ABN AMRO Clearing will expand its centralised OTC Derivatives Clearing Service offering to include central clearing of over-the-counter interest rate swaps from the beginning of December.
According to ABN AMRO, the new service – which will be available globally –will help to “significantly reduce” counterparty and systemic risk in the OTC market by protecting buy-side clients from counterparty default risk on open swap positions and removing risk-weighted capital requirements.
Buy-side firms most commonly use interest rate swaps to hedge out interest rate risks when running long-term asset liability management funds. Interest rate swaps is by far the largest OTC derivatives market globally. Regulators in the US and Europe are developing frameworks and regulations aimed at migrating OTC derivatives to exchanges and central clearing to reduce risk.
ABN AMRO Clearing claims to be the only clearing house that allows clients to trade on the OTC market with only one legal relationship and one contract.
Alexander Jacobs, head of OTC Derivatives Clearing Service, said ABN AMRO Clearing will act as core counterparty throughout all stages of the transaction for buy-side users of the new service, once the initial terms of the contract of interest rate swap contract have been agreed. “We act as a one-stop shop so that they can concentrate on their core role of generating returns,” he said.
ABN AMRO Clearing's OTC Clearing Service covers trade capture, lifecycle management, confirmation control, settlements and reporting. Clients receive instant legal confirmation, settlement and direct trade allocation into their account.
“By offering our clients a centralised service, we help make OTC trading easier and beneficial, while leading the way in cutting costs and gaining efficiencies for our clients,” added Jacobs.
ABN AMRO Clearing offers clearing and financing services to institutional market participants, including professional traders, banks, brokers, hedge funds, corporates, asset managers and pension funds.