Swap Clearing Volumes Rise in Asia

Shanny Basar

LCH.Clearnet has cleared record volumes of interest rate swaps in Australian dollars, Hong Kong dollars and Singapore dollars this year as the clearing unit of the London Stock Exchange Group was recognised by the regulator in Singapore this month.

On 1 February LCH.Clearnet was formally granted the status of Recognised Clearing House by the Monetary Authority of Singapore. LCH.Clearnet already clears Singapore dollar-denominated interest rate swaps and commodities futures executed on Cleartrade Exchange, the regulated futures trading venue that is part of Germany’s Deutsche Börse. LCH.Clearnet also has a number of Singapore-based clients clearing interest rate derivatives and commodities via clearing brokers.

Marcus Robinson, head of SwapClear Australia at LCH.Clearnet told Markets Media: “As a result of LCH.Clearnet being recognised in Singapore, firms that will be subject to Singapore’s proposed IRS clearing mandate will be able to meet their clearing obligations through SwapClear. LCH.Clearnet is committed to growing its product and service offering in Asia and worldwide in line with demand from the market.”

The MAS has sought comments on proposals to mandate clearing in Singapore and US dollar-denominated interest rate swaps, and possibly also interest rate swaps denominated in euro, yen and sterling in the middle of this year.

Marcus Robinson, LCH.Clearnet

Marcus Robinson, LCH.Clearnet

Market participants are voluntarily clearing swaps ahead of the mandate in order to use capital more efficiently. Robinson said average monthly cleared volumes of Singapore dollar-denominated interest rate swaps doubled at LCH.Clearnet from SGD 82bn ($59bn) in 2014 to SGD 173bn in 2015.

“We are seeing significant demand for our clearing services in Asia Pacific and we continue to work with a number of members and their customers across the region through our regional hub in Australia and from our London headquarters,” added Robinson. “In 2016, we have already seen record monthly volumes in AUD, HKD and SGD IRS clearing through our SwapClear service as members and clients are pushing through ever greater volumes.”

Clearing mandates in Asia-Pacific are already in place for certain derivatives in Japan, China, South Korea and India according to the SwapClear website. Other jurisdictions in the region who have proposed clearing mandates, in addition to Singapore, are Australia and Hong Kong.

Australia plans to introduce a mandate in April this year for interest rate derivatives in G4 currencies plus Australian dollars. Hong Kong has also finished a consultation on proposals to mandate clearing interest rate derivatives in G4 currencies plus Hong Kong dollars this year. On 5 February the Hong Kong Securities and Futures Commission and Hong Kong Monetary Authority published their joint conclusions on the consultation and said phase 1 clearing will be deferred from 1 July 2016 to 1 September 2016.

“This was delayed, as an added measure, in response to a number of concerns raised by industry (including by FIA) whether a sufficient number of central counterparties will be designated by the time phase 1 clearing is implemented,” said the regulators in a statement.

LCH.Clearnet is already licensed in Australia and is in the process of licensing in Hong Kong.

Martin Pluves, chief executive of LCH.Clearnet Ltd, said in a statement: “Achieving recognition status in Singapore is an important part of our growth strategy in Asia Pacific and complements other licences we have already and those we are applying for in the region. As a global CCP, we provide open access to clearing for members and clients across many asset classes and in multiple jurisdictions , offering greater efficiencies for their business.”

The ability of market participants to clear across multiple jurisdictions received a boost this week when the European Union and the US agreed on a “common approach” to the regulation of clearing houses.

This will allow European regulators to grant equivalence to US clearing houses before mandatory clearing of certain swaps begins in the EU in June and means that trades cleared through US CCPs will not face additional capital changes under European regulations.

The European Commission will propose the adoption of an equivalence decision which will need to be approved by the 28 EU member states in a vote expected on February 24. US CCPs are expected to be recognized by June 21, the start of the mandatory clearing obligation.

Jonathan Hill, commissioner for financial stability, financial services and capital markets union at the EU Commission, tweeted: “Easier for EU CCPs to do business in US and US CCPs can continue to do business in EU. Good that EU and US are working together.”

Xavier Rolet, chief executive of the London Stock Exchange Group, tweeted: “Many congrats to @JHillEU @EU_Commission and @CFTC on agreeing common standards for CCPs. 1 more step towards global financial governance !”

Featured image via iStock

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