Clearing houses gear up for derivatives reform in US and Europe

Eurex, the European derivatives market joint-owned by SIX Swiss Exchange and Deutsche Börse, has extended its over-the-counter clearing service to include interest swaps and equity derivatives.
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Eurex, the European derivatives market joint-owned by SIX Swiss Exchange and Deutsche Börse, has extended its over-the-counter (OTC) clearing service to include interest swaps and equity derivatives.

The expansion of Eurex Clearing to new asset classes comes during a period of reform for the OTC derivatives market as US and European regulators seek to increase transparency of a market that is worth almost US$600 trillion. This includes the migration of trading for as many OTC products' possible onto exchange, mandating central clearing of swaps and creating data repositories in order to better manage risk exposures.

Eurex Clearing also plans to introduce a new client asset protection service for listed and OTC markets in Q2 2011, which will offer full security of client assets within the clearing house and allow immediate portability of positions and assets in case of a clearing member default. Furthermore, the firm will also introduce a new portfolio-based risk methodology, which will replace its existing instrument-based approach. This will give the clearing house's members cross-margining and collateral efficiencies when trading listed derivatives, interest rate swaps and equity derivatives (excluding credit default swaps).

During 2010, Eurex says it processed 774 million contracts in OTC-traded products.

“The further expansion of our product coverage is an important part of our strategic agenda enabling our customers to prepare for the new regulatory environment,” said Thomas Book, Eurex executive board member responsible for Eurex Clearing. “The new risk management approach will further contribute to the safety of the derivatives market, while delivering capital efficiencies to our clients by providing offsets particularly between Eurex's listed derivatives and OTC-traded derivatives.”

Meanwhile, New York Portfolio Clearing, which has been registered by US regulator the Commodity and Futures Trading Commission (CFTC) as a US derivatives clearing organisation, has approved ten clearing members ahead of its 21 March launch.

The ten firms comprise: Advantage Futures; Barclays Capital; GETCO; Goldman Sachs; MF Global; Morgan Stanley; Newedge USA; Ronin Capital; Rosenthal Securities Group and UBS Securities. In addition, Bank of America Merrill Lynch, Citi and Deutsche Bank Securities are in the process of receiving approval.

Like Eurex, NYPC will also enable cross-margining of interest futures positions, with fixed income cash positions cleared by US post-trade utility the Depository Trust and Clearing Corporation (DTCC). Its open access architecture will enable other derivatives exchanges and clearing houses to link into its system and benefit from cross-margining capabilities.

Upon launch, NYPC will offer clearing in Eurodollar and US treasury futures traded on NYSE Liffe US.

“Today's announcement marks the latest in a series of recent milestones, including the CFTC approval of NYPC as a designated clearing organisation and the CFTC's approval of NYPC's cross-margining arrangement with [DTCC subsidiary] Fixed Income Clearing Corporation,” said Walt Lukken, CEO, NYPC. “We expect to announce additional clearing members in the coming days and weeks as the marketplace begins to recognise the full benefit of NYPC's capital efficiencies and value proposition.”

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