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Qualified Clearing Staff Preparation Material for the Clearer Test Market Module Eurex Repo Eurex Clearing AG May 2015

© Eurex Clearing 2015 Deutsche Börse AG (DBAG), Clearstream Banking AG (Clearstream), Eurex Frankfurt AG, Eurex Clearing AG (Eurex Clearing) as well as Eurex Bonds GmbH (Eurex Bonds) and Eurex Repo GmbH (Eurex Repo) are corporate entities and are registered under German law. Eurex Zürich AG is a corporate entity and is registered under Swiss law. Clearstream Banking S.A. is a corporate entity and is registered under Luxembourg law. U.S. Exchange Holdings, Inc. and International Securities Exchange Holdings, Inc. (ISE) are corporate entities and are registered under U.S. American law. Eurex Frankfurt AG (Eurex) is the administrating and operating institution of Eurex Deutschland. Eurex Deutschland and Eurex Zürich AG are in the following referred to as the “Eurex Exchanges”. All intellectual property, proprietary and other rights and interests in this publication and the subject matter hereof (other than certain trademarks and service marks listed below) are owned by DBAG and its affiliates and subsidiaries including, without limitation, all patent, registered design, copyright, trademark and service mark rights. While reasonable care has been taken in the preparation of this publication to provide details that are accurate and not misleading at the time of publication DBAG, Clearstream, Eurex, Eurex Clearing, Eurex Bonds, Eurex Repo as well as the Eurex Exchanges and their respective servants and agents (a) do not make any representations or warranties regarding the information contained herein, whether express or implied, including without limitation any implied warranty of merchantability or fitness for a particular purpose or any warranty with respect to the accuracy, correctness, quality, completeness or timeliness of such information, and (b) shall not be responsible or liable for any third party’s use of any information contained herein under any circumstances, including, without limitation, in connection with actual trading or otherwise or for any errors or omissions contained in this publication. This publication is published for information purposes only and shall not constitute investment advice respectively does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. This publication is not intended for solicitation purposes but only for use as general information. All descriptions, examples and calculations contained in this publication are for illustrative purposes only. Eurex and Eurex Clearing offer services directly to members of the Eurex exchanges respectively to clearing members of Eurex Clearing. Those who desire to trade any products available on the Eurex market or who desire to offer and sell any such products to others or who desire to possess a clearing license of Eurex Clearing in order to participate in the clearing process provided by Eurex Clearing, should consider legal and regulatory requirements of those jurisdictions relevant to them, as well as the risks associated with such products, before doing so. Eurex derivatives are currently not available for offer, sale or trading in the United States or by United States persons (other than EURO STOXX 50® Index Futures, EURO STOXX 50® ex Financials Index Futures, EURO STOXX® Select Dividend 30 Index Futures, EURO STOXX® Index Futures, EURO STOXX® Large/Mid/Small Index Futures, STOXX® Europe 50 Index Futures, STOXX® Europe 600 Index Futures, STOXX® Europe 600 Banks/Industrial Goods & Services/Insurance/Media/Travel & Leisure/Utilities Futures, STOXX® Europe Large/Mid/Small 200 Index Futures, Dow Jones Global Titans 50 IndexSM Futures (EUR & USD), DAX®/MDAX®/TecDAX® Futures, SMIM® Futures, SLI Swiss Leader Index® Futures, MSCI World/Europe/ Europe Value/Europe Growth/Emerging Markets/Emerging Markets Latin America/Emerging Markets EMEA/Emerging Markets Asia/China Free/India/Japan/Malaysia/South Africa/Thailand/AC Asia Pacific ex Japan Index Futures, TA-25 Index Futures, Daily Futures on TAIEX VFutures, VSTOXX® Futures, Gold and Silver Futures as well as Eurex agriculture, property and interest rate derivatives). Trademarks and Service Marks Buxl®, DAX®, DivDAX®, eb.rexx®, Eurex®, Eurex Bonds®, Eurex Repo®, Eurex Strategy WizardSM, Euro GC Pooling®, FDAX®, FWB®, GC Pooling®,,GCPI®, MDAX®, ODAX®, SDAX®, TecDAX®, USD GC Pooling®, VDAX®, VDAX-NEW® and Xetra® are registered trademarks of DBAG. All MSCI indexes are service marks and the exclusive property of MSCI Barra. ATX®, ATX® five, CECE® and RDX® are registered trademarks of Vienna Stock Exchange AG. IPD® UK Annual All Property Index is a registered trademark of Investment Property Databank Ltd. IPD and has been licensed for the use by Eurex for derivatives. SLI®, SMI® and SMIM® are registered trademarks of SIX Swiss Exchange AG. The STOXX® indexes, the data included therein and the trademarks used in the index names are the intellectual property of STOXX Limited and/or its licensors Eurex derivatives based on the STOXX® indexes are in no way sponsored, endorsed, sold or promoted by STOXX and its licensors and neither STOXX nor its licensors shall have any liability with respect thereto. Dow Jones, Dow Jones Global Titans 50 IndexSM and Dow Jones Sector Titans IndexesSM are service marks of Dow Jones & Company, Inc. All derivatives based on these indexes are not sponsored, endorsed, sold or promoted by Dow Jones & Company, Inc. Dow Jones & Company, Inc. does not make any representation regarding the advisability of trading or of investing in such products. Bloomberg Commodity IndexSM and any related sub-indexes are service marks of Bloomberg L.P. All references to London Gold and Silver Fixing prices are used with the permission of The London Gold Market Fixing Limited as well as The London Silver Market Fixing Limited, which for the avoidance of doubt has no involvement with and accepts no responsibility whatsoever for the underlying product to which the Fixing prices may be referenced. PCS® and Property Claim Services® are registered trademarks of ISO Services, Inc. Korea Exchange, KRX, KOSPI and KOSPI 200 are registered trademarks of Korea Exchange Inc. Taiwan Futures Exchange and TAIFEX are registered trademarks of Taiwan Futures Exchange Corporation. Taiwan Stock Exchange, TWSE and TAIEX are the registered trademarks of Taiwan Stock Exchange Corporation. BSE and SENSEX are trademarks/service marks of Bombay Stock Exchange (BSE) and all rights accruing from the same, statutory or otherwise, wholly vest with BSE. Any violation of the above would constitute an offence under the laws of India and international treaties governing the same.

The names of other companies and third party products may be trademarks or service marks of their respective owners..

Eurex Clearing Handbook Version 2.0 Preparation Material for the Clearer Test Market Module Eurex Repo

May 2015

Table of Contents Page 3 of 53

Table of Contents

Amendments to Preparation Material for the Clearer Test 5

Abbreviations 6

1 Introduction 7 1.1 Structure of the test, question types and evaluation 7 1.2 Contact/Registration 8

2 Repo Basics and Eurex Repo 9 2.1 Repo Basics 9 2.1.1 Classic Repo 9 2.1.2 Legal Basics 10 2.1.3 Characteristics of Repo Trades 11 2.1.4 Motives for Repo Trades 11 2.2 Eurex Repo 12 2.2.1 Euro Repo Market 13 2.2.2 GC Pooling 15 2.2.3 GC Pooling Select Invest 19 2.2.4 SecLend Market 20 2.3 Sample Questions 22

3 Clearing Conditions for Eurex Clearing AG 24 3.1 Prerequisites for Clearing Licenses 24 3.1.1 Eurex Repo Clearing License 24 3.1.2 Specific Repo License / GC Pooling Select Invest 24 3.2 Provision of Margin Collateral in Case of GC Pooling transactions 25 3.3 Clearing of Eurex RepoTransactions 25 3.4 General Provisions 26 3.5 Daily evaluation for Margining 27 3.6 Settlement of Eurex Repo Transactions 27 3.7 Sample Questions 28

4 Delivery Management 29 4.1 Settlement Locations 29 4.2 Member Specific Default Settings 30 4.2.1 Dual or Single Instruction Netting 30 4.2.1.1 Dual Instruction Netting (DIN) 30 4.2.1.2 Single Instruction Netting (SIN) 31 4.2.2 Eurex Bonds/Repo Separation 31 4.3 (I)CSD Netting 31 4.4 Immediate Settlement Instructions 32


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Table of Contents Page 4 of 53

4.5 Timelines within Delivery Management 32 4.6 Corporate Actions Processing 33 4.6.1 Coupon Compensation 34 4.6.2 Coupon Compensation Payment 34 4.7 Failure to Deliver 35 4.7.1 Failure to Deliver by the delivery day of the Front Leg 35 4.7.2 Failure to Deliver by the delivery day of the Term leg 35 4.8 Sample Questions 37

5 Risk Management 38 5.1 Risked Based Margining in the Euro Repo Market 39 5.2 GC Pooling Margin Methodology 41 5.2.1 Current Liquidating Margin 42 5.2.2 Additional Margin 43 5.2.3 Cross-currency Margin 43 5.2.4 Example – CLM Securities and Additional Margin 44 5.3 Sample Questions 47

6 Collateral Management 48 6.1 Assignment of securities in the Euro Repo Market 48 6.2 Automatic allocation via Xemac/CmaX in the GC Pooling Market 49 6.2.1 Basics of Xemac/CmaX 49 6.2.2 Automatic Allocation for GC Pooling 49 6.2.3 Reuse 50 6.2.4 GC Pooling Accounts with Clearstream Banking and Transfer of Collateral 51 6.3 Sample Questions 53

Eurex Clearing Handbook Version 2.0 Preparation Material for Clearer Test Market Module Eurex Repo

May 2015

Amendments to Preparation Material for the Clearer Test Page 5 of 53

Amendments to Preparation Material for the Clearer Test

This list tracks all changes in the preparation material between regular updates.

