LCH Gets Japan FX Clearing Approval; Clears First Swaption

LCH has received approval for an extension to its clearing licence from the Japanese Financial Services Agency (FSA). The licence extension was granted on 31 October 2018 and enables LCH’s ForexClear service to clear NDFs on behalf of banks and clients based in Japan.

This latest approval comes in addition to LCH’s existing licence to clear non-Yen OTC interest rate derivatives in Japan, which was granted by the FSA in 2016. Prior to LCH obtaining this latest licence, Japanese customers could only access ForexClear through international subsidiaries.

“Tokyo is home to one of the world’s largest FX derivatives markets and we are honoured to have been awarded this licence to clear NDFs in Japan,” says Kate Birchall, head of Asia Pacific, LCH. “This development is an important step for the market, providing Japanese firms access to LCH’s clearing services and global liquidity pool, reaffirming our long-term commitment to Japan.”

The announcement comes as LCH says it registered a record number of trades and notional cleared in October, with 261,000 trades and $1.56 trillion notional, eclipsing previous volume records by 9% and 1%. The clearinghouse ended the month with record open interest of over $2 trillion and saw record client volume, record deliverable FX volume, and its second-highest month for G10 NDFs.

Meanwhile, LCH SwapAgent, the firm’s service for the non-cleared derivatives market, has announced it has processed its first swaption trade. Two swaptions trades were completed between Nomura and Deutsche Bank, one denominated in euro and the other in US dollars. The trades were brokered by Icap and processed by MarkitServ.

A European style swaption gives a buyer the option to enter an interest rate swap contract on a fixed date at a specified fixed rate. LCH SwapAgent offers processing for swaptions denominated in euros or dollars in addition to its cross-currency basis swaps, interest rate swaps, FRAs and inflation swaps. 

“We support the alignment of swaptions settlement and collateralisation with the cleared swap market and have launched swaptions in SwapAgent with NPV based settlement in both USD and EUR,” says Aaron Mayor, head of new product development, rates, at LCH.

Martial Collet-Billon, Head of EUR rates exotics trading, Deutsche Bank, adds, “SwapAgent offers multiple benefits to all market participants, including standardised discounting and the balance sheet benefits associated with STM methodology. We are continually looking for ways to be more efficient and provide a better service to our clients, and SwapAgent is helping us to achieve that.”

Meanwhile, Chris Wells, managing director, EMEA head of middle office, Nomura, says, “The SwapAgent framework enables significant improvements in the processing and settlement of uncleared OTC Derivatives. Nomura is pleased to be one of the first counterparties to book a swaptions trade using this new service and see this as a significant milestone in the industry’s drive for efficiency.”

Colin Lambert

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