Risk management revisited

LCH.Clearnet Launches Clearing Service for Inflation Swaps

The global clearing house launched its new offering with 11 members already live and clearing inflation swaps trades.

LCH.Clearnet has begun offering clearing services for inflation swaps – this makes the company the first Central Counterparty Clearing House (CCP) that is providing clearing services for inflation-linked swaps.

To date, there’s been a total of 11 members who have already started clearing trades through LCH.Clearnet. Barclays and J.P. Morgan have conducted the first ever cleared inflation swap. Participants will be benefitting from improved capital, margin and operational efficiency through portfolio margining.

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The service through which LCH.Clearnet is offering inflation swap clearing is also the firm’s acclaimed solution SwapClear.

central clearing significantly mitigates counterparty risk

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In a company announcement, the Head of Products and Markets of SwapClear, Nathan Ondyak stated, “after thorough risk reviews and testing, we are proud to be the first CCP to secure regulatory approval under both the EMIR and US Commodity Exchange Act regulatory frameworks for inflation swaps clearing.”

“Clearing this new product, which shares structural similarities with other cleared interest rate derivatives, is a significant move for the market and underlines our commitment to providing safe and innovative risk management services to our members and their clients,” he explained.

Central clearing of interest rates swaps enables market players trading UK, European, and US inflation-linked securities to optimize efficiencies and enhance risk management.

Firms who chose to clear inflation swaps through the SwapClear platform are going to be able to offset their margin requirements with correlating interest rate derivatives cleared at LCH.Clearnet.

The Head of LDI Funds, Legal & General Investment Management, Simon Wilkinson said in the announcement, “risk management is a top priority for fund managers. Central clearing significantly mitigates counterparty risk and we welcome industry moves to provide clearing services for inflation swaps.”

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