EURO STOXX 50® Index Total Return Futures (TESX) – Transition of the reference Funding Rate from €STR plus 0.085 percent to €STR (flat)

1.    Introduction

This circular contains information with respect to amendments to the Clearing Conditions of Eurex Clearing AG (Clearing Conditions) regarding the transition of the reference Funding Rate from euro short-term rate (€STR) plus the ECB provided EONIA transition spread (0.085 percent or 8.5 basis points) to €STR flat.

On 5 July 2021, Eurex Exchange and Eurex Clearing AG initiated a corresponding consultation (see Eurex Circular 066/21 and Eurex Clearing Circular 060/21). 

After having analyzed the feedback, Eurex Exchange and Eurex Clearing AG have decided to make an amendment of the Clearing Conditions and the Contract Specifications and to implement the methodology and operational steps as proposed in the above-mentioned Eurex Circular and Eurex Clearing Circular. 

Eurex Clearing will apply a conversion methodology designed to mitigate the valuation impact due to this change in Contract Specifications for all open positions held as at the opening of the implementation date and based on calculations performed as at the close on the immediately preceding trading day.

This Eurex Clearing Circular lays out the details of the transition to the extent they relate to Eurex Clearing.

The amendments to the Clearing Conditions will come into effect as of 18 October 2021.

Learn more about this project on our dedicated initiative page under the following link: Support > Initiatives & Releases > Project Readiness > EURO STOXX50 Index Total Return Futures – Transition to €STR flat

2.  Required action

Clearing Members are requested to pay close attention to the attachments to this circular and prepare for the transition to €STR flat which might have an impact on Clearing Members’ internal processes, trading and open positions. Therefore, it might be necessary for Clearing Members to update their internal processes and technical interfaces to adapt for these changes.

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3.  Details of the initiative

A. Background information

In September 2018, the ECB working group on euro risk-free rates recommended to replace EONIA by €STR as the new euro risk-free rate. This was determined as 0.085 percent (8.5 basis points) prior to the implementation of the amended calculation method for EONIA as at 2 October 2019. The ECB working group on euro risk-free rates also recommended that trading participants gradually replace EONIA with €STR for all products and contracts, establishing €STR as the standard reference rate.

In a first step and in line with ECB’s working group recommendation, Eurex Exchange amended the Contract Specification of the EURO STOXX 50^® Index Total Return Futures (TESX) on the transition date on 2 October 2019, such that the referenced funding rate became €STR plus the ECB provided Spread to EONIA (i.e. Funding Rate (%) = €STR(%) + 0.085%). More details are available in Eurex Circular 087/19. This amendment had no impact on the valuation of outstanding contracts.

Now, in a second step of the transition from EONIA to €STR, Eurex Exchange amends the Contract Specifications applicable to the EURO STOXX 50^® Index Total Return Futures to rebase the reference funding rate as €STR flat, i.e. by removing the ECB fixed spread referencing EONIA (see Attachment 1a). The amendment of the Contract Specification shall be accompanied by a conversion approach, such that holders of open positions in these contracts as at the implementation date are not economically impacted by the contractual change to the funding rate.

The amendment to the Contract Specifications of Eurex Exchange and accompanying changes to the Clearing Conditions of Eurex Clearing AG, the determination of the conversion levels, their application to open positions, and the determination of required inputs are all detailed in the attachments to this circular.

B. Implementation

EURO STOXX 50^® Index Total Return Futures (TESX) were introduced at Eurex Exchanges as at 2 December 2016 and were amended in 2019 to update the reference funding rate to €STR+8.5 basis points. The Funding Rate is used on each trading day to calculate the Accrued Funding used in the determination of both traded prices and settlement prices in index points for each expiration on that day. Adjustment of the Funding Rate impacts both traded and settlement prices from the implementation date. 

Adjustment to the settlement prices will impact the valuation of all open positions held at Eurex Clearing which resulted from trading activity on the premise of the Contract Specifications and Funding Rate, applicable prior to and including the Calculation Date (15 October 2021). Eurex Clearing therefore will apply a conversion methodology to holders of open positions, as at the date of implementation (18 October 2021) of the Funding Rate change, to mitigate the valuation impact of such an amendment (see Attachments 2-4).

To implement these changes at Eurex Clearing, the following provisions will be amended as outlined in Attachment 1b:

• Chapter II Part 2 Number 2.22 of the Clearing Conditions

C. Publication of amendments to the Clearing Conditions

As of the implementation date, the full version of the amended Clearing Conditions will be available for download on the Eurex Clearing website www.eurex.com/ec-en/ under the following link:

Rules & Regs > Rules and Regulations > Clearing Conditions

Unless the context requires otherwise, terms used and not otherwise defined in this circular shall have the meaning ascribed to them in the Clearing Conditions or FCM Clearing Conditions of Eurex Clearing AG, as applicable.

Attachments:

• Attachment 1a – Changes to the Contract Specifications
• Attachment 1b – Changes to the Clearing Conditions
• Attachment 2 – Determination of EURO STOXX 50^® Index (SX5E) Forward Points
• Attachment 3 – Conversion Methodology
• Attachment 4 – Price Correction Service

Further information