A year on from its announcement of a European Agent-Trustee Model (EATM) for client clearing, which we discussed in our article titled EUR a copycat: Europe’s new US-style clearing model, the FIA has provided an update and published a set of FAQs, which you can access at the following link, The European Agent-Trustee Model (EATM). 

The FAQs provide information on the scope and structure of the EATM, as well as the legal and operational factors for market participants to consider. 

The key points to note are as follows.

• There are two versions of the EATM: an English model and a German model.
  • The initial roll out of the EATM will be in respect of the English model, to UK based clients of UK clearing members, with CCPs and clearing members targeting the end of this year to begin onboarding such clients (subject to operational testing, regulatory approval and preparation of clearing agreements by clearing members). The English model will subsequently be offered to non-UK clients of UK clearing members. 
  • The German model is intended to cater to clients of the Brexit entities established by clearing members in Germany.
     
• There may be operational factors for clients to consider upfront (such as the requirement for the transfer of collateral between the clearing member and client to be by way of title transfer). However, the EATM has been designed to replicate existing workflows so, on a day-to-day basis, operational changes should be minimal.
   
• Market participants electing for the EATM will enter into a new form of clearing agreement. This will be based on the FIA 2018 Terms of Business and will contain the operative OTC clearing provisions, supplemented by the “Segregated Asset Terms” (i.e. the trustee provisions) in a separate annex. Those terms establish the core trustee structure of the EATM. Crucially, under the English model there will be a single trust in respect of all of the clients of a clearing member. Those clients will have a shared beneficial interest in that trust, as reflected in the clearing member’s books and records. That means clearing members will require consistency across the Segregated Asset Terms in the clearing agreement it has with each client, so there is minimal scope for negotiation of the Segregated Asset Terms themselves. The contractual overlay which governs the commercial relationship between clients and clearing members will continue to be negotiable.

Please speak to your usual Macfarlanes contact or Will, Kartik and Amber if you have any questions.