Calypso Technology and Eurex Clearing, Europe’s clearinghouse, have partnered with it to support the Eurex Clearing’s new central clearing service, Eurex Credit Clear, for OTC credit default swaps (CDS).
Reportedly, the 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 is expected to facilitate market stability on a global scale, ensuring the transparency and regulatory reporting as well as reducing systemic risk for the financial market as a whole.
The company has claimed that the implementation of the Calypso-based solution, leveraging Eurex Clearing capabilities as well as Calypso Professional Services and Calypso Fast-Track, is aimed for controlling the costs, risks and timelines associated with implementing new trading and risk applications.
The initial product scope covers a European CDS product suite of the iTraxx Benchmark indices and 17 single name iTraxx 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 tailored to the requirements of OTC CDS clearing, which is based on the Calypso ERS Risk module – an approach that accounts for the specific risk characteristics of individual CDS Index and CDS products. It applies an incremental risk check service to determine whether a trade should be accepted for central clearing. Moreover, Eurex Clearing plans to expand the risk management services to additional asset classes over time according to market demand.
Thomas Book, member of the Eurex executive board responsible for clearing, said: “We are confident that together with the Calypso application we will offer central clearing initially for credit derivatives and subsequently also for further OTC traded asset classes. The Calypso based solution provides us with additional advanced risk management capabilities supporting risk margining methodology as well as market standard pricing models; not just for credit but covering all asset classes.”
Calypso Technology is a global application software provider of an integrated trading and risk management application suite to the capital markets industry.
