Eurex is to take a 15 per cent stake in The Clearing Corporation, the CCP for the Chicago Board of Trade and the largest futures clearing agent in the United States, at a cost of $15 million. The remaining 85 per cent will be retained by the existing shareholders. The Clearing Corporation will formally change its name from Board of Trade Clearing Corporation to The Clearing Corporation.
Under the agreement, The Clearing Corporation becomes Eurex’s partner of choice to clear trades on its new all-electronic U.S.-based exchange to be established in early 2004. Eurex will also have one seat on the Board of Directors of the Clearing Corporation. The existing shareholders will elect the remaining eight board members.
“Our partnership with Eurex allows The Clearing Corporation to maintain its independence and history of innovation in the derivatives business while ensuring that Chicago remains a centre of futures trading activity,” says Dennis A. Dutterer, President and CEO of The Clearing Corporation.
The guarantee function currently performed through the $100 million capital of the Clearing Corporation will now be assumed by a separate clearing fund. Which means customers of the Clearing Corporation will no longer need to hold a stake in the company in order to clear through it. The Clearing Corporation is offering to buy back shares in order to allow shareholders to monetize a certain amount of their equity interest while continuing to use The Clearing Corporation’s clearing services.
The arrangement between The Clearing Corporation and Eurex is non-exclusive and The Clearing Corporation will continue to develop business arrangements with other exchanges and derivatives marketplaces. However, Eurex and The Clearing Corporation will make joint decisions concerning core areas of the partnership such as cross margining additional products with Eurex U.S. products. The initial term of the arrangement is seven years with subsequent automatic three year renewals.
“The new structure of the Clearing Corporation will position our company for growth and additional opportunity,” says Michael Dawley, Chairman of the Board of Governors of The Clearing Corporation. “Our partnership with Eurex opens a new era in global derivatives trading, and a totally new era for The Clearing Corporation as an independent user owned company. Members of The Clearing Corporation and their customers will participate in a new, all-electronic, global marketplace that will offer the lowest cost and highest value in the business.”
Eurex says the partnership will give customers of The Clearing Corporation direct access to Eurex’s European products. At the same time Eurex customers worldwide will be able to clear Eurex’s U.S. products, as introduced, via both Eurex Clearing as well as The Clearing Corporation. In other words, customers will be able to leverage their existing infrastructures to access both U.S. Dollar- and Euro- denominated products through the global clearing partnership. Eurex estimates savings of up to 95 percent of their current margin requirements as a result, substantially increasing the efficiency of capital employed. This will be achieved by enhanced cross margining and reduced collateral through the use of collateral pools for a wider range of products. Customers will enjoy full fungibility, allowing them to open positions in the European market and close them in the U.S market and vice versa.
“The Clearing Corporation and Eurex will create great value for customers and accelerate growth throughout the industry,” concludes Eurex CEO Rudolf Ferscha said. “This agreement forms an unprecedented industry partnership and marks a significant milestone in our plans to launch a U.S. exchange in early 2004. Through this partnership Eurex teams up with the leading industry participants in the U.S market to provide the best services for the industry worldwide.”