LCH Clears First SOFR Swaps
- LCH becomes first clearing house to offer clearing of U.S. Dollar interest rate swaps benchmarked to the new reference rate
- This underlines LCH’s support of global rates reform driven by market participants and regulators
- Credit Suisse, Goldman Sachs and J.P.Morgan among the first participants to clear SOFR swaps
LCH, a leading global clearing house, today announced that it has cleared the first U.S. Dollar interest rate swaps referencing the Secured Overnight Financing Rate (SOFR). Credit Suisse, Goldman Sachs and J.P. Morgan were among the first participants to clear swaps using the new rate.
— LCH (@LCH_Clearing) July 18, 2018
This follows the June 2017 announcement by the Alternative Reference Rates Committee (ARRC)*, identifying SOFR as an alternative U.S. dollar reference rate, representing best practice for use in certain new U.S. dollar derivatives and other financial contracts. SOFR was first published by the Federal Reserve Bank of New York in April 2018.
Michael Davie, Global Head of Rates, LCH, said: “The U.S. dollar interest rate derivatives market is the largest in the world by many measures, and the introduction of SOFR as a new alternative reference rate marks a seminal moment for the industry. LCH is committed to continuing our work with customers and regulators to help facilitate a smooth transition to new reference rates.”
Akash Agrawal, USD Swaps Trading, Credit Suisse, said: “The transition to SOFR is an important element in the global rates reform effort, which we are pleased to support. Being among the first participants to clear SOFR swaps is significant for us, as we look to work with the market to develop liquidity and support a seamless move to alternative reference rates.”
Scott Rofey, co-Head of Interest Rate Products Trading, Goldman Sachs, said: “We are pleased to see the market for SOFR-based derivatives continue to take hold as an alternative reference rate market. We welcome LCH offering a cleared solution for the nascent SOFR swaps market.”
Thomas Pluta, Co-Head of Global Rates at J.P. Morgan, said: “We’re pleased to be among the first participants to clear SOFR swaps. The transition to using SOFR is hugely significant both for the US and the global derivatives markets, as clearing SOFR swaps will be a key component in developing a liquid market for this product.”
LCH has introduced clearing of SOFR swaps in response to customer demand as the industry adopts new interest rate benchmarks. This latest initiative follows the launch of clearing SONIA Futures in April 2018 and SARON swaps in October 2017. LCH will support outright SOFR swaps (vs fixed) as well as two basis products (vs USD LIBOR and vs FedFunds). Market participants clearing SOFR swaps can achieve margin benefits by offsetting their positions against LIBOR derivatives using the same rates default fund at LCH.
* The ARRC was convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York
Phase 5 of the uncleared margin rules (UMR) took effect from September 2021.
Temporary equivalence is set to expire on June 30 2022.
IRS trading volumes have fragmented without an equivalence agreement.
Phase 5 of the uncleared margin rules came into effect on 1 September.
Triparty repos can be executed across U.S. Treasury securities to central clearing.