Date Version Chapter Changes

May 2015 2.0 2 4, 5 and 6

Revised and GC Pooling INT MXQ Basket and CHFas cash currency added, new name “GC Pooling Select Invest” Revised

Eurex Clearing Handbook Version 2.0 Preparation Material for Clearer Test Market Module Eurex Repo

May 2015

Abbreviations Page 6 of 53

Abbreviations

Term Description

AM Additional Margin

CBF Clearstream Banking Frankfurt

CBL Clearstream Banking Luxembourg

CCP Central Counterparty

CM Clearing Member

CmaX Collateral Management System of CBL

CLM Current Liquidating Margin

CSD Central Securities Depository

DIN Dual Instruction Netting

DTP Day Time Processing

ECB European Central Bank

EoD End of Day

EONIA Euro Overnight Index Average

eXas Electronic Exchange Admission Service

GC General Collateral

GCM General Clearing Member

ICSD International Central Securities Depository

ISI Immediate Settlement Instruction

NTP Night Time Processing

QCS Qualified Clearing Staff

RTS Real Time Settlement

SDS Same Day Settlement

SC Xemac Special Conditions Xemac

SIN Single Instruction Netting

STP Straight-through processing

Xemac Collateral Management System of CBF


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1 Introduction Page 7 of 53

1 Introduction

The handbook was developed to help you prepare for the Clearer Test Market Module Eurex Repo. The handbook summarizes the relevant contents from different sources covered in this test. It describes the different services of the clearing process and is complemented with sample questions for the test. The sources of information for specific topics as well as the preparation material for the Clearer Test Basic Module are referenced where relevant to provide the reader with access to more detailed information which may be of interest, but is not required for this test. The current version can be downloaded via: www.deutsche-boerse.com/qcs_qbo Please note that there will be regular updates.

1.1 Structure of the test, question types and evaluation

The Clearer Test Market Module Eurex Repo is carried out using a computer program, which randomly selects 20 questions from a question pool for each examination candidate. The test can be taken in English and German. There are three different types of questions: • True/False (TF) 2 points • Multiple choice (MC) 2 points • Multiple response (MR) 4 points

MC/MR questions which are not answered will consequently not be assessed (0 points). In case of MR, either one or several answers could be correct and must be marked to get the full number of points. The following evaluation method is used: • for marking the correct answer and not marking the wrong answer one point is given • for marking the wrong answer and not marking the correct answer one point is subtracted So the result could be 4, 2 or 0 points; a negative score will not be given. The following table provides an overview of the number and types of questions to be selected for each topic:

No. Topic TF MC MR No. of questions

1.0 Product Overview 2 2 2 6 2.0 Clearing Conditions 1 2 3 3.0 Delivery Management 1 1 1 3 4.0 Risk Management 1 1 2 4 5.0 Collateral Management 2 1 1 4

Total 7 6 7 20

Participants need 75% of the maximum points to pass the test and have 20 minutes to complete the test.


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1 Introduction Page 8 of 53

1.2 Contact/Registration

We would like to point out that according to the Clearing Conditions for Eurex Clearing AG (“Clearing Conditions”) each Clearing Member must have at least one Qualified Clearing Staff (QCS). A QCS must have passed a Clearer Test consisting of two modules. The basic module is relevant for all licenses. Dates (individual online exam is also possible) and information about the Clearer Test modules can be found under the following link: www.deutsche-boerse.com/qcs_qbo

For further information please contact the Capital Markets Academy: Capital Markets Academy of Deutsche Börse Group Phone: +49 69 211 13767 Fax: +49 69 211 13763 Homepage: http:// deutsche-boerse.com/cma E-Mail: [email protected] To register as a QCS please use the Electronic Exchange Admission Service (eXas). The eXas Service can be found in the member section on the website of Eurex Clearing or under the following link: www.member.eurexclearing.com. For questions about access to the Member Section of Eurex Clearing, please contact the Member Section Team at +49-(0) 69-2 11-1 78 88 or by e-mail to [email protected]. For any questions regarding the features of eXAS, please call the following Member Services & Admission teams:

Location Phone E-Mail Zurich +41-(0) 58-8 54-29 42 [email protected] Paris +33 (0) 155- 27-67 67 [email protected] London +44 (0) 207-8 62-71 65 [email protected] Chicago +1-312-5 44-11 50 customer.support.chicago@deutsche-

boerse.com Frankfurt +49 (0) 69-2 11-1 16 40 [email protected]

http://www.deutsche-boerse.com/qcs_qbo

mailto:[email protected]


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2 Repo Basics and Eurex Repo Page 9 of 53

2 Repo Basics and Eurex Repo

This chapter describes the basics of repos (repurchase agreements). Repos can be traded bilaterally or via a third party (Triparty Repos offered for example by Clearstream Banking Luxembourg). Eurex Repo is a leading European marketplace for electronic repo and securities lending trading involving clearing, collateral management and settlement services. 2.1 Repo Basics

This part of the chapter contains information about different types and characteristics of repos, their legal background and collateralization and some basic motives for repos. 2.1.1 Classic Repo

A repurchase agreement (repo) is a sale of securities versus cash payment with the legal obligation to repurchase securities of the same type (same ISIN) versus cash repayment plus repo rate at a future date. In the course of this transaction securities are transferred from the seller1 to the buyer2 on the settlement day of the purchase transaction (buy date). In return, the seller receives cash from the buyer. On the settlement day of the repurchase transaction (sell date), the securities and the money are transferred back to the seller or buyer, respectively. The purchase agreement is called “front-leg” and the repurchase agreement “term-leg”. This type of transaction is called a “classic“ repo . With a classic repo transaction the cash payment is collateralized by securities (bonds or equities). In order to protect against price fluctuations of these securities during the contract term, the collateral value always covers the cash amount considering risk parameters (i.e. haircuts). If a repo transaction is included in the clearing service of a central counterparty such as Eurex Clearing it is necassary to differentiate between the collateral that the cash taker (seller of securities) has to give in a repo, and the collateral that has to be provided to cover the margin requirements of the clearing house. For better understanding in the following the term “principal collateral” is used for the collateralization of the repo transaction and “margin collateral” for the collateralization towards the clearing house. Information on margin collateral is provided in chapter 6 Collateral Management.

1 = borrower, cash taker, collateral provider 2 = lender, cash provider, collateral taker


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The following figure illustrates the classic repo transaction:

Figure 2-1: Classic Repo transaction – front and term-leg

2.1.2 Legal Basics

The classic repo3, traded on the Eurex Repo marketplace, is a repo (“echtes Wertpapierpensions-geschäft“) that is codified in § 340b paragraph 1 and 2 of the German Commercial Code (HGB). In a repo, the back transfer of securities at the repurchase date is mandatory. In contrast, the “sale with right of repurchase agreement” (“unechtes Wertpapierpensionsgeschäft“), which is codified in § 340b paragraph 1 and 3 of the German Commercial Code (HGB), grants the buyer an option to retransfer (sell) the securities back to the seller. From a legal perspective, in a classic repo securities are transferred to the buyer, whereas the economic benefit remains with the seller. That means potential coupon payments are transferred to the seller, which also keeps voting rights for equities. On the other hand the seller as well has to bear the market risk, resulting from fluctuations in security value. For classic repos in the bilateral market, the International Capital Market Association (ICMA) created a standard contract, the so-called Global Master Repurchase Agreement (GMRA). However, this agreement is not necessary for trading via a Multilateral Trading Facility like Eurex Repo, since the main points of GMRA are included in the Terms and Conditions of Eurex Repo. In order to trade, it is therefore unnecessary to contract every single counterparty individually, once admitted.

3 The Buy/Sell back transaction is seen as a repo transaction in the broader sense. It is characterised by two simultaneously concluded contracts, interconnected with each other. On the one hand, securities are sold with the current spot price as settlement price. On the other hand, the seller commits to the repurchase of those securities on a fixed date with fixed repurchase conditions. The repurchase conditions are calculated using the repo rate deducting the pay-outs or dividends for that period of time. This makes the Buy/Sell back transaction resemble a repo. Buy/Sell back transactions, unlike a Classic Repo, are not codified by a standard contract like the GMRA (not eligible on Eurex Repo).


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2.1.3 Characteristics of Repo Trades

Further special kinds of repos and repo characteristics are as follows: • Open Repo: A repurchase date is initially not determined for that repo type. However, the

transaction can be terminated by both counterparties with a predetermined lead time (lead time of two days and a maximum duration of three years).

• Variable Repo4: For this repo type, the repo rate is linked to a benchmark: e.g. EONIA or the STOXX GC Pooling EUR ON Index computed by STOXX.

• Hold-In-Custody Repo: Collateral is not transferred physically from the seller to the buyer, but held in a separate account of the seller (not eligible on Eurex Repo).

• Tri-Party Repo: In this kind of repo, the collateral and cash transfer is managed by a third party (e.g. Clearstream) after the two counterparties have completed a non-anonymous bilateral trade, meaning that ahead of the trade bilateral negotiations between the two counterparties are required.

2.1.4 Motives for Repo Trades

Cash/cash driven (loan/investment) GC Repos From the legal point of view a repo is a sale and repurchase of securities (typically bonds). Economically it is a secured loan of cash. The buyer of securities who is simultaneously the cash provider (cash giver/collateral receiver) receives the repo rate as interest for lending cash the repo rate is generally geared to money market rates. The seller of securities/cash taker/collateral provider receives cash at lower rates compared to unsecured transaction due to the fact that a repo transaction collateralized and thus the implied default risk is seen a lower. The cash provider focuses on specific ISINs to collateralize the lent cash amount. He accepts various securities (General Collateral, GC) meeting predefined minimum quality requirements (in terms of minimum rating, issuer type, etc.). Securities/security driven Specific (Special) Repos Repos may also be securities driven. The buyer of securities intends to obtain a specific security (ISIN code). In other words: The repo trade is concluded to obtain or refinance a particular security. If the market demand for a certain security is high, the security turns into „special“ or is said to have „gone on special“. A further motive for repo transactions is hedging and is used by funds or commercial banks. In this regard, the bond can be refinanced through a repo transaction: the bought bond is directly given as collateral in the repo.

4 Eurex Repo offers also Open-Variable Repos as Special or GC in the Euro Repo Market.


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2.2 Eurex Repo

Eurex Repo offers an integrated market for electronic trading, clearing, collateral management and settlement of repo and securities lending transactions. Eurex Repo as Multilateral Trading Facility (MTF) offers off-exchange trading (OTC Trading). Eurex Clearing acts as CCP for the Euro Repo Market, the GC Pooling Market and the SecLend Market operated by Eurex Repo. Generally Eurex Repo operates the following markets for secured funding and financing (the markets operated by Eurex Zurich AG are not relevant for the Clearer Test).

