The Clearing Corporation (CCorp) and Eurex Clearing said they have finalized terms of their Global Clearing Link. As a result, CCorp has requested that the Commodity Futures Trading Commission (CFTC) take action to permit implementation of the first phase of the Global Clearing Link.
“With this phase of the Global Clearing Link, we deliver to our customers trading on Eurex the benefits of global reach with local clearing and clearing choice,” said Rudolf Ferscha, CEO of Eurex. “The opportunity of clearing European benchmark products in the U.S. is an important expansion of our global liquidity network.”
The Global Clearing Link, when fully implemented, will allow customers of Eurex and Eurex US to choose their clearing house and will provide fungibility of certain products between the two exchanges. This will result in collateral pooling, portfolio margining opportunities and cost savings through streamlined processes, greatly enhancing capital efficiency.
On an operational level, customers will have the ability to leverage existing clearing relationships and increase market efficiencies and opportunities. Full implementation of the Global Clearing Link will require further CFTC action beyond that which has been requested by CCorp for the first phase of the Link.
Subject to the receipt of all required regulatory approvals, it is anticipated that the Global Clearing Link will be implemented in two phases. Phase I will enable CCorp clearing participants to clear European benchmark derivatives traded on Eurex. Among these products are the most liquid benchmark contracts worldwide: Bund, Bobl and Schatz futures and options as well as those on the DAX and Dow Jones Euro STOXX 50.
CCorp clearing participants will be able to benefit from portfolio margining between European and U.S. products and one common collateral pool and will be able to leverage their infrastructure, the company said. Significantly, US traders clearing European products through CCorp clearing participants will be able to keep their margin funds in a segregated environment, subject to US rules regarding fiduciary obligations of intermediaries and the US insolvency regime. Phase I is targeted for launch upon receipt of CFTC approval. Technical simulation for the first phase of the link began on April 19, 2004.
In Phase II, members of Eurex Clearing will be able to clear US and European benchmark products traded at Eurex US, and use one common collateral pool to portfolio-margin European and U.S. products. It is expected that European benchmark derivatives currently traded exclusively on Eurex will be cross-listed on Eurex US allowing for 21 hours of trading and full fungibility of these products.
The Global Clearing Link, including the contractual relationship between CCorp and Eurex Clearing, is designed to leverage existing processes and infrastructures while at the same time preserving established clearing member relationships. CCorp will act as central counterparty to all transactions on Eurex US and Eurex Clearing will fulfil this function for Eurex, a spokesman said.