The derivatives exchange Eurex is confident about increasing its market share in euro clearing. According to its own figures, the Deutsche Börse subsidiary currently handles 35 trillion euros in outstanding volume, which corresponds to roughly 20% of the market.

„We have indeed succeeded managed to create a liquid alternative to London in euro clearing“, Erik Müller, CEO of Eurex Clearing, and Head of Financial Derivatives Robbert Booij, emphasise in an interview with Börsen-Zeitung. (Müller recently announced his departure from the company).

Many in the market were initially sceptical about Eurex's plan to shift part of the business in euro-denominated derivatives from London to Frankfurt. However, through the partnership program initiated eight years ago, Eurex has succeeded in gaining market share. „We made an offer to market participants: The ten players who helped us most actively build and expand a liquid alternative in euro-denominated derivatives are rewarded with governance, meaning a seat on the supervisory board of the clearinghouse, and participation in the profits“, Müller recalls.

After the 2008 there was a debate, notably led by the European Central Bank, about whether it was acceptable for such a critical element in the derivatives trading process – euro clearing – to be almost exclusively based in London. The discussion gained momentum after the Brexit referendum in June 2016.

The argument was that a larger portion of euro interest rate derivatives clearing should take place on the continent, so that, in case of a crisis, EU institutions could be involved in decision-making without having to support London with billions in liquidity. Since then, EU lawmakers, including the Council and the European Parliament, have made multiple adjustments to the derivatives regulation.

„Eurex can benefit from new EU requirements“, explains Müller. With the revision of the derivatives regulation, known as EMIR 3.0, anyone trading euro derivatives must clear part of their business within the EU. The EU mandates an „active account“ at an EU-based clearinghouse. Müller is confident that Eurex is well-positioned as „we can provide a capital-efficient solution.“ „We are the home of the euro“, he notes.

From June onwards, market participants must meet the requirements of EMIR 3.0. The recent publication of the Regulatory Technical Standards has clarified what the regulators are demanding. Müller reports that this is already reflected in Eurex’s figures: „We saw strong double-digit growth in the numbers for January and February," he says.

„We are working intensively with market participants to make access to Eurex easier“, notes Booij. Eurex is investing in onboarding to ensure a smooth transition for market participants. „We are also engaging with regulators and supervisors to identify any remaining obstacles associated with the rules.“

Booij gives an example: In the Netherlands and Luxembourg, there are exceptions for proprietary trading that allow market participants from non-EU countries to operate their business in Europe without the need for authorization. „We are also discussing this with regulators here in Germany – and we're getting a good response“, says Booij.

Furthermore, Eurex has launched a „sister partnership program“ for Short-Term Interest Rates (STIRs), as EMIR 3.0 also applies to the short end of the curve. „We are already seeing some impressive numbers here“, states Müller. In ESTR, Eurex has a 30% market share in open interest, and in Euribor, a 5% share. „Almost daily, some mid-sized bank is considering shifting parts of its book from London to Frankfurt“, Müller says.

„We offer clearing for the entire yield curve, across all maturities“, emphasizes Booij. This means that customers can use their collateral pot in a way that allows them to manage their risks in a capital-efficient manner: „And that is crucial for them.“ Booij observes that, in light of increasing uncertainties in global politics, there is growing interest in addressing risk management, „and as a result, people are also looking more closely at our products.“

„Politicians have learned that central counterparties play an essential role in ensuring financial stability“, Müller adds. It is widely recognized that Eurex is making an important contribution to that.

For this reason, Booij and Müller remain optimistic about the business, saying that there is still immense potential. After all, only a small portion of trades on FX markets are currently cleared through CCPs. „We are certainly anticipating more business in the future," they say.