The clearing of interest rate swaps (IRS) by European clearing house Eurex Clear went live Tuesday, as the CCP prepares to extend its services to buy-side clients ahead of regulatory changes in Europe.
The new service, EurexOTC for IRS, will fully integrate the clearing and collateralisation of OTC and listed derivatives in a single clearing house within a single framework, and will be expanded next year as impending Europe-wide rules on derivatives clearing come into force.
Under the European Market Infrastructure Regulation (EMIR), which was agreed upon earlier this year, OTC derivatives must be centrally cleared when the rules take affect in 2013.
Eurex’s new OTC service offers individual segregation of positions and customer collateral, which Piers Murray, global head of OTC derivatives clearing and prime brokerage at Deutsche Bank, said would offer additional choice to clearing customers.
“Launching a new OTC clearing service is a complex and challenging undertaking. Eurex Clearing has been very responsive in building a solution tailored to the specific needs of four buy-side clients,” Murray said. “We see significant interest from buy-side firms for the EurexOTC Clear service and continue to work closely with Eurex Clearing and our clients to onboard in due time to meet the regulatory requirements and take advantage of the benefits from CCP clearing.”
The changes in regulation governing OTC derivatives clearing will bring about increased custom for clearers and many are expected to offer buy-side clients tailored fee arrangements across asset classes.
The Eurex Clearing model seeks to protect asset managers’ positions via a tripartite agreement it holds with the buy-side client and the clearing member. If a clearing member becomes insolvent, the tripartite agreement turns into a bilateral agreement between Eurex and the buy-side client, letting the CCP port positions and collateral to a new clearing member chosen by the asset manager.
In August, clearing houses blamed regulatory delays for the lack of progress on the development of solutions to ensure the protection of buy-side assets under new European OTC derivatives legislation. This followed UK buy-side trade body, the Investment Management Association (IMA), raising concerns about a perceived lack of detail on how clearers would switch asset managers’ derivatives exposures to other entities in the event of a clearing member default.