Anglo-French central counterparty LCH.Clearnet has reported increased buy-side clearing of interest rate swaps, ahead of new OTC derivatives rules due to take effect on 11 March.
The CCP’s SwapClear service – which previously only offered clearing for brokers – cleared 7,650 trades in 15 currencies for 73 buy-side firms in February. Contracts traded included forward rate agreements, amortizers and overnight index swaps. So far this year, SwapClear has handled an average of US$2 trillion notional and 9,200 trades per day.
“We are pleased with the surge in buy-side activity, but more specifically we are encouraged by the volume of trades, as this is the real indication of the market’s readiness for central clearing,” said Daniel Maguire, head of SwapClear in the US.
Growing buy-side use of SwapClear comes prior to the introduction of new swaps clearing rules that are due to take effect on Monday. From 11 March, firms classified as swaps dealers and major swap participants under the Dodd-Frank Act will have to clear some types of interest rate and credit derivatives contracts.
Under Dodd-Frank, OTC derivatives will also need to be traded on new venues known as swap execution facilities and exposures need to be reported to data repositories.
Eurex approach
Meanwhile, Deutsche Börse-owned CCP Eurex Clearing has reported that Goldman Sachs is the first bank to deploy its omnibus clearing model, an asset segregation model designed specifically for UK clients.
The omnibus model lets buy-side clients of Eurex’s clearing members separate the total collateral they hold at the CCP from their broking partner and complies with the UK Financial Services Authority’s Client Asset rules.
Under European OTC derivatives legislation, known as the European market infrastructure regulation, clearing houses must offer the buy-side a way to protect their collateral in the event of default.
Eurex already offers full segregation, the option to separate the exposures of each buy-side firm from other participants, and an elementary model that combines all the exposures of the clearing member and its buy-side clients and separates them from other brokers.
Mandatory clearing of OTC derivatives under EMIR is not expected to commence until mid-2014.