Market ‘well-prepared’ for active account requirement on June 24 – Eurex

Deutsche Boerse’s derivatives arm Eurex is set to be the main beneficiary of the account account requirement (AAR) which mandates European clients to clear some Euro-denominated interest rate derivatives at European clearing houses, like Eurex’s in Frankfurt.

Eurex global head of products and markets Matthias Graulich told FOW: “The clearing brokers and end clients are well-prepared. We have spent the last weeks setting up all the necessary accounts and testing the relevant processes which is being reflected in the statistics which show who has tested and who is regularly active.”

The AAR requires European firms to start clearing with European clearing houses a small number of Euro interest rate futures and interest rate swaps, in a bid to break the dominance of London’s ICE Clear Europe and LCH SwapClear in those two markets.

Graulich added: “I would not expect a step-jump in activity and open interest on June 24, rather I would see a continuous increase over the coming months. Indeed, open interest is the key metric for us which is now close to one million lots across Euribor and ESTR which we expect that to continue to go up this year.

“Also important is the open interest breakdown between liquidity providers and liquidity takers, here the share of liquidity providers in continuously going down, most recently below 50%.”

Eurex, which relaunched its Euribor contracts in late 2023 to capitalise on the AAR, traded in May 2.8 million lots of Euribor futures, which was up 27% on the same month last year, according to FOW Data. The German exchange’s Euribor open interest was 363,000 lots, an increase of over 500% on last year, according to FOW Data.

London-based ICE Futures Europe is home to the Euribor futures complex, Europe’s largest listed derivatives market by far. That exchange traded last month 30.75 million lots of three-month Euribor futures, up a tenth on the same period last year, according to the firm.

ICE Futures Europe’s three-month Euribor futures open interest was 5.3 million lots last month, which was up 18% on May last year.

Chris Rhodes, president of ICE Futures Europe, told FOW last week the exchange plans to launch an Amsterdam-based interest rate futures clearing service to mitigate the impact of AAR.

Speaking at a conference in London, a senior executive at Deutsche Bank backed last week calls for a delay to the enforcement of the AAR because the technical standards had not at that time been published.

The main European regulator published late on Thursday the much-awaited technical standards for its active account requirements just days before the controversial clearing rule takes effect on Tuesday this week.