Barclays to provide US client swaps clearing through Eurex

The move follows a rebrand of Barclays’ agency derivatives services business, and aims to ensure continued access to market in face of Brexit.

Barclays has confirmed that it has become the latest investment bank to provide its clients based in the US with access to Eurex for clearing of interest rate swaps.

The move makes Barclays the first European investment bank to offer Eurex over the counter (OTC) clearing via its US registered futures commission merchant (FCM), as the clearing house continues its push into North America.

Speaking to The TRADE, the head of Barclays’ recently rebranded Prime Derivatives Services business for the Americas, Stephen Li, said that the decision to connect to Eurex was driven by client demand for an alternative liquidity pool in euro interest rate swaps, as well as incoming regulation and the need for continued market access in the face of uncertainty around Brexit.  

“The challenge is around how we interact with events like Brexit and regulation. With Brexit, we could potentially see a move away from the dominant clearing house, which in this case is LCH, and Eurex had anticipated that. Following Eurex’s recognition in the US as an approved clearinghouse, we felt that we needed to provide access to ensure that if there was a shift from a liquidity standpoint, especially around euro swaps, we would be ready,” Li told The TRADE.

“This isn’t just about Brexit, it’s also about navigating new regulations such as the uncleared margin rules. Although the uncleared margin rules won’t hit many of our clients until 2020, they are far more focused on margin optimisation, and we have to start thinking about what that client offering will look like in advance.”

Barclays has recently rebranded its Agency Derivatives Services business to Prime Derivative Services after integrating its derivatives clearing and execution services with the prime brokerage division, as part of a reorganisation of the business. 

“The rebrand to become Prime Derivatives Services, and bringing the derivatives clearing and execution under the same roof as the prime brokerage business is the culmination of four years of restructure and investment. We’ve grown the business 28% over this same period, our big focus is on the clients, keeping close to them and what they need,” said Gary Saunders, head of Prime Derivatives Services EMEA at Barclays.

Looking to the future, Saunders added that Barclays is looking more into the evolution of FX post-trade services as the bank prepares to launch non-deliverable forward (NDF) clearing later this year.

“FX Prime Brokerage has been part of our prime business for over 15 years and FX clearing will be part of the business when roll out NDF clearing at some point during the summer for our clients. We think that FX will be the next area where the industry sees change and evolution,” he said.

Citi was the first investment bank to offer client swap clearing through Eurex at the beginning of this year, after Eurex received authorisation from the US derivatives trading regulator to operate as an approved clearing house. Soon after in February, Bloomberg and Tradeweb’s US-based Swap Execution Facilities (SEF) connected to Eurex to allow US clients the ability to send swap trades to Eurex Clearing.

“Barclays is a great addition to our EurexOTC Clear offering and a testament to the growing interest we are experiencing in the US. The growth we have seen from US institutions since receiving Commodity Futures Trading Commission (CFTC) approval in late 2018 has been very encouraging, and the number of FCMs and clients in the pipeline is very promising,” Tim Gits, head of fixed income sales Americas at Eurex, concluded.