Operational Handling of Collateral

Cash Collateral

Cash is debited or credited by ECC to the cash accounts designated by Clearing Members relevant for cash settlement. Interest is paid on cash deposited with ECC into the Collateral Pool in which the cash position is held at 6 pm CET.

Deposit

End-of-Day Magin Call: For Collateral Pools with margin shortfalls, cash collateral is automatically called overnight into the respective Pool where the shortfall occurred.

Intraday Margin Call: If a shortfall arises in the House or Standard Collateral Pool that triggers an intraday margin call, cash is automatically called into the respective Pool. For SOS and ISA Collateral Pools, any shortfall is first covered by surplus collateral available in the Standard Collateral Pool. If this surplus is insufficient, an intraday margin call will be triggered into the Standard Collateral Pool.

Cash Bookings Between Pools

Cash from the Standard Collateral Pool can be allocated to any SOS or ISA Pool by instructing a booking via the C7 GUI (deposit to SOS/ISA Pool, followed by a withdrawal from the Standard Collateral Pool).

Release

Cash releases from the House or Standard Collateral Pool are processed automatically overnight. For SOS and ISA Collateral Pools, automatic overnight collateral release can be configured upon request by the Clearing Member.

Unused cash collateral can be released at the Clearing Member’s request before the intraday cut-off time.

Cut-off Times for Cash Deposits and Releases
 

Securities as Collateral

Securities Collateral Deposit

Clearing Members maintain a pledge account at Clearstream Europe and assign it to a specific C7 Collateral Pool. All securities deposited into this pledge account are automatically credited in near-real-time to the linked Collateral Pool in C7. If any deposited securities are not eligible as collateral, ECC will automatically release them and return them to the Clearing Member.

Securities Collateral Release

Withdrawals can be initiated via the C7 Clearing GUI. Upon receiving a withdrawal request, ECC verifies that the release will not result in a margin shortfall. If the margin requirement is met, ECC will initiate the return of the securities to the member’s redelivery account at Clearstream and update the collateral balances accordingly. If the withdrawal would cause under-collateralisation in the Pool, the transfer is postponed until the shortfall is resolved.

Summary of Cash & Securities Collateral Procedures

The following table outlines the various segregation models and the corresponding collateral procedures:

Bank Guarantees as Collaterals

Bank Guarantee for Non-Clearing Member (NCM)

To use bank guarantees as collateral,

• please contact one of the following guarantors and use the template “Template Guarantee NCM EUR”* or “Template Guarantee NCM GBP”* respectively.
• please contact your Clearing Member to give approval for the use of the bank guarantee by using the  “Form O08” published below.

Bank Guarantee for DCP Clearing Member (DCP CM)

To use bank guarantees as collateral,

• please contact one of the following guarantors and use the template “Template Guarantee DCP CM EUR”* or “Template Guarantee DCP CM GBP”* respectively.

More details on risk management for DCP CMs can be found here.

* The NCM and the DCP CM will then have the possibility of either (i) contacting the guarantee giving bank directly or (ii) indirectly with a correspondence bank, e.g. to contact its principal bank, which then contacts one of the Institutes approved by ECC out of the following list. The guarantee giving bank remains an ECC accepted institute. ECC does not have any influence on fees incurred with banks involved.

Limitation of the total value of all guarantees per guarantor

ECC sets an absolute upper limit for the total value of all guarantees per guarantor (i.e. the sum of all guarantees for all Non-Clearing Members and DCP Clearing Members per guarantor). This absolute limit is based on ECC's assessment of the guarantor's creditworthiness. The absolute limit is determined as part of the initial acceptance as a guarantor bank and is regularly reassessed by ECC. If the guarantor's creditworthiness deteriorates (e.g. credit rating is downgraded), the guarantor's absolute limit can be lowered. If the new absolute limit is lower than the total value of all existing guarantees for this guarantor, the existing guarantees may no longer be accepted as collateral.  In such a scenario, the most recently provided guarantees would be returned first (last-in-first-out).

Guarantors

The template has been developed with the feedback of the following guarantors, which fulfill ECC’s criteria:

Banks interested in becoming a guarantor for ECCs collateral management service should contact ECC directly via email clearing@ecc.de. ECC will then review and decide upon the acceptance of new guarantors based on ECCs risk assessment and the fulfilment of ECC’s minimum requirements.

Consideration regarding EMIR:

EMIR Article 41 requires that a CCP shall impose, call and collect margins to limit credit exposure resulting from the relevant positions. According to Article 46 such exposure must be covered with highly liquid collateral with minimal market and credit risk. Highly liquid collateral is defined in Annex I to Regulatory Technical Standard 153/2013. Spot Market Initial Margin Requirement is not designed to cover risk from existing positions but from potential credit exposures from potential transactions on spot markets. Therefore, the limitations of Annex I do not apply for spot market initial margin. Furthermore, as in the spot market approach of ECC, transactions are concluded between ECC and the NCM under a guarantee of the CM, the collateral posted by NCM’s to ECC is backed by this guarantee of the CM realizable on a same day basis.