Central counterparty LCH.Clearnet has been granted regulatory approval to launch its SwapClear service in the US on 8 March, giving buy-side clients another avenue for clearing interest rate swaps.
Using a futures commission merchant, LCH.Clearnet's US-based clients can access SwapClear, enabling them to reduce counterparty risk, increase protection against defaults, and manage client collateral and positions.
LCH.Clearnet has been registered as a derivatives clearing organisation by US regulator the Commodity Futures Trading Commission (CFTC) since 2001. In 2010, LCH.Clearnet cleared 120,000 trades between US counterparties, with a notional value of US$64 trillion.
According to the Bank for International Settlements, there were US$451.8 trillion worth of interest rate swaps outstanding at the end of June 2010. SwapClear, which currently clears trades in contracts across 14 currencies with tenors of up to 50 years, covers 90% of products in the plain vanilla interest rate swap market. Initial margin collateral will be held in the US and subject to local law.
“SwapClear sets the standard globally for OTC clearing,” said Floyd Converse, head of SwapClear sales and marketing in the US. “Beginning on 8 March, US clients will be able to access SwapClear's unique expertise and product range within the security of the familiar futures commission merchant framework.”
As part of the Dodd-Frank Act, the CFTC has been charged with determining the rules that will govern the trading, clearing and reporting of swaps based on interest rates, commodities and currencies. Under Dodd-Frank, the CFTC will be required to make regulatory proposals by July, with adoption expected by March 2012.