Aviva clears first IRS through CME Clearing Europe

The CME Group's European central counterparty has started clearing interest rate swaps in Europe, with a number of global banks successfully completing trades on the firm's platform.

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The CME Group’s European central counterparty has started clearing interest rate swaps in Europe, with a number of global banks successfully completing trades on the firm’s platform.

The move marks the CME Group’s first foray into European swaps clearing, adding to the market operator’s existing OTC clearing capabilities in US IRSs and European commodities.

CME Clearing Europe will offer trading in seven currencies, comprising: sterling, euro, Canadian dollars, Australian dollars, Swiss francs, yen and US dollars. Sterling, euro and US dollar clearing covers maturities of up to 50 years, with 30-year tenors available for all other currencies.

Major banks including BNP Paribas, Credit Suisse, Goldman Sachs, HSBC, J.P. Morgan, Nomura International and The Royal Bank of Scotland, have all completed dealer-to-dealer or dealer-to-client trades and played a role in determining the CME’s systems and processes for OTC clearing. Citi, Morgan Stanley and UBS are also set to join the service in the coming weeks.

The first IRS cleared through CME Clearing Europe was completed by J.P. Morgan and UK investment management firm Aviva.

“Aviva Investors view OTC derivatives as integral to the investment management process, enabling us to better manage our clients’ portfolios and to capture investment performance on their behalf. It is key for us to have the necessary infrastructure in place to continue to use OTC derivatives to add value to our clients’ portfolios,” said Shahid Ikram, chief investment officer at Aviva Investors.

“Our overall aim is to provide a single, integrated platform offering operational flexibility across over-the-counter IRS, FX, CDS and commodities for our European clients said Andrew Lamb, CEO of CME Clearing Europe. “We will be looking to expand this further with the launch of OTC FX and CDS later this year, and the provision of clearing services for CME Europe which, pending regulatory approval, will launch in the second quarter.”

All market participants are currently gearing up for new rules that will transform OTC derivatives trading. In Europe, MiFID II combined with the European market infrastructure regulation require standardised swaps to be traded on exchange-like platforms and cleared centrally, with exposures to be reported to newly-created data repositories.

Similar reforms are also being implemented in the US, through Title VII of the Dodd-Frank Act. Clearing and reporting of interest rate swaps and credit derivatives has already begun in the US for the largest users of swaps.

First Derivatives SEF

Meanwhile, as part of preparation for the Dodd-Frank Act, capital markets software and consultancy firm First Derivatives has stated its intention to become a swap execution facility (SEF).

SEFs are a type of market created by Dodd-Frank for the trading of swaps. While the CFTC is yet to finalise the rules governing SEFs, First Derivatives said it plans to register later this year, to offer customers an enterprise-wide solution that will be related to its data flow platform.

First Derivatives has also hired Jamie Sanders as chief compliance officer, to oversee the SEF registration.  Prior to joining First Derivatives, Sander was chief compliance offers at FXCM. He has also worked in the legal department at Credit Suisse, and also worked at international law firm Fulbright & Jaworski.