[ M A R K E T
R E V I E W
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D E R I V AT I V E S
C L E A R I N G ]
Scott, head of custody and clearing, Commer-
zbank. “The commercial cost of operating in a
non-cleared, bilateral environment is becoming
increasingly apparent in terms of price and mar-
gin requirement. This is leading to increases and
an incentive to voluntary clearing activities.”
“The US NDF market has set a precedent by
voluntary clearing through LCH ForexClear, and
we will see the move in Europe to perform more
voluntary clearing.”
LCH has posted a number of record-breaking
achievements in cleared volumes, largely due to
massive uptick in voluntary clearing of certain
products from the buy-side.
SwapClear, LCH’s interest rate derivatives
clearing service processed over $873 trillion in
notional volumes during 2017, with member and
client flow increasing 31% year-on-year. It also
saw over $3.1 trillion of inflation swaps cleared,
meanwhile compression volumes rose 58% from
2016 to over $608 trillion.
“We’ve seen significant growth in volumes
across multiple asset classes driven by new
customers as well as additional flow from existing
customers,” said Daniel Maguire, chief executive
of LCH Group in January.
LCH’s RepoClear service cleared $175 trillion
over the course of the year, a 25% increase on
2016, while EquityClear processed over one
billion trades and ForexClear processed more
than $11 trillion in notional. The CDSClear ser-
vice recorded $1.1 trillion in notional processed
“We also see new entrants, with
broker-dealer clients who are
facilitating trades between a pool
of banks and hedge funds.”
JAMIE GAVIN, HEAD OF OTC CLEARING EMEA AND
APAC, SOCIETE GENERALE PRIME SERVICES
46 // TheTrade // Summer 2018
across its CDS index and
single-names offering.
“The size of credit lines
given for cleared trades rath-
er than for bilateral is more
favourable due to the credit
profile of facing a clearing
house, and they [hedge funds]
are seeing better pricing
in some cases,” says Jamie
Gavin, head of OTC clearing
EMEA and APAC, Societe
Generale Prime Services.
“We also see new entrants,
with broker-dealer clients
who are facilitating trades
between a pool of banks and
hedge funds. That model
previously didn’t work in the
bilateral world due to capital
reasons, but with clearing
and the added benefits you
get that is increasing.”
Now that mandatory
clearing is entrenched in
the OTC markets, more and
more market participants are
moving to a cleared market
not because they are required
to, but because that is where
the liquidity is.
Regulations such as EMIR
and the uncleared margin
rules have made it pricier to
do business bilaterally, and
instead have shifted focus to
the benefits clearing offers.
“There has been a mentality
shift in clearing derivatives,”
says Kieron Smith, deputy
head of prime services and
financi ng at BNP Paribas.
“Previously it was about
clearing when it is mandated
to do so, now it is to do with
liquidity and feasibility to
do so. The uncleared margin
rules have caused a focus on
the operational and simplicity
benefits of clearing products.”