Japan clearing competition opens up with CME approval

CME will compete directly with LCH for clearing non-Yen interest rate swaps for Japanese banks,

Competition in Japan’s derivatives clearing market has opened up as the Japanese regulator granted CME status of “foreign clearing organisation” (FCO).

The win comes days after CME was approved by the Singapore regulator as a recognised clearing house for listed and OTC derivatives, as the exchange group looks to continue its expansion in the Asia-Pacific region.

CME will be able to clear non-yen denominated interest rate swaps on behalf of Japanese-based banks, putting it in direct competition with LCH, the dominant interest rate swaps clearer.

“We have seen significant demand for our services as our clients look to benefit from capital efficiencies for their interest rate swap portfolios,” said Sunil Cutinho, president of CME Clearing.

Christopher Fix, head of Asia Pacific for CME Group, added: “We are pleased to be able to play a role here in helping to integrate the global interest rate swap market into Japan, and strengthening Tokyo’s position as an OTC derivatives hub.”

Now with increased clearing competition in Japan, market participants will continue to focus on cost in their clearing house decision making.

This was evident in April, following the approval of LCH as a FCO, when the cost of clearing a 10-year receive-fixed swap was almost five times higher at the Japanese Securities Clearing Corporation (JSCC) than with LCH.