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CLEARING OPERATIONS | 6 Months Ended
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Jun. 30, 2022
CLEARING OPERATIONS |
CLEARING OPERATIONS | 12. CLEARING OPERATIONS ​ EuroCCP EuroCCP is a European equities central counterparty that provides post-trade services to stock exchanges, MTFs, over-the-counter (“OTC”) equities trades and an equity index derivatives exchange. EuroCCP clears equities from eighteen European markets and the United States, as well as Depositary Receipts, ETFs, and exchange traded currencies (“ETCs”). In September 2021, EuroCCP began clearing equity index derivatives for six European markets. Through a novation process, EuroCCP becomes the buyer for every seller and the seller for every buyer, thereby protecting clearing participants from counterparty risk and allowing the settlement of trades in the event of a clearing participant default. EuroCCP only assumes the guarantor role if it has an equal and offsetting claim against a clearing participant. For the period ended June 30, 2022, there have been no events of default for which a liability is required to be recognized in accordance with GAAP. Clearing Participant Deposits EuroCCP generally requires all clearing participants to deposit collateral to help mitigate EuroCCP’s exposure to credit risk in the event that a clearing participant fails to meet a financial or contractual obligation. Margin Deposits Margin deposits, which are predominately in the form of cash and cash equivalents, are deposits made by each clearing participant to EuroCCP to cover some or all of the credit risk of its failure to fulfill its obligations in the trade. EuroCCP maintains and manages all cash deposits related to margin deposits. Substantially all risks and rewards of margin deposit ownership, including net interest income, belong to EuroCCP and are recorded in other revenue on the condensed consolidated statements of income. In the event of a default, EuroCCP can access the defaulting participant’s margin deposits to cover the defaulting participant’s losses. For more information, see “Default and Liquidity Waterfalls” below. Clearing Funds The clearing fund mutualizes the risk of default among all clearing participants. Depending on their membership, clearing participants contribute to the cash-equity and/or derivatives segment of the clearing fund. Although the entire clearing fund is available to cover potential losses in the event that the margin deposits and the clearing fund deposits of a defaulting clearing participant are inadequate to fulfill that clearing participant’s outstanding financial obligations, the clearing fund first uses the product class segment of the Clearing Fund in which the defaulting participants was active (see “Default and Liquidity Waterfalls” below). In the event of a default, EuroCCP is generally required to liquidate the defaulting clearing participant’s open positions. To the extent that the positions remain open, EuroCCP is required to assume the defaulting clearing participant’s obligations related to the open positions. Clearing participants are required to make contributions to the clearing fund that are proportional to their risk exposure in the form of cash or non-cash contributions, which generally consist of highly liquid securities. ​ Interoperability Fund For the cash equity business line, EuroCCP has entered into interoperable arrangements with two other central counterparties (“CCPs”). Under these arrangements, margin is paid to, and received from, the other CCPs. The interoperability fund consists of collateral pledged by EuroCCP to the other interoperable CCPs, to cover margin calls EuroCCP received from other interoperable CCPs. For EuroCCP, the collateral pledged by the clearing participants is maintained in an interoperability fund designated account. EuroCCP does not have any economic interest or ownership in the collateral; therefore, these balances are not included in the condensed consolidated balance sheets. The following tables present the Company’s total clearing participant deposits as of June 30, 2022 and December 31, 2021 (in millions): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | June 30, 2022
​ |  | Cash Contributions |  | Non-Cash Contributions (1) |  | Total Contributions
Margin deposits | ​ | $ | 850.8 | ​ | $ | 517.8 | ​ | $ | 1,368.6
Clearing funds | ​ | ​ | 112.7 | ​ | ​ | 41.4 | ​ | ​ | 154.1
Interoperability funds (1) | ​ | ​ | 514.8 | ​ | ​ | 117.0 | ​ | ​ | 631.8
Total | ​ | $ | 1,478.3 | ​ | $ | 676.2 | ​ | $ | 2,154.5
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31, 2021
​ |  | Cash Contributions |  | Non-Cash Contributions (1) |  | Total Contributions
Margin deposits | ​ | $ | 600.0 | ​ | $ | 287.0 | ​ | $ | 887.0
Clearing funds | ​ | ​ | 145.9 | ​ | ​ | 41.9 | ​ | ​ | 187.8
Interoperability funds (1) | ​ | ​ | 423.3 | ​ | ​ | 92.6 | ​ | ​ | 515.9
Total | ​ | $ | 1,169.2 | ​ | $ | 421.5 | ​ | $ | 1,590.7
(1) These amounts are not reflected in the condensed consolidated balance sheets, as EuroCCP does not take economic ownership of these balances. Default and Liquidity Waterfalls The default waterfall is the priority order in which the capital resources are expected to be utilized in the event of a default where the defaulting clearing participant’s collateral would not be sufficient to cover the cost to liquidate its portfolio. If a default occurs and the defaulting clearing participant’s collateral, including margin deposits and clearing fund deposits, are depleted, then additional capital is utilized in the following order:
| ● | EuroCCP dedicated own resources: The EuroCCP default waterfall first utilizes its own dedicated resources ahead of clearing fund contributions of non-defaulting clearing participants, up to 25% of EuroCCP capital requirements discussed in Note 16 (“Regulatory Capital”).
