LCH.Clearnet records record activity as new OTC rules take effect
The Dodd-Frank act requires clearing of OTC derivatives by 11 March
Clearing house LCH.Clearnet has cleared $22 trillion notional of interest rate derivatives through its SwapClear service for buy-side clients, as market participants put in place the final preparations for the Dodd-Frank clearing deadline on 11 March.
After the financial crisis, the G20 nations met at Pittsburgh in 2009 and agreed to reduce systemic risk in OTC derivatives markets by mandating the central clearing and reporting of the bulk of OTC contracts. The aim was to prevent a repeat of events such as the Lehman Brothers default; a lack of transparency over complex and poorly understood OTC derivatives was seen to have played a significant role in the crisis.
According to the LCH.Clearnet statistics, February was a record month with 73 buy-side clients clearing 7,650 trades in 15 different currencies across forward rate agreements, amortizers and overnight index swaps. LCH’s SwapClear service clears in the US and 17 other jurisdictions for asset managers, hedge funds and regional banks.
SwapClear reported that it has cleared an average of $2 trillion notional daily on SwapClear, across both buy- and sell-side participants.
“We are pleased with the surge in buy-side activity, but more specifically we are encouraged by the volume of trades, as this is the real indication of the market’s readiness for central clearing,” said Daniel Maguire, head of SwapClear in the US.
In Europe, March is also ostensibly the deadline for clearing of OTC derivatives, under the European Commission’s EMIR legislation, which was passed into law in the UK at the end of December.
