The effects of volatile markets: lessons learned and measures taken

Volatility is one of the most important buzzwords of our time. Volatile market conditions have challenged our industry from the start of the COVID pandemic to Russia’s ongoing war in Ukraine. Volatility and its impact on markets and systems is also one of the main topics at the upcoming FIA Forum 2022 on 12 July in Frankfurt. For Eurex, Melanie Weber, Head of Derivatives Clearing Design, is participating. We took the opportunity to talk to her about the topics that will be discussed on the panel.

Melanie, what are the main topics you will discuss with your colleagues?

There will be a lot to talk about, but I expect that our main discussion points will be the most acute operational and technological challenges caused by volatility and how we can deal with them and find innovative solutions. We will also talk about the need for common standards for our industry and their processes.

Are the challenges of volatility always similar or did you detect major differences between COVID in 2020 and the Ukraine war now in 2022?

During both the COVID-19 outbreak and the war in Ukraine, our systems have remained stable and worked very well. We are very satisfied that our systems have been able to handle high volumes throughout the whole period. In other areas we noticed some differences between 2020 and today. Let me give you some concrete examples: in 2020, almost all Clearing Members asked for an extension of clearing time for several hours. And the requests repeated for days and even weeks. During the Ukraine war, the amount of member requests for clearing hours extension was significantly lower. There are also differences in the use of our clearing functionalities. During the COVID crisis the usage of position transfers significantly increased – something we did not observe in 2022.

Any other observations?

Once again, our good relationships and the personal contact with our Clearing Members helped us to discuss and solve any kind of problems during the two high-volume times. After the COVID crisis, we could really see that members individually reviewed what happened and started to work with our colleagues in the different teams to find out how to improve the communication and processing between the respective member and us. It was a real collaboration, and I think the improvements are noticeable in 2022.

What has already been done and what still needs to be improved?

Coming back to the increased usage of position transfers during 2020, this functionality often comes with manual efforts for the involved members. To support them and reduce the need for position transfers we already extended the transaction duration, i.e., the time in which the original transaction can be touched, from T+3 to T+5 in autumn 2020.

Another observation from 2020 was that there is room for improvement around our average pricing functionality. We started to work very closely with our Clearing Members to re-design this in a way that creates additional value and meets their requirements. What makes this difficult is that our members are all unique and have different expectations of us depending on their customers or their business. Compromises had to be found and instead of a re-design of our existing offering, we are very happy that a new additional average pricing functionality is part of our upcoming C7 Release in November 2022.

However, this is also a perfect example that a certain level of standards across all participants in ETD clearing could have helped to speed up the process of launching such an innovation to address challenges from the high-volume times.

Don’t miss Melanie Weber and her industry peers Markus Konz, Head of Derivatives Operations at Helaba, Stefan Lundgren, Listed Derivatives Markets Clearing at Deutsche Bank AG, Neha Sekar Waters, Executive Director, Global Markets at Goldman Sachs International, and David White, Chief Commercial Officer at Cloud Margin at the FIA Forum Frankfurt 2022. On 12 July 2022 at 13:15 they will discuss “Improving Industry Operations to Cope with Volatile Markets”.