Figure 2-2: Markets operated by Eurex Repo As soon as a trade between two trading participants is concluded, Eurex Clearing immediately steps in as central counterparty for the buyer and the seller.This process is called either open offer (as for the Markets Euro Repo and GC Pooling) or novation (as for the SecLend Market and GC Pooling Select Invest)5. Eurex Clearing is therefore the central counterparty (CCP) in every trade concluded on Eurex Repo eliminating the counterparty risk, which is the risk that the counterparty is not able to fulfill its obligations from the repo transaction. Participants have no contractual relationship and no bilateral risks with other market participants. Consequently, every Eurex Repo trading member needs to participate directly or indirectly in the clearing process of Eurex Clearing .

5 Open offer and novation are described in the chapters 2.2.2 and 2.2.3 of the handbook for the basic module.


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Figure 2-3: Overview Clearing Process Apart from the above-mentioned tasks, Eurex Clearing is also responsible for the transmission of delivery instructions to the respective (International) Central Securities Depository ((I)CSD) of the trading participant. 2.2.1 Euro Repo Market

The Euro Repo Market offers in the General Collateral (GC) segment repos that can be used to trade a particular class of securities. But on the other hand, those are also used to obtain or provide cash, while accepting only a particular GC basket of securities (e.g. government bonds) as collateral. In addition, repo trades can be concluded to obtain or refinance a particular security (Special Repos). The market offers securities such as: • European Government Bonds • Jumbo-Pfandbriefe and Pfandbriefe • KfW/Laender Bonds • European Covered Bonds • Agency Bonds • European Corporate Bonds


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Following parameters are applicable (in extracts6):

Terms Overnight (ON), TomNext (TN), SpotNext (SN), VAR OPEN

Trading Hours 07:30 - 18:00 CET (additional deadlines for overnight repos)

Contract Size Minimum EUR 1 Million for GC Repo Minimum EUR 500'000 for Special Repo

The manual allocation of single securities after the conclusion of a basket trade enables a selective collateralization directly via the trading screen of Eurex Repo. The manual allocation has to be done within 50 minutes after trade conclusion. After 50 minutes the securities will be automatically allocated by a mandatory default list. Up to 30 different securities can be selected to collateralize a GC Repo trade. The number of securities can be specified by cash provider and cash taker when entering a quote. At the end of the term, the same amount and type of initially transferred securities must be transferred back versus payment (DvP settlement) of the repurchase price. Participants are not permitted to substitute the collateral securities during the term or at the date of the Term-Leg (no right of substitution). All bonds belonging to one of the GC baskets can be traded special. Additional securities with a minimum issue size of 10 milion Euro and a minimum rating of A-/A3 can be made available for Special Repo on an individual basis.

Market participants provide binding quotes for maturities ranging from overnight up to more than two years. In addition open, variable and open-variable terms offer maximum flexibility. The Pre-arranged Trading Functionality enables participants to direct a binding offer for conclusion of a repo transaction to another single participant after both participants have agreed upon the transaction. The other participant may accept (“Take”), ignore or reject (“Reject”) this offer.

6 For more details please see www.eurexrepo.com/Euro Repo Market/Principles


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2.2.2 GC Pooling

The GC Pooling Market enables CHF, EUR and USD cash liquidity trading collateralized with baskets of ECB eligible securities, Eurex Clearing eligible securities and the top 50 selection of the HDAX7. In the GC Pooling Market the participants have the sole purpose to obtain or provide cash. The GC Pooling Market is therefore exclusively cash-driven and addresses the needs of Treasury departments within Banks.

Figure 2-4: Process Overview GC Pooling As soon as a GC Pooling Transaction has been concluded on Eurex Repo, Eurex Clearing steps in as a central counterparty. Eurex Clearing ensures anonymous trading and offers an efficient centralized risk management margining process across all products with a continuous mark-to-market revaluation, and centralized delivery management with netting on settlement day. The collateral management system of Clearstream Banking (Xemac/CmaX) delivers fully-automated allocation out of the combined securities pool thus collateralizing the traded cash amount. This process allows reuse and substitution of the collateral received. Customers can use their account relationship with either Clearstream Banking Luxembourg or Clearstream Banking Frankfurt. While Clearstream Banking offers settlement in central or in commercial bank money for GC Pooling baskets traded in EUR.Baskets tradable in USD and CHF are settled in commercial bank money only.

7 HDAX includes 110 equities (30 DAX instruments. plus 50 MDAX and 30 TecDAX).


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Besides the different GC baskets within the Euro Repo Market and GC Pooling the mandatory availability of Xemac/CmaX collateral management system needed for GC Pooling is the main difference in the processing of the two markets: Automated allocation of securities in Xemac/CmaX replaces manual completion via Eurex Repo trading front-end. Therefore a direct connection to the collateral management system Xemac of CBF or CmaX of CBL is necessary for GC Pooling. GC Pooling offers benefits in the collateral management: • Reuse of collateral and pledge to ECB / Bundesbank within the GC Pooling ECB Basket (Tender

auctions for Xemac participants based in Germany) • Reuse of collateral for the margin collateralization of Eurex Clearing within the GC Pooling

ECB/ECB EXTended/INT MQX/Equity Basket (Xemac and CmaX participants) • Linking of CBL and CBF assets, creating one virtual collateral pool • Real-time substitution of securities through the cash taker • Risk evaluation of all trading positions every 20 minutes Other advantages of GC Pooling are: • Transparent trading prices on an open order book basis • Anonymous trading via Eurex Clearing stepping in as central counterparty • Netting at clearing level with Eurex Clearing’s delivery management8 • Depending on country of residence, minimum regulatory costs due to the central clearing via Eurex

Clearing • Use of established straight-through processing (STP) infrastructure (Eurex Repo / Eurex Clearing /

Clearstream Banking)

8 Excluded from the netting process are the front legs of overnight Euro Repo Market and GC Pooling transactions; these are always processed using the gross method. However, if they fail on the contractual settlement dayit leads to the inclusion in the regular netting process.


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The following GC Pooling baskets are available:

ECB Basket ECB EXTended INT MXQ Basket Equitiy Basket

Cash Currency

CHF, EUR, USD9 CHF, EUR, USD CHF, EUR, USD EUR

Basket Collateral

Around 2,500 instruments of: • Central Banks • Central

Governments • Regional/Local

Governments • Supranational Around 5,000 Traditional and Jumbo "Pfandbriefe"-style instruments of • Credit

Institutions • Agency Credit

Institutions

Around 3,000 instruments of: • Central Banks • Central

Governments • Regional/Local

Governments • Supranational Around 5,000 Traditional and Jumbo "Pfandbriefe"-style instruments of: • Credit


Institutions • Corporate and

other issuers Around 14,000 instruments of: • Credit


Institutions • Agency - Non

Credit Institutions

• Corporate and other issuers

Around 600 instruments of: • Central Banks • Central

Governments • Supranationals

Top 50 selection of the HDAX (highest traded volume in Xetra) Announcement of basket composition change around every 8th calendar day of each month with effectiveness on 15th day

For the margin collateralization of Eurex Clearing a reuse of collateral is possible within all baskets . The reuse of received collateral for refinancing within the framework of ECB/Bundesbank open market operations is enabled only for the GC Pooling ECB basket (see also chapter 6.2.3 Reuse). GC Pooling Market participants can select the various standardized baskets by pre-defined terms per currency. Following parameters are applicable (in extracts10):

Terms OverNight, TomNext, SpotNext, Open, Variable, Open/Variable

Trading Hours 07:30 - 18:00 CET Cut-Off Time Euro GC Pooling Overnight: 17:00 CET

Contract Size Minimum EUR 1 Million

9 CHF and USD are not available for overnight repos. 10 For details please refer to www.eurexrepo.com/GC Pooling Market/Principles.


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In order to fulfil its obligations vis-à-vis Eurex Clearing, any delivery or payment out of GC Pooling transactions settled in Euro on a Business Day other than the trade date must be made available by the Clearing Member for settlement during the first Same-Day-Settlement run of that day (“SDS1”) at CBF. For GC Pooling non-Euro transactions, specific cut-off times for settlement via the (I)CSD are to be considered depending on the trading currency: USD GC Pooling transactions • Settlement start time is 2:30 p.m. CET, cut-off time is 5:40 p.m. CET; • However, the target settlement time for delivery and payment obligations vis-à-vis Eurex Clearing is

3:00 p.m. CET on the relevant day of performance. CHF GC Pooling transactions • Settlement is possible between 7:00 a.m. CET and 12:45 p.m. CET. • However, the target settlement time for delivery and payment obligations vis-à-vis Eurex Clearing is

11:30 a.m. CET on the relevant day of performance. If a Clearing Member does not comply with its currency related obligation to perform in time, it may be in intraday default, and hence subject to an expense allowance of Eurex Clearing for each respective GC Pooling transaction to cover its operative additional expenditure. Furthermore Eurex Clearing is entitled to invoice the Clearing Member – until such point in time on which the obligation to perform is fulfilled – for any interim financing costs incurred.11 In addition, a relevant delivery time according to market conventions for collateralized funding is applicable for GC Pooling transactions. Therefore an investment limit for pending Euro GC Pooling transactions is defined in the Clearing Conditions. With regard to GC Pooling transactions concluded at Eurex Repo after 4:00 p.m. CET on a trading day and whose delivery day of the Front Leg coincides with their trade date, the following special provisions shall apply: The aggregate cash amount of a Clearing Member’s GC Pooling Front Leg in which the respective Clearing Member is the buyer (“Pending Cash Provider Transactions“), that has not yet been completely fulfilled, is not to exceed one billion Euro (the “Investment Limit”). With regard to GC Pooling transactions in currencies other than Euro, the amount will be determined by currency conversion of the cash amount into Euro.

