CME Group Expansion of FX Swap Offering: Taking Position Ahead of EMIR Mandate?

Adding OIS, zero coupon swaps, FRAs, basis and variable notional swaps the development is seen as "a significant step for

CME logoCME Group’s European clearing house, today announced that it has received the Bank of England’s approval to expand its offering of various currency derivatives.

Starting March 3rd, the clearing house will add Overnight Index swaps (OIS), zero coupon swaps, Forward Rate Agreements (FRAs), basis swaps and variable notional swaps to its existing interest rate swap offering as well as clearing three Northern European currencies (SEK, DKK and NOK).

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Current Table of CME European Interest Rate Swaps (IRS) Offering:

table of CME IRS

*Approved today by the Bank of England (BoE).

These new offering will help the CME Group to position itself against the competition of LCH.Clearnet in Europe, which is also a “recognized clearing house” registered with the Bank of England, in preparation for the time the EMIR rules will require all IRS trades to pass through a clearing house as happened in the US last year.

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Lee Betsill, CEO of CME Clearing Europe, commented on this: “With mandated clearing of over-the-counter interest rate swaps in Europe likely to begin later this year, we are leveraging our experience from the U.S. under Dodd-Frank to collaborate with buy-side and sell-side customers in Europe to prepare for the new EMIR rules.”

LCH.Clearnet, which is now owned by the The London Stock Exchange Group, also operates as a clearing house in the US in compliance with the Dodd-Frank act as a “derivatives clearing organization” registered with the CFTC. The two major trading groups, CME and LSE, are now poised to use their US experience to battle over the European IRS market once the regulators move it on-exchange.

Mr. Betsill explained CME’s next move after the BoE approval: “We continue to work closely with our customers to tailor our offerings to meet their risk management needs through services like our existing individually segregated account for collateral protection at the client level. This service complements our new fully segregated account, pending regulatory approval, which will go even further by segregating that collateral with an external custodian at the client level.”

The CME Group added to the announcement supporting comments from three of its trading partners, BlueBay Asset Management, Credit Suisse and F&C Management Ltd.

“We welcome the broadening of CME Clearing Europe’s clearable interest rate swaps offering,” said Luc Leclercq, Chief Operating Officer, BlueBay Asset Management. “This provides market participants with an increased choice of European venues at which to clear their over the counter positions ahead of regulatory requirements and is a significant step for the European market as the timeline to mandatory clearing under EMIR approaches.”

“Credit Suisse welcome CME Clearing Europe’s recent product extension. Mandatory clearing in the US has given clearing member firms and CCPs the opportunity to prepare for the pending clearing mandate in Europe and we see this as an important step for the European market as we move towards mandatory clearing,” said Alex Lenhart, European Head of Prime Services Listed Derivatives, OTC Clearing and FXPB at Credit Suisse.

“We welcome the announcement of CME’s interest rate product extension. This is a positive development, bringing with it additional venues offering clearing across a broad spectrum of OTC derivatives. It allows buy-side clients an increased level of flexibility which will ultimately be beneficial for them and the market as a whole,” said Richard Watts,Co-Head of Investments for F&C Management Ltd.

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