Buy Side Can Cross Margin Futures and Swaps at Eurex

Buy Side Forced to Review Collateral Arrangements
  • Societe Generale and BNP Paribas offering cross product margining services to their clients 
  • First large hedge fund to take advantage of cross product margining 
  • Average Daily Cleared Volume in long-dated interest rate swaps and overnight index swaps up 31 percent y-o-y to EUR 32 billion in 2021

Buy-side firms are now able to achieve margin offsets between fixed income futures and interest rate swaps cleared at Eurex. Societe Generale and BNP Paribas have begun providing the service to clients. Societe Generale announced the first multi-billion multi strategy hedge fund to take advantage.

Cross margining considers the combined risk of positions in related product groups when calculating collateral requirements. As Eurex offers a wide range of fixed-income derivatives, including futures on European government bonds such as Bund, OAT, and BTP, this leads to significant savings and increased financing flexibility for market participants with offsetting interest rate swap positions.

Eurex recently optimized its cross-product margining algorithm, removing all maturity constraints allowing for optimization across the complete euro yield curve. In addition, Eurex has further improved access to its margin calculator, which can be used now via API to indicate the potential savings from clearing both fixed income listed and OTC derivatives at Eurex.

Particularly in view of the increasing liquidity in euro clearing at Eurex, large asset managers are considering the possibility of bundling their portfolios across listed and OTC interest rate business and taking advantage of margin and capital efficiencies.

“To assist regulators with their continued calls to reduce euro swaps exposure outside the EU, cross margining is another piece in the puzzle to grow our share in euro clearing,” says Matthias Graulich, Member of the Executive Board at Eurex Clearing. “While the functionality has been available on the Eurex side for a while, the strong and robust euro swaps liquidity picture has triggered client demand and implementation on the Clearing Member side, making this functionality available to their clients.”

Jamie Gavin, Head of Prime Brokerage Clearing – EMEA, Societe Generale: “Societe Generale is pleased to be at the forefront of continued innovation within the futures and cleared OTC markets, offering cross product margin capabilities to our clients and enabling the significant margin and capital efficiencies that they bring.”

Eurex Clearing manages a total margin pool in its fixed income business line of almost EUR 40 billion with 60 percent in OTC interest rate derivatives and 40 percent on other fixed income products defining the frame for potential margin efficiencies.

Over 600 million listed fixed income derivatives, including futures on German, French, and Italian government bonds, changed hands at Eurex last year, worth a notional EUR 92 trillion. Notional outstanding in OTC interest rate swaps stood at EUR 20 trillion at the end of 2021, up 21 percent compared with 2020. Market share in December increased year-on-year from 17 percent to 21 percent.

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