11.14.2013

SwapClear Expands in U.S.

11.14.2013
Terry Flanagan

SwapClear, the London Stock Exchange’s clearing platform for interest rate swaps, has increased its US membership by 49% in the last six months as it prepares to add European clients next year.

Xavier Rolet, chief executive of the London Stock Exchange Group, highlighted SwapClear’s results as a “stand-out” today in the company’s half-year results to the end of September.

SwapClear members rose to 100 in the LSE’s financial half-year, up from 67 in the same period in 2012, and notional outstanding rose to $421 trillion from $329.3 trillion a year ago.

Members are based in the US where swap execution facilities were launched in October under the Dodd-Frank financial reform act while the European Market Infrastructure Regulation has not gone live.

Rolet said at the results conference: “When EMIR is introduced late in the first half of next year we expect European clients to avail themselves of central clearing for swaps.”

In order to meet the EMIR regulations Rolet said SwapClear is in discussing changes to its structure, management and governance.

There were the first LSE results to include a five-month contribution from LCH.Clearnet since the exchange completed its acquisition of the clearing house. As a result the enlarged group reported first half income of £567.1m, 66% more than £342.54m a year ago. Post trade and information services made up 68% of group income in the first half of this year compared to 45% in the same time last year.

“Next year presents a big opportunity for LCH as it is the only clearing house which is based in the UK, US and Eurozone,” said Rolet.”CME and ICE don’t have EU-based clearing houses and the European Central Bank may require euro-based contracts to be cleared by a from that is physically based in the Eurozone.”

Suneel Bakhshi will start as the new chief executive of LCH.Clearnet in the first quarter of next year.

Rolet stressed the need for regulators to lower the costs of cross-border settlement in the Europe by pushing for open access.

‘The cost of cross-border settlement in Europe is between  five and eight times the US which inhibits intra-European flows,” Rolet said.

The exchange is launching a central securities depository in Luxembourg based onits existing infrastructure at Monte Titoli in Italy. In July JP Morgan became the firm to say it will become a customer.

EMIR requires margin and default contributions posted to a central counterparty to be held with a securities settlement system, where possible. The Luxembourg CSD, subject to regulatory approval, is expected to be operational in the first half of next year.

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