LCH.Clearnet’s SwapClear Compresses $323 Trillion to Reduce Notional by $107 Trillion in 2015
- Compression of cleared trades continues to see an increase of demand due to the benefits of reducing outstanding counterparty exposure.
With the year winding down, LCH.Clearnet has issued compression results of positions submitted to their SwapClear product. During the year, $323 trillion in interest rate Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term (IRS), forward rate agreements (FRA) and overnight index swaps (OIS) were submitted for compression, resulting in a reduction of $107 trillion in notional value. According to LCH.Clearnet, net value outstanding of positions cleared by its members currently stands at $254 million after starting the year at $362 trillion.
The positive results for 2015 occurs as demand from banks and trading participants has increased for compression products. Tracking the origins of trades and matching exposure among members, SwapClear tracks actual exposure between counterparties to provide a compressed value of outstanding trades between them.
By compressing trades to calculate real counterparty exposure, banks are able to receive a more accurate figure when calculating their capital requirements. Due to new initiatives such as Basel I & II (and Basel III which comes into effect in 2018) which have set asset based minimum capital requirements, many firms are facing a larger percentage of their assets being used towards meeting capital requirements. As such, compression provides an opportunity to decrease reported exposure and free up capital that can be used towards revenue generating businesses such as prime brokering and lending.
In addition to currently providing compression services for IRS, FRA and OIS trades, LCH.Clearnet plans to introduce services for inflation swaps and non-deliverable FX Forwards FX Forwards FX forwards are contracts occurring within the foreign exchange market where market participants lock in exchange rates for the buying or selling of a currency on a predetermined date. Sometimes known as currency forwards, FX forwards can be thought of as a customizable hedging approach.In this sense, upfront margin payments are not required and all contracts are over-the-counter (OTC) due to the decentralized nature of the foreign exchange market. Popularity of FX ForwardsFX forwards are popula FX forwards are contracts occurring within the foreign exchange market where market participants lock in exchange rates for the buying or selling of a currency on a predetermined date. Sometimes known as currency forwards, FX forwards can be thought of as a customizable hedging approach.In this sense, upfront margin payments are not required and all contracts are over-the-counter (OTC) due to the decentralized nature of the foreign exchange market. Popularity of FX ForwardsFX forwards are popula Read this Term in 2016.
Commenting on the year end results, Cameron Goh, Head of Clearing Solutions, SwapClear and Listed Rates, LCH.Clearnet, stated: “Eliminating over $100 trillion in net notional in a calendar year is an important milestone in our efforts to increase efficiency for the market. With the European mandate for clearing IRS fast approaching, we’ve seen a marked increase in cleared volumes at SwapClear.
With the year winding down, LCH.Clearnet has issued compression results of positions submitted to their SwapClear product. During the year, $323 trillion in interest rate Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term (IRS), forward rate agreements (FRA) and overnight index swaps (OIS) were submitted for compression, resulting in a reduction of $107 trillion in notional value. According to LCH.Clearnet, net value outstanding of positions cleared by its members currently stands at $254 million after starting the year at $362 trillion.
The positive results for 2015 occurs as demand from banks and trading participants has increased for compression products. Tracking the origins of trades and matching exposure among members, SwapClear tracks actual exposure between counterparties to provide a compressed value of outstanding trades between them.
By compressing trades to calculate real counterparty exposure, banks are able to receive a more accurate figure when calculating their capital requirements. Due to new initiatives such as Basel I & II (and Basel III which comes into effect in 2018) which have set asset based minimum capital requirements, many firms are facing a larger percentage of their assets being used towards meeting capital requirements. As such, compression provides an opportunity to decrease reported exposure and free up capital that can be used towards revenue generating businesses such as prime brokering and lending.
In addition to currently providing compression services for IRS, FRA and OIS trades, LCH.Clearnet plans to introduce services for inflation swaps and non-deliverable FX Forwards FX Forwards FX forwards are contracts occurring within the foreign exchange market where market participants lock in exchange rates for the buying or selling of a currency on a predetermined date. Sometimes known as currency forwards, FX forwards can be thought of as a customizable hedging approach.In this sense, upfront margin payments are not required and all contracts are over-the-counter (OTC) due to the decentralized nature of the foreign exchange market. Popularity of FX ForwardsFX forwards are popula FX forwards are contracts occurring within the foreign exchange market where market participants lock in exchange rates for the buying or selling of a currency on a predetermined date. Sometimes known as currency forwards, FX forwards can be thought of as a customizable hedging approach.In this sense, upfront margin payments are not required and all contracts are over-the-counter (OTC) due to the decentralized nature of the foreign exchange market. Popularity of FX ForwardsFX forwards are popula Read this Term in 2016.
Commenting on the year end results, Cameron Goh, Head of Clearing Solutions, SwapClear and Listed Rates, LCH.Clearnet, stated: “Eliminating over $100 trillion in net notional in a calendar year is an important milestone in our efforts to increase efficiency for the market. With the European mandate for clearing IRS fast approaching, we’ve seen a marked increase in cleared volumes at SwapClear.