Credit Suisse and RBS to offer swaptions clearing with CME

CME Group will begin clearing interest rate swaptions in the US from April 11.

Credit Suisse and RBS are among five banks that will offer voluntary swaptions clearing with CME, as banks look to push more products through clearing to avoid higher costs.

CME Group announced it will begin clearing interest rate swaptions on April 11, making it the first central counterparty (CCP) to offer clearing for the product.

According to John Dabbs, Credit Suisse’s newly appointed global head of prime derivatives services, the decision to offer clearing of swaptions has largely been driven by the non-cleared margin rules.

“With uncleared margin rules coming into greater focus for our clients, Credit Suisse is excited to facilitate voluntary swaptions clearing at CME Group,” said Dabbs. “Clearing swaptions enables our clients to obtain the greatest operational and capital efficiencies from clearing, while reducing the risks in their portfolios.”

From September this year, firms will have to post more collateral to cover derivatives trades conducted outside of clearing houses. It is because of this that banks have demanded more OTC derivatives to be pushed through clearing as a means to avoid the impending collateral costs.

“We are very supportive of the early adopters that use the CME swaption clearing solution to reduce bilateral counterparty exposure, particularly with the added cost of margin for non-cleared derivatives coming later this year,” added Alan Mittleman, head of rates trading, Americas, RBS.

The initial product scope will include USD-denominated swaptions with European style exercise, a maximum two-year option expiry, and a maximum underlying swap tenor of 30 years.

CME initially sought to launch its swaptions clearing service in November 2014, but the plans were shelved after concerns were raised about its risk and default management procedures for the product.