| ● | Clearing fund: Second, the EuroCCP default waterfall utilizes traditional CCP risk mutualization, in the event that default losses fully exhaust EuroCCP’s dedicated own resources amount, whereby contributions applicable to a particular product class are applied first to any loss attributable to that product class.
| ● | Pro rata contributions: Third, if the default losses caused cannot be covered by the first two layers, the non-defaulting clearing participants shall on demand make additional payments to EuroCCP on a pro rata basis in proportion to the amount of their clearing fund contributions to cover any such remaining losses, which is limited to an amount equal to twice their clearing fund contribution as established under EuroCCP’s rules and regulations. In this scenario, contributions applicable to a particular product class are first applied to any losses attributable to that product class.
In addition to the default waterfall, the liquidity waterfall is the priority order in which the liquidity resources are expected to be utilized for EuroCCP’s ordinary course business operations and in situations when additional liquidity resources and liquidity measures may be activated in case of a potential liquidity shortfall. Liquidity, intraday or overnight, is mainly required for securities settlement. In ordinary course business circumstances, liquidity resources include the collateral directly deposited with EuroCCP, FX swap arrangements, and reverse repurchase agreements, as well as the use of the Facility. ​ ​ Eris Clearing Eris Clearing is a digital asset clearinghouse and central counterparty that provides clearing and settlement of digital asset trades. Eris Clearing clears cryptocurrencies from 51 U.S. jurisdictions authorized by license or not subject to licensing. Eris Clearing performs a guarantee function whereby Eris Clearing helps to ensure that the obligations of the transactions it clears are fulfilled. Eris Clearing’s clearing transactions are fully collateralized with either customer cash or digital assets owned by customers, which helps mitigate Eris Clearing’s exposure to credit risk in the event that a clearing participant fails to meet a financial or contractual obligation. The Company includes customer cash deposits on the condensed consolidated balance sheets in margin deposits and clearing funds and includes customer digital assets on the condensed consolidated balance sheets in digital assets - safeguarded assets, with a corresponding offset in digital assets - safeguarded liabilities. Additional details on safeguarded digital assets held can be found in Note 1 (“Organization and Basis of Presentation”). ​ The table below presents the Company’s cash deposits and safeguarded digital assets held on behalf of its customers for the purposes of supporting clearing transactions as of June 30, 2022 (in millions): ​
​ | ​ | ​ | ​
​ | ​ | June 30, 2022
Customer bank deposits | ​ | $ | 23.7
Digital assets - safeguarded assets | ​ | ​ | 22.4
Total | ​ | $ | 46.1
​ The following table depicts the Company’s valuation of digital assets – safeguarded assets and safeguarded liabilities as of June 30, 2022:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Digital Asset |  | ​ | Number of Units |  | Valuation per Unit |  | Fair Value (in millions)
Bitcoin | ​ | ​ | 674 | ​ | $ | 18,720 | ​ | $ | 12.6
Ethereum | ​ | ​ | 7,232 | ​ | ​ | 1,010 | ​ | ​ | 7.3
Litecoin | ​ | ​ | 11,869 | ​ | ​ | 51 | ​ | ​ | 0.6
Bitcoin Cash | ​ | ​ | 3,459 | ​ | ​ | 99 | ​ | ​ | 0.4
USD Coin | ​ | ​ | 1,507,706 | ​ | ​ | 1 | ​ | ​ | 1.5
Total | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 22.4
​

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- Definition The entire disclosure for financial services, specifically for brokers and dealers, for the accounting period and at the balance sheet date. Disclosure may include amounts receivable from and payable to broker-dealers and clearing organizations, including securities failed to receive, deposits received for securities loaned, amounts payable to clearing organizations related to open transactions, floor brokerage payables and payables for commodities futures accounts liquidating to an equity balance on a broker-dealer's records. May also include disclosure on company's consolidation policy and a note indicating the amount of the broker-dealer's actual net capital and the amount of required net capital. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 940 -URI http://asc.fasb.org/topic&trid=2176223 + Details
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