LCH.Clearnet has become the first central counterparty in Europe to be authorised to clear inflation swaps and has gone live with its service.
Following the regulatory clearance, the first cleared inflation swap took place between Barclays and JP Morgan, with 11 members now live and clearing trades at LCH.
The clearing house has already been authorised by the European Securities and Markets Authority (ESMA) to clear OTC interest rate, currency and commodity derivatives.
The move to make inflation swaps subject to mandatory clearing has drawn differences of opinion from market participants. Clearing houses however, will be keen to offer clearing services for the products to allow margin efficiencies with inflation swaps and interest rate products.
“Clearing this new product, which shares structural similarities with other cleared interest rate derivatives, is a significant move for the market and underlines our commitment to providing safe and innovative risk management services to our members and their clients,” said Nathan Ondyak, head of products and markets, SwapClear, LCH.Clearnet.
Eurex is hoping to offer inflation swaps clearing services by summer 2015, according to a spokesperson, pending regulatory approval.
“Risk management is a top priority for fund managers,” said Simon Wilkinson, head of LDI funds, Legal & General Investment Management. “Central clearing significantly mitigates counterparty risk and we welcome industry moves to provide clearing services for inflation swaps.”