DERIVATIVES-LCH inflation swap clearing hits US$1trn

By David Wigan

Nov 8 (IFR) - Clearing house LCH hit the US$1trn threshold of cleared inflation swaps on Tuesday, after activity accelerated following the introduction of new margin requirements for uncleared swaps in September.

LCH's SwapClear hit the US$1trn mark just 19 months after launching its inflation-swap clearing service, with record months in September and October, both of which saw around US$170bn notional of inflation derivatives processed at the clearing house. That was five times the 12-month average.

"This is another significant milestone for SwapClear, demonstrating the continued demand for inflation swap clearing on both the buy and sell side," said Daniel Maguire, global head of rates and FX derivatives at LCH. "The introduction of bilateral margin rules in September is driving volume growth across our rates and FX services."

New (KOSDAQ: 160550.KQ - news) bilateral margin requirements require market participants to post initial and variation margin on deals that previously attracted little collateral. Inflation swaps are not mandated to be cleared, so before the rules came into effect there was less incentive to incur the cost of clearing.

Non-deliverable forwards have also seen an uptick in central clearing activity since September, with cleared volumes tripling in some of the past 10 weeks, compared with the period before September, according to Clarus Financial Technology.

With (Other OTC: WWTH - news) regulators pushing to move swathes of the US$493trn derivatives market to more transparent environments since the financial crisis, clearing houses have seized the opportunity to expand their business. However, some product launches have been more successful than others.

As LCH hit US$1trn of cleared inflation swaps, rival CME recorded just US$155m of cleared trades in its swaption clearing service, launched in March. (Reporting by David Wigan)