LCH.Clearnet opens SwapClear FCM service; CFTC meets opposition to swap execution timetable

LCH.Clearnet opens SwapClear FCM service; CFTC meets opposition to swap execution timetable

Europe's LCH.Clearnet has launched its clearing service for non-bank users of interest rates swaps in the US, with twelve futures commission merchants (FCM) onboard.

The depository says six buy side clients have cleared executed OTC IRS trades on SwapClear in a variety of maturities and currencies.

The 12 FCMs connected to the service are: Bank of America Merrill Lynch; Barclays Capital; BNP Paribas Securities; Citigroup; Credit Suisse Securities USA; Deutsche Bank Securities.; Goldman Sachs; JPMorgan Futures; Morgan Stanley; Nomura Securities; RBS Securities and UBS Securities. In addition, HSBC Securities USA has confirmed its intention to join shortly as an FCM.

Floyd Converse, head of US sales and marketing, LCH.Clearnet, says: "US clients are increasingly focused on how the regulations resulting from the implementation of the Dodd-Frank Act will affect them. We will continue to develop and strengthen products and services to US clients as client clearing evolves."

The launch marks the opening salvo in a battle between LCH.Clearnet and US contenders, such as the Chicago Mercantile Exchange and Nasdaq OMX, for a slice of the lucrative buy side interest rate swaps market. The European clearer has had to adjust its market positioning and rules to satisfy a new FCM framework in line with Dodd-Frank provisions.

LCH.Clearnet is keen to allay concerns about its ability to compete in the US market. It says US clients will benefit from reduced counterparty risk, default protection, proven default management expertise, portability of client collateral and positions and initial margin collateral held solely in the US and fully subject to US law and the Commodity Exchange Act (CEA).

Richard Prager, managing director, BlackRock says: "From a client perspective, SwapClear has an opportunity to strategically develop its buy-side offering to accommodate buy-side needs, ahead of the regulatory change, so it is in a position to facilitate clearing for all market participants lockstep together."

Separately, the Commodity Futures Trading Commission has met with a wave of opposition to its proposed rules governing the introduction of new swap execution facilities. The Dodd-Frank Act calls for the rules to be finalised by mid-July and the CFTC has proposed that the new framework comes into effect three months later.

Market participants are being asked to introduce new reporting and surveillance systems to accommodate the changes, but have protested at their complexity. In a letter to the CFTC, the National Futures Association - which will operate as a central reporting facility for the SEFs - has called for the deadline to be extended until at least January 2012, or a minimum of six months after the date the final regulations are published.

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