This blog is based on a conversation with Matthias Graulich, executive Board Member, Eurex Clearing:

The key message is that, with the home of the Euro-yield curve initiative, we can offer clients services which are valuable from multiple aspects and now there is an additional element that is triggering attention for these valuable Eurex services, namely the active account requirement.

The active account is coming and we see that as a trigger for people to think differently about their Euro fixed income businesses. That is why I think it is important that people understand and over time hopefully embrace the logic behind why pooling Euro-denominated products in a single place is economically very attractive.

Having the right partners and incentivize such partners to support developing a liquidity pool is success critical. In the STIRs programme, we had to tweak some of the incentives to make people show the right behaviour to create a much smoother daily activity and further improve the liquidity picture which is ultimately important to build a successful product and create a win-win-situation for all stakeholders.

We, of course, hope that this initiative bears further fruit in the next 12-18 months and we are prepared to share the value that we generate long-term with the partners that have contributed the most at the beginning to help us to get the initiative going.

If we want partners prepared to work with us over the long term, we have to remain committed. Ultimately, we want those people to share a piece of the cake that we have created if they have been instrumental in getting this off the ground.

The partnership programs are not designed to reward those firms that observe the situation and let others do the word, rather we want to reward those firms that are taking some risk and are willing to invest.

We think of our partners in terms of multipliers. On the one hand, we have the liquidity providers to establish the base liquidity picture in the orderbook, and, on the other hand, we have the banks that act as multipliers into the client base, providing off-book liquidity , execution and clearing services.

Before April, the volumes were something of a rollercoaster but on the April 1 some of these new rules kicked in and since then we’ve had a fairly consistent picture of volumes in both the Euribor and ESTR products. That is exactly what I wanted to achieve as a reliable liquidity picture ultimately creates trust.

Where are we now - we see tight bid-offer spreads and that they can do at the top of the book 8,000 contracts, that is a reliable liquidity pool for both ESTR and Euribor Futures and allow market participants to factor in efficiency considerations on their decisions what product and what value to use. In that regard Eurex as the home of the Euro yield curve offering PRISMA margin efficiencies can deliver significant benefits and funding cost savings.  

We already see these aspects resonating with the market and open interest growing quite substantially for example ESTR Futures open interest has more than quadrupled in the last 6 weeks since beginning of April to a level of more than 65.000 contracts.

We have some milestones kicking in later this year and early next year where we have incentives targeted at our bank partners to further build open interest and take advantage of the strong Eurex value proposition. All these measures are setting the basis to not only comply with the active account requirements under EMIR 3 likely kicking-in in the first half of 2025, but even more important to use the opportunity to make the most out of EMIR 3 and harvest the Eurex value proposition.

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