Dr. Thomas Book, member of the Eurex Executive Board responsible for clearing explains, âWe are always looking for innovative ways to expand our central clearing offering and leverage our risk expertise with powerful technology solutions. We are confident that together with the Calypso application we will offer a sound, reliable and flexible engine to deliver central clearing initially for credit derivatives and subsequently also for further OTC traded asset classes.â
As the industry moves toward reducing counterparty risk through centralized clearing, Eurex Clearing has remained at the forefront of this movement as a leading provider of central clearing for OTC derivatives. Eurex Clearing acts as the central counterparty by becoming counterparty to every transaction, netting gross market risk and margining open positions to mitigate counterparty risk. Its new OTC derivatives clearing service improves market stability on a global scale â enhancing transparency and regulatory reporting as well as reducing systemic risk for the financial market as a whole.
The implementation of the Calypso-based solution was completed in less than four months, leveraging Eurex Clearing capabilities as well as Calypso Professional Services and Calypso Fast-Track, a market standard solution aimed for controlling the costs, risks and timelines associated with implementing new trading and risk applications. Eurex Clearing completed full implementation in March 2009 and is running the service simulation with more than 20 potential clearing members. Market launch will take place by July 31st 2009, to support the implementation of the industry self-commitment given by nine major market participants to the European Commission to use a European CCP for European CDS products.
The initial product scope covers a European CDS product suite of the iTraxxÂ® Benchmark indices and 17 single name iTraxxÂ® index constituents from the utility sector. In a next step, further European single names will be added to provide full coverage of the iTraxx Benchmark index constituents. The Calypso application acts as the underlying technology supporting the clearing service for CDS.
In addition, Eurex Clearing developed a risk management solution specifically tailored to the requirements of OTC CDS clearing, which is based on the Calypso ERS Risk module â an approach that accounts for the specific risk characteristics of individual CDS Index and CDS products. It applies sophisticated, market-proven risk analytics (an incremental risk check service) to determine whether a trade should be accepted for central clearing. Eurex Clearing plans to expand the risk management services to additional asset classes over time according to market demand.
Dr. Book, Eurex Clearing, adds, âWith the fast implementation of the Calypso application, we have been able to respond quickly to market and regulatory demands to provide a central clearing service for OTC derivatives. The Calypso based solution provides us with additional advanced risk management capabilities supporting our state-of-the-art risk margining methodology as well as market standard pricing models; not just for credit but covering all asset classes.â
Charles Marston, CEO of Calypso Technology, says, âEurex Clearing is our first client to deploy the Calypso software system to support the launch of an exchange service. Weâre very excited to be working with Eurex Clearing on this groundbreaking new development for the derivatives market. We remain at the forefront of innovation for the derivatives market and are partnering with leading market participants to help usher in a new era in derivatives trading.â