Euronext Clearing Presentation

24 Feb 2022

CONFIDENTIAL I © 2020 VERMEG /

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 Agenda

1. Introduction

2. Strategic ambitions

3. Markets

4. Main figures

5. Collateral

6. Risk Management

7. Fees

8. Exchanges Channels

CONFIDENTIAL I © 2022 VERMEG /

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Introduction

Since 29 April 2021, Euronext Clearing is the new name for Euronext's multi-asset Italian
CCP, formerly CC&G (Cassa di Compensazione e Garanzia) .

It is becoming the CCP of choice for Euronext group activity for cash equity, listed
derivatives and commodities markets (in the past working with partners :LCH SA, EuroCCP,
Euroclear)

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Euronext growth Strategy for next
3 years

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This strategic ambition for clearing

Euronext directly manage this key client service and provide a harmonised clearing framework across Euronext
venues
Euronext will position Euronext Clearing as a European clearing house, with teams in Italy and France
The Group provides :
• Multi-asset clearing house through Euronext Clearing,
• Custody and settlement services through Euronext Securities central securities depositories in Denmark, Italy,
Norway and Portugal

Strongly committed to expand international presence and working towards a single collateral management system
covering the entire Eurosystem

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Strategic priorities for clearing activity

• Positionning Euronext Clearing as the European clearing house

• Enhancing with a new Value at Risk framework (an ongoing dialogue with regulators)

• Reinforcing by cutting-edge technology (in line with its new international ambitions)

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Other major events & decisions

• April 2021 : strategic decision to migrate its Core Data Centre from Basildon, in UK to Bergamo in Italy
( following Brexit, locate Core Data in a EU where Euronext operates a large business)

• Euronext will offer its clients the option of exposure to crypto-assets through a suite of new products. After the
recent success of cryptocurrency ETPs listing on Euronext

• Euronext will extend the use of artificial intelligence to improve data analysis and infrastructure agility.

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Euronext Markets

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 Market places

Euronext Clearing provides services on 14 markets across a range of trading venues including Euronext Milan, MTS,
BrokerTec and Hi-mtf

Mainly located in :
 Brussels
 Dublin
 Lisbon
 Milan
 Oslo
 Paris

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Market Segments

Euronext Clearing activities as Central Counterparty are structured on the following segments:
 Equities
 Equity Derivatives
 Energy Derivatives
 Agricultural Commodities Derivatives
 Bonds
 ICSD Bonds

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Market segments across trading venues

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Other markets

Cleared OTC Trade Facility

Euronext's Cleared OTC Trade Facility allows a member to confirm a trade executed over-the-counter
(OTC) with another Euronext member for clearing purposes in eligible equities, ETFs and rights.

Derivatives contracts in non-Euro currencies

 Trade a wide range of Single Stock and Single Stock Dividend Futures in non-Euro currencies
 Contracts available are in CHF, DKK, NOK, SEK and USD

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Asset Classes

Main asset classes traded:

• Equities
• ETFs
• Closed-end Funds
• Financial Derivatives
• Commodities (Agricultural & Energy)
• Fixed income (Cash and Repos markets)
• warrants and convertible bonds

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Euronext main figures

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Euronext growth strategy

Over the past three years

• the Group diversified its businesses and expanded geographically through the acquisitions of Nord Pool and
VP Securities in 2020 and the Borsa Italiana Group in 2021

• Today, Euronext operates

•7 national markets,
•4 CSDs (CSDs in Portugal, Norway, Denmark and Italy)
•1 clearing house in Europe
•Various trading infrastructures

Giving it the ability to manage the entire capital markets value chain

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Euronext main provisional figures

Euronext’s growth ambition is reflected in its 2024 financial targets and a rigorous capital allocation
strategy
Revenue is expected to grow by +3% to +4%, average annual revenue growth excluding potential
acquisitions driven by
• organic growth, especially in services
• growth initiatives related to Borsa Italiana integration.
EBITDA is expected to grow by +5% to +6% average annual growth between 2020 and 2024 excluding
potential acquisitions driven by
• the contribution of new activities such as the Core Data Centre and the European expansion of CC&G
clearing activities
•continued best-in-class cost discipline
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Euronext Clearing in numbers

As of end December 2021:

• 72 clearing members in Belgium, France, Ireland, Italy, the Netherlands, Norway and
Portugal.

