Eurex leads the way in seamless EMIR 3.0 AAR transition, empowering clients for future growth

With less than two months to go before the EMIR 3.0 active account requirement (AAR) comes into force, the clearing industry is in a good place to hit the June 24 start date in a state of compliance. From then on, EU market participants that fall under the clearing obligation must have an “active” account for OTC interest rate derivatives (IRD) in euro and zloty, as well as short-term interest rate (STIR) derivatives in euro with a central counterparty (CCP) based in the EU.

This will mark a significant moment in the evolution of European clearing markets, with increased systemic safeguards, as well as a framework for greater transparency and innovation to thrive.

What could be termed as phase one of this journey, the task of onboarding new accounts at Eurex, has been progressing healthily. This has been a major focus at our CCP and one that we feel is almost complete. Momentum has been building, with a noticeable pick-up in the past few weeks. Eurex’s OTC liquidity pool processed average daily cleared volume of Euro 311bn year-to-date, a 29% year-on-year increase, and hosted notional outstanding volume of Euro 41.9tr in April, which represents 22% year-on-year growth.

We have also seen very encouraging growth in our STIR business, with 40m €STR futures traded between their January 2023 launch and end of April. Activity in our contracts accounts for just over half of market share already. In Euribor futures, 37m contracts were traded between November 2023 and end of April.

Between now and June 24, we anticipate onboarding another 100-200 accounts. Many of our conversations with clearing members and their clients currently revolve around which clearing volume thresholds they will fall under. 

Some of these conversations have also centered on the 85% operational account exemption. This applies to firms that clear at least 85% of their in-scope transactions at an EU CCP and eliminates the obligation to comply with the operational conditions as well as related stress testing and reporting requirements. While 85% is a high threshold, the undeniable benefits that come from meeting it have sparked the interest of a notable number of market participants. 

With getting closer to complete phase one successfully, we are already encouraging the clearing industry to focus on phase two: testing the setup. Through a joint approach with our clearing members, we have so far achieved great strides towards operational readiness across the industry. The work we have achieved together has been a very encouraging testament to the ability of the clearing industry to work together when there is a collective hurdle to overcome.

We are now encouraging the industry to leverage this collaborative approach for the second phase of compliance. While onboarding has been a vital step towards being ready for June 24, firms also have to make sure that their systems can function in accordance with the AAR from day one. While ESMA will finalize the required technical details by June, the active account must be implemented by the same deadline. Until the final RTS are effective, firms should use the available ESMA guidance as a baseline and coordinate closely with their competent authority.

Testing will require a two-pronged approach

First, firms must test their ability to clear new transactions at Eurex, a process that will involve validation of front, middle and back-office systems. 

Secondly, firms should work on their infrastructure for moving outstanding transactions to an EU CCP. Under the AAR, firms will have to demonstrate that they can move existing trades through the pipes to an EU CCP within a short period of time. 

ESMA will, under the current draft RTS, stress test those capacities. Further clarity is expected with the final RTS.

Creating these functionalities will be necessary for both OTC IRD and STIR portfolios. In the case of the latter however, the listed format of existing portfolios will help any transition. Many firms that trade Euribor and €STR futures and options will also have Bund, Bobl and Schatz futures in their portfolios. From the off, this eliminates the need to open a new clearing account at Eurex, already a significant reduction in operational burden. 

So operationally, for many, this has made moving STIR trades to Eurex a question of when, rather than if. We have recently broken the 500,000 contracts mark for open interest in €STR futures, a strong sign of reliable liquidity in volatile market conditions. Euribor futures liquidity has also been developing encouragingly. 

Beyond regulatory impetus

The base part of Eurex’s mission in the journey to EMIR 3.0 has been to facilitate regulatory compliance, but there is more to it: at the same time you can generate a new level of efficiency. 

We offer mechanisms to help in the immediate transition, such as CCP Switch, as well as opportunities for efficiency gains across products along the euro yield curve. Bundling Euro government bond derivatives, Euro STIR, and OTC traded interest rate swaps at Eurex unlocks margin, capital and collateral efficiencies. 

Cross-margining is one of the most effective tools that firms can use to reduce their margin costs in modern derivatives markets. OTC IRD and STIRs cleared at Eurex will be able to be cross-margined against our other products in the same liquidation group, such as government bond derivatives, credit index futures, and the much-anticipated EU bond futures, when launched in September 2025. Margining efficiencies of 70% are what we can observe in many accounts taking advantage of our value added cross-product margin service.

Market participants can also achieve funding and financing efficiencies if they clear their repo activity at Eurex. The integrated setup of cleared repo allows participants to efficiently manage their collateral and cash requirements. 

Key takeaways:

• Eurex has observed good market progress to achieve EMIR 3.0 AAR compliance so far, with the onboarding stage almost complete.
• Now, market participants are encouraged to test the pipes ahead of EMIR 3.0 AAR’s June 24 start date.
• Market participants should look at the new EMIR requirements from two angles:
  1. Ensure compliance with the new requirements and make a contribution for a stronger and more resilient European clearing environment.
  2. Take this as an opportunity to tap a new efficiency pool by bringing Euro-denominated fixed income derivatives into the “Home of the Euro Yield Curve”.