LCH.Clearnet will launch an interest rate cross margining solution, marking the latest competitive move between Europe’s clearing houses in the new regulatory environment.
Under the offering, market participants using SwapClear, its interest rate clearing unit, and LCH.Clearnet’s listed rates services, will be able to maximize their margin offsets between over-the-counter (OTC) and exchange-traded derivatives.
The migration of liquid OTC derivatives such as interest rate swaps to central clearing, under the European Market Infrastructure Regulation (EMIR), requires institutional investors to post initial and variation margin with central clearing houses. As most clearing houses typically require cash or high-quality government bonds as collateral, many buy-side firms have an increased need to manage and transform the assets they do hold to meet margin requirements.
The cross-margining solution allows participants to efficiently manage their collateral obligations and achieve significant cost savings. It is set to go live within 12 months of regulatory approval.
“This is a transformational initiative for the interest rate derivatives market,” says Daniel Maguire, global head of SwapClear and Listed Rates, LCH.Clearnet.
“SwapClear is uniquely positioned to efficiently aggregate, clear and portfolio-margin interest rate derivatives from multiple venues across multiple products. Portfolio margining across both OTC and listed interest rate derivatives, on a fully open access basis, will give our members and their clients execution venue choice and access to our deep global pool of liquidity.”
The move puts LCH.Clearnet in direct competition with Deutsche Boerse-owned Eurex Clearing, which also offers a cross margining-service, signifying the latest development as Europe’s clearers look to attract more business in the current regulatory environment.
As buy-side firms look for capital efficiencies, granting open access for clearing will pit clearing houses against each other.