Prisma Cross-Margining Went Live in May 2014 Portfolio Simulations Available

Transcription

1 Prisma Cross-ing Went Live in May 2014 Portfolio Simulations Available Optimal allocation of positions delivers lowest cost through cross-margining of OTC and ETD Without cross-margining IRS and fixed income futures / futures-style options are margined separately: IRS with a 5 day liquidation horizon Futures and futures-style options 2 day liquidation horizon With cross-margining If IRS and futures positions are hedged: Futures are transferred to the IRS split such that the reduced risk is reflected in lower margins* FI listed products OTC IRS FI-only IRS+FI FI futures / futuresstyle options IR Swaps FI futures / futures-style options Allocation of FI listed products that hedge IRS exposure IR Swaps FI futures / opt. 2 day horizon 5 day horizon 2 day horizon 5 day horizon requirements: reduction by cross-margining: Futures / future -style options OTC IRS Total Cross-margined portfolio Total Overall initial margins for cross-margined portfolios might be lower which reflects risk reduction. * Depending on portfolio diversity 1

2 Combining ETD and OTC using Eurex PRISMA Creates Efficiency for Trading Strategies of up to 70% Significant Reduction for Eurex FI Futures Asset Swaps Calculated Initial results for Single position Fixed Income Portfolio consisting of Futures (long positions) EUR single position swap portfolios (paying) to maturity date of Cheapest to Deliver SwapPortfolios Comparison Portfolio Maturity Direction Notional 3,500 Portfolio 2 Portfolio 1 9Y Pay fix 50 Mio. Portfolio 2 5Y Pay fix 119 Mio. Thousands EUR 3,000 2,500 2,000 1,500 1,000 Portfolio 1 Savings 60-70% FI Portfolios 500 Portfolio Position Quantity IM savings in case of Cross ing Portfolio 1 Bund Future % - Prisma Cross FI OTC IRS * RBM FI Prisma OTC IRS Portfolio 2 Bobl Future % * Liquidity Adjustment calculated for aligned DMP excluding options 2

3 TED Spread - Futures vs Euribor Strip Example of the Benefits of Cross- ing through one CCP IM Euribor IM Two CCPs TED Spread Euribor + 48, ,200 73,650 80,000 70,000 Eurex Clearing PRISMA Eurex Clearing TED Spread TED Spread TED Spread Euribor + RBM Euribor 48,750 37,614 60,000 50,000 40,000 30,000 20,000 10,000 - Euribor RBM saving 34% RBM PRISMA saving 49% PRISMA Two CCPs 1 Eurex 2 RBM Prisma 3 3

4 Cross-Product ing: Example Futures Asset Swap Initial In 000 EUR Default Fund In 000 EUR Total Costs 1 In EUR In bps of notional Baseline CCP Eurex Clearing Swaps Future Maturity: 10Y Fixed Payer BUND Future 364 contracts ,000 28,000 11,000-69% 2.8 bps Eurex Clearing PRISMA Swaps Future Maturity: 10Y Fixed Payer BUND Future 364 contracts , bps 4

5 Combining cross-product and cross-currency creates significant margin benefits compared to either alone Example 1: EUR-USD portfolio Total combined initial margin (EUR MM) 1 Cross-currency only 2 Cross-product only USD swap 1 USD swap % % 3 Cross-currency and cross-product USD swap Example 2: EUR-GBP portfolio Total combined initial margin (EUR MM) 1 Cross-currency only 2 Cross-product only GBP swap 4 GBP swap % 5.7-7% 3 Cross-currency and cross-product GBP swap USD payer swap (10y, EUR 100MM notional), 2. EUR receiver swap (10y, EUR 100MM notional), Bund futures short, 4. GBP payer swap (10y, EUR 100MM notional) Sources: Eurex Clearing

6 Live Portfolio Results Demonstrate X-Product Netting Gains on Average Between 40% and 59% Cost Savings Costs on Eurex Clearing as % of costs when clearing on separate CCPs Comments % of costs for different netting gains 120% 100% Bank 1 (without Euribor) 80% Clearing on separate CCPs Clearing on separate CCP s was always less efficient than combining existing ETD in Bund/Bobl/ with OTC IRS 60% 40% 20% Bank 1 (with Euribor) Bank 2 Bank 3 Bank 4 0% 0% 10% 20% 30% 40% 50% 60% Cross-product netting gains Clearing on Eurex Clearing Greater use of Euribor (e.g. Bank 1) can significantly increase cross product netting benefits More accurate hedging of risk exposures to CCP s leads to significantly lower costs of capital and funding as a result of the significant reduction in risk to the CCP 6 Source: Eurex Clearing, Oliver Wyman analysis