Auction process for Equities Derivatives Liquidation Group (LG)

In the Equities Liquidation Group, Eurex Clearing conducts multi-unit auctions, and accepts the highest economically reasonable price per auction unit as winning price for such auction unit.

For Equity LG, generally, Eurex Clearing conducts auctions on LG ensembles (LGEs) level. Currently, the following LG ensembles are predefined: (i) Equity, Equity Index Derivatives and Dividend Derivatives, (ii) Volatility Derivatives and (iii) Total Return Futures. Alternatively, Eurex Clearing can also conduct a pooled auction on Equity LG level, including any of the products assigned to the Liquidation Group. 

At the beginning of the auction, Eurex Clearing discloses a portfolio which reflects the size of one auction unit to all auction participants. The portfolio disclosed by Eurex Clearing is either the actual auction portfolio or the inverse of the actual auction portfolio. Auction participants have to provide Eurex Clearing with both bid-prices and ask-prices for their minimum number of auction units, whereas Eurex Clearing defines the maximum permissible spread between these two prices. For the avoidance of doubt, a negative bid price indicates an amount to be paid by Eurex Clearing to the winning auction participant, whereas a negative ask-price indicates an amount to be paid by the winning auction participant to Eurex Clearing.

When defining the maximum permissible spread, Eurex Clearing either consults the relevant Default Management Committee, or requests a recommendation for a maximum spread from all auction participants and defines the average of such recommendations as maximum spread. Any price, which adheres to the maximum permissible spread, qualifies as economically reasonable.

If a Clearing Member has to provide prices for more than one auction unit, it is in the discretion of the Clearing Member whether it provides the same price for all respective auction units, or whether it provides different prices for different auction units. Clearing Members are also welcomed to provide bids for more auction units than indicated as their minimum requirement by Eurex Clearing. Please click here for a sample file of an auction portfolio in the Equities Liquidation Group.

Equities derivatives can be either options or futures. The value of an option, i.e. the option premium, has to be considered by Clearing Members when pricing a portfolio. All futures position have a value of zero at the beginning of each business day. The relevant cash flow of a futures position is the variation margin resulting from such position at the end of the auction day. When pricing futures positions in a default management auction, it is essential that Clearing Members do not price in the face value of the futures positions. Rather, Clearing Members have to price-in their expectation of how these positions develop during the auction day.

It is possible that an auction portfolio contains Equities Derivatives, which are denominated in different currencies. Eurex Clearing encourages all Clearing Members to take into account currency conventions and potential conversion rates when pricing an Equities Derivatives portfolio.