Derivatives Clearing Broker Assessment and Selection

Derivatives Explorer (DE) is the wrapper for a collection of products designed to assist institutional investors and asset managers to monitor the status and ongoing performance of their clearing broker on a monthly, quarterly, or annual basis, and to understand and evaluate the risks associated with the use of a CCP.

What is the regulation regarding derivatives clearing?

Under EMIR which came into effect on 15th March 2013, any client holding eligible OTC derivative contracts will be forced to appoint at least one clearing broker to centrally clear these contracts through a CCP. While pension funds are exempt until 2015, insurance companies and asset managers should already be clearing and reporting OTC trades.

Who would benefit from using Derivatives Explorer?

Any holder of any derivative contract. New global regulation and EMIR and Dodd-Frank change the risk management profile for ETD and OTC. All are caught as exposure to clearing brokers and CCPs changes in nature. Understanding and managing the risks associated with these relationships will be key for any institutional investor or asset manager.

What does the service comprise?

Clearing Broker Rating - This is awarded on the basis of the service level provided and the contractual position between the broker and client. The service levels the client experiences are then monitored using the benchmarking component and this may affect the rating that the broker is given, as he out- or underperforms his service level undertakings and contractual obligations.

Clearing Broker Monitoring - Most clients in the EU will have to appoint two clearing brokers for the purposes of portability, should one of their selected brokers get into difficulty. There are many obstacles to this. Where multiple clearers are appointed by a client, it will be possible to compare both clearers in the same report in order to benchmark both against each other, and the Thomas Murray IDS universe. Narrative is provided by the clearing broker(s) and Thomas Murray IDS, which helps draw attention to salient facts and trends.

Asset Safety Report - The Asset Safety Review identifies risks associated with the administration of OTC derivatives contracts transacted on behalf of the client. The report will identify generic issues and current best market practice in terms of asset safety solutions available for derivative contracts, ETD and OTC, plus highlight specific issues with the current arrangements for the client, and where these do not meet best market practice.

Assessment - Thomas Murray IDS is able to benchmark the fees associated with the use of a clearing broker for OTC derivatives. The fee elements which can be benchmarked are: Ticket Fee, Maintenance Fee, Capital Utilisation Charge, Minimum fees and Interest on credit balances.

What other benefits are there to subscribing to this service?

Derivative Explorer clients will have access to a CCP risk assessment of their primary CCP included in their first year’s subscription. The CCP Risk Assessments service defines key criteria and related data against which each CCP is assessed. The output provides participants with an assessment, supporting validated data and on-going surveillance as to a CCPs effectiveness in eliminating risks associated with transactions processed by it. The objective of the service is to bring transparency to the industry for the benefit of participants and offer cost savings to groups required to perform due diligence and assessments on CCPs that they use. This has become increasingly critical as the industry is mandated to use CCPs when transacting in cash, exchanged traded and OTC derivative products.

Select the links below to learn more about each service.

If you would like to find out more about this service, please contact: Stephen Merry at or telephone him on +44 (0) 20 8600 2300