Swap dealers back new LCH bilateral derivatives platform

LCH has expanded into new territory with a service to put it at the centre of the non-cleared derivatives market.

LCH has launched a new venture in the non-cleared derivatives market with the backing of some of the world’s largest swaps dealers, as it looks to bring standards to bilateral trading.

The service, named LCH SwapAgent, will provide centralised trade processing, valuation, margining, risk calculation and optimisation for OTC bilateral rates and FX markets. The service will act as a calculation agent, calculating and facilitating the exchange of collateral and settlement payments.

The new service is backed by 11 dealers including Bank of America Merrill Lynch (BAML), Barclays, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley and UBS.

LCH’s Nathan Ondyak, global head of products and markets, will take on a new role as global head of LCH SwapAgent.

This is not the first attempt to bring standards to the non-cleared derivatives market. NetOTC heavily marketed a new platform for the exchange and pooling of initial margin into a single central account, however this was shut down due to regulatory opposition of its structure.

Speaking to The TRADE Derivatives, Ondyak says the new service specifically does not commingle collateral to that a central counterparty (CCP) does for cleared derivatives.

“This is not a clearing house in any way shape or form. Instead of providing a framework to netting counterparty margin, we are leveraging the infrastructure and processes of when you clear but are not novating the trades, there is no default management, and there is no change to your counterparty risk exposures,” says Ondyak.

“Once clients submit their trades, they are saying SwapAgent will be the calculation agent for that trade. What SwapAgent will do is valuate every day and facilitate the exchange of end-flows, and so we think it will very much help firms manage additional complexities.”

The 11 dealers will be the initial users of the service, which will go live in the first half of next year.

“Using LCH SwapAgent provides an opportunity to simplify our bilateral post-trade processes and meet the emerging obligations in a more efficient manner,” said Will Roberts, head of global rates trading, BAML.