First European Buyside Client Joins CDSClear

Shanny Basar

The first European buyside client is live on CDSClear, part of the London Stock Exchange Group’s clearing house, as membership is expected to increase due to a new clearing obligation for credit default swaps.

LCH, the exchange’s clearing business, said yesterday that Amundi is now clearing credit default swaps at CDSClear via its clearing broker BNP Paribas taking CDSClear active clearing members to 13.

Emmanuel Gaffet, head of dealing risk management at Amundi, said in a statement: “Risk management is a top priority for us and our investors, and by clearing through LCH we are able to benefit from an experienced and robust CCP, that proved instrumental in accompanying us on mandatory clearing. At the same time, CDSClear’s broad product offering and portfolio margining capabilities means that we would be able to offset the risk of correlated CDS contracts and make margin savings as a result.”

The LSE Group said in its annual report for 2016 that CDSClear membership has increased from 11 in 2015 and total notional cleared more than doubled to €448.7bn ($483bn) last year from €172.8bn in 2015. The introduction of non-cleared margin rules last September boosted clearing volumes of single name CDS to €58.4bn from €15.5bn the year before.

Raphaël Masgnaux, global head of prime solutions and financing at BNP Paribas, said in a statement: “This launch is an important development for us and the industry as it gives buyside firms more choice of where to clear their CDS contracts, following the introduction of the non-cleared margin requirements and credit clearing mandate in Europe.”

The clearing mandate for European index CDS is being introduced this year with mandatory members clearing effective from February and large clients expected to clear from August. “In 2017, membership is expected to increase with a new membership tier called Select Membership being introduced targeting non-CDS market maker banks,” said LSE. “Clients are also set to start onboarding to the CDSClear platform ahead of the CDS clearing obligation expected in the second quarter of 2017.”

From the third quarter of this year end-users trading CDS will be able to connect via two additional clearing brokers, who will be offering clearing through LCH. CDSClear is registered with both European and US regulators, which allows it to act for members and clients in both regions.

The LSE said: “We have seen members ramping up their clearing activity in LCH’s broader over the counter services with significant volume growth at its CDSClear and ForexClear services.”

ForexClear is LCH’s service clearing foreign exchange non-deliverable forwards in 12 emerging market currencies. Last year ForexClear notional cleared increased to US$3,191bn from $1,050bn in 2015.

“While the uncleared margin rules only applied from September 2016, we are seeing significantly increased participation and interest from all regions in the ForexClear NDF service,” added the LSE.

More than $500bn of NDFs were cleared last October and average trade volume increased from 500 per day in the first half to more than 2,500 per day in the second half with a peak day in November of more than 7,000 trades. This year ForexClear is due to expand into clearing for G10 countries NDFs and foreign exchange options.

The clearing business will also be boosted by the launch of LCH SwapAgent which is due later this year. LCH SwapAgent aims to simplify the processing, margining and settlement of non-cleared derivatives.

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