11 For details, please refer to the Clearing Conditions Chapter IV, Part 2, 2.2 and 2.6.


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If the aggregate cash amount exceeds the Investment Limit at any point in time, the Clearing Member must ensure that there are sufficient amounts in the relevant currency available on the relevant accounts in order to fulfill the Pending Cash Provider Transactions without undue delay – and in any event, no later than 10 minutes from the time the Investment Limit has been exceeded – thus ensuring compliance with the Investment Limit thereafter. If the Clearing Member does not comply with such obligation, Eurex Clearing reserves the right to charge expenses on a daily basis for these transactions in order to minimize its financing requirements and liquidity risk in case of a default in both delivery and payment.

2.2.3 GC Pooling Select Invest

In contrast to the anonymous interbank market, GC Pooling Select Invest’s bilateral trading allows banks and their clients (e.g. corporate enterprises, insurance companies) to continue their existing business relationships. GC Pooling Select Invest clients can act as net cash providers to banks. The bank collateralizes the borrowed funds using ECB-eligible securities.

Figure 2-5: Process Overview GC Pooling Select Invest


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Terms Flexible terms from overnight to 24 months

Trading Hours 07:30 - 14:00 CET Cut-Off Time Overnight: 14:00 CET

Contract Size Minimum EUR 1 Million

In addition: • Novation by Eurex Clearing • Cash Pre-Funding necessary

2.2.4 SecLend Market

The SecLend Market with CCP ensures STP from trading to settlement and an integrated service of Eurex Clearing as central counterparty. For equities as loan securities, Central Securities Depositories (CSDs) act for home market settlement. Fixed Income loan securities are settled via the International Central Securities Depositories (ICSDs). To ensure an orderly settlement, participants must maintain at least one tri-party agreement concerning the delivery of principal collateral in the form of securities with Eurex Clearing AG and a tri-party collateral agent (Clearstream Banking Luxembourg or Euroclear Bank).

Figure 2-6: Process Overview SecLend Market with CCP

12 For details please refer to www.eurexrepo.com/GC Pooling Market/GC Pooling Select Invest - Secured Funding for Corporate Clients.


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Terms Open and fixed (individually flexible, e.g. same day, up to 24 months)

Trading Hours 07:30 - 18:00 CET Cut-off times for same day loans are applicable.

Minimum Trade Size Equities 1 Unit Bonds 1000 Nominal

CCP eligible Loan Securities

Equities: German, Swiss, Belgian, Dutch, French Fixed Income: European Government Bonds, Corporate Bonds, Covered Bonds

Settlement Equities: via home market Settlement: Clearstream Banking Frankfurt (CBF), SIX SIS AG Fixed Income: Clearstream Banking Luxembourg (CBL), Euroclear Bank

Cash Collateral EUR and USD

Non-Cash Collateral Euqities and Fixed Income

The clearing service for loan transactions concluded on the Eurex Repo SecLend Market is described in the Preparation Material for the Clearer Test Market Modul Securities Lending. Eurex Repo SecLend Market is one of the Third Party Flow Providers of the Lending CCP service. For participation in trading at the SecLend Market a Securities Lending Clearing Licenses of Eurex Clearing or a Specific Lender License is necessary. This handbook deals only with the processing of Euro Repo Market and GC Pooling Transactions.

13 For more details please see www.eurexrepo.com/SecLend Market CCP/Principles


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2.3 Sample Questions

2-001 A repurchase date is initially not determined for that repo type. The repo type is called... A: Hold-In-Custody Repo B: Variable Repo C: Open Repo D: Tri-Party Repo Correct answer: C 2-002 Which answers are correct concerning classic repos? A: In a classic repo securities are transferred to the buyer. All benefits of the security are transferred

to the buyer. B: In a classic repo securities are transferred to the buyer, whereas the economic benefit remains with

the seller. C: Potential coupon payments are transferred from the buyer to the seller. D: Voting rights for equities are not transferred to the seller. Correct answers: B|C 2-003 In a classic repo the lender is the seller of securities. True False Correct answers: False 2-004 Which statement regarding GC Pooling Baskets is correct? A: With the standardized bond GC Pooling Baskets secured cash funding in CHF, USD and EUR is possible. B: With the GC Pooling Equitiy Basekt secured cash funding in USD is possible. C: With all GC Pooling Baskets secured cash funding in CHF, USD and EUR is possible. D: Eurex Repo offers an unlimited number of GC Pooling Baskets. Correct answer: A 2-005

The GC Pooling ECB Basket contains all European Government Bonds.

True False Correct answers: False


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2-006 What are the benefits of GC Pooling? A: Anonymous trading B: Eurex Clearing stepping in as central counterparty C: Transparent trading prices D: None of the above Correct answers: A|B|C


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3 Clearing Conditions for Eurex Clearing AG Page 24 of 53

3 Clearing Conditions for Eurex Clearing AG

3.1 Prerequisites for Clearing Licenses

3.1.1 Eurex Repo Clearing License

A Eurex Repo Clearing License authorizes members to clear their own and customer business executed on the Eurex Repo platform. In addition to the general provisions of the Clearing Conditions described in the Preparation Material for the Eurex Clearer Test Basic Module, chapter 2 the following requirements will apply for granting an Eurex Repo Clearing License: • Evidence of technical connection to the systems of Eurex Clearing, and • in the event of participation in the clearing for GC Pooling Repo transactions, evidences of the

participation admission and of the technical connection to Xemac, Frankfurt, and/or CmaX, Luxembourg, the Collateral Management System/-Service of Clearstream Banking.

• If the CM intends to use the Gross Delivery Management service - evidence of a technical and functional connection to the respective interface is required.

Irrespective of the minimum amounts of own funds specified below, the actual amount of capital that Eurex Clearing requires the CMs to demonstrate and maintain is equal to the higher amount of: • 20 percent of the 30-day average of the initial margin requirements or • 20 percent of the 250-day average of the initial margin requirements

Capital requirements General Clearing Member (in EUR millions)

Capital requirements Direct Clearing Member (in EUR millions)

Eurex Repo Clearing License 200 50

3.1.2 Specific Repo License / GC Pooling Select Invest

Eurex Clearing offers a Specific Repo License within the framework of GC Pooling in order to participate in the GC Pooling Select Invest market. It is granted upon written application and in subject to the condition that the applicant is not a Clearing Member and does not apply for becoming a Clearing Member. The Specific Repo License entitles the holder of it to clear Own Transactions • as the buyer within the purchase agreement and the seller within the re-purchase agreement

(„Cash Provider“) and • to the extent that the Novation criteria for a “Cash Taker” are complied with in each case, as the

seller within the purchase agreement and the buyer within the re-purchase agreement. Related GC Pooling Repo Transactions are included in the clearing by way of novation. The prerequisites to be fulfilled for the granting of the Specific Repo License are defined in the Clearing Conditions for Eurex Clearing, chapter IV, part 3.


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Due to regulatory requirements, membership in GC Pooling Select Invest is currently limited to bank clients such as corporate enterprises and insurance companies. The opportunity to participate will be extended to individual European countries, with access becoming available successively to clients in all European countries over the coming years.

3.2 Provision of Margin Collateral in Case of GC Pooling transactions

In connection with GC Pooling Repo transactions, the determination of the margin requirement (including the Additional Margin), with regard to the securities assigned within the scope of the Front-Leg, also in case of cross-border collateral provision, is calculated directly by Xemac of CBF (or by CmaX of CBL). During calculation, Xemac shall, according to the provisions of the Special Conditions for Collateral Management ("SC Xemac"), consider the respective currency in which the underlying transaction has been concluded. Also, the securities admissible as securities serving as collateral in connection with the delivery of GC Pooling Repo transactions are determined by Xemac on basis of “SC Xemac". Other than described above Eurex Clearing may demand that, in excess of the margin requirement calculated by Xemac, Additional Margin has to be provided in accordance with the relevant applicable calculation method. This calculation method is also explained in the Preparation Material for the Clearer Test, Basic Module, chapter 5. Further information regarding the specifics of the margining for GC Pooling transactions can be found in the Clearing Conditions.

3.3 Clearing of Eurex RepoTransactions

A Eurex Repo Transaction, e.g. Euro Market and GC Pooling transaction, is a purchase/sale of securities and their simultaneous forward re-purchase/re-sale. Thus, such transaction is a combination of a purchase agreement ("front-leg") with simultaneous re-purchase agreement ("term-leg") of securities of the same type and category at a certain point in time. Eurex Clearing will realize the clearing of Eurex Repo Transactions to the extent that the underlying securities of the respective Eurex Repo Transaction are settled by Eurex Clearing and the respective Settlement Location and that the following prerequisites are fulfilled: Eurex Clearing and Eurex Repo GmbH determine which kind of Eurex Repo Transactions or securities underlying these Eurex Repo Transactions shall be included in the Clearing Information on tradeable products can be found on www.eurexrepo.com/products.


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3.4 General Provisions

For the settlement (delivery and payment) of Eurex Repo Transactions,e.g. Euro Repo Market and GC Pooling transactions, the General Clearing Provisions of the Eurex Clearing Conditions apply, unless otherwise provided hereafter. With regard to the securities admitted to delivery of GC Pooling Repo transactions, the participating CMs receive a report on the available assets respectively held in their depositories. • Purchase Agreement (Front Leg) and Repurchase Agreement (Term Leg):

All physical deliveries and payments are concurrently performed between the CM obliged to deliver and Eurex Clearing, and, accordingly, between Eurex Clearing and the CM which is to receive delivery on the agreed delivery day of the Front Leg respectively the Term Leg. Physical deliveries are made through a Settlement Location, and payments are made through the linked cash account.

• Physical Deliveries: With respect to the possession of the securities delivered, Eurex Clearing acts as an intermediary of the CMs involved. With respect to the settlement of transactions concluded by CMs, the transfer of ownership in respect of the securities to be delivered will be performed directly between the CMs involved.

• Delivery and payment with regard to GC Pooling Repo transactions: In case of GC Pooling Repo transactions, the delivery instructions regarding existing delivery and payment obligations are given by Eurex Clearing on basis of the basket ISIN to be delivered; the underlying securities shall be selected by Xemac (or CmaX).

