(Corrects notional amount eliminated by compression)
By Helen Bartholomew
LONDON, Jan 6 (IFR) - LCH reported a 25% increase in volume
on its SwapClear platform during 2016, setting new records for
cleared activity in over-the-counter interest rate swaps. At the
same time, record compression activity combined with maturing
trades led to an overall reduction in gross notional at the
Over US$665trn notional was cleared through the year,
representing 3.8m derivatives trades. The growth was driven by
clients expanding their use of clearing in response to
regulatory changes and new products coming on line, such as
inflation swaps that were added to the mix in April.
Alongside record levels of cleared activity, the
clearinghouse eliminated over US$384trn of swaps notional
through its compression services, which were used by 97 members
and a record 510 clients through the year.
Since December 2014, total gross notional of contracts
outstanding at the clearinghouse has fallen by around a third,
to US$257trn. That reflects an additional US$1.184 quadrillion
of cleared contracts, offset by US$616trn in maturing trades and
US$699trn that has been eliminated by compression.
SwapClear has compressed more than US$1 quadrillion of
interest rate swaps notional through unilateral, multilateral
and blended coupon methods, since launching the service in 2008.
While US derivatives rules under Dodd-Frank have required the
largest US dealers to clear their vanilla swaps since early
2013, similar rules in Europe finally took effect in June.
According to the Bank for International Settlements, over
60% of OTC derivatives notional reported by dealers was cleared
through central counterparties as of June 2016, and
three-quarters of all interest rate swaps.
Expansion of the compression services has helped bring
onboard category II clients that are not yet subject to
mandatory clearing. Buyside clearing activity hit records in
2016 with almost US$140trn notional cleared on the SwapClear
platform on behalf of non-bank clients.
For example, AHL - a systematic trading firm with US$19bn of
assets under management, confirmed last year that it had started
to clear interest rate exposures on a voluntary basis, attracted
by the ability to collapse those exposures and create leaner
"Capital and balance sheet management continues to be a top
priority for banks impacted by the Basel III capital
requirements," said Cameron Goh, global head of product
management for rates and FX derivatives at LCH. "Central
clearing and the use of compression remains an extremely
effective method of driving down notional outstanding and line
items in a portfolio, with the goal of maximising capital and
LCH, a subsidiary of the London Stock Exchange Group, is set
to sell its French clearing arm, LCH SA, in an attempt to smooth
the path for Deutsche Boerse's US$14bn acquisition of LSEG.
Euronext has made a formal and irrevocable offer of 510m for
the former Clearnet business that houses the credit derivatives
clearing operation, CDSClear. The deal is subject to regulatory
approvals and a successful closing of the DB/LSEG deal.
(Reporting by Helen Bartholomew; Editing by Ian Edmondson)