Eurex Clearing has been authorised by German regulator BaFin to clear inflation swaps, squaring up with rival LCH.Clearnet which has also been permitted to clear the products.
While inflation swaps are not subject to mandatory clearing, buy-side firms will want to clear them alongside their interest rate swaps in order to avoid bifurcation of their books. This will be especially important to pension funds as they have a large amount of liability which are inflation linked.
“At some point, when the exemption runs out, pension funds will have to start clearing their swaps,” Terence Nahar, senior investment manager at Aberdeen Asset Management told The Trade Derivatives magazine earlier this year.
“When they do chose to, they will want to have an ability to hedge real rates, so just hedging interest rate swaps at a different venue to inflation swaps doesn’t make any sense,” he says.
A handful of firms have begun clearing the products at LCH.Clearnet, however the volumes won’t really start flowing until central clearing requirements come into force in Europe in 2016.
A Eurex spokesperson confirmed the BaFin approval.