For the procedure regarding deliveries and payments mentioned above, the following deviating provisions apply:

The transfer of ownership regarding the securities to be delivered between the CMs and Eurex Clearing, and vice versa, are carried out, depending on the account relevant for such transfer, pursuant to German law (re CBF) or pursuant to the laws of the Grand Duchy of Luxembourg (re CBL) and pursuant to the additional contracts having been used as basis by the parties. The General Clearing Provision regarding the Settlement of Transactions in Securities of the Eurex Clearing Conditions apply with the provision that the payment is settled via the account of the CM which is determined for settlement in the currency of the underlying transaction.

With regard to the delivery of GC Pooling transactions specific delivery cut-off times apply, as described in chapter 4.7.


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3.5 Daily evaluation for Margining

For each delivery of the underlying security to the respective Eurex Repo Transaction which has not yet been performed, unrealized profits and losses are determined daily on the basis of the current market prices and set off against the collateral provided. The amount of the collateral to be provided shall equal the difference between the price at which the transaction was concluded and the daily settlement price for such Business Day (mark-to-market procedure). The daily settlement price is determined by Eurex Clearing after close of trading and notified to the CMs. For unfulfilled deliveries within the context of GC Pooling Repo Transactions, an evaluation of the securities to be delivered, which are selected by Xemac (or CmaX) will be carried out in relation to the relevant claim in the underlying currency.

3.6 Settlement of Eurex Repo Transactions

A delivery obligation arising out of a Eurex Repo Transaction can only be satisfied by the respective underlying securities. Eurex Clearing delivers the securities due for delivery to the Clearing Members entitled to delivery. In case of GC Pooling Repo transactions these are specifically defined by Xemac/CmaX. Provided that for the fulfilment of delivery obligations of the Term Leg of a GC Pooling Repo transaction for which the originally allocated securities have been substituted during the term of the transaction, these alternatively assigned securities shall apply for the fulfilment of delivery obligations of the Eurex Repo Transaction.


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3-001 Which of the following requirements is mandatory for a Eurex Repo Clearing License? A: Evidence of a technical and functional connection to the Gross Delivery Management system. B: Two qualified member of staff. C: Own funds of minimum EUR 300 million. D: None of the above. Correct answer: D 3-002 Who can apply for a Specific Repo License for GC Pooling Select Invest? A: Clearing Members (GCMs/DCMs) B: Corporate enterprises and insurance companies. C: Only Clearing Members with a Clearing License for Eurex Bonds transactions. D: None of the above. Correct answer: B 3-003 Technical connection to the Collateral Management Systems Xemac/CmaX of Clearstream Banking is mandatory for generally applying to a Eurex Repo Clearing License. True False Correct answer: False


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4 Delivery Management Page 29 of 53

4 Delivery Management

Delivery Management collectively describes the process of Settlement Day Netting, Shaping, (I)CSD Netting and creation of delivery instructions within the CCP. It can be divided into delivery management for transactions marked for gross processing and transactions marked for net processing respectively. Transactions marked for gross processing are excluded from the netting process within Settlement Day Netting and instructed separately. Transactions marked for net processing are subject to Settlement Day Netting, which is described in the Preparation Material for Clearer Test Basic Module, chapter 4.3. The CCP facilitates Immediate Settlement Instructions (ISI) for transactions which meet certain criteria (i.e. front leg of overnight repos). These transactions are processed on a gross basis in a real-time delivery management procedure (see chapter 4.4). Futhermore shaping is applied to all bond products incl. GC Pooling. To reduce the risk of failure of delivery a delivery instruction with a high nominal value is shaped into serveral instructions with smaller nominal values. Hence, the delivery instructions sent to a (I)CSD are shaped, gross or net. Various values of the shaping quantity are set on instrument level by Eurex Clearing. For the GC Pooling basket instruments the shaping block size is generally set (configurable on ISIN - Currency level) to 200 Mio EUR or 50 Mio EUR.

4.1 Settlement Locations

The following (I)CSDs are available for the settlement of Eurex Repo products: • Clearstream Banking Frankfurt (CBF) • Clearstream Banking Luxembourg (CBL) • Euroclear Bank • SIX SIS AG (SIS)

Unlike the Euro Repo Market, settlement in the GC Pooling Market is performed exclusively in Xemac/CmaX via the settlement system CASCADE (CBF) or Creation (CBL) . Multiple settlement locations require the use of cross-border instructions in addition to “(I)CSD internal” settlement instructions, where both sides of a transaction are settled within the same (I)CSD. After the necessary (I)CSD external settlement instructions have been determined, the delivery management process continues with the creation and shaping of delivery instructions. Once all delivery instructions are finalized they can be sent to the relevant (I)CSDs for settlement. If a delivery instruction is not fulfilled, the instructions are cancelled by the CCP intra-day towards the end of a settlement day. Late deliveries are re-considered in the next possible Settlement Day Netting (if applicable) and settlement run on the following business day.


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4.2 Member Specific Default Settings

4.2.1 Dual or Single Instruction Netting

With respect to the method according to which deliveries are instructed after Settlement Day Netting, Eurex Clearing offers two options for Eurex Repo transactions: • Dual Instruction Netting (DIN) • Single Instruction Netting (SIN)

4.2.1.1 Dual Instruction Netting (DIN)

Dual Instruction Netting corresponds to Settlement Day Netting as described in chapter 4.3 of the Handbook for the Basic Module. After netting two instructions to the (I)CSD are created: • an instruction for the surplus and • a cash instruction for the offsetting block.

Figure 4-1: Dual Instruction Netting


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4.2.1.2 Single Instruction Netting (SIN)

Prior to opting for SIN, Eurex Clearing recommends the member to check the method’s feasibility with regard to the member’s respective internal settlement processes and whether this processing method stands in accordance with local legislation. The following figure illustrates the SIN method:

Figure 4-2: Single Instruction Netting In contrast to the Dual Instruction Netting, cash only instructions are not required under the alternative Single Instruction Netting model. “DvP” (delivery versus payment) instructions will be generated by the CCP and transmitted to the corresponding (International) Central Securities Depository. The cash only payment from the offsetting block is added to the DvP/RvP instruction from the surplus. It has to be guaranteed that the sum does not result in a “same way instruction”, i.e. both delivery and cash cannot be instructed into the same direction. In that case to dual instruction netting will be applied.

4.2.2 Eurex Bonds/Repo Separation

If one settlement account is used for the settlement of Eurex Bonds and Eurex Repo transactions, Clearing Members can choose with this option if the transactions are netted jointly or separately (Contract Type Separation Spot(Bonds)/Repo: Yes/No).

4.3 (I)CSD Netting

(I)CSD Netting is introduced in order to minimize cross- border deliveries. (I)CSD Netting will be performed per settlement day during the NTP batch. In order to achieve this, after the Settlement Day Netting Eurex Clearing allocates buy and sell surplus delivery instructions per ISIN of all members. Thus, possible delivery instructions will be offset and settle within the same (I)CSD. Only the (I)CSD Netting surplus (one or more delivery instructions) remains in scope for cross-border settlement.


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4.4 Immediate Settlement Instructions

In general, transactions will be processed according to the Clearing Member’s default processing method (gross/net) per settlement account. The front legs of overnight Euro Repo Market transactions and GC Pooling transactions are marked as Immediate Settlement Instructions (ISI), i.e. given that they are specified for settlement of the front leg on t+0 (and the term leg on t+1). ISI are created as gross delivery instruction (overruling the settlement account default settings) immediately after trade conclusion and sent to the (I)CSD in order to ensure real-time settlement (RTS) on the same day. Immediate settlement instructions are also subject to shaping according to the ISIN setup in the CCP. For all GC Pooling transactions, i.e. with a front leg settlement date today (overnight) or later than the trade date, the shaping block size of 200 Mio EUR applies. For overnight GC Pooling Transactions received by the CCP between 4:00 p.m. and 5:15 p.m. CET (extended GC Pooling trading hours) the shaping block size is reduced to 50 Mio EUR. When the settlement accounts of the original buyer and seller are located at different (I)CSDs, intra-(I)CSD settlement is possible only for the period in which same day settlement is possible between the involved (I)CSDs, i.e. there are restriction in terms of time for intra-(I)CSDs ISI settlement. Transactions which remain unsettled at the end of the real-time delivery management process are considered in the real-time delivery management clean-up processing. Here, the corresponding pending delivery instructions are cancelled at the relevant (I)CSDs and the transactions are marked as late. These transactions are no longer considered in the real-time delivery management process. From this point onward, they are considered in the standard delivery management process and will be handled during the night time processing settlement run.

4.5 Timelines within Delivery Management

Eurex Clearing will define the timing of the Settlement Netting runs, thereby taking into account the relevant (I)CSD internal and (I)CSD cross-border deadlines. Instruments settling at the same (I)CSDs will follow the same time schedule (e.g. all Bunds). Multiple settlement runs are facilitated during the day both for transactions that settle real-time as well as for standard settlement transactions and the night-time processing cycle (NTP) including previous Settlement Day Nettings. Settlement Netting takes place during the (late) afternoon on S-1 and will be set in such a way, that delivery instructions are transferred to the relevant (I)CSDs in time for the nighttime settlement cycles. Based on the Power of Attorney, Eurex Clearing will manage the transfer of instructions on behalf of the clearing member. Delivery and receipt instructions will match at the (I)CSD and be processed in the (I)CSD nighttime cycle. Instructions which do not successfully settle during (I)CSD nighttime, will be forwarded to (I)CSD daytime processing.


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The delivery management process for ISI settlement is continuous. Deadlines for submission of all ISI delivery instructions are defined by (I)CSD specific deadlines.

Figure 4-3: Overview of Availability of the Gross Delivery Management System for Eurex Repo Transactions

For overnight transactions dedicated trading cut-off times exist for each market. Please refer to www.eurexrepo.com/markets.

