Deutsche Börse plans FX expansion through launch of new clearing house

Deutsche Börse annual report outlined plans to launch new clearing house for foreign exchange.

Deutsche Börse has announced plans to establish a foreign exchange clearing house ahead of a possible expansion of the European Market Infrastructure Regulation (EMIR) requirements to include other asset classes such as foreign exchange (FX).  

The exchange group’s 2017 annual report stated that an expansion of EMIR obligations into FX markets would create significant growth opportunities for the company, particularly after its acquisition of FX trading platform 360T in 2015.

“To date, regulatory obligations such as EMIR have not yet been expanded to cover the foreign exchange market,” the report said. “If this were to happen, Deutsche Börse Group would be able to tap further growth opportunities from its extensive portfolio of products and services it offers in the context of regulatory requirements.

“For instance, in the first half of 2018 , the Group plans to establish a foreign exchange clearing house in order to service the fundamental demand for capital efficient solutions.”

Deutsche Börse acquired German FX trading platform 360T for €725 million as it sought to become a leading marketplace for multiple asset classes. Its client base consists of corporate and buy-side firms, as well as banks.  

It said despite the majority of daily foreign exchange trading volumes currently being executed off-exchange, demand for transparent, electronic, multi-bank trading platforms such as 360T is increasing.

The exchange added that as expected, overall clearing volumes in OTC interest rate derivatives rose significantly in 2017 following the introduction of EMIR clearing rules, and it expects the trend to accelerate this year.

EMIR, which was rolled out from June 2016, includes an obligation to clear standardised over-the-counter (OTC) derivatives transactions using a central counterparty. Deutsche Börse said its Eurex Clearing central counterparty could also be extended to other asset classes.

The exchange is continuing its drive to capture a significant portion of euro-denominated interest rate swaps clearing market share amid the uncertainty caused by Brexit and the possible relocation of clearing activities in Europe.

The report added Brexit provides another opportunity to build market share in this area, alongside the Eurex Clearing partnership programme which offers an alternative for clearing inters rate swaps in the EU.

Eurex’s profit sharing scheme has continued to win clearing business from London since its launch, with average daily volume cleared in OTC interest rates reaching €35 billion in January this year, from just €5 billion in 2017.