LCH and CLS partner for FX clearing

LCH and CLS collaborate on launch of deliverable FX options clearing to reduce counterparty and settlement risk.

The London Stock Exchange Group’s clearinghouse LCH has teamed up with FX settlement provider CLS to launch deliverable FX options clearing.

Barclays, Citi and JP Morgan are the first institutions to use the service, with more banks expected to start clearing the product in the near future, according to LCH.

LCH developed the service in partnership with CLS, and the move reflects the first physical settlement service for cleared FX products. The clearing of FX options expands the LCH ForexClear business, which currently clears around $70 billion FX non-deliverable forwards (NDFs) in average daily volume.

“The launch of this service extends the benefits of clearing to more products and participants in the FX market, enabling them to benefit from the risk management, margin, capital and operational efficiencies of clearing. We’re delighted to partner with CLS to deliver this innovative new service,” said Paddy Boyle, global head of ForexClear at LCH.

CLS’s chief strategy and development officer, Alan Marquard, added that the initiative and working alongside LCH will reduce settlement and counterparty risk, while improving efficiencies for those operating in the OTC cleared FX market.

The FX settlement specialist has also launched its own CLSClearedFX service, a payment-versus-payment (PvP) settlement service specifically designed for OTC cleared FX derivatives. The service will allow central counterparties (CCPs) and their clearing member to mitigate settlement risk when settling cleared FX products.

LCH is the first global clearinghouse to go live with the service for its clearing members, with further CCPs expected to join later this year.

“Bringing together the market infrastructures that mitigate counterparty and settlement risk, the two biggest risks in OTC cleared FX products, is a powerful step forward for the market,” Marquard at CLS said about the launch.

Earlier this month, CLS launched its CLSTradeMonitor service, a post-trade monitoring and reporting tool for FX transactions, with two asset managers having already been onboarded.