4.6 Corporate Actions Processing

The processing of corporate actions for Euro Repo Market Transactions is performed by Eurex Clearing, and for GC Pooling Transactions by Clearstream Banking within the collateral management application landscape. As CCP is the counterpart to all trades, it is also the counterpart to all income event payments – either instructed by CBF to/from the Clearing Members’ accounts, or instructed by the CCP. Therefore, each cash payment instructed would be debited/credited against the CCP account, which allows the CCP to reconcile on all income event payments instructed by CBF or itself. The corporate action processing is applicable on all repo transactions with a (remaining) trade quantity between term leg and front leg, the so called “repo position” that is pending between CCP and Clearing Member and/or Clearing Member and its customer. As regards Euro Repo Market transactions, the corporate action indicators in the @X-pert Member GUI and the CCP reports are set to ‘Y’ (yes) by the CCP.


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4.6.1 Coupon Compensation

For all issued bonds (except Zerobonds) the issuer pays interest. Here, the interest payment occurs in certain periods (e.g. yearly, quarterly). The interest of each period is represented by so called coupons. The (I)CSD determines which holders are recorded in the system as eligible to receive the coupon on the record date. Due to pending transactions entitlement compensations might be necessary. When entitlement proceeds are credited to a party that is not entitled to it and is thus owed to another party a coupon compensation between those parties is necessary (the entitled trade has not settled by the record date). Coupon compensation is made on a settlement day basis, i.e. the contractual settlement date of the respective transaction determines if the buyer is entitled to receive the entitlement proceeds.

4.6.2 Coupon Compensation Payment

If a coupon payment is due during the lifetime of a repo transaction, the original buyer of the repo has to pay the coupon amount to the original seller of the repo. This is necessary because the seller of the repo remains the beneficial owner of the bond but the (I)CSD has already credited the buyer of the repo who keeps the securities in his account. A coupon compensation for repos occurs when • The actual settlement date of the front (opening) leg is before or equal (<=) to the record date of

the underlying bond (front leg is settled) and the contractual settlement date of the term (closing) leg is after (>) the record date of the underlying bond or

• the contractual settlement date of the term leg is before or equal (<=) the record date and the term leg is still not settled (late term leg; actual settlement date is after (>) record date).

It is possible that more than one coupon payment occurs during the lifecycle of a repo. The coupon compensation calculation is done per coupon event. In these cases, coupon proceeds need to be debited from the buyer’s account and credited to the seller’s account. The coupon compensation payments are set up as cash positions. Therefore all coupon payments are aggregated per Clearing Member and settled either via Clearstream Banking Frankfurt (CBF), Clearstream Banking Luxembourg (CBL) or Euroclear Bank.


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4.7 Failure to Deliver

4.7.1 Failure to Deliver by the delivery day of the Front Leg

In the event that a CM which is obliged to deliver fails to transfer the underlying securities on the delivery day of the Front Leg of the respective Eurex Repo Transaction, e.g. Euro Repo Market or GC Pooling Transactions, and pursuant to the instructions of Eurex Clearing, Eurex Clearing is entitled and, on request of the CM which did not receive delivery in time, obliged to set the present Business Day, at the latest the delivery day of the Term Leg, as repurchase date of the Term Leg. As a consequence thereto, the mutual obligations arising out of the Eurex Repo Transaction which had originally been agreed upon, is offset against each other so that the parties, with the exception of the Repo interests agreed upon, do not owe each other any further payment or delivery. The payable Repo interests is calculated on the basis of the period of default, in each case for the period from the purchase date (inclusive) until the Business Day to which the Term Leg was advanced (exclusive). At the same time, Eurex Clearing is entitled to set an earlier date as repurchase date for the Term Leg of the equivalent Eurex Repo Transaction concerned between Eurex Clearing and the CM which did not receive delivery from Eurex Clearing in time; the legal consequence thereof will be the same as described above. In connection with the delivery of GC Pooling Repo transactions the procedure as described above applies, i.e. if the Seller does not fulfill the delivery obligation on the value date. If a CM does not comply with its obligation to perform described below it may be in intraday default: • during SDS1 (first same day settlement run at CBF) with regard to GC Pooling transactions in Euro

or • until 3:00 p.m. CET with regard to GC Pooling transactions in U.S. Dollar or • until 11:30 a.m. CET with regard to GC Pooling transactions in currencies other than Euro and U.S.

Dollar respectively, To the extent a CM is in intraday default, Eurex Clearing may charge an expense allowance for each defaulting GC Pooling Repo Transaction to cover its operative additional expenditure. Furthermore, Eurex Clearing is entitled to invoice the CM – until such point in time on which the obligation to perform is fulfilled – for any interim financing costs incurred in relation to the value of the underlying GC Pooling Transaction or the due cash amount respectively.

4.7.2 Failure to Deliver by the delivery day of the Term leg

In the event that the CM fails to deliver the underlying securities on the delivery day of the Term Leg of the respective Eurex Repo Transaction, Eurex Clearing is entitled and, on request of the CM which did not receive delivery in time, obliged to make a replacement purchase (buy-in) as from the 5th day following the delivery date of the Term Leg. The voluntary buy-in attempts are performed on a predefined time schedule, which is identical to the buy-in regime applied to ISINs that do not fall under the EU Short Selling Regulation (see chapter 4.5.2.2 of the Preparation Material for the Clearer Test Basic Module). Eurex Clearing will deliver the securities bought in to the CM which did not receive delivery in time, or, in the case of a wholly or partially unsuccessful replacement purchase, perform a cash settlement on request of this CM.


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In connection with any default in effecting performance with regard to GC Pooling Repo Transactions, the provisions of 4.7.1. referring to the Front Leg apply accordingly, taking into account that an executed buy-in as described above is to be considered equivalent to reaching the point in time on which performance is effected.


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4-001

Front-legs of overnight repo trades are marked for settlement on T+0, this means that …

A: the CCP facilitates Immediate Settlement Instructions (ISI).

B: for each transactions a delivery instruction is created and sent to the (I)CSD for settlement (gross processing).

C: only Single Instruction Netting for the resulting transactions is available.

D: they will be processed "net" automatically.

Correct answers: A|B 4-002

The processing of corporate actions for GC Pooling transactions is performed by Clearstream

Banking.

True False Correct answers: True

4-003

In case a Clearing Member fails to deliver the underlying securities on the delivery day of the Term Leg, Eurex Clearing ….

A: is entitled to change the repurchase date of the Term Leg.

B: is entitled to obtain the underlying securities by means of securities lending and to deliver them to the Clearing Member which did not receive delivery in time.

C: is obliged, on request of the CM which did not receive delivery in time, to make a first buy-in attempt on the 5th day following the delivery date.

D: None of the above.

Correct answers: C


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5 Risk Management Page 38 of 53

5 Risk Management

Eurex Clearing stands between buyers and sellers and enables involved parties to make decisions fully independently of each other and mitigate counterparty risk to a single contractual partner. Only Clearing Members may be counterparties of Eurex Clearing in a transaction. Eurex Clearing calculates a total risk exposure for each Clearing Member in order to secure the risk position. Based upon this an individual margin requirement which must be fulfilled by each member through collateral deposit is calculated. For Euro Repo Market Transactions Eurex Clearing uses Risk-based Margining (RBM). For GC Pooling Transactions the margin calculation is performed by Xemac/CmaX according to Eurex Clearing’s requirements. The provision of margin shall ensure that all open positions of a Clearing Member can be closed and offset within a short period of time. In contrast to the bilateral market, where only the seller might need to provide collateral to the buyer, Eurex Repo trading participants are required to pledge margins since Eurex Clearing must provide protection against the default of both parties. The total margin requirement consists of two parts referring to the Euro Repo Market, and of three parts referring to the GC Pooling Market depending on the trading currency: Current Liquidating Margin (CLM): This margin covers losses that would occur in case the position will be closed out today, at which open security and cash positions have to be liquidated at current market prices.

Figure 5-1: Current Liquidating Margin

Additional Margin (AM): This margin serves to cover any potential additional costs that could arise if the positions had to be liquidated in the future. These offsetting costs are incurred if, during the subsequent two trading days, the worst-case loss would occur based on the current prices of allocated securities. Cross-Currency Margin: This margin is additionally required for GC Pooling transactions traded in non-euro currencies. It covers the foreign exchange risk due to the fluctuation between the exposure in the trading currency (CHF or USD) and the clearing currency (e.g. EUR).

CLM

CLM Securities - only GC Pooling CLM Cash


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The “Total Margin Requirement” can be provided in form of cash (EUR, CHF, USD and GBP) or by deposit of collateral in securities. For basic information concerning the margin types CLM and AM please refer to the Preparation Material for the Clearer Test Basic Module.

5.1 Risked Based Margining in the Euro Repo Market

This sub-chapter contains information about the Euro Repo Market (GC repos and specials) only. Basically, both, the buyer and the seller of a repo have to provide margins. In general the calculation for repos is the same as the calculation that applies for bonds. Eurex Clearing uses the risk based margin methodology for the Euro Repo Market. In the Euro Repo Market the risk position (margin) of a contracting partner is evaluated every 10 minutes. In the case of Euro Repo Market margining, the margin is calculated separately for each security. For each security to be delivered out of a special transaction and each security that is to be deliverd out of a GC basket. For specific bond types Eurex Clearing regularly calculates credit risk and liquidity factors as input for the margin parameters to calculate Eurex Repo instruments. These factors are announced by circular in advance to their effectiveness. The current margin parameters for Eurex Repo instruments are published on the Eurex Clearing website.14 The Current Liquidating Margin (CLM) in the Euro Repo Market only consists of the CLM Cash. This, in turn, consists of the discounted cash amounts that are necessary for the payment (Current Liquidating Value Cash) and for the delivery of securities (Current Liquidating Value Securities) in the course of a Euro Repo Market Transactions. The Additional Margin (AM) in the Euro Repo Market is calculated using a bond-specific margin parameter (includes risk parameters and haircuts) determined by Eurex Clearing. The Cross-Currency Margin does not apply to the Euro Repo Market as trading is permitted only in the currency EUR. The margin methodology in the Euro Repo Market (GC and Special) is basically identical to the margin methodology used for cash bonds (traded on Xetra and Eurex Bonds). On the contrary, within repo transactions there is a determined front leg and term leg settlement. Front Leg Term Leg Buyer of bonds (cash provider) Original buyer has to sell bonds back Seller of bonds (cash taker) Original seller has to buy bonds back For the front and the term leg CLM and AM is calculated. The repo is split into two different bond transactions with opposite directions in the same margin class.

