Institutional FX participants have made significant steps this year to keep pace with the required adaptations to their offerings required by the stipulations in the Dodd-Frank Act in North America during the course of this year.
Today, LCH. Clearnet’s FX clearing and novation division ForexClear has launched its facility for clearing FX derivatives for buy-side clients.
According to LCH.Clearnet, achieving buy-side client access to ForexClear has been the result of an industry-wide collaboration and comes at a critical time ahead of the anticipated global FX clearing mandates.
In June this year, Forex Magnates was present at a discussion panel surrounding trade reporting requirements and the timescales in which the United States authorities expect firms to comply, at which time ForexClear’s CEO, Gavin Wells explained to the panel that “The deadline relating to the ability to report trades was January this year for the US, and will be next January for Europe.”
Subsequently, ForexClear took steps to carry out technology upgrades in order to support the required clearing rulings imposed on the institutional sector, examples being the service having begun to support regulatory reporting of FX trades in the US in January this year, followed by the introduction of straight through processing to meet CFTC regulations in March, minimizing the time for clearing to a few seconds, and its launch of direct connectivity between its Harmony CCP Connect and ForexClear, LCH.Clearnet’s FX clearing service for the purposes of NDF clearing in the summer.
At the discussion panel involving senior industry figures, Mr. Wells explained that,”We are still working to understand what the regulators want us to make transparent, and how we will be required report such information to them.”
As the US government rolled out the regulatory caveats, pre and post-trade technology company Traiana announced that the first interdealer non deliverable forward (NDF) trade had been delivered to ForexClear service through the link with the Harmony CCP Connect system which had been established shortly prior.
Buy Side Clearing Via One Of Three FCMs
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As a result of today’s inclusion of buy-side participants to its service, ForexClear is now available to these clients through one of three Futures Commission Merchants (FCMs) connected to the service, which are Deutsche Bank, J.P. Morgan and Morgan Stanley, with plans to add further FCMs in due course.
The new offering aims to provide enhanced asset protection based on the proven legally segregated, operationally commingled (LSOC) model.
Clients can now benefit from LCH.Clearnet’s world-class risk management capabilities, proven default management expertise and superior asset protection through the segregation and portability of margin collateral.
The new service will initially offer FX non-deliverable forwards (NDFs) out to two years, with plans to extend the product range in 2014, which is a large scale operation for the firm, as it currently claims that it clears the majority of the dealer-to-dealer market with over $1.2 trillion in over 100,000 tickets cleared since the service was launched in March 2012.
“Our experience with interest rate swaps taught us that clients who prepare in advance receive the most support and can position themselves a step ahead of the regulatory process. Early adoption will help ensure all participants benefit from a more resilient, robust OTC FX infrastructure,” said Gavin Wells, CEO of ForexClear. “Looking ahead, we recognize that choice and liquidity are key considerations for clients and members alike and intend to further expand the service’s clearable product range, in line with demand.”
Paul Houston, OTC FX Clearing Head & European Head of FX Prime Brokerage, Deutsche Bank made a commercial statement today that: “This is an important development that will benefit the FX industry in the long-term. Deutsche Bank is delighted to have been selected by Harmonic Capital Partners LLP to clear their first NDF trades. We look forward to working closely with ForexClear to further develop the service.”
Andres Choussy, Global co-head of OTC Clearing, J.P. Morgan further added: “The timing of this launch gives us the opportunity to fully prepare ahead of the proposed regulatory mandates. The appetite to clear the FX market is growing and our priority is to accommodate the needs of our clients to facilitate a smooth and efficient transition.”
Jason Swankoski, US Head of OTC Clearing, Morgan Stanley, added on behalf of the bank: “Morgan Stanley is fully committed to supporting its clients as the FX clearing landscape continues to evolve. Connecting to LCH.Clearnet’s ForexClear as an FCM member is an important strategic initiative for the market, our clients and for Morgan Stanley. The addition of ForexClear to our existing client clearing services maintains our position as a global market leader in FX and Derivatives Clearing.”