POST TRADE

Canada’s CCP proposes buy-side clearing

CCPS have introduced new clearing memberships for the buy-side in response to increased capital pressures on banks.

By Joe Parsons joe.parsons@strategic-i.com September 08, 2017 11:06 AM GMT

The Canadian Derivatives Clearing Corporation (CDCC) will allow corporates and pension funds to directly clearing their cash or repo fixed income trades.

The clearing house stated it seeks to extend the benefits of capital and collateral efficiencies through a new membership category called ‘Limited Clearing Members’ (LCMs).

“We are proud to expand our membership to include crown corporations and pension funds that are representative of so many Canadian investors,” said Glenn Goucher, president, CDCC.

“This new industry driven solution will serve to boost the efficiency, resiliency and capacity of our country’s capital markets while enabling LCMs to follow the Financial Stability Board’s best practice recommendations.”

Central Counterparties (CCPs) around the world have introduced new clearing memberships for the buy-side in response to increased capital pressures for banks, which has sparked a wave of exits from the clearing space.

German-based Eurex Clearing introduced its ISA Direct clearing service for pension funds and insurance companies last year, allowing them to directly clear their interest rate swaps and repo trades, with their bank clearing members taking care of their default fund contributions.

Other CCPs, such as those operated by CME and ICE, are understood to be developing a similar model.

“The participation of public pension funds on CDCC’s fixed-income central clearing service provides sell- side participants with important netting and balance sheet efficiencies, which increases their capacity to provide liquidity to the marketplace,” said Ian Russell, president and CEO of the Investment Industry Association of Canada (IIAC).

The CCDC stated the onboard of LCMs as direct clearing members is expected to begin in 2018, subject to regulatory approval.