14 www.eurexclearing.com > Risk management > Risk parameters > Margin Parameters for Bonds and Repos


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Example: Repo with Settlement of the term leg on T+7 Until the settlement of the front leg (T+2), the cash provider has two positions:

Figure 5-2: Positions of cash provider Until the settlement of the front leg (T+2), the cash taker also has two positions:

Figure 5-3: Positions of cash taker Until the settlement of the front leg the margin requirements for both, the buyer and seller, are relatively small, because the margin requirements „net themselves out“15. Example: The cash provider (buyer) has to pay AM in the front leg because of the risk of falling bond prices until the settlement of the bond purchase. In case of falling prices the sale of bonds in the term leg gives him a margin credit. Both margins are netted. The same holds true for the seller: The seller has to pay AM in the front leg because of the risk of rising bond prices until the settlement of the bond sale (front leg). In case of rising prices the purchase of bonds in the term leg gives him a margin credit. Both margins are netted. The netting may be performed given that the following prerequisites are fulfilled: same security (ISIN), same settlement account, same value date, same currency, and same clearing member.

Situation for the buyer of bonds (cash provider):

After the settlement of the front leg only an outright securities short position is left

Figure 5-4: Position of cash provider after settlement of front leg

15 The margin requirement is not zero. Because of the repo interest the cash taker has to pay on T+7 the payments on T+2 (settlement front leg) and the payments on T+7 are not identical. In addition no discounting is taken into account here to keep the explanations as simple as possible.


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Now there is no offset anymore: The full AM (and potentially the CLM) for the remaining transaction has to be paid. The risk for the central counterparty is on the upside. In case of a default of the original cash provider the central counterparty has to buy back the bonds at the higher price and receives the lower price agreed in the repo transaction. Margin requirements term leg Front leg Term leg Risk of central

counterparty Margin requirements

Cash provider/Buyer securities

Seller securities upside AM + CLM

Cash taker/Seller securities Buyer securities downside AM + CLM An example for the calculation of bond margins is given within the Preparation Material for the Clearer Test Eurex Bonds. 5.2 GC Pooling Margin Methodology

For GC Pooling transactions all three margin types apply: • Current Liquidating Margin (Current Liquidationg Margin Securities and Cash) • Additional Margin • Cross Currency Margin Not all margin types are calculated and required throughout the full repo contract period. The front leg considers the time until settlement of the repo (e.g. T + 2 days = Settlement of the front leg). Until then the collateral and cash has not been transferred between buyer and seller of the repo. The margin requirements are quite small. In terms of margin calculation, the term leg starts by the settlement of the front leg. Cash and collateral has been transferred and the risks of the central counterparty are rising. Additional Margin and CLM Securities are required until the final settlement of the GC Pooling Transaction. In additition, according to the Clearing Conditions as regards the clearing of transactions at Eurex Repo, Eurex Clearing AG may demand that, in excess of the margin requirement calculated by Xemac/CmaX, Additional Margin has to be provided. The possibility of requiring Additional Margin might occur in particular for the collateralisation of exchange rate risks in case of foreign currency transactions and as well for the delivery of securities as collateral which qualify as own issues in relation to the Clearing Member (in the meaning of the General Terms and Conditions for Participation and Trading on Eurex Repo / “GTC Repo”).


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5.2.1 Current Liquidating Margin

In the case of GC Pooling Margining the Current Liquidating Margin (CLM) consists of the CLM Securities and the CLM Cash. CLM Securities The CLM Securities is equal to the average ECB Haircut of the securities allocated to collateralize the individual GC Pooling Transaction. The CLM Securities of the cash taker is already covered by the daily re-evaluation and automatic adjustment of the allocated securities within Xemac/CmaX. Therefore no further margin payments are required. Through this daily re-evaluation, it is ensured that at least 100 percent of the Xemac/CmaX claim (for more details please refer to chapter 6.2.5 Collateral Management via Clearstream in the Handbook for the Basic Module of the Clearer Test) that results from GC Pooling Transactions is covered. In the event of an under-collateralization, Xemac/CmaX automatically allocates sufficient additional securities from the cash taker to the cash provider via Eurex Clearing. If a claim cannot be fully covered, that is, when the cash taker does not have sufficient collateral in his free collateral holdings (collateral pool made up of Clearstream Banking Frankfurt (CBF) and/or Clearstream Banking Luxembourg (CBL) securities), the respective information is provided to Eurex Clearing, who potentially initiates an intraday margin call. The CLM Securities for the cash provider is also based on the average of the ECB haircuts and is equal to the additional securities allocated by the cash taker. The cash provider may reuse the additionally received collateral out of the GC Pooling transaction for reuseother collateralization purposes, i.e. towards the Euro system (ECB), Eurex Clearing and for other GC Pooling transactions (for more details please refer to chapter 6.2.3 Reuse). Therefore the cash provider has to pledge exactly the same margin amount as CLM to Eurex Clearing. CLM Cash The CLM Cash consists of the discounted cash amounts, which are necessary for the payment (Current Liquidating Value Cash) and for the delivery of securities (Current Liquidating Value Securities) in the course of a GC Pooling Transactions. Typically, the majority of CLM is derived from the P&L of a trade (see CLM securities), and is adjusted continuously. The GC Pooling basket is always valued at 100 percent for CLM calculations, leaving only the discounting by the interest rates, and thus the CLM Cash is very small. The margin is pledged from the conclusion of the trade onwards.


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5.2.2 Additional Margin

Analog to the CLM Securities the Additional Margin (AM) equals the average ECB Haircut of the securities allocated to collateralize the individual GC Pooling Transactions. • Eurex Clearing AG does not use own haircuts for GC Pooling Margining. Eurex Clearing currently

uses the ECB haircuts.16 • As the automated allocation of GC Pooling collateral is taking place in Xemac/CmaX, the haircut is

calculated and applied on this level. Xemac (CBF) or CmaX (CBL) ensure a full collateralization of GC Pooling Transactions by permanent recalculation of the collateral security value and reallocation of those securities, if necessary. In this context, it should be taken into account that the Additional Margin requirement of the Cash Provider depends on the securities delivered by the Cash Taker since the ECB Haircut corresponds with the quality of the securities considered for margin calculations. Furthermore this margin can change permanently due to substitution of securities by the Cash Taker. In the GC Pooling Market, margins are recalculated every 20 minutes by Xemac/CmaX.

5.2.3 Cross-currency Margin

GC Pooling baskets are currently tradable in Euro, U.S. Dollar and Swiss Francs. The foreign exchange risk of the non-euro GC Pooling transactions requires a margin that covers the fluctuation between the non-Euro trading exposure, i.e. in USD or CHF, and the reference clearing currency, i.e. EUR. Based on the outstanding exposure in USD or CHF GC Pooling transactions, the supplementary Cross-currency Margin is calculated on an intraday basis and considers the currency haircut of USD or CHF related to EUR, as well as the current exchange rate.17

16 Can be changed at any time. Eurex Clearing may apply other risk parameters. 17 The rates are available in the Eurex Clearing GUI; the amount is displayed in the margin class “XEUS”, and reported in the reports CC050 and CI050 on the Clearing Member’s PP account.


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5.2.4 Example – CLM Securities and Additional Margin

Example: Margin Calculation of a Eurex Repo GC Pooling Transaction (One Week)

Figure 5-5: Margin Calculation Eurex Repo GC Pooling Transaction CLM Securities and Additional Margin for a repo with a nominal value of EUR 100 Million (continued from chapter 5.2.3): A = Cash Provider B = Cash Taker Additional Margin and CLM Securities for the Cash Provider Eurex Clearing receives and forwards the entire 105 million of GC Pooling collateral to the cash provider (A)18. “A” must also provide Additional Margin equivalent to the haircut. Thus “A” must pledge 5 million of Additional Margin to Eurex Clearing. In general “A” has to provide AM, because the central counterparty faces the risk that the cash provider defaults and cannot deliver back the securities. In case the securities have risen in value the central counterparty has to buy them at the higher price and deliver them back to the cash taker at the lower fixed price. Due to the fact that the cash provider may reuse the additionally allocated collateral (5 million haircut) provided by the cash taker, the cash provider has to pledge 5 million as CLM (securities) to Eurex Clearing.

18 The 105 million (including the 5 million haircut) is given to the cash provider because the 105 is worth exactly 100 million in a reuse. So, the cash provider can conduct a perfect reuse.


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The total margin requirement for the cash provider is 10 million (the CLM Cash is not taken into account in this example). Additional Margin and CLM Securities for the Cash Taker The Cash Taker (B) is to give 100 million worth of GC Pooling collateral. The ECB haircut of 5 percent is applied, and a total of 105 million worth of collateral is required19. This 5 percent haircut on the securities reflects the Additional Margin pledged by “B”. The CLM securities is calculated automatically as the difference between the current value of the collateral (105 million) and the 100 million nominal value, results in a margin credit of 5 million. The additional margin of 5 million (debit) can be netted with the 5 million CLM securities margin credit. Result of the netting: The margin requirement is set to zero. • The AM requirement for the Cash Taker is completely covered through automatic Xemac collateral

allocation. • All changes in the collateral value/substitutions are taken into account within Xemac for

collateralization purposes. • No margin requirement from Eurex Clearing is considered (but CLM Cash not taken into account

here). The margin requirement towards Eurex Clearing is zero for the cash taker since the original haircut of 5 mio reflects his margin requirement (again CLM Cash is not taken into account in this example).

Figure 5-6: Overview on the calculations

19 Simplified example here. The exact amount is 105,263,157.9 million. This amount reduced by the haircut of 5% (multiplier: 0.95) covers 100 million nominal value.


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The 105 m transferred collateral (purchase date) can be used to achieve an increase of the Reuse claim of 100m (105 – haircut).

