Asset managers begin frontloading requirement

Large asset managers began frontloading interest rate swaps for clearing on 21 May.

Certain fund and asset managers have begun the frontloading requirement set out in the European derivatives clearing rules.

Category two firms, which include many large buy-side firms, will have to retrospectively clear their existing interest rate swaps trades.  

For asset managers that have a large interest rate swap portfolio, they would have to establish their clearing links before the requirement kicked in on 21 May.

Pension funds are exempt from the obligation until 2017, however, as more asset managers begin to clear and pricing being to increasingly favour cleared swaps, pension funds may have to volatility clear ahead of schedule.

Speaking to The Trade Derivatives last week Steve Swann, global head of trading at Standard Life Investments, said his firm is operationally ready for central clearing.

“Our view is rather than to trade bilaterally an instrument which we know is going to be cleared, we have done a lot of hard work to positional ourselves to be able to clear. For us we will look to move straight to clearing for those funds,” he says.

With frontloading asset managers face a number of issues surrounding valuation and potential increased costs with holding a contract for clearing.