Eurex Clearing is aiming to triple how much it devotes to the clearing house’s default fund, as market participants’ call for clearing houses to increase their skin-in-the-game.
According to a circular from Eurex, it will increase its dedicated amount by €50 million as of 15 June, and plans to add a further €50 million in 2017 to take its total to €150 million.
The plan is the first step of a larger scheme to boost Eurex Clearing’s risk management strategy, The Trade Derivatives understands.
In addition Deutsche Boerse, which owns Eurex Group, has issued a ‘letter of comfort’, stating that it would provide Eurex Clearing with up to €700 million to cover any remaining losses from defaulting clearing members.
With activity in clearing houses set to increase dramatically with the onset of new derivatives clearing rules in Europe, new concerns have been raised regarding the stability clearing houses in the case of another financial crisis.
The plan comes as market participants, such as BlackRock, PIMCO, and JP Morgan have called for clearing houses to up the amount of capital they put aside in the case of a member default.
However some clearing houses believe that increased contributions could disincentivise clearing members, such as banks. Last year, LCH released a white paper stating increased contributions could destabilise the market infrastructure.