Nasdaq OMX has launched a pilot project to offer central counterparty clearing of interest rate swaps in Swedish kroner in anticipation of tougher rules on derivative trading as European and US regulators push for financial market reform.
The exchange group has launched the pilot project together with SEB Bank and the Swedish National Debt Office, which cleared the first contracts in Stockholm on 21 June.
The involvement of a public agency in the launch signals the Swedish government’s support for the regulatory push to bring more transparency to derivatives trading since the onset of the global financial crisis.
Nasdaq OMX says it has initiated dialogue with all major swap dealers in Sweden, with the aim to build a full scale clearinghouse for IRS in Swedish kronor.
Previously, SEK-denominated interest rate swaps, a market with an average daily turnover of 30 billion SEK, have been collateralised and settled bilaterally.
Since the financial turmoil in 2008, the OTC derivatives market – of which IRS make up the largest segment – have been subject to proposals by legislators to introduce mandatory central counterparty clearing and to increase pre- and post-trade transparency.
In September, the European Commission will finalise a law which will make it compulsory to clear standardised derivatives contracts through a central clearing house.
CCP clearing is already available for swaps denominated in SEK through LCH.Clearnet’s SwapClear, the biggest clearing house for IRS. But officials at Nasdaq OMX say its service will be the first dedicated to the Nordic market.
Nasdaq OMX is the dominant exchange operator in the Nordic region, with bourses in Stockholm, Copenhagen, Helsinki and Reykjavik.
“Through the IRS central counterparty clearing offering, Nasdaq OMX is building a Nordic clearing house that covers all fixed income instruments,” says Erik Theden, head of Nordic fixed income and president of Nasdaq OMX Stockholm.
“This service will reduce the administrative burden and, more importantly, bring with it a reduction of counterparty risk for market participants and thereby improve financial stability. The ability to net multiple post-trade transactions through a central counterparty also allows our market participants to reduce collateral significantly,” he says.