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June 3, 2013 5:34 pm
LCH.Clearnet has launched a US-domiciled version of its successful interest rate swap clearing service ahead of an incoming domestic deadline requiring more investors to clear their derivatives trades.
The transatlantic clearing house said on Monday the service would be the first available through its new US operations, which was expanded by the €30m purchase of International Derivatives Clearing Group from Nasdaq OMX a year ago.
Ten of the world’s largest brokers have signed up to use SwapClear US, which is being launched a week ahead of a deadline that requires more institutional investors to clear their over-the-counter derivatives trades.
To safeguard against systemic risk, countries in the G20 have mandated that more bilateral, off-exchange derivatives trades be processed through clearing houses. A clearing house stands between two parties, guaranteeing a deal in the event one party defaults.
The US is furthest ahead in its preparations, with some clearing of derivatives already mandatory. A second phase, requiring some buyside firms, hedge funds and non-swap dealer banks to clear trades, comes into force on Monday.
The SwapClear business is one of jewels in the crown of LCH, which last month sold a controlling stake in itself to the London Stock Exchange Group. It clears nearly half of the world’s $400tn global interest rate swap market, which is mainly business between banks.
However, LCH has taken an early lead, outstripping rivals like CME Group, to dominate the bank-to-customer portion of the market, which is fast-growing as the new rules come into force. SwapClear has clearing swaps with a cumulative notional value of $36.5tn for buyside institutions – around 90 per cent of the market – with the vast majority of that business concluded in the last six months.
LCH has been keen to build a US-domiciled business, as some buyside institutions have been concerned that LCH.Clearnet could have been subject to UK bankruptcy laws if a member defaulted.
“This launch is part of our long-term growth strategy in the US, and we will continue to seek new opportunities to expand our business in this important market,” said David Weisbrod, chief executive of LCH.Clearnet’s US business.
Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, Nomura and UBS have joined the service. BlackRock, one of the world’s largest fund managers, is also backing the US version of SwapClear.
The new service will mirror SwapClear’s existing product range, risk management, technology and operational platforms, LCH said. SwapClear is governed by a group of banks that have agreed a profit-sharing deal with the LSE. The two parties have yet to disclose how much will go to the LSE Group.
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