** Maximum Reuse Claim: Market value of Basket collateral - Haircut Figure 5-7: Reuse


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5-001 Which margin types are not required for Euro Repo Market Transactions? A: Current liquidating margin B: Variation margin C: Additional margin D. Premium margin Correct answer: B|D 5-002 Which margin covers the forgein currency risk between the trading currency (CHF or USD) and the clearing currency (e.g. EUR) in the GC Pooling Market? A: Additional Margin B: Cross Currency Margin C: Current Liquidating Margin Cash D. Current Liquidating Margin Securities Correct answer: B 5-003 Which answers are correct concerning the GC Pooling margining calculation? A: The Additional Margin (AM), like the CLM Securities, equals the average ECB Haircut of the securities allocated in the course of a GC Pooling transaction. B: Eurex Clearing uses own haircuts for GC Pooling margining. C: Xemac/CmaX ensure full collateralization of GC Pooling transactions. D. The additional margin can change due to substitution of securities by the Cash Taker (Collateral Giver). Correct answers: A|C|D 5-004 The CLM Securities of the cash taker is covered by the daily re-evaluation and automatic adjustment of the allocated securities within Xemac/CmaX. True False Correct answer: True


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6 Collateral Management Page 48 of 53

6 Collateral Management

This chapter describes the collateral management of Eurex Clearing for the Euro Repo Market and GC Pooling. It is necessary to differentiate between the collateral, that the cash taker (seller of securities) has to give in a repo (principal collateral), and the collateral that has to be provided to cover the margin requirements of Eurex Clearing (margin collateral). The repo collateral is manually allocated in case of the Euro Repo Market. It is automatically done by Xemac/CmaX in case of GC Pooling whereby the underlying securities are predefined through the tradable GC Pooling baskets. The margin requirements of Eurex Clearing (see chapter 5) induced by the risk exposures based on the Euro Repo Market or GC Pooling Market Transactions may be fulfilled by a broad range of admissible securities (margin collateral). The collateral scope for Eurex Repo transactions is included in the general eligible collateral universe of Eurex Clearing, which is described in the Preparation Material for the Clearer Test Basic Module. Eurex Clearing restricts Clearing Members to deposit securities as collateral which are guaranteed or issued by the collateral provider (“Own Issues”) or by a legal entity that is a highly interlinked cooperation (“Close Link”). This applies to margin collateral as well as to principal collateral of centrally cleared GC (General Collateral) Repo and Special Repo transactions and GC Pooling and securities lending transactions cleared via Eurex Clearing’s Lending CCP (i.e. Securities Financing Transactions). There are exceptions from this rule, e.g. financial instruments of selected public issuers, issues of central governments and covered bonds with a defined minimum credit quality. For more detailed information please refer to Eurex Clearing circular 126/14. The following sections describe the assignment of principal collateral on the two markets, Euro Repo and GC Pooling, as well as the allocation of margin collateral for GC Pooling Transactions in Xemac/CmaX to fulfill the clearing house requirements as already depicted in chapter 5.

6.1 Assignment of securities in the Euro Repo Market

This section describes the assignment of a repo trade through the cash taker within the Euro Repo Market. The pledge of collateral to cover margin requirements of Eurex Clearing is described in the Preparation Material for the Clearer Test Basic Module. In contrast to the GC Pooling Market, there is no automatic allocation mechanism in place for the Euro Repo Market. The assignment of the securities used to collateralize the cash amount is performed manually by the respective trader in the Eurex Repo Trading GUI. After GC Repo Transaction conclusion the trader needs to assign the collateral securities within 50 minutes (this timeframe contracts, if either the cut-off time or the end of trading is reached). Otherwise the system will resort to the “Automatic Trade Completion Default“ list after expiration. Transactions for which a security assignment is pending can be identified by the Settlement Status “Held Back“ in the “Own Trades“ window. The assignment is performed via “Complete …“ in the context menu.


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6.2 Automatic allocation via Xemac/CmaX in the GC Pooling Market

The security allocation of the tradable amounts between the GC Pooling Market participants as well as their collateralization towards Eurex Clearing is done automatically by the collateral management systems of Clearstream Banking (Xemac for CBF customers or CmaX for CBL customers). The detailed process is described in the next sub-sections.

6.2.1 Basics of Xemac/CmaX

Collateral can be managed in connection with the money market operations of the Deutsche Bundesbank, GC Pooling Transaction of Eurex Repo and bilateral transactions among Xemac/CmaX customers. Also, it can be used to cover the margining requirements towards Eurex Clearing. The link between Clearstream’s two collateral management systems – CmaX in Luxembourg and Xemac in Frankfurt – allows international customers to seamlessly manage a single collateral pool within the integrated Xemac/CmaX environment. They can thus easily access the Xemac product offering, including GC Pooling and collateral pledge to the Deutsche Bundesbank, while retaining an existing set-up with Clearstream Banking Luxembourg.

Figure 6-1: Xemac/CmaX reuse of collateral

6.2.2 Automatic Allocation for GC Pooling

Xemac/CmaX only allocate collateral that is eligible within the respective GC Pooling basket.Unlike the Euro Repo Market, the buyer is not entitled to demand the transfer of particular basket securities to collateralize the GC Pooling Transaction. The security allocation covers the nominal amount of the repo transaction and the required margin, i.e. CLM Securities and Cash, Additional Margin, Cross-currency Margin, where applicable.


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Furthermore, the transferred securities can be substituted at any time of the term duration (right of substitution). Substituted securities are transferred by the seller from the inventory of available and eligible basket securities to the buyer.

6.2.3 Reuse

Securities that the buyer received from GC Pooling Transactions cannot be extracted from the GC Pooling cycle for other purposes. The following reuse possibilities exist, however: • The allocated securities can be reused for other GC Pooling transactions with the same trading

currency (all baskets) and within the same basket, during the term of the underlying GC Pooling transaction.

• The allocated securities for the ECB Basket can be pledged towards Bundesbank as collateral. This is permitted for Xemac participants with German banking license and only .

• The allocated securities of all baskets can be reused for the collateralization of Eurex Clearing’s margin requirements by Xemac/CmaX participants.

The following tables sum up the valid parameter combinations in the GC Pooling Market:

* Securities from GC Pooling EUR trades cannot be reused for a USD or CHF trade and vice-versa Figure 6-2: Reuse possibilities EUR

Trading Currency EUR

Baskets ECB Basket ECB EXTended Basket

MXQ INTBasket Equity Basket

Trading possible possible possible possibleOverNight trading possible possible possible possible

Reuse for GC Pooling trades

possible, only for EUR trades*

possible, only for EUR trades*

possible, only for EUR trades* possible

Reuse for Deutsche Bundesbank/ Banque Centrale du Luxembourg

possible, with German banking licence via

Xemac / with Luxembourgish banking

license via CmaX

not possible not possible not possible

Reuse for Eurex Clearing margining possible possible possible possible


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* Securities from GC Pooling EUR trades cannot be reused for a USD or CHF trade and vice-versa Figure 6-3: Reuse possibilities USD and CHF

6.2.4 GC Pooling Accounts with Clearstream Banking and Transfer of Collateral

Accounts All GC Pooling Market participants receive a “Reservation Account” as well as a “Segregation Account” with Clearstream Banking. Receipt of securities from transactions is deposited in the “Segregation Account” while the securities (collateral) to be delivered by the participants are booked into the “Reservation Account”. For trading participants with a German account set-up at CBF) a CASCADE Main-Account (code -000) and a linked Xemac Sub-Account (code -550) will be opened (reservation account and segregation account at the same time for CBF clients) and linked to the “Reservation Account” and the “Segregation Account” at CBL. For participants with a CBL account set-up a separate “Reservation Account” and a “Segregation Account” will be opened and linked with the GC Pooling mccount at CBL.

Trading Currency USD CHF

Baskets ECB Basket ECB EXTended Basket

MXQ INT Basket ECB Basket ECB EXTended

BasketMXQ INT Basket

Trading possible possible possible possible possible possibleOverNight trading not possible not possible not possible not possible not possible not possible

Reuse for GC Pooling trades

possible, only for USD trades*



possible, only for CHF trades*



Reuse for Deutsche Bundesbank / Banque Centrale du Luxembourg

possible, with German banking licence via

Xemac / with Luxembourgish

banking license via CmaX

not possible not possible

possible, with German

banking licence via Xemac /

with Luxembourgish banking license

via CmaX

not possible not possible

Reuse for Eurex Clearing margining possible possible possible possible possible possible


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Figure 6-4: Account structure It is in the responsibility of the participants to provide sufficient collateral on their Xemac Sub-Account (code -550). Therefore, the participants transfers GC Pooling eligible collateral from their CASCADE main account to the Xemac sub account. The process is generally described within the Preparation Material for the Clearer Test Basic Module (see chapter 6.2.5). Xemac provides the Contract Definition type 'Euro GC Pooling ' as the basis for Contract Conclusions between participants and Eurex Clearing. Afterwards the Xemac System automatically performs collateral management. For this, participants with CBL accounts need to use the respective GC Pooling account to which the reservation account is linked. Collateral Details Collateral can only be allocated to a claim for , i.e. Deutsche Bundesbank or Eurex Clearing if the securities are eligible for collateralization. Allocations in Xemac against any claim of a participant can be done only from the eligible list of securities. These criteria are stipulated within the Contract Definitions. If collateral fails to be eligible, it cannot be used any longer to collateralize claims. In such a case, Xemac/CmaX automatically substitutes the security with another from the collateral pool of the participant.


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6-001 Is it possible to substitute allocated collateral during the term of a repo transaction? A: Yes, substitution is possible in the GC Pooling Market by the cash taker. B: Yes, substitution is possible in all Eurex Repo Markets. C: No, it is not possible to substitute collateral. D: Yes, substitution is possible in the Euro Repo Market by the cash taker. Correct answer: A 6-002 The collateralization of a repo transaction through the cash taker is done in the Eurex Clearing GUI. True False Correct answer: False 6-003 Only Clearim Members with a German banking license who use Xemac are able to do reuses for Bundesbank pledges. True False Correct answer: True 6-004 Which GC Pooling baskets are eligible for reuse within Xemac/CmaX for Eurex Clearing margining? A: GC Pooling Equity Basket B: GC Pooling ECB Basket C: GC Pooling ECB EXTendet Basket D: GC Pooling MXQ INT Basket Correct answers: A|B|C|D

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