Eurex Clearing To Offer ‘Direct Contractual Relationship' to Buy-Side Participants

This arrives ahead of the June deadline for the clearing obligation of standardized OTC derivatives in Europe.

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Eurex Clearing unveiled plans to launch a new membership type that will allow buy-side participants to have a direct contractual relationship with the clearinghouse facilitated by a clearing agent.

Dubbed ISA Direct, the service, which is scheduled to go live this summer, aims to address changes in the regulatory landscape, according to a press release. It will initially be offered for Eurex Clearing's interest rate swaps and repo transactions of Eurex Repo's Select Finance service, according to the release, with listed derivatives and securities lending transactions to be rolled out thereafter.

"ISA Direct alleviates the regulatory requirement to centrally clear OTC derivatives in several ways. By enabling us to become a direct member of the CCP, our concerns regarding counterparty credit risks, clearing costs and portability of our assets are much better addressed compared to the traditional client clearing model," said Daniel Berner, CIO Swiss Life Switzerland, in a statement.

In June, the clearing obligation for standardized OTC derivatives in Europe will begin to be phased in. The company says that the pool of trading counterparts and clearing brokers is shrinking, "and securities financing transactions are increasing due to significant capital charges resulting from regulatory requirements such as leverage ratio, risk-weighted assets (RWA) charges or the net stable funding ratio (NSFR) requirements," according to Eurex.

With ISA Direct, "the clearing agent acts as agent to cover the default fund contribution, default management obligations and optionally certain operations and financing functions," while the member firm maintains legal and beneficial ownership of the collateral.

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