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LCH.Clearnet Launches Interest-Rate Swaps Clearing Service for Buy-Side

Institutional investors with USD 146 trillion of additional notional value in interest rate swaps will fro the first time get access to SwapClear.

LCH.Clearnet Limited announced that it went live with a clearing service for the buy-side. For the first time, this gives institutional investors access to central clearing for interest rate swaps via SwapClear, the global clearing service for OTC interest rate swaps. LCH Clearnet said this brings great efficiency and security to the global market, in its release.

Developed in close collaboration with leading buy-side participants and dealers, the SwapClear client Clearing has been designed to offer a high level of security to buy-side clients in the case of a bank default through margin segregation and portability of contracts. Subject to FSA’s regulatory approval of this service services in the relevant jurisdictions, the list of 15 dealers committed to offering the services will be: Banca IMI, Barclays Capital, BNP Paribas, BofA Merrill Lynch, Calyon, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, Nomura, Royal Bank of Scotland, Societe Generale and UBS.

In a statement, Roger Liddell, CEO of LCH.Clearnet said: “We are seeing an ever increasing focus on removing systemic risk from the OTC markets. We are pleased to have been able to deliver such rapid progress since we first announced our plans to launch the service in May. The extension of LCH.Clearnet’s established SwapClear service, which counts amongst its members 23 of the world’s leading banks, means that for the first time buy-side trading clients now have access to the benefits of interest-rate clearing, a unique and proven default management process, reduced counterparty risk, portability, margin segregation and improved operational efficiencies.”

The extension of this service to the buy-side is one of the key market changes being contemplated by regulators and legislations, noted LCH.Clearnet in the release.

The OTC interest rate swaps market has by far the largest notional amount outstanding of any OTC derivative asset class dwarfing credit default swaps and FX derivatives, according to LCH.Clearnet’s release. The most recent semi-annual survey of the Bank of International Settlements indicates the notional amount outstanding of OTC interest-rate swaps is USD 341 trillion. According to this survey, the buy-side community currently accounts for interest rate swaps with an outstanding notional value of USD 208 trillion, none of which has previously been able to be centrally cleared. It is estimated that USD 146 trillion of this (USD 208 trillion) could now potentially be eligible for protection within SwapClear, according to LCH.Clearnet.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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