Central counterparty (CCP) LCH.Clearnet has announced the successful launch of its SwapClear futures commission merchant (FCM) service in the US, allowing buy-side traders to centrally clear interest rate swaps.
The SwapClear service can be accessed through 12 designated FCMs comprising: Bank of America Merrill Lynch; Barclays Capital; BNP Paribas Securities; Citigroup; Credit Suisse Securities USA; Deutsche Bank Securities; Goldman Sachs; J.P. Morgan Futures; Morgan Stanley; Nomura Securities International; RBS Securities and UBS Securities. HSBC Securities USA has confirmed its intention to join shortly as a FCM.
LCH.Clearnet says six clients have already cleared over-the-counter (OTC) interest rate swaps in a variety of maturities and currencies, including US dollars, euros and pounds sterling via the service. SwapClear currently clears trades in 14 currencies and tenors out to 50 years. The service covers over 90% of the plain vanilla interest rate swaps market and will be expanded to cover US dollar denominated amortising swaps in the near future.
According to the CCP, US clients will benefit from reduced counterparty risk, default protection, proven default management expertise, portability of client collateral and positions and initial margin collateral held solely in the US and fully subject to US law.
“US clients are increasingly focused on how the regulations resulting from the implementation of the Dodd-Frank Act will affect them, said Floyd Converse, head of US sales and marketing at LCH.Clearnet. “SwapClear FCM provides the broadest OTC interest rate swap product scope of any clearing service in the world. Features such as flexible payment dates, flexible London Interbank offered rate indices, overnight index swap discounting and 14 currencies are not matched by another clearer. These are available within the protections of an FCM framework; regulated by the CFTC and subject to US law.”
“The timing of SwapClear's FCM launch gives us the opportunity to partner with them to fully prepare for Dodd-Frank,” added Richard Prager, managing director at asset management giant BlackRock. “From a client perspective, SwapClear has an opportunity to strategically develop its buy-side offering to accommodate buy-side needs, ahead of the regulatory change, so it is in a position to facilitate clearing for all market participants lockstep together.”
The Dodd-Frank Act in the US will result in greater transparency for the OTC derivatives market. US regulators the Securities and Exchange Commission and the Commodity Futures Trading Commission are currently in the process of thrashing out rules that will enforce exchange trading and central clearing of OTC derivatives, and require firms to report positions via data repositories. The new rules are due to be finalised by 15 July, by which time the industry will have 90 days to implement them.