European clearing broker Commerzbank Corporates and Markets said it will support cross-product margining to secure capital efficiencies for clients, utilising Eurex Clearing Prisma, the German central counterparty’s portfolio based risk management tool.
Following the release of Eurex Clearing Prisma 2.0, Commerzbank said it can now support clients wishing to secure reductions in total margin payments due on derivatives cleared at Eurex Clearing. The service is intended to help buy-side firms including institutional investors to minimise collateral requirements by identifying, recognising and offsetting eligible positions. Commerzbank supports cross margining for exchange-traded derivatives and over-the-counter positions.
The service is delivered by Commerzbank’s recently integrated Market Services team, which provides a range of post-trade solutions customised to client needs – including OTC and listed derivatives clearing, custody, FX prime brokerage, collateral management and trade reporting – via a dedicated team.
"Cross-margining solutions allow clients the potential to secure capital efficiencies and it is likely to be a powerful driver of clearing flows and liquidity going forward as the OTC clearing market matures," said Nick Chaudhry, head of OTC clearing at Commerzbank.
The migration of liquid OTC derivatives such as interest rate swaps and credit default swaps to central clearing – driven by G-20-mandated regulations such as the European market infrastructure regulation – requires institutional investors to post initial and variation margin with central clearing houses. As most clearing houses typically require cash or high-quality government bonds as collateral, many buy-side firms have an increased need to manage and transform the assets they do hold to meet margin requirements.
Eurex Clearing Prisma calculates combined risks across markets for products that share similar risk characteristics within customer or proprietary positions according to liquidation groups resulting in more accurate risk calculations. Depending on the nature of individual portfolios, Eurex Clearing claims the tool can help users achieve margin efficiencies of up to 70%.
“Our portfolio-based risk management methodology is an innovative way to maintain accurate counter cyclical margin levels, while in parallel providing considerable capital efficiencies. Eurex Clearing Prisma incentivises holding balanced portfolios which represent low risk and have lower capital and funding requirements thus creating a win-win situation for the markets we clear,” said Thomas Laux, chief risk officer of Eurex Clearing.
Eurex Clearing Prisma 2.0, released last month, extends the tool’s existing capabilities via an improved methodology, inclusion of more instruments, including listed fixed income derivatives, and increased capital efficiencies, as it now supports Cross margining of OTC products cleared within EurexOTC Clear for interest rate swaps.