LCH.Clearnet, Europe’s largest independent clearinghouse, is seeking regulatory approval to offer its SwapClear service to US-based bank clients as regulators globally seek to expand central clearing of privately traded derivatives.
LCH.Clearnet intends to launch futures commission merchant (FCM) access to SwapClear in late 2010.
The FCM model will offer access to the interest rate swaps clearing service with all the protections of an FCM model including portability of client collateral and positions, and initial margin collateral held in the US. The service will also be subject to US bankruptcy laws.
Roger Liddell, CEO, LCH.Clearnet says: “This extension of the SwapClear service reflects our commitment to customer choice. We want to provide customers with the access model that best suits their needs, whilst preserving the integrity and risk mitigating benefits of SwapClear.”
Interest rate swaps represent about $450 trillion in notional contract value as of December 2009, according to the Bank for International Settlements. Established in 1999, SwapClear now clears over 40% of the IRS market and $218 trillion in notional trades outstanding.
As the dominant player in IRS clearing, LCH.Clearnet is seeking to defend its turf against imminent exchange-backed competition. Chicago-based CME Group is readying a rate swap service that is expected to begin operation in the third quarter, with a full rollout slated for late 2010. And in Europe, Nasdaq OMX Group has begun a pilot project to offer central counterparty clearing of interest rate swaps in Swedish kronor (see story, this issue).