Clarus Financial Technology

The European Active Account Requirements Revisited

With a huge Thank You to Eurex, I have to admit that I messed up on a recent blog post. It happens – we work to tight deadlines and cover complex topics. Still, I hold myself to a high standard and it really hurts when mistakes creep in.

I am indeed stood here in my wrongness. Sorry readers.

What Did I Get Wrong?

On the blog “Running the Numbers on the European Active Account Requirement“, I stated that;

For the largest firms clearing over €100bn a year, 60 trades in 12 different (sub)categories, potentially ranging from a €10m 2 year swap all the way to a €75m 30 year swap (must be transacted within the EU).

The purpose of today’s blog is to clearly state that this statement was WRONG. Apologies. I missed a crucial word in the ESMA text:

Counterparties will have to clear at least five trades in each of the most relevant subcategories per class of derivative contracts (emphasis the authors own)

Paragraph 90, Page 19, “Conditions of the Active Account Requirement“, ESMA.

And this brings us to the requirements in Paragraph 37, Page 30:

a) 5 most relevant subcategories for each of the 3 selected classes of EUR OTC IRD, i.e. EUR Fixed-to-float, EUR OIS and EUR FRA;

Reading it again, it is pretty obvious.

To clarify, counterparties do NOT have to trade 60 trades per year in each of the 12 subcategories. They have to identify the 5 most relevant subcategories for their franchise and transact 60 trades in each of those 5 subcategories. So we are actually talking about 5/12 as many trades as I originally wrote about.

Dealers will have to trade at least 300 trades (5 * 5 * 12) per year, and buyside 50 trades (5 * 5 * 2) to meet the requirements across the 5 subcatergories.

What Does This Mean for the Numbers?

Eurex have a good summary, which I am going to shamelessly link to:

Eurex Focus Day 2025

A Eurex footnote clarifies the requirement (what is it with our industry and Footnotes?):

*The combination of maturity ranges and trade size ranges results in a maximal number of subcategories. Out of all possible subcategories, market participants need to determine their individual most relevant ones based on highest trading activity. Example: out of 12 possible combinations for EUR IRS, a firm has to identify its 5 most relevant ones. (Emphasis my own)

The Fifth Column (no, not that one) is the key criteria that I left out when running the original numbers. As a result, I am more inclined to agree with the sentiment of the Risk.net article now – why make it so complicated? Just define 5 subcategories rather than 12. Why make counterparties suffer the complication of having to work out which 5 are the most relevant? Maybe I am just grumpy because I got it wrong in the first place!

How many trades?

Using my new understanding, let’s go ahead and model the European swaps market based on the following assumptions:

How Much Notional?

Translating my revised trade numbers into notional amounts gives me the following;

Repeating the calculations for buyside:

Overall we are talking about less than €850bn of EUR swaps being impacted every year as a result of this proposal. In DV01 terms, it equates to €890m DV01.

CCPView, which covers the global swaps market, shows that Eurex clears about €3Trn every year in EUR swaps:

Notional volume transacted per year in EUR IRS in €m. Source: CCPView

In Summary

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