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LCH.Clearnet Extends Buy-Side NDF Clearing to Europe

LCH.Clearnet’s ForexClear has expanded its US client clearing service to include European model account structures for the first time, ahead of the mandated start of NDF clearing and the expected capital impact of Basel III.

It launches with four clearing brokers offering the service including HSBC, Société Générale and Standard Chartered Bank. The fourth broker does not wish to be named at this stage.

Frederic Colette, MD Société Générale prime services, claims that the launch is an important development for the industry as it will provide buy-side firms time to prepare for clearing NDFs ahead of the implementation of the margin rules on bilateral OTC derivative transactions.

“It is important that in line with our exchange traded derivative (ETD) clearing capability we give our clients the choice that they need across all asset classes to realise operational, margin and capital efficiencies,” he says. “We are therefore pleased to be live members of ForexClear’s client clearing service in Europe as well as in the US for NDFs.”

In addition, LCH.Clearnet is also understood to be planning the launch of FX options clearing either at the end of the year or early in 2016.

While NDFs are the smallest segment of the FX market, introducing NDF clearing is viewed by some firms as a good way to get the market used to clearing says a Profit & Loss source.

According to the clearing house the move will allow a greater number of buy-side firms and banks to access the benefits of NDF clearing, including enhanced risk management and improved capital efficiencies.

Services such as multilateral netting, as well as simplified initial margin and variation margin exchange all help to achieve this, adds Gavin Wells, global head of ForexClear, LCH.Clearnet.

“With the margin rules on non-centrally cleared derivatives being implemented from 2016 and Basel III shortly thereafter, the OTC derivatives market will continue to evolve,” he says. “We’re delighted to be working with four clearing brokers to offer ever greater efficiency and reduced operational complexity to the foreign exchange markets.”

In addition, firms will be able to choose their preferred level of asset protection from a selection of account structures, including individually segregated accounts (ISAs) and gross omnibus segregated accounts (OSAs).

These are in addition to ForexClear’s existing US client clearing model, launched in 2013, which offers a legally separated operationally commingled (LSOC) account structure.

Andrew Sterry, co-head of Standard Chartered’s Eclipse business, says the bank has noted an increase in the number of clients interested in clearing these products due to their “evolving business models as a result of the ongoing capital and margin regulatory developments”. 

“The launch of ForexClear’s client clearing offering in Europe allows Standard Chartered to better service our clients through their model of choice,” he adds.

Frederic Boillereau, global head of FX and commodities, global head of corporate sales, HSBC, agrees, adding that clearing is an effective way for the bank’s clients to manage counterparty risk. “We welcome ForexClear’s European client clearing offering and believe it will be an important tool for our clients as the regulatory and market landscape develops,” he says.

nicola@profit-loss.com Twitter: @ntavendale

Profit & Loss

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