• close to 2,000 listed equity issuers

• Over 40 000 financial securities instruments
• around €6.9 trillion in market capitalization
• over 50 millions Derivatives lots cleared
• over 190 million Equity trades cleared
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Collateral

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Collateral for initial margin

Initial Margins can be covered by:

• Cash (Euro)
• Euro denominated Government Bonds, traded on MTS markets and issued by low credit and
market risk Countries.
• BTP Italia (Italian Governement Bond linked to italian inflation)

• Government bonds are marked to market daily, using prices or quotations made available by info providers.

• The bonds deposited as collateral are grouped in classes of haircut based on their duration.

• Collateral value posted in securities used to cover Initial Margins is determined on the basis of concentration limits.

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Risk Management

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 Counterparty risk management

Euronext Clearing eliminates counterparty risk:

• acting as buyer toward the seller and vice versa

• becoming the guarantor of the final settlement of the contracts.

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Robust Risk management Scheme

Based on asset segregation and state of the art margining methodology.

Euronext Clearing’s system is using the following 3 levels of protection:

1. Membership requirements
Clearing Members must meet minimum Supervisory Capital requirements in accordance with their role (ICM or GCM) and the segment they want to

2. Margin system
Members must deposit sufficient collateral to cover the theoretical costs of liquidation which Euronext Clearing would incur in the event of a Member’s Default in order to
close the open positions in the worst reasonably possible market scenario. All Clearing Members are therefore required to pay margins on all open positions.

Euronext Clearing has additional protection, which functions alongside the margins system, consisting of the Default Fund to cover that portion of the risk, generated by
extreme variations in market conditions, that is not guaranteed by the margin system.

3. Default procedure
The procedure envisages the allocation of the losses and costs sustained by Euronext Clearing following the default of a Clearing Member according the below hierarchy
(i.e. "default waterfall")
 

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Default procedure

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Margin calculation

The Margining system is a fundamental risk management tool adopted by Euronext Clearing.

Initial Margin
Initial Margin is called on a daily basis to cover the theoretical costs of liquidation within a maximum
price variation range called “Margin Interval”.
The “Margin Interval”, specific for each financial instrument, is periodically reviewed as a result of
statistical analysis

Intraday Margin
Intraday margins are called by Euronext Clearing in case of sudden sharp price variations or in the case
of a Member’s excessive overall risk exposure. Intraday Margin is calculated with the same
methodology as the Initial Margin.

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Default Funds

Four Default Funds, are managed by Euronext Clearing :

• Equities and Derivatives

• Energy Derivatives
• Commodities Agricole
• Bonds

It’s an additional protection covering risks associated with sharp price/interest rate movements.

Default Fund amounts are calculated as a result of periodic stress tests. The contribution to the Default
Fund of each Direct Member is adjusted at least on a monthly basis proportionally to the average Initial
Margin paid in the previous month.
The default Fund contribution quota must be deposited in cash (Euro).

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Zoom on the Fees

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Euronext Derivatives Markets main Fees and Charges

• Membership Fees

• Connectivity Fees

• Clearing and Settlement Costs

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Zoom on the exchange channels

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Connection Channels for securities settlement

Euronext Securities Milan offers its customers the possibility to choose between the following
connection channels:

 SWIFT
 National Interbank Network (RNI)
 Milan 4U (Web based interface). the access portal that allows customers to connect to : Pre-
Settlement, Settlement, Custody and Collateral platforms
 A2A Euronext Securities (formerly Monte Titoli CSD)

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Margins Calculation methodology

Reliable and accurate systems:

• MVP :(Method for Porfolio Valuation) for Italian Governments Bonds

• MARS :(Margining System) for Equity Derivatives products and for equity cash products

• MMEL :(Margins for Electricity Market) for Energy Derivatives

• MMeG methodology (Margins for Wheat Market) for Wheat Derivatives

They are based on contract types,delivery process,product group,sensitivity to interest
variation,durations,, etc.