LCH.Clearnet, the largest clearer of over-the-counter products globally, has launched an interest rate swaps clearing service for the buy-side.
For the first time, institutional investors are able to access central clearing for OTC interest rate swaps via SwapClear, the only global clearing service for OTC interest rate swaps.
Developed in close collaboration with significant buy-side market participants and dealers, the SwapClear Client Clearing Service has been designed to offer a unique level of security to buy-side clients in the case of a bank default through margin segregation and portability of contracts.
Subject to regulatory approval, the list of dealers committed to offering the service will be Banca IMI, Barclays Capital, BNP Paribas, BofA Merrill Lynch, Calyon, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, Nomura, Royal Bank of Scotland, Société Générale and UBS.
Roger Liddell, chief executive of LCH.Clearnet, says: “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 swap clearing, a unique and proven default management process, reduced counterparty risk, portability, margin segregation and improved operational efficiencies.”
The extension of the service to customers of banks reflects the market changes being contemplated by regulators and legislators worldwide.
The OTC interest rate swaps market has by far the largest notional amount outstanding of any OTC derivative asset class, dwarfing CDS and FX derivatives.
The most recent semi-annual survey of the Bank of International Settlements indicated a notional amount outstanding of OTC interest rate swaps of USD341trn. According to the same survey, the buy-side community currently accounts for interest rate swaps with an outstanding notional value of USD208trn, none of which has previously been able to be centrally cleared.
LCH.Clearnet estimates that USD146trn of this could now potentially be eligible for protection within SwapClear.
