THOUGHT LEADERSHIP
THE RAPID EVOLUTION OF FX CLEARING
How has FX clearing evolved in the last year ? Our bank member volumes have grown significantly as banks have increased cleared non-deliverable forward ( NDF ) volume in a wide range of emerging market and major currencies , leading to NDF average daily volume of over $ 90 billion . We have seen a huge uptick in FX option clearing volumes , with $ 102 billion cleared in August alone . Liquidity providers are increasingly keen to embed clearing into their workflow to take advantage of the margin and capital benefits clearing provides . We will shortly be launching our FX Smart Clearing initiative , subject to regulatory review , aiming to provide capital optimisation by clearing selective portfolios of FX Forwards , without increasing margin excessively . We have strong support from the largest sellside institutions , who see the material benefits that can be achieved . This should be available to members in Q1 2023 and we are working towards delivering a scalable client solution in 2024 .
Are the buy-side becoming more involved in the clearing process ? Client clearing average daily volume at LCH ForexClear in August was up 192 % in comparison with the same period last year , reaching $ 1.9 billion . At present , the primary demand is from regional banks , particularly in Asia where the NDF focus is higher . However , we are also seeing activity from non-bank liquidity providers as well as hedge funds and asset managers . In May this year ,
With monthly cleared NDF volumes consistently over $ 1.75 trillion this year and client clearing YTD volume reaching $ 313 billion in August at LCH ForexClear , Andrew Batchelor , LCH ForexClear chief operating officer and head of product , sits down with The TRADE to explore how the foreign exchange clearing landscape is evolving in light of major regulatory change and greater buy-side involvement .
Citadel started clearing FX NDF trades at LCH ForexClear . Click
here for more information .
How has the recently passed Uncleared Margin Rules ( UMR ) deadline begun impacting participants and what is LCH ForexClear doing to mitigate this ? The UMR phase 6 deadline was not a big bang moment for clients . However , we would certainly attribute increased client enquiry , increased onboarding and increased volume as a consequence of the additional profile and the additional resource requirements that UMR brings . As with previous phases we are aware that many in-scope participants focus on compliance with the regulations first and then look at alternatives to reduce costs , such as clearing . We would expect that the
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