Deutsche Borse’s Eurex Clearing has launched a new incentive programme to increase euro clearing in the European Union in the post Brexit era.
Buy side clients starting clearing of OTC interest rate swaps (IRS), overnight index swaps (OIS), basis swaps and/or zero-coupon inflation swaps (ZCIS) at Eurex Clearing anext year could qualify for an incentive reward of up to €50,000.
The qualification period runs from 1 January 2023 to 31 December 2023. Based on Eurex’s current eligible client base the incentive pool can become as high as €25 million.
The programme is a further step to support the regulatory efforts to generate more clearing in the eurozone as well as reduce reliance on central counterparties outside the region.
“With this targeted incentive program for buyside clients, we again demonstrate our strong commitment for a market-led solution which is designed to further accelerate the development of a liquid, EU-based alternative for the clearing of OTC interest rate swaps, ” said Matthias Graulich, member of the Eurex Clearing Executive Board.
He added, “Especially against the backdrop of enduring uncertainty, changing rates and an increased need for hedging a broader marketplace through greater choice, improved price transparency, as well as reduced concentration risk is more important than ever.”
Since Britain fully left the EU at the end of 2020, its financial sector has lost its unfettered access to the bloc, but Brussels has allowed EU market participants to continue using UK clearing houses until June 2025, to give time for them to shift business to the EU.
The London Stock Exchange Group’s LCH business clears the bulk of euro interest rate swaps, but the European Commission had reiterated its financial stability concerns and renewed its call on market participants to use that period to substantially reduce their exposures to UK market infrastructures.
In early December, the European Commission is due publish legislation to “incentivise” a shift from London to the EU.
Derivatives industry officials expect the EU draft law to include forcing EU market participants to have an “active” account with a clearing house in the bloc, with perhaps minimum volume requirements.
The European Securities and Markets Association (ESMA) has recommended that pension funds in the bloc should be made to clear their swap trades inside the EU from June 2023 to further boost volumes.
Banking regulators in the EU could use existing powers to force banks to hold more capital on exposures to clearers in based in London.
Currently, more than 600 clearing members and buy-side clients have been on-boarded by Eurex Clearing for swaps clearing.
The firm has around 40% market share and notional outstanding in OTC interest rate derivatives rose by 40% since the beginning of the year to €28 trillion in mid-October.
Eurex said the new programme is a complement to the CCP Switch Incentive Programme under which positions in OTC interest rate derivatives transferred to Eurex Clearing are completely exempted from booking fees.
Eurex Clearing also opened its governance structure and shares a significant part of the revenues of its interest rate swap segment with the most active participants within the scope of the Eurex Partnership Programme.
