsche Börse an international derivatives exchange, while Eurex Clearing gives it one of the world’s leading clearing houses (CCP). Since the financial crisis, if not earlier, the significance of CCPs and their contribution to financial market stability have also been recognised by the broader public.